credit appraisal in sidbi

7/24/2019 Credit Appraisal In SIDBI

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Summer Internship Project

Reportnalysis of credit appraisal System of

the Products of SI!"I and Its Impact on#S#$

Shakti #ishra


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Project Under The guidance

of

Prof. Arindam Banarjee (Internal

Faculty Guide)

And

Mr. Amit Kumar AGM

!entral "oan Proce##ing !ell $I%BI

Project $u&mitted By'

ame $ha*ti Mi#hra+oll o' ,-%M,/

Batch /0,-',1

%


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!2+TIFI!AT2

'his is to certify that Mr. Shakti Mishra( Roll )o. 14DM192( has completed

his summer internship at Small Industries Development Bank Of

India(SIDBI) , and has submitted this project report entitled *nal!sis of

"redit appraisal S!stem of the #rodu"ts of SIDBI and Its Impa"t on

MSM$+ towards part ful,llment of the requirements for the award of the Post

-raduate !iploma in #anagement %./01%./23

'his Report is the result of his own work and to the best of my knowledge no

part of it has earlier comprised any other report( monograph( dissertation or

book3 'his project was carried out under my overall supervision3

!ate4 /56.26%./5

Place4 7ucknow

8888888888881 9ompany Project -uide

0


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!2+TIFI!AT2

'his is to certify that Mr. Shakti Mishra( Roll )o. 14DM192( has completed

his summer internship at Small Industries Development Bank Of

India(SIDBI) , and has submitted this project report entitled (nal!sis of

"redit appraisal S!stem of the #rodu"ts of SIDBI and Its Impa"t on

MSM$+ towards part ful,llment of the requirements for the award of the Post

-raduate !iploma in #anagement %./01%./23

'his Report is the result of his own work and to the best of my knowledge no

part of it has earlier comprised any other report( monograph( dissertation or

book3 'his project was carried out under my overall supervision3

!ate4

Place4 -reater )oida

8888888888881Internal :aculty

-uide

5


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2


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Ac*no3ledgement

I have been grateful to the Small Industries !evelopment "ank of India

*SI!"I+ for providing me an opportunity to go be a part of their functionality3

It has been an experience which has improved my knowledge( enhanced my

ability to withstand work environment and an opportunity to learn about the

role of most important sector in the country1 banking and ,nancial

institutions( in uplifting the sections of the economy that contribute majorly

to the economic development of the country3

I would like to extend my sincere gratitude to the management of SI!"I for

providing me the enriching opportunity of working with the organization and

its team for a period of % months3 In particular( I would like to thank my

9ompany -uide( #r3 mit ;umar for sparing the time to provide me with

necessary guidance and advice from time to time( with utmost patience( in

spite of his extremely busy schedule3 I would also like to express my sincere

gratitude to #r3 ;aushlendra ;umar( #r3 #ukesh


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"atch4 %./01/2

"irla Institute of #anagement 'echnology

242!UTI52 $UMMA+6

'he project titled ?nal!sis of "redit appraisal S!stem of the #rodu"ts

of SIDBI and Its Impa"t on MSM$%is concerned with the analysis of the

various aspects of project appraisal under various products of SI!"I and the

impact of these products on #S#$3

Since micro( small and medium enterprises are important drivers for the

economy of the country therefore it is important for nodal agencies like SI!"I

to assist them with the credit requirement at a cost e@ective and timely

manner3 So the aim of the study is to study thoroughly the various

aspects*technical( economic( ,nancial and commercial aspects+ of credit

appraisal and to study the various norms which are followed by SI!"I

towards disbursement of loans3 n e@ort has also been made to understand

the risk assessment process of SI!"I to understand how SI!"I recognizes

risks involved and the impact it has on lending decisions3

#oreover SI!"I assists the #S#$As with various subsidy schemes which

cover various sectors like textile( leather( food etc where technology

B


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upgradation is important for the growth of the sector3 So an attempt has

been made to study the various subsidy schemes provided by SI!"I3

Ta&le of !ontent#

Ac*no3ledgement 5

27ecuti8e $ummary1

Ta&le 9f A&&re8iation#

/3 Introduction ,0

1.1. Industry Introduction 11

1.2. Introduction To SIDBI 12

%3Methodology ,:

2.1. Objective Of The Project 19

2.2. Scope Of The Project 19

2.3. Reserch !ethodo"o#y 2$

&3 Introduction To !redit A;;rai#al //

3.1. Description of %ppris" 2&

3.2. 'entr" (on Processin# 'e"" 2)

3.3. Deti"ed %ppris" *ote29

3.&. Ter+ (on 31

&303/3 9ase Study &/

&303%3 9onclusion 0.

or*ing !a;ital "oan -,

C


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&353/3 9ase Study 0&

&353%3 9onclusion 52


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//


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!ha;ter

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Introduction

,.,. Indu#try Introduction

'he #icro( Small and #edium $nterprises *#S#$s+ play a key role in the

economic and social development of the country3 'hey also play a major role

in the development of the economy with their e@ective( eDcient and Eexible

entrepreneurial spirit3 'he #S#$ sector contributes to the countryAs

manufacturing output( exports and employment and is credited with

generating the highest employment growth3

'he #S#$ sector in India is highly heterogeneous in terms of the size of the

enterprises( variety of products and services( and levels of technology3 'he

sector not only plays a critical role in providing employment opportunities at

comparatively lower capital cost than large industries but also helps in

industrialization of rural and backward areas( reducing regional imbalances

and assuring more equitable distribution of national income and wealth3

#S#$s complement large industries as ancillary units and contribute

enormously to the socioeconomic development of the country3 'he

continuous increase in the #S#$ industries and the employment in the

sector shows the importance and credibility of this sector3

$nterprises are classi,ed into micro( small and medium category

2nter;ri#e

(Ty;e)

In8e#tment in

Plant C Machinery

(Manufacturing)

In8e#tment in

2Dui;ment

($er8ice)

Micro U; to /= "a*h# U; to ,0 "a*h#$mall A&o8e /= "a*h#

u; to = !rore

A&o8e ,0 "a*h#

u; to / !rore

Medium A&o8e = !rore u;to ,0 !rore

A&o8e / !rore u;to = !rore

/&


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Introduction to $I%BI

Small Industries !evelopment "ank of India is an independent ,nancialinstitution aimed to aid the growth and development of micro( small andmedium1scale enterprises in India3 Set up on pril %( /CC. through an act of

parliament( it was incorporated initially as a wholly own subsidiary ofIndustrial !evelopment "ank of India3 'he current shareholding is spreadamong many government1owned "anks( Insurance 9ompanies and :inancialInstitutions3

SI!"I began as a re,nance agency to banks and ,nancial institutions fortheir credit to small industries3 Since then it has expanded its activities(including direct credit to the S#$ through /.. branches in all major industrialclusters in India3 "esides( it has been playing the development role in severalways such as support to micro1,nance institutions for capacity building andon lending3 Recently it has opened seven branches christened as #icro

:inance branches( aimed especially at dispensing loans up to 5 lakh3

Some of the products of SI!"I are4

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gypggggqpgppygpygypgggggpqygpSI!"I has extended ,nancial help to many companies and organizations inoperating in the #S#$ sector through its diverse line of products3 'he total#S#$ outstanding credit of the "ank increased by 03% to 52(.2. crore ason #arch &/( %./&3 'he cumulative disbursement by SI!"I to the #S#$sector since inception stood at over %3B5 lakh crore( bene,tting more than&%B lakh persons in the #S#$ sector3

%iEerent tool#$cheme# u#ed for ;ro8iding credit

!redit Guarantee Fund Tru#t For Micro And $mall 2nter;ri#e#(!GTM$2)

9&jecti8e

/5


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9redit to micro and small enterprises sector is generally perceived as high

risk lending( more so( when there is absence of any collateral3 In order to

encourage banks to lend more to this sector( -overnment of India and SI!"I

have set up the 9redit -uarantee :und 'rust for #icro and Small $nterprises

*9-'#S$+ in


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'he guarantee cover available under the scheme is to the extent of >5 per

cent of the sanctioned amount of the credit facility3 'he extent of guarantee

cover is B. per cent for *i+ micro enterprises for loans up to Rs35 lakhL *ii+

#S$s operated and6or owned by womenL and *iii+ all loans in the )orth1$ast

Region3

!redit "in*ed !a;ital $uidy $cheme(!"!$$)

9&jecti8e

'he objective of this subsidy is to facilitate technology up gradation of SSI

units in the speci,ed products 6 sub1sectors by providing /5 capital

subsidy for induction of well established and improved technologies3

2ligi&ility

Fnits going for upgradation with state of the art technology with orwithout expansion3

)ew units setting up facilities only with the appropriate and proventechnology approved by -'"3

'he units registered with State !irectorate of Industries3

Ma7imum !eiling of loan eligi&le for #u;;ort

/5 of the investment in eligible plant M machinery

9eiling on 7oan1 Rs3/.. lakh

9eiling on subsidy1Rs3 /5 lakh

$I%BI Financing $cheme For 2nergy $a8ing Project#

'he


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expected to encourage #S#$ units to undertake energy saving investments

in plant

M machinery 6 production process to reduce energy consumption( enhance

energy

eDciency( reduce 9G% emissions and improve the pro,tability in the long

run3

'he ,nancial assistance to #S#$s will be through SI!"I( as well as through

re,nance

to banks 6 State :inance 9orporations *S:9s+ and )on "anking :inancial

9ompanies

*)":9s+3 Fnder the 7ine technical assistance is also provided to ,nancial

institutions

and #S#$ units for dissemination of information and successful

implementation of

$nergy Saving projects in #S#$ Sector3

Financial Parameter#

'he ,nancial parameters for assistance under the Scheme are4

PR#$'$R )GR#

#inimum ssistance Rs3 /. lakh

#inimum Promoters

9ontribution

%5 for existing units

&& for new units

!ebt1$quity Ratio #aximum %354/

Interest Rate 'he interest rate is based on internal risk rating

within the band given below4

:ixed rate 4C351/. p3a

:loating rate4C3>51/.35 p3aSecurity :irst 9harge over assets acquired under the

schemeL

,rst6second charge over existing assets and

collateral security

as may be deemed necessary3

sset coverage #inimum ssets 9overage should be /304/ for

/B


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new units and /3&4 / for existing units3

Repayment

Period

)eed based3 )ormally( the repayment period

doesnAt extend

beyond > years3 Kowever( longer repaymentperiod of more

than > years can be considered under the 7ine

if considered

necessary3

Technology U;gradation Fund $cheme'Te7tile $ector(TUF$)

'he Scheme was launched by the #inistry of 'extiles( -oI on pril /( /CCC

and its objective is to upgrade M modernize the Indian 'extile Industry by

encouraging it to undertake M adopt modern technological process or

undertake capacity expansion3

SI!"I is the nodal agency for the SSI in the textile and cotton ginning and

pressing sector3

TUF$ 9&jecti8e C Incenti8e#i+ reimbursement of 5 on the interest charged by the lending

agency on a project of technology upgradation in conformity with

the Scheme3 Kowever( for spinning machinery the scheme will

provide 0 for new stand alone 6 replacement 6 modernization of

spinning machineryL and 5 for spinning units with matching

capacity in weaving 6 knitting 6 processing 6 garmenting3

ii+ dditional option to the powerlooms units and independent

preparatory units to avail %. #argin #oney subsidy under

Restructured 'F:S in lieu of 5 interest reimbursement oninvestment in 'F: compatible speci,ed machinery subject to a

capital ceiling of Rs3 5.. lakh and ceiling on margin money subsidy

of Rs32. lakh3 Kowever( for brand new shuttleless looms the ceiling

on margin money subsidy will be Rs3/ crore3 minimum of /5

equity contribution from bene,ciaries will be ensured3

/C


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iii+ n option to SSI textile and jute sector to avail of /5 #argin

#oney subsidy in lieu of 5 interest reimbursement on investment

in 'F: compatible speci,ed machinery subject to a capital ceiling of

Rs3 5.. lakh and ceiling on margin money subsidy of Rs305 lakh3

minimum of /5 equity contribution from bene,ciaries will be

ensured3

iv+ 5 interest reimbursement plus /. capital subsidy for speci,ed

processing( garmenting and technical textile machinery33

v+ 5 interest reimbursement plus /. capital subsidy for brand new

shuttleless looms3

vi+ %5 capital subsidy in lieu of 5 interest reimbursement on

purchase of the new machinery and equipments for the pre1loom M

post1loom operations( handlooms6up1gradation of handlooms andtesting M Huality 9ontrol equipments( for handloom production

units3

vii+ %5 capital subsidy in lieu of 5 interest reimbursement on

benchmarked machinery of silk sector as applicable for Kandloom

sector3

%.


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/., 9&jecti8e 9f The Project '

'he project focuses on the in1depth study and analysis of the appraisal

system of four important products of SI!"I viz3 term loan( working capital

loan( risk capital loan and micro credit loan3 ppraisal plays an important role

in lending decision of any organization planning to lend money3

'his project report will focus mainly on the following points41

%%


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'o understand the working of SI!"I

'o understand the features of di@erent products of SI!"I

'o understand the process of appraising a project and understanding the

various risk involved3 Fnderstand the impact of SI!"I on the #S#$ sector

/.,. $co;e of The $tudy '

Small and medium enterprises credit appraisal process as done in $I%BI

!"P! de;artmentL 7ucknow is covered under the report3 Suitable cases are

taken to understand four of the most important products availed by the

customer and the credit appraisal of these products of SI!"I3 'hrough this

study detail analysis of appraisal process is illustrated3 9omparison between

the appraisal processes of these products is based on my general

observation( understanding and interviewing with oDcials during the two

months internship3

/./. +e#earch Methodology

"9!A"2 9F T@2 $TU%6'he locale of the study has been narrowed downto the Kead GDce( 7ucknow oDce of Small Industries !evelopment "ank Gf

India3 'he study is categorized into many departments of the SI!"I but itmainly deals with the 9entral 7oan Processing 9ell Gf SI!"I3

$ource# of %ata4 #ost of the data collected is primary data as 97P9

provides its clients with a checklist of documents required for further

processing of the proposed loan3 'his checklist includes documents like legal

documents( I' returns( ,nancials etc3 'hese documents come directly from

the client and do not require ,eld visits3 :ield visits are done only to have

meeting with the client or to examine the available assets and security3

Secondary data like industry informationL industry trend etc3 will becollected from online sources3 udited "alance Sheets and =aluation report

of existing assets and securities of the project are collected from their

respective sources3

%&


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$am;le $ie I have taken one case for term loan( working capital loan(

micro credit loan and risk capital loan each and explained loan appraisal

process end to end3 Kence my sample size is 03

%ata Analy#i#ctual proposals were done to get hands on experience onthe procedure of Project ppraisal3 $xcel statistical tools have been used for

analyzing the data3

:ollowing steps were taken for analysis *appraising the project+4

!oing a management appraisal1checking the promoterAs contribution(

credentials and years of experience in the business3

!oing a technical appraisal1visiting the locality of the project and

checking whether the machines and other utilities for the plant are

suDcient to sustain the project3 !oing a ,nancial appraisal1!oing a ratio analysis and checking whether

the ratios adhere to the prescribed norms3 9alculating !ebt Service

9overage Ratio( IRR( )P= and doing a sensitivity analysis3

!oing a commercial appraisal1 9hecking the demand and supply of the

project3

TechniDue U#ed 9omparison is done through understanding detail credit

appraisal process for all the mentioned products3 "y explaining project

appraisal case of each I have tried to bring comparison between them3

%0


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%5

9KP'$R &

Introduction to9redit ppraisal


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@o3 a &orro3er a;;roache# &an* for a $mall Bu#ine##

"oanH

Gbtaining a small business loan has been diDcult for entrepreneurs over the

past few years( as lenders instituted stricter credit standards and investors

tightened their purse strings following the ,nancial crisis3

$te; , Ta*e #toc*

Nhen approaching a bank about a potential lending opportunity( itAs crucial

to have a solid business plan that shows how you plan to use the money3

loan application package will need to include hard numbers to back up the

viability of the plan( and should support a case for how your business will be

able to pay back the loan3

Reviewing ,nancial statements in advance of approaching a lender is alsowise because it will give you a chance to take stock of potential collateral for

the loan( which may include hard goods( real estate( stocks or bonds and

personal assets or guarantees3

$te; / !on#ider re#ource#

'here are many local and national organizations that provide support and

services to S#$ for seeking loans3 "efore approaching a lender( an

entrepreneur can reach out to these organizations3

$te;


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Ban*er# Perce;tion banker will focus on evaluating the credit

worthiness of the borrower and will see whether the proposed project has the

potential to generate pro,ts or not3 'his ensures the safety of the money3 :or

this( a banker uses a special tool called credit appraisal3

9redit appraisal is the assessment of credit worthiness of a borrower3 It

involves assessment of the various risks that can have an impact on the

repayment of loan3 'his assessment gives a very good idea of the borrowerAs

repayment capability and plays a major role in the lending decisions of the

lender3 !uring this whole process( the repayment capacity of the customer is

established( mainly based on Income( ge( Huali,cations( $xperience(

$mployer( )ature of business *if self employed+( Security of tenure( 'axation

history( ssets owned( lternative 6additional sources of income( Gther loan

obligations( Investments( Gther present and future liabilities3

'he appraisal system also aims to determine the credit needs6requirements

of the borrower taking into account the ,nancial resources of the client3 It is

to ensure that there is no under 1 ,nancing or over 1 ,nancing3

"elow is the pictorial summary of factors scrutinized in appraising a project

proposal3

%>


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checked to see if the borrower has ever defaulted on repayment3 "ytalking to borrower( its suppliers and customers( the character6goodwillof borrower is con,rmed3

)ext important thing is capital3 "ecause if borrower has suDcient

capital he can run his company in adverse situation easily( his stake inthe company increases so his exposure increases and bank exposuredecreases3 In short capital helps bank to reduce their exposure andincreases the credit worthiness of borrower3

Repayment capacity of the borrower is also major factor inchecking the feasibility of the project3 :or checking repayment capacity!S9R*debt service capacity ration+ is used3 verage of ,ve years of!S9R is checked for term loan and Interest coverage ratio is checkedfor working capital3 "orrower should be capable of repaying the loanfrom his projectAs pro,t or cash Eow3 min !S9R should be attained by

the lenderAs project to be eligible for a loan3 "ut sometimes if thelender has good record in other areas( relaxation is sought in theminimum !S9R requirement3 Nhether borrower is bringing suDcientsecurity to cover his assets is a concern for the bank3 "ecause( ifborrower fails to return money( security is the only shield whichprotects bankAs money3 Security should be checked and all the papersrelated to valuation of assets should be checked before proceeding forcalculation of asset coverage ratio and security margin3

9loseness means how much the borrower is attached to hisproject6company3 'his is the study of the stake of the promoter in the

project( whether he is positive about his project and sees a long termcommitment6prospects towards6for the project6company3

/. Financial Analy#i#'he ,nancial analysis is necessary to understand the projectAs ,nancialfeasibility3 ll the required documents are collected from the borrowerfor carrying out analysis of important parameters3 Importantdocuments6,nancials which are checked are4

9ash Eow

:und Eow

"alance sheet

Ratio analysis

9ash Eow statement analysis is done to understand whetherborrower have6will have suDcient funds for carrying out his businessproperly3 9apability of the project to generate suDcient cash to repaythe bankAs funds is also checked3 If the ,rm is an existing one then last& years actuals( current year estimates and next year projected cashEow and other ,nancials are analyzed3 If the ,rm is new only estimated

%C


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,nancials sheets are asked from the borrower and then those areanalyzed3 7oan oDcer checks for any discrepancies in the ,nancials ofthe company which may raise suspicions regarding the conduct of thecompany3

"alance sheet of the existing ,rm gives the idea about the fundmanagement( ,nancial position( current asset and liabilitymanagement and position of the ,rm3 7oan oDcer analyses thebalance sheet by checking the asset liability management of funds(checking the entries and forming his own corrected copy of balancesheet *writing the entries under relevant heads for example theborrower may have written some expenses under ,xed assets but bankconsider them as only expenses not assets+3 In case of working capital,nance bank calculates #aximum permissible bank ,nance *#P":+with the help of total current assets( total other current liabilities andalso promoterAs minimum contribution3 'hese are calculated from the

estimated balance sheet prepared by banks so balance sheet analysisis done thoroughly3

SI!"I and other banks have loan policy which says thatborrowerAs project must ful,ll some important ,nancial ratiolimits6norms for allowing bank to give loans to the borrower3 Importantratios are 9R( !$R( 'G76')N( !S9R( interest coverage( current ratio(etc3 'he ratio plays important tool in deciding the loan appraisalproposal3 Some more factors are debtor and creditor days which shouldbe within maximum days limit3 'hese are very important in workingcapital appraisal3


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understand authenticity and feasibility of the project3 So securityanalysis becomes very important for new ,rms3

"ank has their experts who evaluate the legal authenticity of thepapers of land6machinery etc given as security by the promoter3 "y

obtaining legal opinion of the experts bank can ascertain theauthenticity of the security3

'he valuation of the property6security as given by borrower iscrossed check by the bank with the help of internal valuation team3'hese measures are important because securityAs correct value shouldbe known for ascertain asset coverage ratio which is also a norm whichshould be ful,lled by the borrower3 lso it is important to know whethersecurity o@ered are at ,rst charge or not3 If the security is sharedbetween two or more banks then the valuation as obtain by one bankshould be acceptable to all banks3

-. +i#*"efore proceeding for detail credit appraisal( risk assessment of theborrowerAs project is very important3 'his is ,rstly because projectshould ful,ll rating norms of banks *to understand riskiness of theborrowerAs project+ and secondly because risk is directly related toreturn for the bank3 Kigher the risk higher will be interest rate chargedby the bank to the borrower3 Risk assessment includes assessment andrating of the following kind of risks4

Indu#try

+i#*#

Industry risk includes risks associated with

-overnment regulations and policies( availability ofinfrastructure facilities( Industry Rating( Industry

Scenario M Gutlook( 'echnology Fpgradation(

availability of inputs( product obsolescence(

reach6penetration of the ,rm( position of ,rm in target

market( competitors in the market( competitorAs price

strategies( industry risk( etc3

Bu#ine##

+i#*#

Gperating eDciency( competition faced from the units

engaged in similar products( demand and supply

position( cost of labor( cost of raw material and other

inputs( pricing of product( surplus available(

marketing( dependency on suppliers and customers(

quality of the product manufactured etc3

&/


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Management

+i#*#

"ackground( integrity and market standing6

reputation of promoters( organizational set up and

management hierarchy( expertise6competence of

persons holding key position in the organization(

delegation and decentralization of authority(

achievement of targets( track record in execution of

project( debt repayment( industry relations etc3

Financial

+i#*#

:inancial strength6standing of the promoters(

reliability and reasonableness of projections( past

,nancial performance( reliability of operational data

and ,nancial ratios( adequacy of provisioning for bad

debts( qualifying remarks of auditors6inspectors etc3


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97P9 team may directly negotiate with the promoters for improvement

in terms of sanctions and for speeding up the process3

97P9 may hold discussions with various parties to supplement the

information given by the branch and to improve quality of theappraisal3

97P9 is required to ,nalize the appraisal in not more than %. days from

the date of receiving of complete information from "G *SI!"I

guideline+3

&&


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% i # c u # # io n 3 it h t h ec u # t o m e r a & o u t th e

; r o ; o # a l

+ e c e i; t o fA ; ; l ic a t io n a l o n g

3 i t h

P r e ' # a n c t io n # i te 8 i # it& y & a n * o J c e r#

P r e ' # a n c t io n # i te 8 i # it

& y & a n * o J c e r#

! h e c * f o r + B I d e f a u lt e r # l i# t 3 i lf u l d e f a u l t e r #

li # t ! I B I " d a t a 2 ! G ! c a u t io n li# t e t c9 & t a i n5 a l u a t i o n

P a ; e r " $ + .

P r e ; a r e + M r e ; o rt a n d# e n d t h e ; r o ; o # a l to

! " P !

$ c r u t in i in g o f t h e d o c u m e n t # in f o r m a t i o n r e c e i 8 e d . Ifr e D u i re d a d d it io n a l in f o r m a t io n d o c u m e n t # c a l le d f o r

F i n a n c i a l

A ; ; r a i # a l

P r e l i m i n a r y

r a t in g u n d e r+ A M

P r e ; a r a tio n o f % A ( % e t a il e d A ; ; r a i # a l

o t e )

F ina l i ingt h e r a t i n g

F o r 3 a r d th e % A n a n c ia l a ; ; r a i# a lr e ; o r t to + i # * M a n a g e m e n t 5 e r tic a l

( + i M 5 ) .

P r e ; a r in g a d d e n d u m a d d r e # # in g

m i ti g a t in g t h e o & # e r 8 a t io n # ri # * o f+ i M 5

F o r 3 a r d th e ; r o ; o # a l to

c o n c e r n e d c o m m it te e fo rc o n # i d e r a t i o n .

! o m m it te e m a y c o n # id e r th e c a # e a n d

t a * e # t h e d e c i # io n o n t h e m e r it o f t h e c a # e .F o r 3 a r d th e a ; ; r a i # a l 3 it h t e rm # a n d c o n d it io n #t o t h e c o n c e r n e d & r a n c h fo r f u r th e r a c t io n

Project A;;rai#al Proce## in !"P!

&0


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36/131


37/131

%etail a&out indu#try (e7i#tingor ;ro;o#ed)

Kotel *service industry+

Product# Kospitality

In#talled ca;acity &B rooms

o. of day##hift# &25 days6%0x>

2nd u#e Service

27;ort orientation )one

B03%% 7akh /%&&305 7akh

IT >ealth Ta7 #tatu# I' Payee I' PayeePA !ard o. "9!/%&05$ NOQ/%&05P

9ther com;anie#intere#t# ca;acity

#6S Kanuman Kardwareand 'yres

#6s Saxena and 9o3

Since( term loan is a long term loanL the projectAs viability in the long run is

given the utmost importance3 9redit appraisal of a term loan focuses more

on the following points4

Nhether the project is feasible3 Nhether the project will be pro,table enough3

If the promoter will be able to repay the loan from the pro,ts earned3

&>


38/131


39/131

i

l

r o n tD c e 6

c c o m oa t o n

n d

e c r e a t in

i

i

i

i nn c

u

di n

i s t r

t o

!a#e %etail#

'he overall business operation of proposed hotel would be supervised

directly by two directorAs viz3 Shri =ivek Sethia and Shri Saransh Saxena3 In

addition( the company will hire professionals to look after the day to day

running of the proposed hotel3 'he operational head of the hotel will be the-eneral #anager( who will be hired after considering the experience of such

person in running a hospitality business3 Gnce operational( the hotel

operations will be divided into ,ve sections as shown below4

$hare'holding Pattern4

$. o. ame um&erof $hare# Face8alue(+#.)

Amount(+#.) $hareholding()

/ =ivek Sethia /55... /. /55.... &23%/

% SaranshSaxena

55... /. 55.... /%3B5

& Relatives of !irectors

/..... /. /...... %&3&2

0 Gthers %/B... /. %/B.... %>35BTotal -/:000 -/:0000 ,00

In the technical aspects of the appraisal process( feasibility of the

project is checked by considering the technical factors a@ecting the

project3 Scope of the project( location of the project( Industry experts

involved with the project( availability of various resources( availability

&C


40/131

of utilities *electricity( water( waste disposal+ and implementation

schedule are some of the factors taken into consideration3

!a#e %etail#

ll the available documents were scrutinized and the provided informationwas found satisfactory3

'he next step in the appraisal process is the study of cost of project

and means of ,nancing of the project3 'his is an important step in

every appraisal as this helps in estimating the cost of the project and

the actual loan requirement of the borrower3 It ensures that no under1

,nancing or over1,nancing takes place3

!a#e %etail#

The &road &rea*'u; of co#t of ;roject*lakh+

$.o Particular# Amount/ 7and %5/3&.% Site development >>355& "uilding and civil works B>B3>.0 Plant and machinery /223%&5 #isc3 ,xed assets /5/3B02 Preliminary and preoperative expenses /C>322> 9ontingencies 2&3>%B Norking 9apital 5B3..

Total ,:-=.00

Preliminary C Pre'o;erati8e 27;en#e#1 "eing a green ,eld unit( a sum of

Rs /C>322 lakhs has been provided in the project towards preliminary and

preoperative expenses3

!ontingencie# L sum of Rs 2&3>% lakhs has been provided towards

contingencies to take care of increase in the other heads of the project and

also towards meeting any unforeseen expenses related to the project3

Mean# of nance

Particular# Amount in "a*h

lready 'o be incurred 'otal

0.


41/131

incurred

Share 9apital 5/3&. &2&3>. 0/53..

Interest free unsecured loans %..3.. .3.. %..3..

PromotersA 9ontribution /=,.


42/131

*iii+ Gverall $xposure

*$xisting V proposed+

Rs /%&. lakhs

*iv+ !$R *for proposed

project+

-enerally not

exceeding %4/ for the

company6,rm as a

whole3Relaxable to &4/

foe #S$s

%4/

!$R *for the company

as a whole+

%4/

*v+ Primary Security

=alue6margin

Rs /5BC3&0 lakhs

*vi+ 9ollateral Security

=alue

Rs %%>3>. lakhs

*vii+ Gverall Security

value6#argin

Rs /B/>3.0 lakhs

viii Gverall sset

9overage Ratio

#inimum overall asset

coverage of /3& for

existing companies

and /30 for new

projects should be

ensured3

/30B times

*ix+ !S9R *#aximum+

*#inimum+

*average+

#inimum /35 %3.B

/3%&

/35%

*x+ "reakeven point *+9ash "$P *+

&%3C/%>320

*xi+ RG9$ %53./xii IRR /2322xiii 9ost of capital //3B2

long with ,nancial analysis( industry6 market analysis is also done to

check if the current business plan will be able to survive in the market3

9urrent scenario and past trend of the industry is taken intoconsideration to estimate future possibilities3 SNG' analysis and

sensitivity analysis of the company is done3 :inancial and economic

viability of the project is also checked3 Status of government approvals

are taken into consideration and as well as a project cannot operate

without them3

0%


43/131

Risk categorization is done for risk assessment and to give a rating to

the company and project3 Risks are recognized and listed under the

heads of high risk( medium risk and low risk3 'he rating of the project

and the company is done on the basis of this list3

!a#e %etail#

'he favorable and risk factors of the projects are determined with the help of

SNG' analysis4

$trength

'he promoters are resourceful and having good net worth3

Involvement of professional agency in implementation of the project3

'he proposed star category would help the hotel in attracting good

number of clients3>ea*ne##

Promoters do not have any experience in running hotel3

9ompetition from existing hotels and from new entrants3

)o tie up with the established brands of the sector3

9;;ortunitie#

bsence of star category medium level hotel in the area3

-ood business opportunity for the banquet hall during marriageseasons3

Strategically located as the proposed hotel is in the area which is

having large number of business establishment3

Threat#

$ntry of big corporate with international tie up like #arriot for mid

segment hotels3 Kowever the demand outnumbers the supply in the

segment and this allow number of other establishment to enter and

Eourish3 'he increase in no3 of available rooms may dampen the business of the

overall hotel industry3

$en#iti8ity Analy#i#

0&


44/131

:rom the above sensitivity analysis( the position of the ,rm may be

considered strong enough to handle any adverse situation3

Rating of the project was done using the Risk ssessment model of 9RISI73'he company obtained a score of S#$069R03

:inally the Schedule of repayment and security valuation is done3

!a#e %etail#

$chedule 9f %ra3al And +e;ayment 9f The "oan

'he entire term loan of Rs /%&. lakh shall be paid in /.B monthly

installments after a moratorium of &2 months3

o. of In#tallment# Amount of each

in#tallment

Amount of re;ayment

/.> //(&C(... /%(/B(>&(...

/ //(%>(... //(%>(...

Total ,/


45/131

:irst charge by hypothecation of all moveable *except book debt+

assets including plant( machinery( furniture and ,xtures( oDce

equipment( computers( tools and accessories35alue' &B/3>C 7akh

Total 5alue of ;rimary #ecurity N ,=:.


46/131


47/131

or*ing !a;ital "oan

Norking capital is de,ned( as the funds required for carrying the required

levels of current assets to enable the unit to carry on its operations at the

expected levels uninterruptedly3 It is utilized for operating purposes( resulting

in creation of current assets *such as inventories and receivables+3 'his is in

contrast to term loans which are utilized for establishing or expanding of

,xed assets3

-ross Norking 9apital refers to the fund required for ,nancing total current

assets of a business unit3 )et working capital no other hand is the di@erence

between current assets and current liabilities *including bank borrowings+

that is nothing but the surplus of long term sources over long term uses as

such it is known as the liquid surplus available in a unit that can be either

positive or negative3 positive )N9 is always desirable because of the factthat it provides not only margin for the working capital requirement but also

improves ability of the borrower to meet its short term liabilities3

$very business unit has an operating cycle which indicates that a unit

procures ?raw materialA from its funds( convert into ?stock in processA which

again is converted into ?,nished goodsA which can be sold for cash and thus

transformed into ?fundA3 lternatively it can be sold on credit and on

realization thereof gets converted into fund3

'hus every rupee invested in current assets at the beginning of the cycle

comes back to the promoter with the pro,t element added( after the lapse of

a speci,c period of time3 'his length of time is known as operating cycle or

working capital cycle3

SI!"I o@ers working capital loans for ,nancing the 9G#PGSI'$ 7G)

S9K$#$ as assistance for equipment and6 or working capital as also for work

sheds( with a loan limit of maximum %57akh3

It also o@ers the SI)-7$ NI)!GN S9K$#$ to provide both term loan for

,xed assets and loan for working capital through a single agency3 'he total

working capital requirements of such units( inclusive of all fund basedfacilities are to be taken into account for determining the working capital

facility eligible for re,nance3 $ntrepreneurs setting up new projects in the

#S$ sector( new promoters acquiring unencumbered ,xed assets of existing

#S$ concerns from P7Is and also existing well run units undertake

modernization6 technology up 1gradation and potentially viable sick units

0>


48/131

undertaking rehabilitation schemes are eligible for this Single window

scheme3 'he loan amount under this scheme does not exceed Rs3 %..lac3

!redit A;;rai#al of >or*ing !a;ital "oan#

'he appraisal of working capital loans is done in the same way as the term

loans( except the norms6 benchmark for sanction applicable to working

capital loans are di@erent( so is the calculation of the sanction limit of

working capital3

'he working capital limit is assessed by two methods4

s per 'urnover #ethod *)ayak 9ommittee+

s per Second #ethod of 7ending

The aya* !ommittee Method

'he )ayak 9ommittee method is where the limit of working capital to be

sanctioned is calculated on the basis of the gross sales( i3e3( %5 of gross

sales is the working capital requirement of that company3 'he turnover

method is used for companies with a turnover up to 5crore3 'here is a

minimum stipulated margin for working capital( which is the minimum

amount necessary for the business *which has to be present in the business+3

'he minimum stipulated margin money for working capital is calculated at

the rate of 5 of gross sales3 'hen( the actual or the projected net working

capital is calculated( wherein the proposed loan amount is added to the

liabilities of the company( as wound be the case when the loan would be

sanctioned3 'his is done to come to the projected net working capital that

would be needed3 Kence( the net working capital would then be decided from

among the minimum stipulated margin money for working capital or the

actual6projected net working capital( whichever is higher3 Ideally( the actual

or the projected net working capital always has to be more than theminimum stipulated margin money for working capital3 In cases where the

actual net working capital falls short of the minimum stipulated margin( the

promoter6 borrower is expected to raise the de,cit amount through

unsecured loans or through equity3 fter the calculation of the net working

capital( the permissible bank borrowing is calculated which is the di@erence

0B


49/131


50/131


51/131

27i#ting ;roduct# and in#talled

ca;acity of each ;roduct

#anufacturing of

printed6plane laminated

Rolls and pouches6/5.

#' p3a3

Factory xxxxx

,.1 %i#tance from Branch oJce /. kms3

Indu#try $tatu#

Indu#try Product# In#talled

!a;acity

o of

day#

$hift#

2nd u#e# 27;ort

orientat

ion

#anufacturing

of Printed 6

plane laminated

Rolls and

pouches

Rolls and

Pouches

&.. #' p3a &..6/

shifts

Printing

and

Packaging

Industry

)33

Bio'data of the e7i#ting and ;ro;o#ed ;romoter#%irector# i# gi8en

&elo3

, / hether 27;ort9riented

'he company exports a portion of its,nal product3 Kowever( it may not betermed as export oriented3

/3/.

%i#tance of the unit Registered oDce 1 pprox & ;3m3 fromSI!"I ;anpur oDce3Fnit I pprox /> ;m from SI!"I oDce3Fnit1II 1pprox %5 ;m from SI!"I oDce3

/3/%

Nhether the unit has gotborrowing powers as perrticles of ssociation6partnership deed4

Oes( as per memorandum of associationpoint number B on page number %3

2>


68/131

Bio'data of the e7i#ting and ;ro;o#ed ;romoter# i# gi8en &elo3

:irst thing that is done is checking of willful defaulter6 caution list to ,nd

matches3 9ompany( its promoters and associates are looked up in the list for

matches3 'his is done to ,nd out about the character of the borrower3 'his is

the most important step of the appraisal process of Sub1ordinated lending

because this is a collateral free lending and is not backed by any security3

Kence character of the borrower is the most important factor in this case3 It

is important to ,nd if the borrowerAs willingness to repay the loan3

!a#e %etail#

!IBI" !ommercial and !on#umer !redit Information +e;ort#

9I"I7 consumer41

$. ame of !i&il $core

2B

ame of the;romoter

Guarantor#

Shri Sandarbh -oyal Smt3 Ruchi -oyal

%oB Age .C6.>6/C>. 6605 years %&6.C6/C>5 66 &/ yearsFather @u#&andname(+elation#hi;)

Shri Prakash -oyal*:ather+

Shri Sandarbh -oyal

Addre## 2ducational ly. " com -raduate+elation#hi; 3ith!hief Promoter

Self Spouse

27;erience' in3hat ca;acityindu#tryyea+#

%/ years C years

et 3orth a# on,003>0 lakh3

IT >ealth Ta7#tatu#

I' assessee I' assessee

PA !ard o.

9ther concern# intere#t#ca;acity

Raja International 6Partner 6 5.

Raja International 6Partner 6 5.

$hareholding in

the com;any

>&3%> /230>


69/131


70/131

$hare'holding Pattern

$hareholding in the company as under1

$.o

.

ame of the director

#hareholding

,. Shri Sandarbh -oyal 5C30&

/. Smt3 Ruchi -oyal /&3&2

3%/

'he total shareholding of the two promoter directors is aggregating to

>%3>C( i3e3 the promoters would be having controlling shares in the

company3

The detail# of facilitie# enjoyed &y the &orro3er com;any and itS#a##ociate# are gi8en &elo3'

ature of facility(&an*3i#e)

ameof&an*in#titution

Amount (la*h)

+ateofintere#tin

ature of $ecurity and8alue

$xclusive and,rst charge onentire currentassets( present

as well as futureincluding entirestocks( bookdebts( loan andadvances etc3

Kypothecation of

$anc.

9# a#on0,0-/0,=

(a) Fund Ba#ed"imitTerm "oan Punjab

)ational

"ank3

B%3B

C

>/355 /&3>5

Term "oan Punjab

)ational

%>3.

.

%032. /&3>5

>.


71/131

"ank3 entire stock of Raw material(stock in process(,nished goods(stock in transit(

or any othersecurity requiredfor the purpose ofexecution of export ordersreceived of6 to bereceived by thecompany3 !epositof con,rmedorders and6ororiginal

irrevocable 79s ofapproved foreignbanks3

:irst exclusivecharge by way ofhypothecation ofall the movables*save and exceptbook debts andstock+ including(

plant( machinery(spares( tools andaccessories(oDceequipments(computers(furnitures and,xtures acquired6to be acquiredunder the project6scheme( of P>C3>B 1

>/


72/131


73/131

Pa#t Performance

'he performance of P.3C. /.&35B %%/3%%

!urrent "ia&ilitie# 0B%3%0 >&/3B& C>%35/ /.&.3.C

Total "ia&ilitie# BBB3&. /%%&3C. />0.3&

.

/>2.3B0

et Bloc* &&/3%2 &5C3B5 05>3%% 5>535.

!urrent a##et# 50&3C% B2>3.& /%B&3.

B

//B53&0

!urrent +atio /3/& /3/B /3&% /3/5

%2+ .35C .32. /3&0 .3C>

PM &3%0 .3.C /3%B %3/C

et !a#h accrual B/3&2 5%3CC >/3./ C.3/C

>or*ing !a; Turno8er

ratio (Time#)

B3.5 /3B2 /35& /3>2

>&


74/131

%e&tor# %ay# %

&

//2 /25 /0&

!reditor# %ay# %2 /&5 /&C

/&5

T9"T> %30B %3CC 03%B &3>2

Intere#t !o8erage &32& %35& %3%C %3.B

'he company has registered rise in the sales over the last three years3

It has registered the increase in sales around 523C& in the year %./&

over %./% and %.3&& in the year %./0 over %./&3

'he company recorded marginal growth rate of approximately 03B5 in

the year %./5 *provisional+3

'he Interest amount is increasing on account of increase the borrowing

exposure year by year3

'here has been a signi,cant increase in capital from >5 lakhs in %./&

to C23/5 lakhs in %./0 which implies the business growth3 'he

company increased share capital by way of issue of %//5. shares X

/.. each3

'he current ratio of the company increased has rose from /3/B in %./&

to /3&/ in %./0( indicating satisfactory liquidity position3

'he net pro,t of the company has witnessed a signi,cant fall from

&.3%B lakhs to /3%5 lakhs in the year %./& on account of the increase

the indirect expenses3 Kowever the company has recovered and

registered the pro,t to &%3>B lakhs in %./0 due to increase in sales

and manage to purchase raw materials at low price3

'hough the sales of the company are increasing signi,cantly but still

company has recorded the lower )P# because of the high cost of raw

materials and sti@ competition3 Kowever( )P# has improved to /3%B

in :O %./03

>0


75/131

'he debtors days of the company has been increased because

company is taking more time in realizing cash from its debtors3

Similarly creditors days of the company also increased as company is

taking more time in paying its creditors3 'he increase in creditors and

debtors( both has resulted in increase in current ratio3:inancials of the associates was also checked and was found to be

satisfactory3

)ext the eligibility of the borrower is checked for eligibility under any

scheme of SI!"I3 If found eligible( suitable factors are taken into

consideration3

!a#e %etail#

'he unit is eligible for 'F:S subsidy under RR1'F:S for capital subsidyX/.

and reimbursement of interest up to maximum extent of 5 vide ministry of

textile circular3

'he unit is also eligible under -rowth 9apital and $quity ssistance Scheme

for #S#$s (G2M# ). 'he proposal is for ,nancing the companyAs #argin

money for working capital3 'he company is having working capital facilities

from Punjab )ational "ank3 'he proposed assistance would be ,rst sub1debt

assistance to the company3

fter the eligibility of the proposal is checked( the appraisal process

continues with analyzing the competency of the management of the

project3 'he structure of the management( its experience and expertise

is taken into consideration to understand the competency of the

management employed for the project3

!a#e %etail#

'he company has been operational for more than %. years with its chief

promoter having experience of %/ years in the same line of activity3

'he company is being run professionally with individual departments for

manufacturing( marketing( production and administration and being handled

by separate spearheads3

>5


76/131

'he company employs around /5. people in production sta@s including

skilled 6un1skilled labor( supervisor and technical people on roll of the

company3 9ompany shall require around /. additional semi skilled 6skilled

workers after operationalisation of proposed machineries3 "eing an industrial

area( labor is readily available in the market3

fter going through the management of the company( 'echnical

spects of the project is studied to check the feasibility of the project3

:actors like availability of raw material( essential resources like water(

electricity( manpower etc3 are checked to see if the project can be

successfully started without any problems3

!a#e %etail#

'he proposed projectAs location is in an industrial area and all the needed

resources are easily available3 'he project should not face any diDculty in

availing required resources for the project3

'he next step in the appraisal process is the study of cost of project

and means of ,nancing of the project3 'his is an important step in

every appraisal as this helps in estimating the cost of the project and

the actual loan requirement of the borrower3 It ensures that no under1

,nancing or over1,nancing takes place3

!a#e %etail#

Broad &rea* u; of co#t of ;roject

'otal cost of the project is estimated at >&32. lakh as given below

Particular# Amount in "a*hPlant M machinery >&32.#argin money for working capital /..Total ;roject co#t ,?2


77/131

Promoter#S !ontri&ution / onwards3

s per the last there year audited balance sheet of the company and

provisional balance sheet of :O %./5( the total margin( as per second

method of lending works out to &0C3.& lakh based on projected

,nancials for :O %./23 'he company has applied for Sub debt of /..

lakh which works out to %B325 of the total ##N93

'he proposed assistance would help the company in augmenting its

operations3

)ext in the appraisal process is the analysis of the ,nancials of the

company3 'his step involves ,nancial analysis of the past performance

>>


78/131

of the company as well as analysis of the projected performance of the

company to estimate the ,nancial health of the ,rm in the past as well

as in the coming future3 lso( the industry analysis is done to

understand the various risks involved3 'hese risks are then rated and

an overall risk rating of the company is obtained3

!a#e %etail#

$l.

o.

Particular# Parameter ' +atio ;ercentage

i Promoter#O

contri&ution

(as & of total

pro'e"t "ost)

For term loan /


79/131


80/131


81/131

mount

recommend

ed

/.. lakh Sub debt

Rate of

interest

/03>5 p3a3 payable monthly *:ixed+

Fpfront fee /3 of the Sub1debt assistance V applicable taxes

Penal

Interest

% p3a3 over and above the applicable rate on the defaulted

amount of principal and interest installments for the period

of default3

Repayment

period

'he assisatnce shall be repaid in 0B monthly installments

comprising of ,rst 0> monthly installments of %3.B lakheach and 0Bthinstallment %3%0 lakhs commencing after a

moratorium of &2 months from the date of ,rst

disbursement3

Security 'he assistance( together with interest( costs( expenses(

penal interest and all other monies dues and payable by the

borrower shall be secured by the immovables and movable

assets of the company *including current assets+ as under4

a+ Residual charge by way of mortgage of all immovable

properties owned by P


82/131


83/131

guarantors3

9ombined )etworth as on /.6.&6%./5 W 52.350 lakh3

)ext comes the repayment schedule of the loan that is drawn for the

borrower3 'his is the detailed plan of repayment with details of the

duration and the amount of installments to be paid by the borrower3

!a#e %etail#

$chedule of dra3al and re;ayment of the loan

'he project involves acquisition of plant M machinery( for which the

foundation is reported to be almost ready3 s such the implementation

schedule for the project is of a short period3 'he loan is expected to be

availed during


84/131

o of

month#

Monthly +e;ayment (in

)

o. of

month#

Total amt in

/st

0>th

monthly

installment

%.B...61 0> C>>2...

0Bth

installment

%%0...61 0B %%0...

-rand 'otal /.......61

In the end come the recommendation and terms and conditions of the

loan3 Recommendation summarizes the key areas6 concern of the !)

and recommends steps to be taken3

!a#e %etail#

'he proposal is for term loan of 5. 7akh under 'F:S and Sub debt of

/.. 7akh under -$#s3

'he net pro,t of the company has witnessed a signi,cant fall from&.3%B lakhs to /3%5 lakhs in the year %./& on account of the increase

the indirect expenses3 "ut the company has recovered well in the year

%./0 and %./5 registering )et pro,t of &%3>B 7akh and 0.325 7akh

respectively3

P


85/131

'he company has already achieved turnover of /B300 crore as on

&/3.&3%./5 *prov3+ and expected to cross turnover of %/ crore in :O

%./23

'he company scored R# rating of S#$&69R&3

It is proposed to charge rate of interest as per rating3 9onsequently the

applicable RoI for term loan under !9S RR1'F:S of 5. lakh would be

P7RV.3%5 i3a3 /%35. p3a3 and for sub1debt of /.. lakh the

proposed RGI is P7RV%35. i3e3 /03>5 *,xed+ *presently P7R being at

/%3%5+3

'he proposal envisage purchase of additional equipment and the unit

eligible for RR1'F:s subsidy of 0/3&/ lakh3

'he proposal is support1worthy and recommended for sanction of term

loan of 5. lakh under !9S1RR1'F:S for purchase of additional

equipment( Sub1!ebt of /.. lakh toward margin money for working

capital under -$#S and RR1'F:S subsidy of 0/3&/ lakh to P


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funding portfolio and "usiness

9orrespondent #odel3 Ke was also part of

R"IAs working group on business

correspondence3v3 )ame of Statutory

uditors

9 S R and 9ompany(

9hartered ccountants(

9hennai 2.. ...vi3 -roup concern( if

any

)il

vii3 )ominee !irector( if

any

)il3

$hareholding ;attern a# on March /(C.5 &0(>/C(.5. /&30%

Intellofund #icro :in3

)etwork 9o3Pvt37td3

05(... 05.(... .3/>

kash $SGP Nelfare 'rust /(/&2(... //(&2.(... 03&C

avar -oodwell >(C50(.52 >C(50.(52. &.3>5

International :inance

9orporation *I:9+

&(>5>(B%0 &>(5>B(%0. /035&

)#I *)#I :rontier :und

;S+

2(2.%(C>B 22(.%C(>B. %535&

Total /=:1


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89/131


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3B out of /. *Kigh

level of adherence+ to #:P73 Nhich given its strong focus on articulatingand implementing processes and policies that adequately reEects the

,rmAs focus on achieving its dual objectives 4 ,nancial and social from its

operations3 :urther( the company has been fairly successful in

disseminating and ensuring adherence to its documented processes and

policies at the ground level3

C.


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.Intere#t rate to end u#er a# certied &y a !A

Interest Rate *reducing balance+ %5 for #icro :inance

7oan M %C for #icro

$nterprise 7oan3

Processing fee( if any / Vapplicable servicetax

Insurance 9harges( if any *ctual basis+ Gn actual basis

Gther charges( if any )il

Interest margin B3/%

Prepayment 6 delayed penalty being

levied

)o

Security !eposit 6 #argin being taken )o

!omment#

bove charges are in compliance with R"IAs stipulation on interest rate(processing fee( insurance charges( security deposit( etc3 for the

qualifying assets3

In terms of R"I guidelines issued vide noti,cation dated #ay &/( %./&(

margin cap for all )":9s irrespective of their size was to be /% till

#arch &/( %./03 Kowever( with e@ect from /st pril( %./0( margin caps

as de,ned by #alegam 9ommittee are not to exceed /. per cent for

large #:Is *loans portfolios exceeding /.. crore+ and /% per cent for

the others3

s per the 9 certi,cate dated September /B( %./0( #:I is charging

%5 to %C per annum3 *%5 for #icro :inance 7oan and %C for #icro

$nterprise 7oan+3 It has been clari,ed by #:P7 that #icro $nterprise

7oan is outside the micro,nance scope and is under /5 non micro

,nance portfolio allowed for )":91#:I3 'he above charges are in

compliance with the pricing guidelines of R"I3

)ext( :inancial appraisal is done to check the ,nancial health of the

#:I and to see if the ,rm will be able to repay the loan amount3 'his is

a very important step as this loan is a collateral free one and the ,rmmust be ,nancially stable to be able to repay3

!a#e %etail#

Brief #ummary of nancial#

i3 Income from operations has increased from %>3BB crore during :O %./&

to 2&302 crore during :O %./0( i3e3( an increase of /%>32/ over the

C/


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93/131


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#:I Rating mfR0 #%V Oes

SI!"I share of Gverall

"orrowings of the #:I

%. //3%0 Oes

2ligi&ility orm# Parameter# For $u&ordinated de&t

2ligi&ility !riteria !om;liance +emar*#!or;orate $tructure

-enerally )":9s having

a valid registration as

)":91#:I and havingasset size above /..

crore i3e3 Systemically

Important3 Should meet

all R"I prescribed

criteria for )":91#:Is3

9omplied with #:P7 is registered as

an )":91#:I having

asset size more than

05. crore and meetsall R"I prescribed

criteria for )":91#:Is3

Portfolio Ton and o@

balance sheetU as per

last audited annualaccounts should be

more than /.. crore3

9omplied with Portfolio Ton and o@

balance sheetU as per

audited annualaccounts as on #arch

&/( %./0 was &55322

crore3

lready assisted by

SI!"I with a satisfactory

repayment track record3

9omplied with #:P7 has been

associated with SI!"I

since year %./& and

the repayment track

record is satisfactory3

C0


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grade of mfR& or

equivalent

indicating #:IAs ability to

manage its micro,nance

activities in a sustainable

manner is high39;erating $elf

$uJciency 1 #inimum

/.. for the last % years

9omplied with GSS of F#:P7 in :O %./0

was /.B3 'he GSS of

the company in :O %./&

was /./3PR Z&. days 1 "elow & 9omplied with PR as in #arch &/( %./0

Z &. was .3.. !a;ital AdeDuacy +atio

1 #inimum /5 for )":91

#:Is or as prescribed by

R"I from time to time3

9omplied with 9RR as on #arch &/(

%./0 was %%305

$ecurity 1 Fnsecured ifprovided for 'ier II capital

support3 Gtherwise(

exclusive ,rst charge by

way of hypothecation of

book debts6 receivables

created out of the

assistance availed from

SI!"I 6 any other

prescribed security3

9omplied with Fnsecured to provide 'ierII support as per R"I

guidelines3

Nhile appraising the #:Isunder this product( special

attention should be paid to

the concentration of the

#:Is in di@erent

geographical regions and

wherever rather large

sized #:Is still do not have

a credible plan to address

this concentration riskover a medium term(

reduced support may be

considered from the

maximum eligible levels3

9omplied with #:P7 is presentlyoperating in B states with

its /22 branches3

Kigher level of support

may be considered only in

9omplied with #:P7 has rating grade of

#%V by I9R( valid till


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case of those #:Is which

enjoy top %6& notches of

9redit ssessment Rating

*9R+3

%./0( which is an eligible

investment grade as per

SI!"IAs guidelines

eed for $u&ordinated %e&t

It may be mentioned that post P crisis( various steps have been taken

by the stake holders and there is resurgence in the #:I sector on account

of regulatory framework put in place by Reserve "ank of India *R"I+3

F#:P7 raised %5 crore within one year of ndhra Pradesh crisis(

including investment by a new investor3 Sub1ordinated debt would be

bene,cial for #:P7 to increase the capital base through tier II support

and help it to leverage more lending for its diversi,cation as well as to

maintain a healthy asset liability management3

Introduction of the above product would also help address the concernsof Norld "ank and -overnment of India who want SI!"IAs engagement in

the sector scaled up3

U;front Fee Intere#t +ate and Per#onal Guarantee

(i) For Term "oan of /0 crore

F#:P7 has scored >>3.5 under the score chart corresponding to an

interest rate of /& p3a3

9onsidering the interest rate charged by other banks 6 :IIs and the recent

association with #:Is of one year( it is proposed to charge interest rate at/&35. p3a3 for the term loan assistance3

In addition( non1refundable upfront fee of /3.. of term loan along with

applicable service tax( cess( etc3( is proposed3 It may be mentioned that

several banks are charging the upfront fee upto /3%5 of the sanctioned

amount3

It is also proposed to stipulate a repayment tenure of &. months including

a moratorium of & months for the term loan of %. crore3

(ii) $u&ordinated de&t 9onsidering the longer tenor( it is proposed that the assistance shall carry

,xed interest rate of /5 p3a

In addition( non1refundable upfront fee of /3.. of sub debt along with

applicable service tax( cess( etc3 is proposed3

C>


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It is also proposed to stipulate a repayment tenure of 5 years for the

subordinateddebt of /. crore3 'hereafter( the assistance would be

repayable in one installment3

"rief details of the security that are collected from the borrower

against the loan( are mentioned and their value assessed3

!a#e %etail#

!ollateral #ecurity &y 3ay of F%#

s per extant guidelines( '!Rs equivalent to 5 of the term loan is

proposed as collateral security for the proposed term loan of %. crore3

In case of availability of Portfolio Risk :und *PR:+( '!R equivalent to %35

shall be applicable3

Security 6:!s for subordinated debt is )il *being unsecured+

Per#onal guarantee

It is proposed that the 9hief Promoter 6 !irector( holding signi,cant

shareholding in the company will give in written( personal guarantee for

the term loan and sub1ordinate debt3

:inally the main points of the appraisal are highlighted and conclusion

is drawn3 "ased on these points( recommendations for the loan arealso given3

!a#e %etail#

!onclu#ion and +ecommendation#

#:P7 has been associated with SI!"I for the past / year with

satisfactory conduct of account and satisfactory repayment record3

'he company is adequately capitalized( governed by an experienced

"oard and management and demonstrated commitment to

implementation of strong processes and systems3 It has demonstrated its ability to raise adequate private capital to meet its

capital requirements3

It has consistently recorded surpluses3

'here are %/ other reputed 7enders to #:P7(

'he proposed term loan of %. crore will enable #:P7 in expanding and

strengthening its operations in the underserved States( besides

CB


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diversifying its portfolio and the Subordinated !ebt of /. crore would

increase the capital base of the company to leverage more lending in the

larger measure3


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frameworks which spells out national economic objectives and broad

allocation of resources3 'he social cost is quanti,ed in terms of

employment generation( railways( road( forex etc3 It is done by certain

banks like Norld "ank etc3

9ompany?s operating cycle and other key ,nancials should be

compared with that of competitors and peers in the same industry3 'his

is to check ineDciency on the part of company if any3 :or eg4 the

borrower company has operating cycle of 5 months but peer

companies have that of & months3 'his shows the ineDciency of the

borrower company which can only be highlighted if we compare it with

peers3 Similarly 9ost comparison should be done with peers3

:or working capital assessment( )N96 Sales ratio can be added3

NWC/ Sales=Actualprojected NetWorking Capital

Net Sales

Ideally this ratio should be around B 1 /%3 If this ratio is low( it

indicates that the business is growing too fast without building an

adequate cushion in the form of )N93 It indicates symptom of

overtrading and undue reliance on borrowed short term funds3 :alling

ratio is indicative of overtrading and serious liquidity problems and it

needs to be investigated3

:aster dispersion of credit is of paramount importance3 proposal has

to pass through various channels and none touch points( which lead to

delay in the dispersal of credit3 "etter tier system may be put in place

which will reduce the time taken and improve the performance of the

97P9 as well as lead to customer satisfaction3

SI!"I is the apex ,nancial institution( responsible for providing ,nancial

support and promoting activity in the #S#$ sector3 #S#$ is an importantpillar of an economy employing millions of people and contributing

signi,cantly to the -!P of the country3 "ut despite its unquestionable

importance( this sector has struggled to avail credit facilities due to its highly

unorganized structure3 9redit appraisal has played an important role in

determining the credit worthiness of these otherwise small enterprises3

Nithout credit appraisal( providing ,nancial aids to these small enterprises

/./


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would have been next to impossible as these enterprises face a lot of

challenge and look a lot more risky3 9redit appraisal has helped SI!"I ,nd

potential in the otherwise troubled sector and impact the growth of the

sector in a big way

/.%


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9KP'$R 0

I#P9' G: SI!"I G) #S#$

/.&


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-., Im;ortance of M$M2

#S#$s have been globally considered as an engine of economic growth and

as key instruments for promoting equitable development3 'he major

advantage of the sector is its employment potential at low capital cost3 'he

labor intensity of the #S#$ sector is much higher than that of large

enterprises3 #S#$s constitute more than C. of total enterprises in most of

the economies and are credited with generating the highest rates of

employment growth and account for a major share of industrial production

and exports3

'he #S#$ sector in India is highly heterogeneous in terms of the size of the

enterprises( variety of products and services( and levels of technology3 'he

sector not only plays a critical role in providing employment opportunities at

comparatively lower capital cost than large industries but also helps in

industrialization of rural and backward areas( reducing regional imbalances

and assuring more equitable distribution of national income and wealth3

#S#$s has shown constant growth rate around // every year till %./.1//3

'he highest growth in recent time was recorded during %.//1/% */B305+

whereas during year %./%1/& and %./&1/0 growth rate was around /0 and

/%( respectively3

.

5

/.

/5

%.

//3>> /.305 //3B&

/B305

/03&/%300

Gro3th +ate

6ear#

Percentage

$ource#inistry of #icro( Small nd #edium $nterprises

/.0


105/131

'he #S#$ sector contributes signi,cantly to the number of enterprises(

employment and output of the country3 It has a signi,cant contribution to the

-!P of the country3 'he performance of the #S#$ sector is summarized

below using the data sets of the third and fourth ll India 9ensus during the

year /CCB and %..5 respectively3

P2+F9+MA!2 9F $$I M$M2 2MP"96M2T I52$TM2T$

Total WorkingEmployment

Market Value of

Year Enterprises Fixed Assets(in Lakh)(in Lakh) (Rs. in Crore)

II III IV V

2001-02 105.21 249.33 154,349.00

2002-03 109.49 260.21 162,317.00

2003-04 113.95 271.42 170,219.002004-05 118.59 282.57 178,699.00

2005-06 123.42 294.91 188,113.00

2006-07 361.76 805.23 868,543.79

2007-08# 377.36 842.00 920,459.84

2008-09# 393.70 880.84 977,114.72

2009-10# 410.80 921.79 1,038,546.08

2010-11# 428.73 965.15 1,105,934.09

2011-12# 447.66 1,011.80 1,183,332.00

2012-13# 467.56 1,061.52 1,269,338.02- In!"#in$ a%i&i%ies o' ho!esa!ere%ai! %ra#e, !e$a!, e#"a%ion * soia! ser&ies, ho%e! * res%a"ran%s, %rans+or% an# s%ora$e *

areho"sin$(ee+% o!# s%ora$e) 'or hih #a%a as e%ra%e# 'ro onoi Cens"s 2005, Cen%ra! /%a%is%is ''ie, /I.

M$M2 !ontri&ution to the G%P

/.5


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In the year %./%1/& there were about 02>352 7akh enterprises operating in

the #S#$ sector employing approximately /.2/35% people3 It has increased

from /.53%/ 7akh enterprises employing %0C3&& lakh people in the year

%../1.%3 'here are over 2... products ranging from traditional to high1tech

items( which are being manufactured by the #S#$ sector with total gross

output amounting to Rs3 />C.B.032> crore in the year %.//1/% which was

around >3%B percent of the total -!P of the country3

#S#$ is one of the key pillar of the Indian economy3 It has been hugely

responsible for providing employment and development of the rural India3

ccording to the census of %..5( out of total units of &2/3>2 7akh in the

#S#$ sector( %..3/B 7akh units operate in the rural parts of the country

employing approximately 00. 7akh people3

-./ Pro&lem# Faced By M$M2

!espite its unquestionable importance( #S#$ has been facing a lot of

challenges3 $nterprises operating in the #S#$ sector face a lot of challenges

in their day1to1day operations like production and marketing of their

products3 'hese small and medium enterprises face sti@ challenge from large

enterprises3 Small budget prevents these enterprises from spending much on

/.2


107/131


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Gther than the normal assistance provided to #S#$ sector by most banks(

some of the niche ,nancial gaps being addressed by SI!"I are risk capital

equity assistance( sustainable ,nance( receivable ,nance( services sector

,nancing( etc3 'hese are the requirements of #S#$s which are not generally

catered to by the banking system3 Simultaneously( SI!"I acts as a nursery

for new ,nancial products( which can eventually get mainstreamed in the

banking industry3 "rief highlights of some of the important initiatives of SI!"I

as given below4

,. +i#* !a;ital Fund

Gne of the major problems faced by #S#$ entrepreneurs is lack of adequate

equity required for raising funds from banks and institutions3 'here is

limited availability of venture capital for smaller companies due to a host

of factors( valuation complexities( limited exit options( corporate governance

issues( rating( transparency( etc3 'hus( a large number of entrepreneurs

resort to borrowings from informal sources at a very high cost to meet their

requirements3 :urther( a large number of #S#$s are partnership6

proprietorship ,rms which do not have the required capital

structure to absorb external equity investments3 Nith a view to ameliorating

the problems faced by the #S#$s in accessing capital and facilitating

extension of bank ,nance to #S#$s( SI!"I had started the risk capital

operations in :O %..B1.C under the #S#$ Risk 9apital :und

*#S#$1 R9:+ with a committed corpus of %(... crore3 n amount of

/(5.. crore has been drawn out of #S#$1R9: so far3

'he risk capital assistance is o@ered on the backing of future cash

Eows and prospects of the unit rather than asset coverage6 collaterals

applicable under conventional loans3 Risk capital assistance( therefore(

has signi,cant bene,ts for #S#$s whose growth plans get

constrained due to shortage of capital and limitations in o@ering

collaterals3 'he assistance has supported the growth requirements of a

number of #S#$s including leveraging of senior loans( funding intangible

requirements like expenditure for RM!( marketing6 brand building( technical

knowhow( energy eDciency( quality control( working capital *N9+ margin(etc3 where bank loans are generally not available as such investments are

non1asset creating3

/. TIFA!'$I%BI Technology Inno8ation Programme

/.B


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In order to support #S#$s towards development( up1scaling( demonstration

and commercialization of innovative technology based project( SI!"I

executed a #emorandum of Fnderstanding *#oF+ with 'echnology

Information( :orecasting and ssessment 9ouncil *'I:9+( #inistry of

Science M 'echnology( -ovt3 of India for implementing the 'echnology

Innovation Programme *Srijan Scheme+3 revolving innovation fund of &.

crore has been created by 'I:9 under the scheme3

'he Scheme provides developmental loan at Eexible terms and interest

rate to encourage6 promote development6 innovation of new technology6

process6 product and its commercialization3 Fnder the scheme( assistance is

provided up to / crore at a softer interest rate not more than 5 p3a3 s on

#arch &/( %./0( an amount aggregating to B30& crore has been committed to

/. innovative units under the Scheme3


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objective of providing equity and quasi1equity to smaller #:Is to help them

maintain growth and achieve scale and eDciency in their operations3 s at

the end of #arch &/( %./0 the outstanding under I#$: stood at C%3%5 crore3

Ta&le Bu#ine## 9;eration of $I%BI*Rs3 In9rore+

$cheme#

F6 /0,,',/ F6 /0,/',53B5 &%&3.& /(/&%30C

Resource Support toInstitutes6gencies

/(2%.3.. /(B&B3/. 0(%0%35. 5(02B3>>

$u&'Total /1,,,.?/ -/-1.-- /?-


113/131

'he "ank also provides various non1fund based services like 7etters of

9redit *both foreign and inland+( -uarantees( services for

appraisal( loan syndication( etc3( in addition to services provided within the

traditional banking framework3

SI!"I has also taken strategic initiatives for addressing various non1

,nancial gaps for capacity building of the #S#$ sectors( as well asbankers3 'hese activities include entrepreneurship promotion

through a dedicated website ?www3small"3inA( 9redit dvisory

Services( 7oan :acilitation( capacity building of banks( particularly

Regional Rural "anks towards micro enterprise lending( etc3

Information %i##eminationNith a view to address the information gap by

ensuring availability of relevant information to #S#$s( your "ank set up a

website www3small"3in to handhold and guide new entrepreneurs on how to

set up a business( access to ,nance( avail bene,ts under government

schemes( etc3

!redit Ad8i#ory !entre#Nith a view to mitigate the various challenges

faced by #S#$s in Gbtaining credit( SI!"I has set up 9redit dvisory 9entres

*99s+ guiding new 6 existing entrepreneurs regarding availability

of schemes of commercial banks( government subsidies6 bene,ts( provide

borrowers with debt counseling( answering queries raised by banks

etc3 'he 99s have been servicing &.2 clusters across the country in

partnership with Industry ssociations3 :or manning the 99s( SI!"I

has appointed ;nowledge Partners *;Ps+ who are retired "ank oDcials(

suitably trained for the purpose3 So far more than B%.. #S#$s have

bene,ted through 99s3

"oan $yndication $er8ice# SI!"I has launched the 7oan Syndication

Services *7SS+ with the objective of setting up an ecosystem in partnership

with "anks( Rating gencies and ccredited 9onsultants to ensure timely and

adequate credit Eow to the #S#$s by generating complete( rated and

//&


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validated proposals to be o@ered to banks6:Is for consideration of

assistance3 'he 7SS has referred over /2. proposals to SI!"I and #oF "anks

during the :O %./03

//0


115/131


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information asymmetry for the prospective and new entrepreneurs( coming

out with various studies 6 reports 6 web1based solutions to address

information gap( etc3 'hese developmental initiatives would not only address

the emerging needs of the sector( but also will create employment and

opportunities in this productive sector of the economy( resulting in the

overall growth of the economy and the country as a whole3

//>


118/131

A;;endi7

AB! @otel# P8t. "td.

#ro'e"ted Balan"e Sheet of the *rm

//B


119/131

#ro'e"ted #ro*t and +oss ""ount

//C


120/131

46 Poly Indu#trie#

Balan"e Sheet

A$ 9 A$ 9


121/131


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#ro'e"ted #ro*t and +oss ""ount

/%&


124/131

P! Pri8ate "td.

/%0

7/24/201

credit appraisal in sidbi

Documents