SVKM’s NMIMS University

School of Business Management

MBA (Second Year) Trimester VI, Session 2017-2019
Subject: Wholesale and Retail Financing

Working Capital Financing Proposal for NBFC: Axis Finance

Submitted to,
Dr. Chandan Dasgupta

Submitted by Team No. 5, Group 1

Sumedh Koshe C033
Gaurav Gulati C024
RaunakBothra C014
Rahul Mittal C043
Kumar Yash C066
Varun Garg C022
Krishna Harbhajanka C026

i
 ABN Bank
Credit Administration Department

Asset Classification STD

Credit Committee Clearance Date April 12,2018

Banking Agreement (Sole/ Consortium/ Multiple) Sole

Name of Borrower: Axis Finance Limited

Branch: Mumbai Region: Mumbai

Submitted to: For: Tick ( )

CMD Y Review/ Renewal Y

ED Y Enforcement Y
GM Y Fresh Sanction Y
In-Principle Sanction Y

Ratification Y

Issue of NoC Y

Reduction in Int. Rate

Modification in other

Items of Sanction

Write Off

Compromise Settlement

Noting / Information

Others

Date: April 15,2018

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Company Profile
Name – Axis Finance Limited

Sector Type – NBFC

Establishment locations – Mumbai

Type of the NBFC as per the RBI government norms – Non-deposit taking
Non-Banking Financial Company

Products –

Wholesale Products:
a. Promoter Funding
b. Special Situation funding
c. Structured Financing
d. Real-Estate Financing
Retail Products:
a. Loan Against shares
b. Loan Against Mutual Funds Bonds
c. ESOP Financing
d. Loan Against Property
Total business performance (over the years) –Total AUM has increased YoY
51% to Rs 6,624 crores, NII has increased YoY 43% to Rs 250 crores and Fee
Income has increased YoY 89% to Rs 72 crores.

Current Loan Position of the Axis Finance –

Nature of Borrowing From To Amount (in lacs)

Bank – Secured 31st March 2017 31st March 2018 Rs 209,709.98

Bank – Unsecured 31st March 2017 31st March 2018 Rs 50,000

Commercial Papers 31st March 2017 31st March 2018 Rs 199,008.66
Other Loans 31st March 2017 31st March 2018 Rs 84,303.24
Overdraft from banks 31st March 2017 31st March 2018 Rs 85,115

Information about the company management/ Board

Category Remuneration
S. No. Name
(In lacs)
1 Mr. Amitabh Chaudhary Chairman Rs 360
2 Mr. Bipin Saraf MD & CEO (Executive) Rs 168.90
3 Mr. Jairam Sridharan Additional Director (Non- Executive) NA
4 Mr. V.R Kaundinya Independent Director (Non- Executive) Rs 7.50
5 Mrs. Madhu Dubhashi Independent Director (Non- Executive) Rs 11

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6 Mr. K N Prithviraj Independent Director (Non- Executive) Rs 13.50
7 Mr. Cyril Anand Madireddi Director (Non- Executive) -

Credit Rating:

Instrument India Ratings Rating CRISIL

Long Term AAA AAA

Short Term A1+ A1+
Total

Proposed Amount:

Year Proposed (Rs. Cr) Approved (80%) (Rs. Cr)

Fund Based Non-fund Based Fund Based Non-fund Based
March 2019 1545 - 1236 -
March 2020 1699 - 1359 -
Total 3244 - 2595 -

Date of Approval: April 10,2018

Working Capital financing

RBI Guidelines
The ceiling on bank credit linked to Net Owned Fund (NOF) of NBFCs has been
withdrawn in respect of all NBFCs which are statutorily registered with RBI.
Accordingly, banks may extend need based working capital facilities as well as term
loans to all NBFCs registered with RBI.

Net Owned Funds (NOF) is defined as follows:

1. the aggregate of the paid-up equity capital and free reserves as disclosed in the latest
balance sheet of the company after deducting therefrom
a. accumulated balance of loss;
b. deferred revenue expenditure; and
c. other intangible assets; and

2. Further reduced by the amounts representing

a. investment of such company in shares of
i. its subsidiaries;
ii. companies in the same group;
iii. all other Non-Banking Financial Companies;
and,
3. the book value of debentures, bonds, outstanding loans and advances (including hire
purchase and lease finance) made to, and deposits with
i. subsidiaries of such company; and

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 ii. companies in the same group, to the extent such amount exceeds ten
per cent of (a) above.

Activities not eligible for bank credit are as Follows:

1. Bills discounted / rediscounted by NBFCs, except for rediscounting of bills discounted

by NBFCs arising from sale of -
a. Commercial vehicles (including light commercial vehicles), and
b. Two-wheeler and three-wheeler vehicles, subject to the following
conditions:

* the bills should have been drawn by the manufacturer on dealers only;

* the bills should represent genuine sale transactions as may be

ascertained from the chassis / engine number; and

* before rediscounting the bills, banks should satisfy themselves about the
bona fides and track record of NBFCs which have discounted the bills.
2. Investments of NBFCs both of current and long-term nature, in any company / entity
by way of shares, debentures, etc. However, Stock Broking Companies may be
provided need-based credit against shares and debentures held by them as stock-in-
trade.
3. Unsecured loans / inter-corporate deposits by NBFCs to / in any company.
4. All types of loans and advances by NBFCs to their subsidiaries, group companies /
entities.
5. Finance to NBFCs for further lending to individuals for subscribing to Initial Public
Offerings (IPOs) and for purchase of shares from secondary market.

MPBF methodology
We have followed Second method of lending for the MPBF working capital financing
as per the RBI guidelines of using second method of lending for the loan proposals
of above 150 Crs.

Refer the following MPBF calculations used for determining and approval of the
working capital funding to Axis Finance:

FORM-V: COMPUTATION OF MAXIMUM PERMISSIBLE BANK FINANCE (MPBF) FOR WORKING CAPITAL
Name: Axis Finance

Actuals as per audited Following years

accounts Projected
Sr. No. Particulars

31-Mar- 31-Mar-
31-Mar-17 31-Mar-20
18 19
Year 1 Year 2 Year 3 Year 4

1 Total Current Assets 3,062.05 4,531.59 8,368.33 9,205.17

[ T1 in Form-IV ]

2 Current Liabilities [other than bank borrowings] 3,675.93 4,158.85 7,138.55 7,852.41

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 [ T2 in Form-IV ]

3 Less: Adjustments
Bills Discounted/Rediscounted by NBFC, etc. for CV and Two Wheelers

Investments made by NBFCs in the shares, debentures 280.00 - - -

Advances to subsidiaries, Group Companies and Other Entities - - - -

Investments in other companies/ inter-corporate loan deposits - - - -

Further lending to individuals in IPO - - - -

Short Term Bank Borrowings 550.00 1,684.00 2,407.50 2,648.25

3 Working Capital Gap (WCG) (1-2) 216.12 2,056.74 3,637.28 4,001.01

[1-2]

4 Minimum Stipulated Net Working Capital 765.51 1,132.90 2,092.08 2,301.29

item 3 above *0.25

5 Actual / Projected net working capital (613.88) 372.74 1,229.78 1,352.76

[ T22 in Form-III ]

6 Item no. 3 minus Item no. 4 (549.39) 923.85 1,545.20 1,699.72

7 Item no. 3 minus Item no. 5 830.00 1,684.00 2,407.50 2,648.25

8 Maximum permissible bank finance [MPBF] (549.39) 923.85 1,545.20 1,699.72

[ least of item 6 or 7 above ]

9 Excess borrowings representing shortfall in NWC 1,379.39 760.15 862.30 948.53

[ item 4 - item 5 ]

As Axis Finance AUM is growing at a whopping 51% last year, we expect the similar
growth to continue this year, considering the current NBFC liquidity crisis. Hence,
we have decided to approve only 80% of the MPBF amount as a fund based working
capital finance over the periods of two years, 2019 and 2020.

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NBFC Sector Overview

India’s NBFC sector continues to remain at the forefront in driving new credit
disbursals for the country’s underserved retail and MSME market. Over the last five
years, the NBFC lending book has grown at nearly 18% driven by a deep
understanding of target customer segments, use of technology advances, lean cost
structures and differentiated business models to reach credit-starved segments.
Despite recording robust growth, the NBFC market share has been dominated by
large players, while many small players have struggled to scale up operations
profitably. Moreover, recently, the sector has taken a beating in the stock market
with defaults and liquidity challenges, specifically related to one large NBFC.

NBFCs have played a critical role as a key contributor to the economy by providing
a fillip to infrastructure, employment generation, wealth creation and access to
financial services for the rural and weaker sections of society. The health and
success of the NBFC sector has far-reaching implications on the inclusive
development of the economy, financial inclusion of diverse population segments,
capital formation and eventually the growth in GDP.

Banks require lesser capital adequacy and have lesser risk weightage for most
assets. NBFCs had debt-equity ratio of 5.4 times at the end of March 2018 and
banks had twice that much. In last 20 years, many banks had to be rescued by
forced merger into larger banks, whereas no large NBFC has faced solvency risk
yet. NBFCs have demonstrated superior asset quality with gross NPL ratio of 4.3 %
at end March 2018. As NBFCs grow in size, market capitalization and reach faster
than most other sectors, they deserve a larger share of bank credit as well. For the
economy, credit delivery through NBFCs is superior for two levels of capital cushion,
lower cost of last mile delivery and specialized underwriting and collection
skills. NBFCs now account for more than one-third of incremental credit. This is not
a small sector and plays a vital role in economy’s growth and this sector is here to
stay.

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NBFC Industry scenario
The Indian economy has been on a positive trajectory in the amount of formal credit deployed,
supplemented by rising consumer disposable income and ease of access to credit. Credit offtake has
grown by 11% over the last 10 years, led by public and private sector banks. However, despite overall
credit growth, India still remains under-penetrated in retail and MSME lending, with household credit to
GDP2 ratio lagging several major emerging and developed economies. The opportunity has driven
several non-banks to enter the retail lending space, through the use of innovative lending models and
product innovation.

Reasons for Growth:

1. Deep understanding of the customer segment

2. Customized product offerings
3. Wider and effective reach
4. Leveraging technology advances for improved efficiency and enhanced experience
5. Co-lending arrangements
6. Robust risk management

RBI Classification of NBFC

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Source:PWC NBFC Landscape 2018

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Financial Indicators

Income Statement:
Following table gives the overview of the estimated and current income statement
of the Axis Finance:
FORM II : OPERATING STATEMENT (in Rs. Cr)
Name: Axis Finance

Current
Actuals as per Year Following years
audited accounts Estimate Projected
Sr. No. Particulars d

31- 31-Mar- 31-Mar-

31-Mar-20
Mar-17 18 19
Year 1 Year 2 Year 3 Year 4
1 Gross Income
a Sales (net of returns)

i Interest Income 1,089.69

470.00 613.00 823.26
ii Other Operating Revenue 157.72
105.00 108.00 137.21
iii Less: Excise Duty -
- - -
T2 Net Sales 1,247.41
575.00 721.00 960.47
% rise or fall in sales turnover [compared to previous {0.00% {25.39%
iv {33.21%} {29.88%}
year] } }
b Other Income

i Other Income -
- 0.00 -
T3 Total Other income - 0.00 -
-

T4 Total Gross Income 575.00 721.00 960.47

1,247.41

2 Cost of Production & Cost of Sales

c Direct Expenses

i Employee benefit expense 16.97

12.42 14.93 23.55
T7 Total Direct Expenses 12.42 14.93 23.55
16.97

3 General, Administrative & Selling Expenses

i Provision and write off 8.89

4.55 9.33 12.79
ii Other expenses 12.83
9.48 11.70 17.31
iii Depreciation and amortization expense 0.74
0.53 0.75 0.96
T1
3 Total General, Administrative &
Selling Expenses 14.56 21.78 31.06
22.47

4 Operating Profit before Interest 548.02 684.29 905.85

1,207.98

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5 Interest Expenses
i Interest and Other related expenses 375.20
295.11 364.27 466.22
T1
4 Total Finance Charges 295.11 364.27 466.22
375.20

6 Net Profit before Tax / (Loss) PBT 252.90 320.02 439.63

832.77

11 Provision for Taxes

88.04 111.17 107.02
283.14
[ 10-
12 Net Profit / Loss after Tax PAT 11 ] 164.86 208.85 332.61
549.63

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Balance Sheet
Following is the projected numbers for the balance sheet of the Axis Finance, we
have estimated the Assets and Liabilities position of the axis finance for the year
March 2019 to March 2020.

Assets:
Name: Axis Finance

Actuals as per
Estimated
audited accounts
Sr. No. Particulars

31-Mar- 31-Mar- 31-Mar-

31-Mar-20
17 18 19
Year 1 Year 2 Year 3 Year 4
Current Assets
5 Cash and bank balances
565.00 2.00 2.00 2.20
6 Investments
- -
-
-
[other than long term Investments]
-
i Axis Liquid Fund -
180.00 - -
ii Kotak Mutual Fund -
100.00 - -
T1 [ 6(i+ii)
sub-total -
2 ] 280.00 - -
7 i Trade Receivables
4.22 8.97 11.21 12.33
[Including bills purchased & discounted
-
by bankers]
-
ii Export receivables (Including bills -
- - -
purchased/discounted by bankers)
T1 [ 7(i+ii)
sub-total
3 ] 4.22 8.97 11.21 12.33
8 Instalments under deferred receivables
- -
-
-
(due within one year)
9 Short Term Loans and Advances

b Secured Loans
1,988.00 4,267.00 8,118.00 8,929.80
c UnSecured Loans
210.00 243.00 226.50 249.15
ii Others ( Prepaid Expenses & Input Tax Credit
0.60 0.51 0.51 0.56
T1 [ 9(a to
sub-total
4 e) ] 2,198.60 4,510.51 8,345.01 9,179.51
10 Advances to subsidiaries
- -
Investment in other companies/ inter corporate loan
-
deposits - - -
11 Further lending to investments for IPO
- -
-
-
12 Other current assets [specify major items]

i Interest Accrued But not Due on loans and Advances

3.56 10.11 10.11 11.12

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 ii Interest Accrued but due on Loans and Advances -
10.67 - -
v -
- - -
T1 [ 12(i to
sub-total
5 v) ] 14.23 10.11 10.11 11.12

T1 [ 5 to 12
6 Total Current Assets ] 3,062.05 4,531.59 8,368.33 9,205.17

13 Fixed Assets
i Gross Block
2.53 3.87 3.20 3.52
ii Capital Work in Progress
0.88 1.09 1.23 1.35
iii Depreciation to date -
0.78 1.53 -
T1 [ 13(i-ii)
7 Net Block ] 2.63 3.43 3.20 3.52

Other Non-Current Assets

14 Investments / book debts /advances /
deposits which are non-current
b Deferred Tax Assets
5.84 9.03 41.01 45.11
c Non current investment -
100.00 - -
d Interest Accrued but not due on Loand and Advances
1.15 1.41 2.12 2.33
iii -
- - -
T1 [ 14(a
sub-total
8 to f) ] 106.99 10.44 43.13 47.44
15 Long Term Loans and Advances

a Secured Loans
2,092.00 2,012.00 2,706.00 2,976.60
b Unsecured Loans
- 100.00 100.00 110.00
c Others
9.76 17.09 17.09 18.80
(Including dues from directors)
T1 [ 14 to
9 Total Other Non-Current Assets 17 ] 2,208.75 2,139.53 2,866.22 3,152.84

18 Intangible assets
- -
-
-
(Patents, Goodwill, Preliminary Expenses,
Bad / Doubtful Debts not provided for etc)

T2
0 Total Assets [ T16+T17+T19+18 ] 5,273.43 6,674.55 11,237.75 12,361.52

Liabilities:
Name: Axis Finance

Actuals as per audited

Sr. No. Particulars Estimated
accounts

12
 31-Mar- 31-Mar-
31-Mar-19 31-Mar-20
17 18
Year 1 Year 2 Year 3 Year 4
Current Liablities
1 Short term borrowings
Overdraft Facility (including bills purchased,
a
discounted
& excess borrowings placed on repayment basis)
i from Applicant Bank - - - -

iii Commercial Papers

2,905.00 2,010.00 4,084.18 4,492.60
ii from Other Banks
550.00 1,684.00 2,407.50 2,648.25
T1 sub-total [ a(i + ii) ]
3,455.00 3,694.00 6,491.68 7,140.85
of which Unsecured
iii Commercial Papers {2905.00} {2010.00} {00.00} {00.00}
iv Bank borrowings {00.00} {843.00} {00.00} {00.00}
[ b(iii + iv)
T2 sub-total - -
] 2,905.00 2,853.00
T3 Total short term borrowings from banks T1
3,455.00 3,694.00 6,491.68 7,140.85
b from Others
i Less: Unexpired Discount - -
(34.00) (19.00)
Loans / DPGs etc. (due within 1 year) - - - -
[ b(i to vii)
T4 Total short term borrowings from others - -
] (34.00) (19.00)
2 Other Current Liabilities and Provisions
(due within one year-specify major items)

i Current Maturities of Long term Borrowings

200.00 340.00 516.51 568.16
ii Interest Acrued but not Due
35.00 115.00 100.80 110.88
iii Dues to axis Bank ltd - -
0.04 0.01
iv Due to Others - -
6.00 2.00
v Undisputed Statutory Dues - -
0.13 3.00
vi Provision Against Standard Assets
8.80 18.00 21.56 23.72
vii Provision for expenses
0.96 1.34 2.00 2.20
viii Provision for Variable Pay
4.00 4.50 6.00 6.60
ix - - - -

T5 sub-total [ 2(i to v) ]
254.93 483.85 646.87 711.56
T6 Current Liabilities excl. bank borrowings [ T4+T5 ]
220.93 464.85 646.87 711.56
T7 Total Current Liabilities [ T3+T6 ]
3,675.93 4,158.85 7,138.55 7,852.41

3 Term Liabilities
a Secured Non Convertible Debentures
445.00 905.00 1,601.64 1,761.80
b Undecured Subordinated Debts
200.00 500.00 1,067.76 1,174.54
d Other Non Current Liabilities
70.00 39.00 188.56 207.42
c Long Term Provisions

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 ii Provision Against Standard Asset
8.37 8.54 11.55 12.71
ii Provision against compensated absences - -
0.03 0.33
[ 3(a to f)
T8 Total Term Liabilities ] 723.40 1,452.87 2,869.51 3,156.46
T9 Total Outside Liabilities [ T7+T8 ]
4,399.33 5,611.72 10,008.06 11,008.87

4 Net Worth
a Share Capital
418.00 480.00 480.00 528.00
b Security Premium Reserve
219.00 282.00 300.00 330.00
c Statutory Reserves ( As Per RBI Act)
85.00 127.00 254.00 279.40
e Surplus (+) or deficit (-) in P & L A/c
152.00 174.00 195.00 214.50
v - - - -
[ 4(a to f)
T10 Net Worth ] 874.00 1,063.00 1,229.00 1,351.90
[ T9+T10
T11 Total Liabilities ] 5,273.33 6,674.72 11,237.06 12,360.77

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Ratio Analysis
Our appraisal for the working capital financing proposal is based on the following
estimated ration calculation of the Axis Finance in the future. Since axis finance has
NIL NPA for the year 2017 and 2018, we expect the same to follow going forward in
the future.

RATIO ANALYSIS
Name: Axis Finance
Projected
Current
Actuals as per audited
Year
accounts
Ideal Estimated
Sr. No. Particulars
Levels 31-Mar- 31-Mar- 31-Mar- 31-Mar-
17 18 19 20
Year 1 Year 2 Year 3 Year 4

i Current Ratio 0.83 1.09 1.17 1.17

ii Growth in Net interest Income 42.22% 43.55% 100.11%

iii Net Interest Income (In Cr.) 174.89 248.73 357.04 714.49
iv Growth in PAT 26.69% 59.25% 65.25%
v Growth in AUM 52.02% 69.43% 10.00%
vi Return on Total Assets 3.13% 3.50% 3.71% 4.66%
vii Interest Spread 3.60% 3.28% 2.79% 5.44%
viii Cost to Income ratio 9.64% 10.29% 11.05% 4.52%
ix Net Interest Margin 3.32% 4.16% 3.99% 6.06%
x Yield on Advances 10.66% 10.84% 11.51% 10.11%
xi Cost of Borrowing 7.06% 7.08% 7.18% 5.25%
xii Gross NPA NIL NIL NIL NIL

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 RATIO ANALYSIS
Name: Aditya Birla Capital Limited

Actuals as per audited

accounts
Ideal
Sr. No. Particulars
Levels 31-Mar- 31-Mar-
17 18
Year 1 Year 2

i Current Ratio 0.91 0.91

ii Growth in Net interest Income - 34.57%
iii Net Interest Income (In Cr.) 4680.93 3478.43
iv Growth in PAT - 45.22%
v Growth in AUM
vi Return on Total Assets 1.97% 1.80%
vii Interest Spread 9.14% 9.16%
viii Cost to Income ratio 81.16% 87.81%
ix Net Interest Margin 3.62% 3.74%
x Yield on Advances 10.63% 10.50%
xi Cost of Borrowing 8.60% 7.83%
xii Gross NPA 0.47% 0.92%

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 RATIO ANALYSIS
Name: Bajaj Finance Limited

Actuals as per audited

accounts
Ideal
Sr. No. Particulars
Levels 31-Mar- 31-Mar-
17 18
Year 1 Year 2

i Current Ratio 2.88 2.56

ii Growth in Net interest Income - 31%
iii Net Interest Income (In Cr.) 8692.39 11354.89
iv Growth in PAT - 44%
v Growth in AUM - 40%
vi Return on Total Assets 0.21% 0.22%
vii Interest Spread 1.80% 1.74%
viii Cost to Income ratio 0.54% 0.53%
ix Net Interest Margin
x Yield on Advances
xi Cost of Borrowing
xii Gross/ Net NPA 0.44% 0.38%

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