Professional Documents
Culture Documents
1. ABSTRACT
Project appraisal process involves many steps to assess a borrower in various parameters like technical feasibility, economic feasibility and credit worthiness. Many banks have their own methods and procedures in accessing the borrower for sanctioning of loan. Bank of Maharashtra has its own methodology for its borrowers who approach them for term loan or cash credit requirement using various methods like Turn over method (Nayak Committee Recommendations), working capital gap method, Projected Working Capital Method and Cash budget System. Based on these methods bank will calculate MPBF (Maximum permissible bank finance). Here in this project the above methods will be studied properly. A firm XYZ Private Limited was selected from Banks records who have approached Bank of Maharashtra(BOM) for a proposal to sanction Term Loan ,Working Capital, letter of credit and bank guarantee , here I will calculate the economic viability, financial viability, financial projection and finally social benefit of the project. Ratio analysis of the firm was carried out by taking the financial statements provided by the firm. And evaluating risk and return of the project followed by 1. 2. 3.
4.
Projects financed by BOM. To know the policies of BOM towards the project financing. To know the risks involved in projects financing. To appraise the projects using financial tools. To know the measures taken by bank when the clients fail to repay the amount.
5.
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2. INTRODUCTION
2.1. Background
Bank of Maharashtra is the premier bank of Maharashtra, operating in the country of India. Registered on 16 September 1935 with an authorized capital of Rs 1 million and commenced business on 8 February 1936.Known as a common man's bank since inception, its initial help to small units has given birth to many of today's industrial houses. After nationalization in 1969, the bank expanded rapidly. The Bank has the largest network of branches by any Public sector bank in the state of Maharashtra. The Bank was founded by a group of visionaries led by the late V. G. Kale and the late D. K. Sathe and registered as Banking Company on 16 September 1935 at Pune. Today, Bank of Maharashtra has over 15 million customers across the length and breadth of the country served through 1711 branches in 28 states and 2 union territories.
2.2.
Mission of BOM
1. To ensure quick and efficient response to customer expectations. 2. To innovate products and services to cater to diverse sections of society. 3. To adopt latest technology on a continuous basis. 4. To build proactive, professional and involved workforce. 5. To enhance the shareholders wealth through best practices and corporate governance. 6. To enter international arena through branch network. 7. To be a vibrant, forward looking, techno-savvy, customer centric bank serving diverse sections of the society, enhancing shareholders' and employees' value while moving towards global presence.
2.3.
About project
The project is mainly focused on project appraisal process in Bank of Maharashtra for the borrowers.
Project appraisal is the effort of calculating a project's viability. It often involves comparing various
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options, using economic appraisal or some other decision analysis technique. Project appraisal is the assessment of the project by the concerned appraising authority in terms of its technical, economic, financial and social viability. Every lending financial institution before lending any assistance in the form of finance would like to make an objective assessment of the various propositions of the project. And only when it is completely satisfied of the fact that the project is economically viable and socially acceptable, it will lend to finance the project. Project financing is commonly used as a financing method in capital-intensive industries for projects requiring large investments of funds, such as the construction of power plants, pipelines, transportation systems, mining facilities, industrial facilities and heavy manufacturing plants. The sponsors of such projects frequently are not sufficiently creditworthy to obtain traditional financing or are unwilling to take the risks and assume the debt obligations associated with traditional financings. Project financing permits the risks associated with such projects to be allocated among a number of parties at levels acceptable to each party. Here in this project bank is financing through all the ways means fund based and non fund based
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3. PROJECT APPRAISAL
3.1.
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3.3.
1. Proposal2.
purpose for which the term loan is required (whether for expansion, modernization, diversification etc..) Brief History- In case of existing company essential particulars about its promoters, its incorporation, subsequent corporate growth to date, major developments or changes in management. 3. Past Performance- A summary of past performance in terms of licensed/installed or operating capacities, sales, operating capacities, and sales and net profit for the three years should be analyzed. The figures relating to sales and profitability should be analyzed to ascertain the trend during the 3 years. In sum, the companys past performance has to be assessed to study if there has been a steady improvement and growth record has been satisfactory. 4. Present financial position- The Companys audited balance sheets and profit and loss account have to be analyzed. If the latest audited balance sheet has more than 6 months old, a pro-forma balance sheet as on a recent date should be obtained and analyzed. 5. Project- Here the technical feasibility and the financial feasibility of the project is studied. 6. Project implementation schedule- Examine the project implementation schedule with reference to Bar Chart or PERT/CPM chart(if proposed to be used by the company for monitoring the implementation of the project) and in the light of actual implementation schedules of similar project 7. Preliminary appraisalThe following aspects have to be examined if the proposal is to Financing a project Whether the project cost is prima facie acceptable. Debt and equity gearing proposed and whether acceptable Promoters ability to access capital market for debt/ equity support Whether critical aspects of project- demand, cost of production, profitability etc.are prima facie in order. After undertaking the preliminary examination of the proposal, the branch will arrive at a decision whether to support the request or not. If the branch finds the proposal acceptable, it will call for from the applicants, a comprehensive application in the prescribed pro-forma, along with a copy of project report,
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covering specific credit requirements of the company and other essential data/ information. The information among other things should include Organization setup with a list of board of directors and indicating the Qualifications, experience
and competence of the key personnel in Charge of the main functional areas e.g.. Production , purchase ,Marketing and finance in other word brief on the managerial resource and whether these are compatible with the size and the scope of the proposed activity . Demand and supply projections based on the overall market prospects ogether with a copy of market research report . The report may comment on the geographic spread of the market where the unit proposes to operate, demand and supply gap , the competitors arrangement. share,
Current practices for the particular product or service especially relating to terms of credit sales, probability of bad debts. Estimates of sales cost of production and profitability. Projected profit and loss account and Balance Sheet for the operating years during currency r of the bank assistance. Branch should also obtain additionally Appraisal report from any other bank/financial institution in case appraisal has been done by them, NO Objection Certificate from term lenders if already financed by them and Report from Merchant bankers in case the company plans to access capital market, wherever necessary. In respect of existing concerns, in addition to the above particulars regarding the history of the concern, its past performance, present financial position, etc. Should also be called for. This data should be supplemented by supporting statements such as: Audited profit and loss account and balance sheet for the past three years Details of existing borrowing arrangements, if any, Credit information reports from the existing bankers on the applicant company Financial statements and borrowing relationship of associate firms/group companies. 8. Detailed AppraisalThe viability of a project is examined to ascertain that the company would have the ability to service its loan and interest obligations out of cash accruals from the business. While appraising a project all
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the data/ information furnished by the borrower is counter checked and wherever possible, inter-firm and inter-industry comparisons should be made to establish their veracity. The appraisal of the new project could be broadly divided into the following sub heads Promoters track record; Types of fixed assets to be acquired; Technical feasibility Marketability Production process Management Time schedule Cost of project Sources of finance Commercial Profitability; Security and Margin Repayment period and debt service coverage; Funds Flows statement ;and Rates of return. If the proposal involves financing of a new project, the commercial, economic and financial viability and other aspects are to be examined as indicated below Statutory clearance from various government depts/agencies License/ clearance /permits as applicable Details of sources of energy requirements, power, fuel etc.. Pollution control clearance Cost of project and source of finance Buildup of fixed assets. Arrangements proposed for raising debt and equity Capital structure Feasibility of arrangements to access capital market
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14. Review of the proposal-Review of the proposal should be done covering Strengths and weaknesses of the exposure proposed Risk factors and steps proposed to mitigate them Deviations if any, proposed from usual norms of the bank and the reasons thereof. 15. Proposal for sanction- Prepare a draft in prescribed format with required back-up details and with recommendations for sanction.
4. LITERATURE REVIEW
4.1. Project financing risks
Project finance is finance for a particular project, such as a mine, toll road, railway, pipeline, power station, ship, hospital or prison, which is repaid from the cash-flow of that project. Project finance is different from traditional forms of finance because the financier principally looks to the assets and revenue of the project in order to secure and service the loan. In contrast to an ordinary borrowing situation, in a project financing the financier usually has little or no recourse to the non-project assets of the borrower or the sponsors of the project. In this situation, the credit risk associated with the borrower is not as important as in an ordinary loan transaction; what is most important is the identification, analysis, allocation and management of every risk associated with the project. The following details show the manner in which risks are approached by financiers in a project finance transaction. Such risk minimization lies at the heart of project finance. In a no recourse or limited recourse project financing, the risks for a financier are great. Since the loan can only be repaid when the project is operational, if a major part of the project fails, the financiers are likely to lose a substantial amount of money. The assets that remain are usually highly specialized and possibly in a remote location. If saleable, they may have little value outside the project. Therefore, it is not surprising that financiers, and their advisers, go to substantial efforts to ensure that the risks associated with the project are reduced or eliminated as far as possible. It is also not surprising that because of the risks involved, the cost of such finance is generally higher and it is more time consuming for such finance to be provided.
1) The project not being completed on time, on budget, or at all; 2) The project not operating at its full capacity; 3) The project failing to generate sufficient revenue to service the debt; or 4) The project prematurely coming to an end. The minimization of such risks involves a three step process. 1) The first step requires the identification and analysis of all the risks that may bear upon the project. 2) The second step is the allocation of those risks among the parties. 3) The last step involves the creation of mechanisms to manage the risks. If a risk to the financiers cannot be minimized, the financiers will need to build it into the interest rate margin for the loan. Step 1- Risk identification and analysisThe project sponsors will usually prepare a feasibility study. Some risks are analyzed using financial models to determine the project's cash-flow and hence the ability of the project to meet repayment schedules. Different scenarios will be examined by adjusting economic variables such as inflation, interest rates, exchange rates and prices for the inputs and output of the project. Various classes of risk that may be identified in a project financing will be discussed below. Step2- Risk allocationOnce the risks are identified and analyzed, they are allocated by the parties through negotiation of the contractual framework. Ideally a risk should be allocated to the party who is the most appropriate to bear it (i.e. who is in the best position to manage, control and insure against it) and who has the financial capacity to bear it. It has been observed that financiers attempt to allocate uncontrollable risks widely and to ensure that each party has an interest in fixing such risks. Generally, commercial risks are sought to be allocated to the private sector and political risks to the state sector. Step3- Risk managementRisks must be also managed in order to minimize the possibility of the risk event occurring and to minimize its consequences if it does occur. Financiers need to ensure that the greater the risks that they bear,
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the more informed they are and the greater their control over the project. Since they take security over the entire project and must be prepared to step in and take it over if the borrower defaults. This requires the financiers to be involved in and monitor the project closely. Such risk management is facilitated by imposing reporting obligations on the borrower and controls over project accounts. Such measures may lead to tension between the flexibility desired by borrower and risk management mechanisms required by the financier.
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4.1.2.2. Operating RiskThese are general risks that may affect the cash-flow of the project by increasing the operating costs or affecting the project's capacity to continue to generate the quantity and quality of the planned output over the life of the project. Operating risks include, for example, the level of experience and resources of the operator, inefficiencies in operations or shortages in the supply of skilled labour. The usual way for minimizing operating risks before lending takes place is to require the project to be operated by a reputable and financially sound operator whose performance is secured by performance bonds. Operating risks are managed during the loan period by requiring the provision of detailed reports on the operations of the project and by controlling cash-flows by requiring the proceeds of the sale of product to be paid into a tightly regulated proceeds account to ensure that funds are used for approved operating costs only. 4.1.2.3. Market RiskObviously, the loan can only be repaid if the product that is generated can be turned into cash. Market risk is the risk that a buyer cannot be found for the product at a price sufficient to provide adequate cash-flow to service the debt. The best mechanism for minimizing market risk before lending takes place is an acceptable forward sales contact entered into with a financially sound purchaser. 4.1.2.4. Credit RiskThese are the risks associated with the sponsors or the borrowers themselves. The question is whether they have sufficient resources to manage the construction and operation of the project and to efficiently resolve any problems which may arise. Of course, credit risk is also important for the sponsors' completion guarantees. To minimize these risks, the financiers need to satisfy themselves that the participants in the project have the necessary human resources, experience in past projects of this nature and are financially strong (e.g. so that they can inject funds into an ailing project to save it). 4.1.2.5. Technical RiskThis is the risk of technical difficulties in the construction and operation of the project's plant and equipment, including latent defects. Financiers usually minimize this risk by preferring tried and tested technologies to new unproven technologies. Technical risk is also minimized before lending takes place by obtaining experts reports as to the proposed technology. Technical risks are managed during the loan period
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by requiring a maintenance retention account to be maintained to receive a proportion of cash-flows to cover future maintenance expenditure. 4.1.2.6. Regulatory or Approval RiskThese are risks that government licenses and approvals required to construct or operate the project will not be issued, or that the project will be subject to excessive taxation, royalty payments, or rigid requirements as to local supply or distribution. Such risks may be reduced by obtaining legal opinions confirming compliance with applicable laws and ensuring that any necessary approvals are a condition precedent to the drawdown of funds.
5. WORKING CAPITAL
5.1. Working capital lending methods 5.1.1. Turn over method
The finance to following category of borrowers shall be considered on the basis of turnover method a) Small manufacturing enterprises borrowers availing fund facilities up to Rs. 5 crores b) Other category of borrowers availing fund based facilities up to Rs. 2 crores It is to be noted that though the limit will be decided by turnover method, the actual drawings in the account shall be based on the availability of drawing power, Based on the actual position of stocks, receivables etc and the margin stipulated. The distinction between limit sanctioned and D.P has to be clearly explained to the concerned borrowers. For this purpose timely receipt of stock /book debt statements from the borrower should be ensured.
approach was considered suitable only for very small borrowers i.e. where the requirements of credit were less than Rs.10 lacks
6. TERM LOAN
6.1. Technical viability
We have to ascertain whether the borrower has thought of all the basis requirements necessary for starting a project such as availability of 1. Land (leasehold or owned), 2. Building(whether permission from competent authority has been obtained), 3. Technical knowhow (manufacturing process stage wise), 4. Capacity of the unit (licensed, installed and actually proposed for operation), 5. Plant and machinery new one or second hand one and its probable life while in full operation. 6. Other utilities, necessities(like power, water and other infrastructure), 7. Manpower ( skilled and unskilled work force required) and 8. Availability of raw material
6.2.
Financial feasibility
The conversion of all the above factors into monetary terms indicating the funds required and
source of such funds will have to be understood and judged. The cost of project and means of finance may indicate the amount spent and raised so far and the additional amount required to complete the project. a) Cost of project b) Means/ sources of finance
6.3.
Economic feasibility
Market is the soul of any project. If any project is to survive, it should have sound market
potential. We need to study the market, what share the demand for product is likely to increase and what share of this demand, the borrower is likely to command. For this purpose bank will have to take into account the present competitors in the line, the quantity proposed to be marketed, efforts planned, network of distributors or agents or depos in various parts of state/country with details about the orders
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on hand or any enquiries received by the borrower from the prospective customers. Bank may obtain market survey report on projects from professional institutions like MITCON, etc.
6.4.
Managerial competence
The most important factor behind any project is the MAN. Even if the project is viable on all
the three cunt mentioned above, it may not succeed if the promoters academic qualification and experience, supported by key personnel and technical knowhow as well as functional staff needs to be examined. All of the above factors help bank to form opinion about the project, after which bank may recommends credit facilities. These should be considered only when bank makes sure that total working capital arrangements are made by the unit and that it generates adequate surplus to repay banks dues in time.
6.5.
generate enough funds to repay the loan. Borrower may offer tangible security but if he is not able to generate profits by making use of credit, we may not accept the proposal merely because tangible security is offered. We are therefore, more interested in knowing how, when and to what extent profit would be available. One of the important tools to measure this by finding out a stage which is known a break even at which the value of sales equates the cost of sales. It is thus a no profit-no loss stage. With the help of such breakeven point the viability of the project can be evaluated, indicating the level of production below which the unit will incur losses.
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Business analysis
Background of the company: The company is promoted by B. Rajesh is a graduate in electrical and electronics engineering
with 15 years rich experience in engineering industry. Mrs. Lakshmi is a post graduate in MA. She hails from entrepreneurs family having several educational institutions, Enriched with the administrative skills, she has developed passion for running a manufacturing company. The company incorporated on 29.11.2007 as an SSI unit. It is engaged in manufacture of FRP Rods, profiles with Epoxy resins for various electrical apparatus The directors with an intension to set up manufacturing unit for manufacture of silicon rubber polymer insulators (Fiber Glass Reinforced Plastic) had approached our branch with a request. 7.1.2. Total credit facilities of associate with BOM: NIL 7.1.3. Total indebtedness of the group to BOM: Particulars Existing Proposed (Addl) Cash Credit Limit Fresh Term Loan Bank Guarantee FLC 15 0 11.23 40 25 105 42 0 40 105 53.23 40 Standard NA standard NA Rs. in crores Total Status
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54.1 Total
54.10 292.33
NA
7.1.4. Present position of the accounts: Facility Limit DP Balance (27.11.12) Cash credit 15 15 (Dr)13.82
NA
Standard
80 NA 11.29 40
80 NA NA NA
Standard NA NA NA
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Interest Earned
0.2
1.28
0.57
7.1.6. Key Financials: Particulars 31.03.11 (Audited) Sales Net profit 140.72 0.56
(Rs. in crores) 31.03.12 (Audited) 206.85 1.35 31.03.13 (Estimations) 262.56 8.33
Remarks: Stock Statements: The Company is regularly submitting stock statements as per previous sanction. Submission of Financial Statements: Submission of financial statements of the company is on time. Conduct of the account: There were minor overdrawing allowed in the account but those were repaid in time. And the operations in the existing CC A/c are satisfactory. Interest Service: The Company is servicing interest in Cash Credit Limit regularly. Comparison of sales to turnover: The Companys turnover in the CC limit is matching with the projections submitted. The turnover in the Cash Credit limit exceeds more than 5 times the sanctioned limit. Sales: Sales of the company has shown constant growth over the years. It has managed to achieve 47% growth in FY 2011-12 and they have estimated to achieve around 26.93% growth rate in current year due to the repeated orders from many of its clients.
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Capital: As per the audited balance sheet of FY 2011-12, the share capital of the company is Rs 30.00 crores. There was no capital infusion or capital conversion in the company in past few years. However, Rs 59.12 crores of Share Application Money was not converted to share capital from last 2 years, which they are planning to convert this financial year. Components of estimated Share Capital are as follows: Fully paid up Capital as per ITR of 31.03.2012 Add: Share Application Money which is going to be converted into share captial in current financial year Add: The Margin money which company has to invest proportionately while availing proposed term loan of Rs 105 crores Add: Fixed Deposits to be kept as a lien for proposed BG limit Total 20.03 144.15 35.00 (Rs in crores) 30.00 59.12
Short Term Loans: Company is not enjoying any short term borrowings from any banks / Financial Institutions.
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Term Loans: As per the financial statements of 31.03.12 the outstanding loan amount of the company is around Rs 60.81 which was financed earlier by us. Now the company has planned to expand so they are borrowing Rs 105.00 crores of term loan in current financial year. Unsecured Loans: The unsecured loans which reflects in the balance sheet are interest free loans of the company which were borrowed from relatives and friends. The company has estimated to repay the same in current financial year. Hence, the firms exposure to outside funds is minimum. Fixed Assets: Currently the companies fixed assets are Rs 131.02 crores (after deduction of depreciation), but in current year they have projected to invest in following: Value of Land to be purchased out of the proposed loan (as per agreement of sale dated 10.11.12) Value of Rubber injection molding machine to be purchased out of the loan (as per quotation dated 22/11/2012) Value of construction of factory building Total 48.00 137.55 56.73 32.82
Hence, the company has projected that the fixed asset may increase by 94.95% in current FY ie., by 31.03.2013 Sundry Debtors: The Company has submitted the Age Wise List of Debtors as of 30.09.2012 which is certified by M/s Padmarthi & Associates, Chartered Accountant. As per their list the total dues are catogorised as per following : Particulars Below 30 days receivables Amount (Rs in crores) 6.62
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Receivables b/w 30-60 days Receivables b/w 60-90 days Receivables above 90 days Total
The company is doing its maximum business on cash basis hence the risk of default by debtors are very less. And as per the list it is certified that there are no bad debts in the company.
COMMENTS ON ABOVE: The above mentioned assessment is done on the basis of the actual/ estimated/ projected financial statement submitted by the company for the current as well as for the next seven years. Tangible Net Worth: The TNW includes share capital, share application money, reserves and surplus. The TNW is showing rising trend and it is estimated to go up further during next financial years since the company has planned to infuse capital. TOL/TNW: The ratio is well within the benchmark level. The ratio may raise by 7.5% in current year due to the additional term loan which company has proposed to borrow from us. Increase in term loans and Cash credit will show minor changes in ratio which will be within the prescribed benchmark of the bank. Sales: Sales of the company has shown constant growth over the years. It has managed to achieve 47% growth in FY 2011-12 and they have estimated to achieve around 26.93% growth rate in current year due to the repeated orders from many of its clients. The company has projected to double its production from 201314 with full capacity utilization of both the machines (i.e., Old Machine + New Machine which is proposed to be purchased out of the loan) Net Profit: The Company is making continuous profit. The projected growth rate of companys profit is showing increased trend. They have estimated that profits may increase by 317% in current Finanacial Year
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As per Tondon Committee recommendation (Working Capital Gap Method): (Rs in crores)
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1) Current Assets 2) Current Liabilities (Other than Bank Borrowings) 3) Working Capital Gap (1-2) 4) Net Working Capital Stipulated (Minimum 25% of Current Asset) 5) NWC Actual / Projected 6) 3-4 7) 3-5 8) MPBF (6 or 7 whichever is less) NWC Short fall / Excess borrowing
Hence, based on the above assessment the present request of the company can be considered favorably.
02. Enhancement in non fund based limits: The company has requested to sanction the interchangeable limit i.e., interchangeable bank guarantee and letter of credit limits. a. Bank Guarantee Limit: Due to the speedy reforms in the power distribution system, the AP government has taken up lot many development projects for lying lines, erection of transformers and erection of new substations under diferent schemes sponsored by different funding institutions like REC, PFC and Central Govt is now concentrating mainly on Rural Electrification. The govt has selected thousands of villages and hamlets for electrification during their tenure.
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Now the state electricity boards are calling electrification tenders on a regular basis and they are procuring Insulators in a large scale. Each Purchase tender will be about 1 to 2 Cr depending on the density of the State. Each DISCOM of the state electricity Board is calling tenders to the tune of 100 Cr on By monthly basis and each project will have Insulators worth of 5-10 Cr. In addition to the electricity Boards the company is now bidding in Coal Mine tenders for supply of GRP Bolts. These tenders are also worth of 2-3 cr each/colliery and 10% BG is required for performance. As per the company officials, to participate in these tenders and execute the orders, the company is being floated in short intervals and they are falling short of funds to submit the Bank Guarantees towards security deposit. The EMD security to participate in any tender is 2% of the bid value. In case of successful bidding they have to submit a performance BG of additional 10% on tender value. Even if the company fails to win in the tender, the EMD will be locked for 2-3 months to complete the process of allotting the work to L-1 Bidder. This is resulting in dead capital for a span of 2-3 months. Hence, the company has expressed its difficulty with funds shortage to quote the next tenders. To meet all these needs company has requested for a additional BG limits and CC limits from us. Assessment of Bank Guarantee Limit: Si No 01 02 03 02 03. Present value of tenders (outstanding tenders) (1 qtrs) Projected value of tenders (Rs 600.00 * 3 qtrs) Total tender values for bid EMD @ 2% of tender value (as security for participation in bid) Success rate of winning a bit is considered @ 70% as company quoted (Rs 2445.10 * 70%) Particulars Amount (Rs in lakh) 645.10* 1800.00 2445.10 48.9 1711.57
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04 05 06
Performance Guarantee @ 10% of the bid amount (Rs 1711.57 * 10%) Hence, projected requirement of the company Company has requested for a enhancement of limit upto (Interchangable limit) (BG and LC)
07
11.23 82.00
* the present value of tenders are tender notice copy submitted by the company of the following organizations: Company Amount of tender (Rs in lakh) Central Power Distribution Rs 225.00 04.12.12 Tender opening date
Company of AP Ltd M P Madhya Kshetra Vidyut Vitaran Co Ltd Total Rs 645.10 Rs 420.10 29.08.12*
* Although the bid opening date is over, the company has won the tender and they are waiting for call from the concerned company to submit bank guarantee. The maximum limit that the company can utilize as bank guarantee is Rs 93.23 crores. Company can also utilize the interchangeable limit to the full extent for BG but at any point of time the outstanding balance of the both LC and BG limits should not exceed the limit sanctioned i.e., Rs 93.23 crores. b) Foreign Letter of Credit Limit:
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The company has not insisted for any enhancement in existing FLC limit of Rs 40.00 crores. The assessment of the same is as under. Assessment of Letter of Credit Limit: The company is planning to buy and import new Rubber Injection Molding Machine from Dekuma Rubber and Plastic Technology (Dongguan) Ltd, Dongguan, Guangdong, China. To import the same the company requries the FLC as part of condition from the exporter. The company has submitted the quotation dated 23.11.2012 for the same which is on record. The assessment of the required Letter of Credit Limit is as follows: Si No 01 02 Cost of the machine as per quotation Total Amount Indian currency ($79000* Rs 55) $79000 Rs 43,45,000 Less: Out of the total amount 30% of the same has to be paid in cash Rs 13,03,500 03 For remaining amount the company has to furnish the Letter of Credit 04 Additional limit to meet in future exigencies such as to import the supplementary materials/parts of the machine 05 Total Letter of Credit requirement Rs 30,41,500 Rs 09,58,500 Rs 40,00,000* * Backed by Term Loan as mentioned under. Particulars Amount
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The maximum amount that the company can utilize as LC is Rs 40.00 crores. At any point of time the total balance of the bank guarantee and letter of credit should not exceed the limit sanctioned i.e., Rs 93.23 crores. 03. Term loan of Rs 105. 00 crores: The company is planning to expand its existing business by setting up new plant beside its existing factory. The demand for insulator is increasing in the market and to tap the new opportunities and to meet the demand in the market, the company has made expansion plan. For that they have approached us with request of Rs 105.00 crores loan, the breakup of the same is as follows: a) Purchase of industrial plot: The company has entered into agreement of sale dated 10.11.12 with Smt. V Sailasreee w/o Sri V Chakravarthi to purchase the land in Northern part of plot no: 80 which was notified as plot no: 80/A in Sy No: 174 (part) with dimensions of 11 mtrs X 44.4 mtrs admeasuring 584.25 sq.yrds or 488.43 Sq.mtrs, situavated in phase III, IDA cherlapally, Ranga Reddy District, Hyderabad 500 051. The Sale consideration of the property to be purchased is Rs 3282250/- (Thirty two lakhs eighty two thousand two hundred and fifty rupees only). Comments of our panel Advocate: The title report dated 27.11.2012 is given by Mr. M Guru Dutt, one of our panel advocate. As per his report Smt. V Sailasreee w/o Sri V Chakravarthi has an absolute, clear and marketable title over the property shown above and she can convey the same to M/s Pioneer Pultru-Tech Engineering Pvt Ltd. He further certified that the documents of title referred to under the opinion are perfect evidence of right, title and interest of the borrower/ mortgagor and that if the said simple mortgage/equitable mortgage by deposit of tittle deeds created in the manner required by law, it will satisfy the requirements of creation of simple mortgage/equitable mortgage. b)Construction of industrial shed :
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In order to construct the industrial shed the company has given contract to M/s Ravivarma Constructions. The company has also submitted the quotation of M/s Ravivarma Constructions (Engineers and Fabricators) dated 17.11.12 for Rs 23,00,000/-. The copy of the same is kept on record. c) Purchase of plant and machinary: i. Rubber Injection Machine: The company is interested to buy and import the Rubber Injection Molding Machine from Dekuma Rubber and Plastic Technology (Dongguan) Ltd, Dongguan, Guangdong, China. The total cost of the same is around Rs 6223214.16/- (including taxes and shipping charges). The company has submitted the quotation for the same which was issued by Dekuma Rubber and Plastic Technology (Dongguan) Ltd, Dongguan, Guangdong, China. The breakup of total cost of machinary i.e., Rs 62,23,214.16/- is as follows: Cost working in Indian Rupees with Duties and Levies Particulars CIF (USD) Ex-Rate CIF (INR) Landing Charge AV (A) Import Duty Calculation for 2012-13 Cost of the Machine Exchange rate indication appxly CIF (USD) x Ex-Rate on CIF (INR) on (CIF (INR) + Landing Charge) Custom Duty (B) on (A) 10.0% 438845.00 4827295.00 1% 79000.00 55.00 4345000.00 43450.00 4388450.00
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CVD Edu Cess on CVD Sec. Edu. Cess on CVD Edu Cess on Custom Sec. Edu. Cess on
on (A + B) on (C) on (C) on (B + C + D + E) on (B + C + D + E)
12% 2% 1% 2% 1%
Landed Rate Post Shipment and Erection Charges Predelivery charges Comissioning Charges Clearing Charges Freight Charges & Handling from Chennai To Hyderabad and Port In India In Chennai clearing House Inspection At Supplier Place
5673214.16
300000.00
100000.00 100000.00
50000.00
550000.00
Page 31
Grand Total:
6223214.16
ii. Silicon Rubber Mould: The company is purchasing above mentioned machine from M/s Shiva Durga Precitech, Shed no: 6A/1, First floor, Type-II, APIIC, Prashanthi Nagar, Kukatpally, Hyderabad 72, for Rs 20,00,000/-. The quotation of the same dated dated 12.11.12 is on record. iii. Godrej 3.0 Ton capacity Disel operated Forklift Truck: The company is desirous to purchase Godrej 3.0 Ton capacity Disel operated Forklift Truck from M/s Godrej & Boyce Mfg.Co.Ltd, 201 & 202, Lala 1 landmark, 5-4-94 to 97, M G road, Secunderabad. As per the system generated quotation submitted by the company, the base rate of product is Rs 8,46,700/- (Ex show room price of Vikhorli Mumbai) (excluding VAT and Excericise duty). The total cost of the machine including all the taxes and duties are as follows: Particulars (as mentioned in the quotation) Base price of Godrej 3.0 Ton capacity Disel operated Forklift Truck Add: Excerise Duty @ 12.36% Total cost of machine including ED Add: VAT @ 12.5% Total cost of the machine : : : : Rs 1,04,65,200.12 Rs 9,51,35,200.12 Rs 1,18,91,900.02 Rs 10,70,271.14 : : Amount in Rs Rs 8,46,70,00.00
Si No 01
Particulars
Amount in Rs
% to amount in
32,82,250/-
22.06%
02
23,00,000/-
15.46%
03 04 05
Total cost of Rubber Injection Machine Total cost of Silicon Rubber Mould Total cost of Godrej 3.0 Ton capacity Disel operated Forklift Truck
62,23,21,400.16/20,00,00,000/10,70,27,100.14/-
Total cost of the project 01 02 Bank Loan requested by the company Own Source / Capital injuction
1,48,75,73,500.3/1,05,00,00000/0,43,75,73500.3
The company has proposed to repay the entire loan within 7 years. The projected DSCR (Debt Service Coverage Ratio) of the same is as follows: PARTICUL ARS /YEAR 31.03 .13 31.03 .14 31.03 .15 31.03 .16 31.03 .17 31.03 .18 31.03 .19 31.03 .20
8.33
15.58
25.46
28.48
31.84
35.15
40.20
48.03
14.91
22.48
19.65
17.22
15.11
13.29
11.71
12.88
Page 33
n Preliminary Expenses Written Off Interest on Term loan 8.43 5.19 2.60 0.60 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0
(Existing Rs lakh) Interest on Term loan 5.60 15.75 12.95 10.16 7.36 4.56 1.77 0.18 80.00
37.28 8.43
59.00 5.19
60.67 2.60
56.46 0.60
54.31 0.00
53.00 0.00
53.68 0.00
61.09 0
IBS,Hyderabad
Page 34
Interest on Term (105.00 lakh) Principle repayment on Loan (105.00 lakh) Term loan
5.60
15.75
12.95
10.16
7.36
4.56
1.77
0.18
0.00
13.11
17.48
17.48
17.48
17.48
17.48
4.49
Total Payments
30.23
50.25
49.23
40.44
24.84
22.04
19.25
4.67
1.23
1.17
1.23
1.40
2.19
2.40
2.79
13.08
1.81
The above mentioned DSCR is computed on basis of estimations and projections submitted by the company and based on following terms, conditions and assumptions: The repayment terms: The entire term loan should be repaid in 84 months (including moratorium period
Page 35
The principle repayment: The repayment of principle amount will be on quarterly basis and that comes
to around Rs 4.37 crores per quarter. The repayment should commence from September 2013. The Interest repayment: The Company should repay the interest portion every month. It should begin
from the next month of first disbursement. Rate of Interest: For computation purpose the ROI is considered at 16% p a but in actual as per the
Credit Risk Rating and norms of the bank the ROI comes to around 14.5% p a for current year. Moratorium period: Moratorium period of 7 months is allowed i.e., (from December 2012 to June 2013) Repayment of existing term loan : The repayment of existing loan for the computation purpose has been
considered as mentioned in sanction letter no AM16/Adv/09-10 dated 26.03.2010. Term Loan Review: Apart from the new sanctions and enhancement we have also considered the review of existing term loan of Rs 80.00 lakh. Which was sanctioned earlier to the company. K. Security: Primary Security: Hypothecation of entire inventory and receivables which company owns. The hypothecation is applicable for proposed and enhanced working capital facilities. Apart from inventory and receivables, the hypothecation is applicable to all existing and proposed plant and machinery of the company to secure existing and proposed term loan of the company. Collateral Security: The directors have proposed 4 different properties as collateral security for existing and proposed facilities Further, the company has offered equitable mortgage of industrial plot which is going to be purchased, proposed industrial shed which is going to be built and also the hypothecation of machines to be purchased out of the loan. All the above mentioned charge will be created for the proposed loan of Rs 105.00 Crores. Guarantors: Both the directors of the company have proposed their personal guarantee for existing and proposed funded and non funded limits. Lien: Further, the margin money as prescribed in the note upto the extent of the non funded limits should be kept as a lien to the bank.
IBS,Hyderabad Page 36
Other Information: 01 02 External Credit Rating Rate of Interest : : NA Linked to Base Rate. ROI is Base rate + 4%. Present Base Rate is 10.50%. So the applicable ROI is 14%. Base Rate is subject to change (As per CO circular AX1/PSRC/CIR-1945/2012-13 dated 19.04.2012) 03 04 05 Internal Credit Risk Rating RBI/Audit/Inspection comments : RBI Inspection dated Unrectified Comments 06 Internal Inspection Report date Unrectified Comments 07 Audit date Unrectified Comments 08 09 GRID Approval ROC Search Report : : : : : Rectified 31.03.2012 NIL NA ROC charge modification certificate dated dated 12.01.2012, issued electronically by ROC, Andhra Pradesh is on record. All the facilities enjoyed by the : : : 31.03.2012 NIL 28.05.2011 : AA (Average Risk) as of 31.03.2012
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7.1.8. Rate of interest: Rate of Interest is Linked to Base Rate. i.e., Base rate + 4%. Present Base Rate is 10.50%. So the applicable ROI is 14.5%. (Base Rate is subject to change) (As per CO circular AX1/PSRC/CIR-1945/2012-13 dated 19.04.2012) 7.1.9. RBI defaulter list: Mr. Rajesh Mrs. Lakshmi M/s XYZ limited MD Director Pvt Ltd co 02. RBI Defaulter List above Rs.1 Crore as on 31.3.2012 03. WILFUL DEFAULTERS` LIST-Rs.25.00 lakh & ABOVE-AS OF 30/12/12 7.1.10. Repayment period: Cash Credit Limit: Interest amount to be serviced as and when applied. Existing Term loan of Rs 80.00 crores: As per Sanction Note of ref no: AM16/Adv/09-10 dated 26.03.2010. The Repayment Schedule is: Rs 1.35 crores p.m towards principle in 60 monthly installments commencing from October 2010. Interest during the moratorium period to be repaid as and when applied. Proposed Term Loan of Rs 105.00 Crores: The repayment terms are as follows: The repayment terms: The entire should be repaid in 84 months (including moratorium period of 7 None of the names are reflecting in following lists: 01. RBI Wilful Defaulter List above Rs.25lakhs as on 31.3.12
months i.e., from December 2012 to June 2013). The principle repayment: The repayment of principle amount will be on quarterly basis and the same is
Rs 4.37 crores per quarter. The principle repayment should commence from September 2013.
IBS,Hyderabad Page 38
The Interest repayment: The Company should repay the interest portion every month. It should begin
from the next month of first disbursement. Moratorium period: Moratorium period of 7 months is allowed i.e., (from December 2012 to June 2013)
7.1.11. Delegation powers: As per the extant guidelines on sanctioning powers, the proposal falls within the delegated powers of Asst. General Manager, Secunderabad Branch. Hyderabad. 7.1.12. Recommendations: The company has submitted actual, estimates /projections till date and for future period. Hence, the review is taken on the basis of same. We may continue the existing/enhanced limits for a period of one year and also can consider the fresh facilities sanctioned on compliance of following terms and conditions by company. Accordingly recommend renewing/review/ehancement of the limits as under: a) Cash Credit Limit bearing A/c No: Review/Renewal with enhancement of existing Cash Credit Limit bearing A/c No: Rs 40,00,000/- (Rs Fourty crores only) (Enhancement from existing limit of Rs 15.00 crores) To meet Working Capital Requirements Linked to Base Rate. ROI is Base rate + 4%. Rate of Interest Present Base Rate is 10.50%. So the applicable ROI is 14.50% as per CRR. (Base Rate is subject to change). Primary Security Guarantors Hypothecation of entire stock and receivables. Personal Guarantee of all the Directors in their personal capacity
Facility
Enhancement Amount
Purpose
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Page 39
25% in banks favor (on stock and receivables) To be serviced once in a year as per banks norms
documentation charges
b) Review / Renewal of Existing Term loan A/c No: Facility Amount Sanctioned Present Outstanding Term Loan Rs 80.00 crores (Rupees Eighty crores only) Rs 54.10 crores (Ruppes Fifty Four crores ten thousand only) Mfg. of Fiberglass products like FRP Rods, Profiles etc for Engineering Applications. (as per earlier sanction letter) Linked to Base Rate. ROI is Base rate + 4%. Rate of Interest Present Base Rate is 10.50%. So the applicable ROI is 14.50% as per CRR. (Base Rate is subject to change). Collateral Security Guarantors Margin Inspection and documentation charges Equitable Mortgage of following properties: Personal Guarantee of all the Directors in their personal capacity 25% in banks favor To be serviced once in a year as per banks norms
Purpose
Rs 1.35 crores p.m towards principle in 60 monthly installments commencing Repayment from october 2010. Interest during the moratorium period to be repaid as and when applied.
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c) Review/Renewal of Non Fund Based Limits Review /Renewal of Non Fund Based Limits of Rs 93.23 crores (Interchangeable) Rs 93,23,000/- (Rs Ninety Three crores Twenty Three thousand only) Working Capital Requirement Hypothecation of entire stock under LC
Facility
Margin
25% in banks favor in the form of FDs (List of FDs are mentioned in the note) Personal Guarantee of all the Directors in their personal capacity
Guarantors Maximum Extent of Bank Guarntee Limit Alowed Maximum Extent of Letter of Credit Alowed
Rs 93.23 crores
Rs 40.00 crores
* At any point of time the total balance of the bank guarantee and letter of credit limit should not exceed the limit sanctioned i.e., Rs 93.23 crores. Inspection and To be serviced once in a year as per banks norms
documentation charges
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Rs 105.00 crores (Rupees One hundred Crore Five Lakhs only) Expansion of the business and to establish new manufacturing unit. Linked to Base Rate. ROI is Base rate + 4%.
Rate of Interest
Present Base Rate is 10.50%. So the applicable ROI is 14.50% as per CRR. (Base Rate is subject to change).
Collateral Security Guarantors Margin Inspection and documentation charges Personal Guarantee of all the Directors in their personal capacity 29% in banks favor To be serviced once in a year as per banks norms
The entire should be repaid in 84 months (including moratorium period of 7 months i.e., from December 2012 to June 2013).
quarterly basis and the same is Rs 4.37 crores per quarter. The principle Repayment Terms repayment should commence from September 2013.
The Interest repayment: The Company should repay the interest portion
every month. It should begin from the next month of first disbursement.
A. GENERAL: The company to hereby agree, undertake, record, declare, admit, assure, promise, acknowledge and co
company to abide by, accept, satisfy, fulfill, carry out, perform and comply fully will all the terms, conditions, requirements, sanctions, provisions and stipulations or any amendments or modifications therein made or to be made by the Bank at any time or from time to time in its discretion concerning any of my/our facilities, limits or accounts without any reference, notice or intimation by the Bank in that behalf. Any stamp duty, penalty, registration charges, or deficit therein, if any, payable on this document shall Non compliance of any of the terms and conditions of the sanction / non review of the account within
the next review date shall attract penal interest not exceeding 2% over and above the stipulated rate of interest on the total outstanding dues as at every month / quarter / year, as the case may be. The Bank also reserves the right to discontinue / recall the advances on the failure of the company to
comply with any of the terms of sanction and / or on its failure to avail the credit facilities within six months. The "Acceptance Copy" duly signed by the company; partners in their individual capacity & also as guarantors & by other guarantor is not received by us within 45 days of the date of conveying the sanction.
B. CASH CREDIT LIMIT: Entire Inventory to be insured for full value with Banks clause. Monthly stock statement & statement of trade debtors to be submitted within 7th of succeeding month
positively as per Banks format covering all details and duly signed by the authorized signatory to the Bank. Drawing Power will be ascertained on the basis of such statements. The funds should not be diverted for other purposes. Entire collateral security to be insured for full value with banks clause. The copies of latest tax paid Charge would be created in banks favor with revenue authority, ROC and also Central Registry. Audited Balance Sheet and P/L Statements as of the year end to be submitted within six months from the
IBS,Hyderabad
Page 43
Processing fees of as applicable plus applicable service tax is to be paid by the borrowers upfront before
release of facilities. This fee is to be paid on annual basis. Entire turn over to be routed through your accounts with us. The company should not open any other account with any other Banks / FIs without our Banks
permission. If any such account is already opened, it should be closed. Account will be subject to credit rating system to be undertaken every six months /one year for fixing
appropriate rate of interest from time to time. In case, at the time of periodic review of the account, if any overdue, in interest/Principal is observed,
the same shall be payable by the borrowers, along with interest, immediately, over & above the regular installment. The sanction shall stand revoked and cancelled and shall be absolutely null and void if: there are any material changes in the proposal for which this credit facility is, in principle, sanctioned; any material fact concerning your income, net worth, or ability to repay, or any other relevant aspect of
your proposal or your application for credit facility is faulty suppressed, concealed or not made known to us; Any statement made in the credit facility application is found to be incorrect or untrue;
FOREIGN LETTER OF CREDIT: The limits are not operative until proper documents are executed and all the terms and conditions of
sanction are complied with. The Borrower/s hereby agree and undertake to accept and pay all bills of exchange drawn or purported
terms of the credit and take up and pay for all the documents negotiated there
under in accordance with the terms thereof, as also for any disbursement made or liability incurred by the Bank for the Borrowers account under the Credit, together with interest costs, charges and expenses due to the Bank in respect thereof as herein after mentioned. 1. The Borrower/s further agree to pay to Bank Interest on the amount(s) payable in respect of the
Borrower's liability under the Credit, at the rate of _______% per annum or such other rate as may be prescribed by Bank from time to time with or without intimation to the borrowers. 2. The aforesaid rate of interest shall however be applicable only during the period from the date of
negotiation of the bill/documents under the Credit up to and inclusive of the immediately preceding
IBS,Hyderabad Page 44
the date of payment by the Borrower or the date of crystallization of the Borrower's liability on the foreign currency bill pursuant to Clause. (1) Below, whichever is earlier after which interest shall be payable at the rate stipulated in the said clause 5(1). The Borrower/s further agree to pay to the Bank on demand (i) the charges that may be levied as per
Foreign Exchange Dealers Association of India Rules in force from time to time for any early / late delivery of the relevant foreign exchange/currency under the Forward Exchange Contract, if any booked by the Borrowers and (ii) the commission for handling charges at rates prescribed by FEDAI on the amount of the bill(s) drawn under the credit. The Borrower/s also agree to pay to the Bank on demand, all costs(legal costs on full indemnity
basis) customs duty, penalty, demurrage, storage charges, clearing and forwarding charges and all other charges and expenses which the Bank may be put to or suffer or incur in connection with the goods and/or the documents of title to goods covered by the Credit including for re-shipment thereof for any reason whatsoever, or in the exercise or enforcement of any right or power hereby conferred or otherwise howsoever, and further agree and undertake to hold the Bank safe and harmless and keep the Bank indemnified against any claim, action or proceeding made or brought against the Bank, its correspondents or agents by reason of the Bank having established the credit pursuant to the Borrower's application or
otherwise howsoever in the premises. i] If the Borrower/s faille/s to make due payment to the Bank of a sight bills on its presentation or usance bill on the due date of its maturity which is drawn or purported to be drawn under the Credit and expressed to be payable in a foreign currency, then the Bank shall be at liberty without prejudice to its rights hereunder, to crystallize Borrower's liability on the foreign currency bill by converting the foreign currency amount into Indian Rupees on the 10th day after the date of receipt of documents by the Bank under the Credit in the case of a sight bill remaining unpaid till then, or on the date of maturity in the case of a usance bill whereupon the Borrower shall be liable to pay to the Bank Indian Rupee equivalent of such foreign currency amount as calculated at the rate of exchange mentioned below, together with interest thenceforth at the rate of percent per annum with quarterly rests, or at such other rate and/or with such other rests as may be notified by the Bank from time to time, until payment or realization; and all costs,
IBS,Hyderabad
Page 45
charges and expenses payable by the Borrower hereunder. The provisions of this clause are subject to the changes that may be made by RBI/FEDAI or the Bank from time to time. ii] The rate of exchange applicable to such conversion of the foreign currency amount into Indian Rupees shall be : a] The Bank's applicable bill selling rate prevailing on the date falling on the 10th day after the date of receipt of documents by the Bank under the Credit in the case of a sight bill or on the date of maturity in the case of a usance bill provided however, that If the relevant rate of exchange is not quoted or available for any reason on such 10th day in the case of a sight bill or on the date of maturity in case of a usance bill, then the rate prevailing on the immediately next working day when such rate shall be quoted or be available shall be the applicable rate of exchange; or The forward exchange contract rate in case a forward exchange contract has been booked by the Borrower with the Bank. iii] The date of receipt of documents by the Bank under the Credit as registered in the Bank's record shall be conclusive and binding on the borrowers. iv] The Borrower/s co company that crystallization of its/their liability on the foreign currency bill by the Bank and the charging/payment of interest at a higher rate as aforesaid shall not be deemed to create any right in the Borrower/s to keep any bill unpaid when due. The Borrower/s further agree that the Bank shall have a Pledge/Hypothecation upon all goods and
documents of title to goods and other documents covered under the Credit which may have been already delivered or shall be hereafter delivered into the Bank's possession or into possession of its agents by the Borrower/s or by any person, company or company on the Borrowers behalf as a result of the Bank opening the Credit or in connection with the transaction there under. The said goods and the documents shall be deemed to be so delivered in pursuance of the Borrower/s agreement to herein pledge/hypothecate them to the Bank as security for all payments which may be made by the Bank or its correspondents or agents under the Credit for the Borrower's account as also for any liability whatsoever incurred or which may be hereafter incurred by the Bank or its correspondent or agents as a result of the opening of this Credit, together, with interest, costs, charges and expenses as hereinabove mentioned. In the event of the Borrower committing a default in making due payment of any bill drawn or
purported to be drawn under the credit or in making reimbursement on demand of any payment made by the Bank for the Borrower's account in respect of any liability that may be suffered or incurred by the bank
IBS,Hyderabad Page 46
or its correspondents or agents under or in connections with the Credit, then the Bank shall be entitled without prejudice to any of its rights and without notice to the Borrower(which the Borrower/s hereby expressly waive), to sell the goods covered under the credit( the said "goods") whether before or after their arrival, either by public auction or tender or by private contract and subject to such conditions as the Bank may deem fit to impose, or otherwise dispose of or deal with said goods or any part thereof and/or with the relative documents of title to goods in any manner whatsoever, without being bound to exercise any of these powers or liable for any loss in the exercise or non exercise thereof the net proceeds realized from sale of the said goods or transfer of any document of title remaining after deducting there from the cost and expenses of and incidental to such sale or transfer, shall be applied in or towards payment or satisfaction of the amount(s) due to the Bank in respect of any payment or disbursement made by the Bank under the Credit for the Borrower's account and interest thereon and all costs, charges and expenses as hereinabove mentioned. The Borrower/s agree to accept bank's account of sale or realization as conclusive evidence both in and out of court as to the amount(s) realized and expenses incurred, and to pay forthwith any shortfall or deficiency remaining after such application. The Borrower/s further agree that the Bank shall not be liable for any loss which may occur pending sale or disposal of the goods and/or documents of depreciation in
title to goods, whether by reason of theft, damage, deterioration or decay of the goods or the value thereof or otherwise whatsoever be the cause.
The Borrower/s agree to keep the said goods further insured from the time of expiry of Insurance cover
under the initial policy or policies of insurance, against all risk which are normally covered for goods of the nature purchased under the Credit as also against such other risk(s) as may be required by the Bank and in the event of the Borrower failing to do so, the Bank shall be at liberty to insure the said goods at the Borrower's cost and expense without prejudice to the Bank's rights hereunder, until all the dues of the Bank in respect of the credit are paid in full. The Borrower/s agree to pay to the Bank forthwith all moneys if received by the Borrower/s under any policy or policies of insurance and until payment to the Bank of such insurance moneys, the Borrower's undertake to hold the same in trust for the Bank. The Borrower's further agree and undertake to sign execute and deliver to the Bank from time to time
on demand made by the Bank such further or other deeds, documents and writings and do all such acts matters and things as may be required by the Bank for better perfecting its title to the said goods and the
IBS,Hyderabad
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documents covered under the Credit and/or to render the same readily saleable or transferable by the Bank to any purchaser(s) at all times. It is understood that the transmission of all instructions and communications under the above Credit
and shipping of documents and goods there under is entirely at the Borrower's risk. The Bank and its correspondents or agents shall not be responsible for any error or delay in such transmission or loss or delay in delivery of the documents or the goods nor shall the Bank or its correspondents or agents be liable in any respect beyond ensuring that the bill(s) drawn under the Credit and the relative documents covered there under purport to comply with the terms and conditions of the Credit. The Borrower/s represent that they have made adequate arrangement for retiring bills under the Credit
and do not contemplate to seek any financial assistance from the Bank for the purpose. The Borrower/s agree to the negotiations of the drafts under the Credit being confined to the Bank's
branches or agencies or to any other Bank acceptable to the Bank. The Borrower/s co company that the goods described above are covered under a valid Import License,
in favour of the Borrowers. C. PERFORMANCE BANK GUARANTEE: Guarantees shall be issued in the approved format of the Bank. The company shall furnish an irrevocable authority to the Bank for debiting their account with the
amount of claims received from the beneficiary with incidentals, if any. Guarantees to cover disputed liability of the borrower will invariably issued with 100% cash margin.
TERM LOAN: The borrower shall not shift or remove the security described in the schedule of agreement without the
prior approval of the Bank in writing. Any overrun in the cost of project shall be solely met by the borrower by raising equity or additional
funds in the manner acceptable to the Bank. In case of reduction in cost the term loan shall be proportionately reduced. The directors contribution / internal accruals shall be brought in proportionately during the
implementation period.
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The borrower shall submit an undertaking not to create any other charge over the machineries /
equipments hypothecated to the Bank. The borrower shall not shift or remove the security described in the schedule of agreement without the
prior approval of the Bank in writing. Disbursement should be effected by way of direct payment to the dealer / supplier by pay slip / DD. Branch will release the loan amounts to the contractors/suppliers directly by way of drafts/ pos to the
extent possible and keep the bills / receipts on record. Disbursement will be made on stage wise completion of the construction and proper proof should be
produced by the borrower for record on every disbursal on demand. The borrowers should ensure that the property is duly and properly insured against all risks such as
earthquake, fire, explosion, storm, cyclone, civil commotion etc. during the currency of the loan, with BOM being made the sole beneficiary under the policy / policies. The dwelling unit for the purchase, construction, improvement or extension of which this loan has been
sanctioned, must conform to the standards and requirements of Govt. authorities and rules & regulations as applicable. The amount of this loan has been fixed, inter alia, on the cost estimates /agreements submitted by the
borrowers. In the event of the cost actually incurred being less, Bank reserves the right to suitably reduce the amount of the loan. The borrower should submit the architect certificate for progress for every before every disbursement
7.2.
Ratio analysis
An integral aspect of financial appraisal is financial analysis, which takes into account the financial features of a project, especially source of finance. Financial analysis helps to determine smooth operation of the project over its entire life cycle.
7.2.1.
IBS,Hyderabad
Current ratioPage 49
The current ratio is defined as the ratio of total current assets to total current liabilities. It is computed by, Current ratio=current assets/current liabilities
3.0
Current Ratio
2.0
1.0
0.0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Interpretation: It is an indicator of the extent to which short term creditors are covered by assets that are expected to be converted to cash in a period corresponding to the maturity of claims. The ideal current ratio is 2:1. The firm current ratio indicate that the firm is in a position to meet its short term obligation because the ratio is in increasing trend , by observing the above table we can say that though the firm does not maintain ideal current ratio for some years , it is still in a position to meet its current obligations. After clearing all the dues the firm is still in a position to maintain liquidity.
7.2.2.
expenses by current liabilities. Since inventories among current assets are not quite liquid (means not quickly converted into cash), the quick ratio excludes it. The quick ratio includes only assets, which can be readily converted into cash and constitutes a better test of liquidity. It is often called as quick quick ratio because it is a measurement of a firms ability to convert its assets quickly into cash in order to meet its current liabilities. Quick ratio= (current assets-inventory)/current liabilities
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Quick Ratio
1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Interpretation: Acid test ratio is a rigorous measure of firms ability to service short term liabilities. The usefulness of the ratio lies in the fact that it is widely accepted as the best available test of liquidity position of a firm. Generally an acid test ratio of 1:1 is considered satisfactory as a firm can easily meet all its current claims. In the case of the above firm the quick ratio is in increasing till 2012 decreased in 2013 and increased continues from 2013 onwards but always the quick ratio is more than 1 . So it shows that firm is capable of paying its quick short term obligations
7.2.3.
a firm. Depending on the concept of net profit employed. , this ratio can be computed as follows
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Interpretation The net profit margin is indicative of managements ability to operate the business with sufficient success not only to recover from revenues of the period, the cost of services, the operating expenses and the cost of borrowed funds, but also to leave a margin of reasonable compensation to the owners for providing their capital at risk. A high profit margin would ensure the adequate return to the owners as well as enable the firm to withstand adverse economic conditions. A low net profit margin has the opposite implications. With respect to the above firm the net profit margin is increasing trend so it will show that the company is in good condition and the demand for the product is increasing.
7.2.4.
Return on assets
The profitability ratio is measured in terms of relationship between net profits and assets. The ROA may also be called profit-to-asset ratio. It can be computed as follows Return on assets= PAT/average of total assets
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Return on assets
9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Interpretation Return on assets employed is favorable. That means the firm is in a position to employ its assets in an efficient manner.
7.2.5.
It is similar to ROI except in one respect. Here the profits are related to the total capital employed. The term capital employed refers to long term funds supplied by the lenders and owners of the firm. It is given by the formula Return on capital employed=EBIT/CE
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Interpretation: The capital employed basis provides a test of profitability related to the source of long term funds. The higher the ratio, the more efficient is the use of capital employed. From the above table we can say that the ROCE is quite high Compared to previous years ratio. It is good for the company.
7.2.6.
TOL/TNW
This is also one type of leverage ratio here if TOL/TNW is below 4 they will appraise the project. below 4 is acceptable range for TOL/TNW
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TOL/TNW
1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Interpretation: Here from 2013 onwards the ratio is decreasing so it is good for the company
7.2.7.
It provides the value in terms of the number of times the total debt service obligations consisting of interest and repayment of principal in installments are covered by the operating funds available after the payment of tax : earnings after taxes, EAT+interest+Depreciation+Other non cash expenditure like amortization. DSCR= EAT+interest+Depreciation+Other non cash expenditure/installments
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DSCR
14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 2010 2011 2012 2013 2014 2015 2016 2017 2018
Interpretation: The higher the ratio, the better it is, A ratio of less than one may be taken as a sign of long term solvency problem as it indicates that the firm does not generate enough cash internally to service debt. in general, lending financial institution consider above 1.5 as satisfactory ratio. In this project DSCR is in increasing trend from 2012 onwards it shows that firm is able to meet its debt obligation.
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8. Profitability Statement:
Particulars 31.03.1 1 A Sales Other Income Total Income Direct Expenses: Purchases Opening Stock Closing Stock Other Direct Expenses Cost of Sales Gross Profit Selling & Admin Exp OPBDIT Depreciatio n Financial 119.58 145.42 170.67 341.33 375.46 413.01 454.31 499.74 532.80 586.08 140.72 31.03.1 2 A 206.85 31.03.1 3 E 262.56 31.03.1 4 P 525.13 31.03.1 5 P 577.64 31.03.1 6 P 635.40 31.03.1 7 P 698.94 31.03.1 8 P 768.84 31.03.1 9 P 845.72 31.03.2 0 P 930.29
0.00
0.15
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
140.72
207.00
262.56
525.13
577.64
635.40
698.94
768.84
845.72
930.29
4.52
30.65
41.21
50.36
55.38
62.58
71.28
80.25
94.25
101.25
30.65
41.21
50.36
55.38
62.58
71.28
80.25
94.25
101.25
111.38
0.00
0.00
29.26
38.90
52.15
70.46
95.99
131.84
164.81
181.29 757.25
93.45
134.86
190.78
375.21
420.41
474.77
541.33
617.58
690.61 173.05
47.27
72.14
71.78
149.92
157.23
160.63
157.61
151.26
155.11
28.21 19.06
46.64 25.50
29.20 42.58
77.92 72.00
78.52 78.71
83.44 77.19
80.92 76.69
74.25 77.01
73.73 81.38
12.11 6.19
15.14 9.45
14.91 15.23
22.48 26.27
19.65 21.05
17.22 17.46
15.11 14.06
13.29 11.26
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Charges OPBT Provision for taxation Write off Etc/prior adjst PBT Differred Tax Liability Net profit Dividend paid Retaind Earning 0.76 0.91 12.44 23.25 38.01 42.51 47.52 52.46 60.00 71.68 23.66 0.00 0.00 4.10 7.67 12.54 14.03 15.68 17.31 19.80 0.00 0.02 0.74 0.02 0.89 0.00 8.33 0.00 15.58 0.00 25.46 0.00 28.48 0.00 31.84 0.00 35.15 0.00 40.20 48.03
0.18 0.56
-0.46 1.35
0.00 8.33
0.00 15.58
0.00 25.46
0.00 28.48
0.00 31.84
0.00 35.15
0.00 40.20
0.00 48.03
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.56
1.35
8.33
15.58
25.46
28.48
31.84
35.15
40.20
48.03
(Rs. in crores)
Ratios Sales %YoY Rise/Fall Operating Profit % of OP to Sales Net Profit % of NP to Sales NWC % of NWC to TCA
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2010
Current ratio Quick ratio TOL/TNW Gros Profit Margin Net Profit Margin net profit growth rate Inventory+ Recievables/Sales Return on capital employed Return on assets 1.5 1.3 0.3 0.3 0.7 0.0 0.3 0.8 0.6
2011
1.6 1.0 1.1 0.3 0.4 -0.2 0.5 0.6 0.3
2012
2.4 1.6 0.9 0.3 0.7 1.4 0.5 1.5 0.5
2013
1.4 1.0 1.6 0.3 3.2 5.2 0.5 5.8 2.0
2014
1.5 1.0 1.3 0.3 3.0 0.9 0.3 10.8 3.9
2015
1.6 1.0 1.0 0.3 4.4 0.6 0.3 17.7 6.3
2016
1.7 1.1 0.8 0.3 4.5 0.1 0.3 19.8 6.8
2017
1.8 1.2 0.8 0.2 4.6 0.1 0.4 22.1 7.0
2018
1.9 1.3 0.6 0.2 4.6 0.1 0.4 24.4 7.3
2019
2.0 1.4 0.6 0.2 4.8 0.1 0.4 27.9 7.6 2.2 1.6 0.5 0.2 5.2 0.2 0.4 33.3 8.2
Particulars /Years A. CASH GENERATION Profit after Tax Non cash Expenses Interest on Term Loan
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
Total (A) B. PAYMENTS TO BE COVERED TL Installment Interest on TL Total (B) DSCR Average DSCR
23.95
40.96
64.91
67.11
64.33
61.94
60.18
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10.
REFERENCES
1. Bank of Maharashtra intranet 2. erimrs20020107165927 3. bank of Maharashtra reading material 4. lending policy and loan review policy for financial year 2013 5. BOM annual report 6. BOM books of records
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