Final Report

2011 -13
BANK OF BARODA
[ FINANCING IN POWER PROJECTS BY BANK OF BARODA ]
Bank of Baroda
INDEX
ACKNOWLEDGEMENT ................... ............4 1. EXECUTIVE SUMMANRY .....5 2. INDUSTRY PROFILE. ..6-14 2.1. INTRODUCTION TO THE POWER SECTOR..................6 2.2 GENERATION .....................7 2.3. DEMAND SUPPLY POSITION...9 2.4. DEFICIT/SURPLUS SCENARIO.11 2.5 TRANSMISSION 13 2.6 DISTRIBUTION .....................1 3 2.7 POWER SECTOR OUTLOOK 2012 ....14 3. COMPANY PROFILE...... ...................15-22 3.1 ABOUT BANK OF BARODA .......................15 3.2 GLOBAL PRESENCE .16
Power project financing in Bank of Baroda |
Bank of Baroda
3.3 BRIEF HISTORY ..17 3.4 BANKS MISSION STATEMENT . 17 3.5 BANKS LOGO . .17 3.6 PRODUCT AND SERVICES .. 18 3.7 BUSINESS AND PERFORMANCE .. .18 3.8 DOMESTIC LOAN POLICY 19 3.9 FACILITIES OFFERED ...21 3.10 TARGET MARKET .. 22 4. PROJECT APPRAISAL PROCESS AT BANK OF BARODA ...23-51 4.1 IMPORTANT CONCEPTS ..23 4.2 CREDIT APPRAISAL SYSTEM .25 4.3 ASSESSMENT OF WORKING CAPITAL LIMIT ..29 4.4 FINANCIAL RATIOS FOR CREDIT APPRAISAL .32 4.5 RATIOS AND THEIR PERMISSABLE LIMIT .36 4.6 CREDIT RATING . .37 4.7 LOAN PROCESSING SYSTEM .. .42 Power project financing in Bank of Baroda |
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4.8 DETAILS OF A PROPOSAL NOTE .51 5. CASE STUDY FINANCING POWER PROJECTS BY BANK OF BARODA ..52-73 5.1 PURPOSE ...52 5.2 PROJECT DETAIL 52 5.3 OFFTAKE .55 5.4 POWER EVACUATION 55 5.5 OPERATION AND MAINTANENCE .56 5.6 IMPLEMENTATION ARRANGEMENT ..56 5.7 SCHEDULE OF IMPLEMENTATION 56 5.8 COST OF THE PROJECT .5 7 5.9 MEANS OF FINANCE ..58 5.10 MARKET AND SELLING ARRANGEMENT 58 5.11 APPROVALS AND CLEARANCE .58 5.12 PROFITABILTY PROJECTIONS 59 5.13BANK OF BARODA RATING .62 Power project financing in Bank of Baroda |
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5.14 SENSITIVITY ANALYSIS 62 5.15 BANKING ARRANGEMENT .65 5.16 RISK ANALYSIS, MITIGATION AND SWOT ANALYSIS .72 5.17 OBSERVATION .73 6. CONCLUSION .74 ANNEXURE 75
ACKNOWLEDGEMENT
Through this acknowledgment, we express our sincere gratitude to all those people who have been associated with this assignment and have helped us with it and made it a worthwhile experience. I am highly indebted to, BANK OF BARODA for their guidance and constant supervision as well as for providing necessary information regarding the project & also for their support in completing the project. My humble and heartiest thanks to my company mentor- Mr. Badal Mallick (Chief Manager ,Credit Department) and Mr. Chandi Charan Mukherjee (Senior Manager) whose guidance and encouragement was of immense helps throughout my project. I want to express my sincere thank to Mr. Nabin Shaw(Officer), MR Rupesh kumar (manager), Mr Amit Nahata () and all the other employees for giving their precious time and providing me the requisite data. A special thank goes to my faculty guides, without whose supervision and support this project wouldnt have been possible
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1. SUMMARY
EXECUTIVE
Power projects are capital intensive and have long gestation period, therefore adequate long term financing is a critical factor. Massive investment is needed for new projects, expansions, undertaking of reforms and restructuring, debt refinancing and short term working capital loan needs, term loans and to fulfill these capital needs the companies generally raise money from financial institutions such as banks. This project report titled financing in power projects by Bank of Baroda studies the overall financing of a project and the parameters and methodology followed for examining the overall potential of the project. The project is examined whether it meets the financial, social and economical criteria that must have been set for the project. Thus the different parameters such as corporate goals, eligibility of the borrower, takeover proposal, existing proposal, new proposal, credit risk rating and pricing, credit appraisal, acceptance, purpose of applicant, purpose of advance, source of repayment, projecting cost and profit, security are
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studied. The study of the financial background of the promoter and the project tells us about the ability of the promoter to handle the project efficiently. The detailed project report is made which involves setting down of the basic task, allocating of task, determining of resources and setting down in operational form from the functions to be carried out and their priorities. Generally financing of power projects involve consortium funding where a list of banks come together to finance a specific project as the investment is huge. The formal approval requires the acceptance of funding proposals and agreements by all the banks listed in the consortium. The project feasibility is checked assuming the worst case scenario to analyze the debt repayment capability of the company in these conditions.
2. PROFILE
2.1
INDUSTRY
INTRODUCTION TO THE INDIAN POWER SECTOR:
India is now the second fastest growing economy in the world. Despite the current economic slowdown, India is expected to grow at approximately 7-8% this fiscal year. Current estimates suggest that Indias economic growth may slow to 7% as the global economy recovers from the slowdown. The expanding base of industries and services the main drivers of economic growth is exerting pressure on Indias weak infrastructure. The power sector remains a key infrastructure concern and Indias continued economic growth will depend critically on its ability to meet the growing electricity demand. Economic growth is only one aspect of the Indian story. Development and poverty reductions are the other imperatives.
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Improved access through better grid connectivity, increased certainty of electricity supply and price affordability all play an equally important role in shaping the politics and economics of the sector. Indias pattern of energy demand, consumption and growth, must therefore be understood in the context of its dual objectives as a basis for sustaining economic growth and as an instrument for poverty reduction. Over the last few years, the story on Indias economic growth has been underlined by the story of Indias power sector. The power sector has long experienced capacity shortfalls, poor reliability and quality of electricity and frequent blackouts which has been a major impediment to economic growth. Despite reforms introducing private participation during the 1990s, the Indias electricity sector has remained dominated by the state. State utilities remain the dominant institutions within Indias electricity industry, controlling well over half of the electricity supply and the vast majority of distribution. Electricity as a subject is in the concurrent list of the Constitution of India. It means that both the Union and State Governments can formulate policies and laws on the subject, but the responsibility of implementation rests with the States. Distribution of electricity in particular comes in the domain of the states. There are a number of significant problems in the Indian power sector that appear intransigent. For example, agricultural subsidies continue to stifle reforms. There is a pressing need for the Indian government to implement a national policy on farm tariffs. At present political "generosity" such as the free grant of electricity to farmers needs to stop in order to make the sector financially more viable and attractive investment. A further bottleneck to progress is lack of adequate fuel resources and poor port facilities in the country. Although a number of initiatives in the coal sector should assist the supply of fuel for power generation, the quantum and reliability of the gas supply remains a concern. Overall however, after a number of false-starts, the Indian power sector is in the midst of a positive hue and much of that stems from a series of measures sought to liberalize generation, form regulatory commissions, unbundle electricity boards, create transmission as a separate business and introduce distribution reforms. Despite the piece meal approach,
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these reforms finally coalesced into the Electricity Act 2003.Although the implementation of the Act is far from complete, and progress is patchy across the states, a critical mass of reforms has been achieved and comprehensive regulatory framework is now in place. This will go a long way in persuading private players and foreign investors to come off their sidelines and participate in the development of one of the world's largest infrastructure markets. India is facing a major challenge as it seeks to upgrade the entire electricity delivery chain. Given the various constraints on government, primarily the financial ones, private participation in power sector is likely to increase sharply. Government of India (GoI) has recognized the importance of changing its policies and creating an environment conducive to sustainable private sector involvement. But the pace of the reforms of needs to be accelerated, and private developers need to develop more flexible, innovative, and realistic project designs and concepts.
2.2
GENERATION:
The current installed capacity is approximately 143 GW with coal being the primary. Despite significant recent additions, there is a significant stock of aging plants that have poor performances. The sector also suffers from, fuel shortages, inadequate transmission evacuation system, regulatory uncertainty and payment security concerns. Concerns about the sector paved the path for reforms. Of this the central and state sector accounted for approximately 89% [MOP, 2004]. The statistics point to high perception of risk lack of enthusiasm on part of the private sector with regard to power generation in India. In the Central Sector, National Thermal Power Corporation (NTPC) is a player of global scale. The State Electricity Boards also operate generation facilities to serve their demand. Private Sector comprises of many players like Tata Power Company, Reliance Energy, GVK, GMR etc. Despite reforms introducing private participation in the early 1990s, Indias electricity sector has remained dominated by the state owned entities and has been unable to attract adequate private investments. Electricity Act 2003 introduced another wave of liberation aimed at create a legal and structural framework for a competitive market.
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Installed capacity share by sector:
priv te a s te ta centra l
Installed generation capacity:
The following graph shows a near doubling of per capita consumption of electricity from about 350 units in 1998 to over 600 units in 2005.Total installed capacity is 148,265.4 MW. Electricity generation mix is heavily dependent on thermal at around 64.4% and hydro contributing at 25%.
2.3 DEMAND SUPPLY POSITION:
Over the last five years, from FY 2003-FY 2007 Indias electricity demand has grown by over 6 percent annually .The steady increase in electricity demand is attributed to the countrys rapid economic
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growth. Over and above Indias visible electricity demand growth, there is significant latent demand that remains under-represented. The demand projections have discounted the Places where electricity cables have not reached yet and industries that would come up if supply of electricity is guaranteed. Shortage is likely to be a major driver for new capacity development in future. Energy demand deficits have increased from 7 percent to 10 percent in the past five years, indicating that a high latent demand for electricity exists in India. This latent demand increases the potential for demand to grow even in periods of slow economic growth. Figure 2.6 illustrates the peak and energy deficit between FY 2003 and FY 2007.As the figure below shows, India has constantly been plagued with a demand supply gap in the Power sector. Such a gap is a major hindrance to the growth of a developing economy like India.
Projection of actual power requirement: 2 00 000 0 1 00 800 0 1 00 600 0 1 00 400 0 1 00 200 0 1 00 000 0 800 0 00 600 0 00 400 0 00 200 0 00 0 200 405
requirem ent
20060 7
200809
20 1011
201 62017
Demand supply forecast:
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2500 2000 1500 1000 500 0 X plan 2 006-0 7 X plan X plan I II 201 -12 201 1 6-17 energ requirem y ent energ availability y peak load peak s erved
The break-up of installed capacity at June 30,2009 is as follows: Source/ ownership Coal/lignite Gas/liquid fuel Diesel Hydro Nuclear Renewable energy source Total State 42,648 3672 603 27095 2248 Central 29,720 6638 8592 4120 Private 6,091.4 6075 597 1230 10995 Total 78,459 16,358 1,200 36916 4120 13243
76265
49071
24988
150323
As may be observed from the above, thermal power based plants account for about 63.9% of the countrys installed capacity for power generation, with coal/lignite constituting about 52.2% and gas/liquid fuel constituting about 11.7% of the total installed capacity.
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TOTAL ENERGY REQUIREMENTS (MTOE) Year 2011-12 2016-17 2021-22 2021-22 2031-32 Hydro 12 18 23 29 35 nuclear 17 31 45 71 98 Coal 283 375 521 706 937 Oil 186 241 311 410 548 Natural gas 48 64 97 135 197 Total 546 729 997 1351 1815
SOURCE WISE ENERGY DEMAND: 196061 35.64 .01 8.29 .67 44.61 197071 36.48 .81 19.14 .60 2.17 .63 59.83 198081 56.96 1.23 32.26 1.41 1 .78 96.73 199091 94.15 3.58 57.75 11.49 6.16 1.60 174.73 200001 131.52 6.43 106.97 25.07 6.40 4.41 .13 280.93 200607 200.02 8.72 132.75 34.60 9.75 4.86 .83 391.23 201112 270 13 186 48 12 17 <1 596
Coal Lignit e Oil Natur al gas Hydro power Nucle ar power Wind power Total
2.4 DEFICIT/SURPLUS SCENARIO
In spite of significant increases in the installed capacity most of the regions in the country are facing power shortages. The problem of shortage in supply becomes more acute during peak hours leading to load shedding by many utilities to maintain the grid in a healthy state. The all India average shortages for the year FY 2009 were 11.0% in terms of energy and 12.0% in terms of peak load.
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The table below presents the power situation across the five regions:
REGION
PEAK DEMA ND (MW)
PEAK MET (MW)
PEA K DEFI CIT/ SUR PLU S (MW )
PEAK DEFICI T /SURP LUS (%)
ENERG Y DEMAN D
ENERG Y AVAILA BLE (MUs)
ENERG Y DEFICI T/SURP LUS (MUs)
ENERGY DEFICIT/ SURPLUS (%)
NORTH WEST SOUTH EAST NORTHEAST
33034 37240 28340 1901 1820
29504 3530 10.70 30154 7086 19.00 26244 2096 7.40 11689 1212 9.40 1358 462 25.40
224218 254486 204086 82127 9407
199928 213724 188865 78370 8134
24290 40726 15221 3757 1273
10.8 16.00 7.50 4.60 13.50
The long-term projected energy requirement across various periods : Period Peak Peak Peak Emerge Energy Energy deman deficit defici ncy deficit deficit d (MW) (MW) t (%) require (MU) (%) ment (MU) 2003-04 84574 9508 11.2 559264 39866 7.1 2004-05 87906 10254 11.7 5,91,37 43,258 7.3 3 2005-06 93255 11463 12.3 6,31,75 52,938 8.4 7 2006-07 100715 13897 13.8 6,31,75 66,092 9.5 7 2007-08 107791 19998 15.8 6,08,05 63,862 9.6 3 2008-09 109809 96785 11.9 7,77,03 6,91,03 11.1 9 8 2009-10 118794 10381 12.6 8,40, 7,62,11 9.3 6 544 5
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Total Installed Capacity: Sector Capacity MW State sector 76,115.77 Central sector 48,970.99 private 22,628.75 Total 147715.51
Percentage 52.5% 34.0% 13.5% 100%
2.5 TRANSMISSION
Transmission plan in India has always been generation based. It is therefore not going to help because there are bound to be imbalances. Even today, CTU and STUs are very conservative in agreeing to create more than the desired transmission capacity and freely allowing interconnectivity. Investments in the Transmission sector have been therefore been inadequate due to the heavy emphasis on generation capacity. In most states, the existing distribution network has been formed by expanding and interconnecting smaller and disjointed networks. Consequently, there are several deficiencies in the Transmission system, such as high losses and low reliability. The major player in this sector is the government owned Power Grid Corporation of India. The total transmission system in India at 765/HVDC/400/230/220 kV corresponding to1,32,329 Mega Watts (MW) of installed generation capacity at the end of March 2007was 198,089 circuit kilometers of transmission lines, 251,439 MVA of AC substation and8,200 MW of HVDC substation capacity.
2.6 DISTRIBUTION
Indias distribution sector has traditionally been a leaking bucket with the holes deliberately crafted and the leaks carefully collected as economic rents by various stakeholders that control the system. The logical thing to do would be to fix the bucket rather than to persistently emphasize shortages of power and forever make exaggerate estimates of future demands for power. Most initiatives in the power sector (IPPs and mega power projects) are nothing but ways of pouring more water into the bucket so that the consistency and quantity of leaks are assured. The Distribution arm of the Power
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Sector had been the domain of the SEBs for a very long time which gave rise to financial problems due to lack of collection of dues. The SEBs financial difficulties led to problems in the upstream for power generation. To alleviate this situation Distribution Companies are beginning to be privatized in some states, most notable among them being Delhi. Reliance Energy and Tata Power Company was the first private sector players to make a foray into power distribution in the country.
2.7 POWER SECTOR: OUT LOOK 2012
During the past two years, the power sector witnessed a slowdown in investments due to delay in obtaining environmental clearances, financial closure issues relating to equity contribution, timely supply of critical components for thermal projects, sourcing of fuel linkage and deteriorating SEBs` financial status leading to low demand. All these factors postponed the investment plans of the government as well as private players.
Around 76GW of projects are going to be commissioned by FY15 even after considering 20% to 25% of slippage in ongoing projects. This translates into a CAGR of 20% and completion of around 21GW/year of incremental capacity in the first three years of the 12th Plan period. This provides strong visibility of accelerated capacity addition in the next three years. Apart from this, the postponed capacity would give a push to announcement of new projects during FY12-15. The market has become increasingly cautious due to the risks on account of fuel issues, weak financials of the State Electricity Board (SEBs) whose losses have almost doubled from USD 6 billion to USD 12 billion in the past three years due to increase in the spread between average cost of supply and average power tariff and T&D (transmission and distribution) losses, and higher fuel costs as well as lower Plant Load Factor (PLF). Shunglu Committee is a panel set up by the planning commission has suggested remedies on financial mess of SEBs, if implemented whole heartedly it could cut down losses of SEBs
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Lack of fuel availability is negatively impacting the power companies, which could have an adverse impact on PLFs in the near-term. Coal availability in India will now rise at a CAGR of only 5.2% over FY10-15E, which is insufficient to meet power capacity growth of 11.5%. The players with captive linkages - domestic or International would be relatively better placed. Lower demand 43 from the SEBs as well as lower purchase from the open market at high rate continues to impact the private utilities that are banking on merchant business. The sector benchmark index has corrected 34% on a TTM basis. Many of the concerns shown by the market are justified. In our view, further earnings downgrades would result if (1) SEB financials worsen, prompting backing down and PLF reductions, (2) CIL linkage fuel delivery remains tight. Stock performance could remain subdued in the near-term. Our top picks are NTPC, TATA Power and Power Grid in that order. We prefer NTPC on account regulated business model (which provides safety in uncertain environment) and high visibility over upcoming projects.
3.
Company profile
3.1 ABOUT BANK OF BARODA:
Bank of Baroda (BoB) is the 3rd largest bank in India, after State Bank of India and Punjab National Bank and ahead of ICICI Bank. BoB has total assets of Rs. 358397, 17, 54 network of over 3418 branches and offices, and about 1100+ ATMs. It offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialized subsidiaries and affiliates in the areas of investment banking, credit cards and asset management.
A Saga of Vision and Enterprise

It has been a long and eventful journey of almost a century across 25 countries. Starting in 1908 from a small building in Baroda to its new hirise and hi-tech Baroda Corporate Centre in Mumbai is a saga of vision,
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enterprise,
financial
prudence
and
corporate
governance.
It is a story scripted in corporate wisdom and social pride. It is a story crafted in private capital, princely patronage and state ownership. It is a story of ordinary bankers and their extraordinary contribution in the ascent of Bank of Baroda to the formidable heights of corporate glory. It is a story that needs to be shared with all those millions of people customers, stakeholders, employees & the public at large - who in ample measure, have contributed to the making of an institution. Between 1913 and 1917, as many as 87 banks failed in India. Bank of Baroda survived the crisis, mainly due to its honest and prudent leadership. This financial integrity, business prudence, caution and an abiding care and concern for the hard earned savings of hard working people, were to become the central philosophy around which business decisions would be effected. This cardinal philosophy was over years of its existence, to become its biggest asset. It ensured that the Bank survived the Great War years. It ensured survival during the Great Depression. Even while big names were dragged into the Stock Market scam and the Capital Market scam, the Bank of Baroda continued its triumphant march along the best ethical practices.
3.2 GLOBAL PRESENCE
BRANCHES Bahamas
SUBSIDIARIES Botswana
JOINT VENTURE Zambia
Bahrain
Ghana
REPRESENTATIVE OFFICES Australia
Belgium
Guyana
China
Kenya
Malaysia
Fiji Islands
New Zealand
Thailand
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Hong Kong
Tanzania
Mauritius
Trinidad Tobago
&
Republic of South Africa
Uganda
Seychelles
Singapore
Sultanate Oman
of
United Emirates
Arab
United Kingdom
USA
3.4 BANKS MISSION STATEMENT
To be a top ranking National Bank of International Standards committed to augmenting stake holders value through concern, care and competence.
3.5
BANKS LOGO
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Banks new logo is a unique representation of a universal symbol. It comprises dual B letterforms that hold the rays of the rising sun. They call this the Baroda Sun. The sun is an excellent representation of what bank stands for. It is the single most powerful source of light and energy. At Bank of Baroda, it seek to be the source that will help all our stakeholders realize their goals
3.6 PRODUCTS AND SERVICES
Bank of Baroda provides it banking products and services in several categories like personal, international, business, treasury, corporate and rural. In personal banking section Bank of Baroda offers products like deposits, debit cards, Gen-Next, personal banking services, loans, lockers and credit cards. In business banking sector, Bank of Baroda offers products and services such as deposits, business banking services, loans and advances and lockers. In corporate banking section, Bank of Baroda offers products and services like wholesale banking, loans and advances, deposits and corporate banking services.
3.7 BUSINESS & FINANCIAL PERFORMANCE
The Bank has reported a healthy growth in its business and profits with improvement in all key parameters during FY11. NIM i.e. Net Interest Margin has increased from 2.74% as on FY2010 to 3.12% as on FY2011. Both its domestic deposits and advances increased at the aboveindustry pace of 26.6% and 30.6%, respectively. The Bank posted a growth of 29.6% in its SME credit, 13.5% in Farm credit, and 33.8% in Retail credit reflecting a well-balanced growth across different sectors.
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To remain competitive in the global market bank has been investing outside India and achieved a growth rate of 16.5%. For the Bank as a whole, Gross Profits grew impressively by 43.8% to Rs 6,981.61 crore and Net Profit by 38.7% to Rs 4,241.68 crore - much ahead of the market expectations. Even as the Bank gained market share in loans, it has sustained the best asset quality standards within the Indian banking universe. In line with its past record, the Bank succeeded in restricting its Incremental Delinquency Ratio to 1.09%, Gross NPAs to 1.36% and Net NPAs to 0.35% during 2010-11.
3.8 DOMESTIC LOAN POLICY
The first Domestic Loan Policy was framed in the year 1994 by BOB, which was subsequently reviewed from time to time. Last review of the Loan Policy was carried out in the year 2009. The current review of policy is undertaken as a periodical exercise with a view to updating the guidelines on lending issues. OBJECTIVES OF THE POLICY: Banks Loan Policy is devised for regulating the Banks resources towards remunerative means, for directed national priorities and also for achieving uniformity in the lending activity bank wide. This policy is meant to cover the macro and micro issues at the broad policy level. Credit deployment is required to be implemented in conjunction with various regulatory and operational guidelines issued from time to time. This Loan Policy would continue as a Credit Risk Policy of the Bank. The objectives of the loan policy would precisely be as follows: To optimize the risk and return envisaged in order to see that the Economic Value Addition to Shareholders is maximized and the interests of all the stakeholders are protected alongside ensuring corporate growth and prosperity with safety of Banks resources.
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To ensure credit growth both quantitatively and qualitatively through various channels in line with the common goals and objectives of the Bank. To build-up and maintain a well-diversified and fairly high yielding credit portfolio by means of augmentation of interest and noninterest income. To comply with the National Priorities in the matter of deployment of institutional finance to facilitate achieving planned growth in various productive sectors of the economy. To provide need-based and timely credit to various borrower segments. To strengthen the credit delivery system and to instill a sense of credit culture enterprise-wide. To strengthen the Credit Risk Management System with parameterization of risk identification, measurement, monitoring and mitigation. To set up prudential exposure norms and to address issues of credit concentration. To provide for risk based Loan Pricing Policy. To comply with various regulatory requirements, more particularly on Exposure norms, Priority Sector norms, Income Recognition and Asset Classification guidelines, Capital Adequacy, Credit Risk Management guidelines etc. of RBI / other authorities.
SCOPE OF LENDING POLICY: Bank extends Loan facilities by way of fund-based facilities and non-fund based facilities. The fund-based facilities are usually allowed by way of term loans, cash credit, bills discounted/purchased, demand loans, overdrafts, etc. Further, the bank also provides non fund-based facilities by way of issuance of inland and foreign letters of credit, issuance of guarantees, deferred payment guarantees, bills acceptance facility etc.
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The policy covers all Fund-Based exposures extended by different branches and thereby includes Fund-Based facilities like Cash Credit, Overdraft, Demand Loans, Term Loans etc. The policy acts as a guideline for risk identification, measurement, risks grading, reporting and control and gives an overview of documentation, legal issues and management of loan portfolio of the bank. The policy is designed in such a way so as to give an overall flavor about certain basics of lending, the pre-sanction appraisal, post-sanction monitoring and caps on exposure apart from the banks thrust areas and innovative products. The policy covers lending to Priority Sector, Retail and Small & Medium Enterprises, in addition to wholesale banking.
3.9 FACILITIES OFFERED BY BANK OF BARODA
TERM LOAN For purchase of factory land, construction of factory building, office premises, purchase of plant & machinery, vehicles or any other movable assets required for business. It is repayable generally within 5 years after initial moratorium period, in monthly installments. WORKING CAPITAL LOAN For purchase of raw materials, stores, spares, consumables etc and also against book debts. LETTER OF CREDIT This facility is available for procurement of raw material on sight or usuance basis. BANK GUARANTEE This facility is available for submission to the third party for performance/in lieu of security deposit/earnest money. EXPORT CREDIT (PACKING CREDIT) This facility is available for the purpose of manufacturing goods for export.
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BP/BD Facility is available for purchase of inland or foreign bills after supply of goods. FCNR-B LOAN Loan is available in foreign currency for short term as well as long term, much beneficial for exporters. EXTERNAL COMMERCIAL BORROWINGS This facility is available to replenish term loan or for long term purpose from overseas bank in foreign currency. DERIVATIVES This product is available to hedge the exchange rate fluctuations so as to meet repayment obligations of foreign currency loans.
3.10 TARGET MARKET:-
Bank aims in creating and maintaining enterprise-wide strong credit culture on an on-going basis. The Bank strikes a balance between the business growth and the incremental risk for deciding the business plan and strategy for each year maintaining a low risk profile, however with due flexibility so as to exploit all possible business opportunities at all points of time. In addition to laying stress in meeting specific commitments in terms of RBI and Government of India directives, the focus area and target markets are: Infrastructure Financing is also accorded added focus. Retail Finance to grow further with specific thrust on Housing Loans. SMEs are likely to grow faster in view of high priority being accorded to this segment. Financing need-based requirements of various sectors especially health, housing, education, employment; manufacturing sector, agriculture including irrigation and
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promotion of exports on the lines of policy announcements made by the Govt. of India. The following industries/sectors are presently identified as emerging sectors:
IT and IT enabled services. Bio-technology. Oil and Natural gas exploration and related activities. Defense equipment manufacturing. Retail chains. Dairy. Ports/ Airports. Telecom. Power. Engineering. Considering the dynamic nature of the target market, risk perception and the economy the bank will be keep reviewing the guidelines to cover the new emerging sectors from time to time.
4. Project appraisal at bank of baroda:

4.1 IMPORTANT CONCEPTS
BANK GUARANTEES: The bank acts as a guarantor in two cases. One as a beneficiary when somebody guarantees the payment of debt of bank's borrower in case of default. The other as a
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guarantor, when the bank itself promises to pay the dues or discharge the liabilities of its customers in favor of a third party. While in the former case, the Bank is the creditor, in the latter case, Bank's liability is co-extensive with that of the debtor.
LETTERS OF CREDIT: The bank acts as an intermediary who issues a letter of assurance to a seller at the request of a buyer for payment of cost of goods/ services sold on certain terms and conditions. Such an assurance letter is named as a "Letter of Credit". QUASI CAPITAL: Quasi capital will include (i) amount of Central/State subsidy(ii) Long term unsecured interest free loans from government or government agencies such as sales tax loan etc. (iii) long term unsecured interest free loans from promoters provided such loans are subordinated to the loans from banks/financial institutions (iv) Non-refundable deposits. (v) Risk capital assistance provided by Risk Capital & Technology Finance Corporation Ltd. MAXIMUM PERMISSIBLE BANK FINANCE: MPBF is calculated when the borrower wants loan. In BOB, 1st Method of lending, 2nd Method of lending and Turnover Method is used to arrive at maximum permissible bank finance. ESCROW ACCOUNT: In case of syndication/consortium baking an account is maintained with only one bank, which is the lead Bank, which monitors all the activities of the borrower company. This account takes care of all the transaction between borrower and all the lender Banks. PRIMARY SECURITY: The fixed assets/goods purchased and book debt financed out bank loan are termed as primary security and normally charged to bank. COLLATERAL SECURITY: Any other immovable or movable assets charged to the bank (other than primary securities) are called collateral securities. MARGIN: Borrowers are required to contribute margin from own sources as their contribution, out of the total fund requirement.
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ECB (External Commercial Borrowing): ECB is an instrument used in to facilitate the access to foreign money by corporations and PSUs (Public Sector Undertakings). Via this way, the borrower gets the loan very cheaply. In BOB, depending upon their BOBRAM rating and other factors, this loan is sanctioned. BASE RATE: Base rate is the minimum lending rate charged by banks. At present base rate is 10% for BOB. PARI PASSU: Proportionate charged on various securities based on the proportionate expose of each individual lender under consortium arrangement. COD (Commercial operational firm/company start their operation. date): Date at which
MORATORIUM: Moratorium period starts from the date of COD and end on the date of repayment of first installment of loan. This period is give to the firm as commencement of the operation takes some time. And till the firms dont start making profit they are unable to repay the loan amount. DOOR TO DOOR TENURE: This period includes date when the loan is disbursed till the date the repayment of loan is completed. IN PRINCIPLE APPROVAL: Informal approval from competent authority on broad terms and conditions to proceed ahead with the project as well as for the submission of detail proposal. SOLE BANKING: Involvement of only one bank for the specific purpose. MULTIPLE BANKING: Involvement of more than one bank for the lending purpose. In this type of banking different bank provide finance and different banking facilities to a single borrower without having a common arrangement and understanding between the lenders. CONSORTIUM BANKING: under consortium banking several banks (financial institutions) join hand to finance a single borrower, as per requirement, under agreed terms and conditions
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sanctioned by lead bank. Here lenders/ Banks share information when required.
4.2 CREDIT APPRAISAL SYSTEM
Credit Appraisal is the process by which a lender appraises the technical feasibility, economic viability and bankability including creditworthiness of the prospective borrower. It is a process to ascertain the risks associated with the extension of the credit facility. It is generally carried by the financial institutions which are involved in providing financial funding to its customers. Credit risk is a risk related to non repayment of the credit obtained by the customer of a bank. Thus it is necessary to appraise the credibility of the customer in order to mitigate the credit risk. Proper evaluation of the customer is performed, which measures the financial condition and the ability of the customer to repay back the loan in future. Generally the credits facilities are extended against the security known as collateral. But even though the loans are backed by the collateral, banks are normally interested in the actual loan amount to be repaid along with the interest. Thus, the customer's cash flows are ascertained to ensure the timely payment of the principal and the interest. 1. PRE-SANCTION APPRAISAL (i) When a credit proposal is presented to a branch by a prospective borrower for sanction by an appropriate authority, the appropriate authority may either sanction or reject the proposal. The decision to sanction or reject the proposal has to be based on a careful analysis of various facts and data presented by the borrower concerning him and the proposal. Such an objective and in-depth study of the information and data should convince the sanctioning authority that the money lent to the borrower for the desired purpose will be safe and it will be repaid with interest over the desired period ,if the assumptions and terms and conditions on which it is sanctioned, are fulfilled. The entire gamut of credit appraisal can be segregated into 7 sections is under:
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a.
Borrower appraisal / know your customer (KYC) norms:
The borrower is appraised on the following parameters also known as the 5 Cs of the borrower. They are as follows: Character:
Character is the greatest and the most important asset, which any individual can have. Even if a borrower has the capacity and capital to repay a loan, it is the character of the borrower which indicates his intention to repay. If the character or integrity of a borrower is known to be questionable, every banker would avoid him even if backed by sufficient collaterals. Capacity:
It deals with the ability of the borrower to manage an enterprise or venture successfully with the resources available to him. His educational, technical and professional qualifications, his antecedents, present activity, experience in the line of business, experiences of the family, special skill or knowledge possessed by him, his past record etc. would throw light on his capacity to manage the organization successfully.
Capital:
It is his ability to meet the loss, if any, sustained in the business or venture from his own investment or capital without shifting it to his creditor or banker. Unless a borrower has some stake in the business, he may not take much interest in its success. Collateral:
This is what the borrower offers the lender for additional security in the form of inventory, equipment, vehicles, real estate etc. In case borrower defaults, it will act as a secondary source or repayment Credit:
This shows the borrowing capacity of the borrower that is the borrowers ability to avail loan from the lenders. CUSTOMER (KYC) GUIDELINES
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The guidelines relating to know Your Customer (KYC) principle are applicable to all borrower customers including Foreign Currency borrower customers / transactions. Guidelines are issued under Section 35(A) of the Banking Regulation Act 1949 and any contravention of the same attracts penalties under the relevant provisions of the Act. Know Your Customer (KYC) procedures should be the key principle for identification of an individual / corporate while opening an account. The customer identification / verification should be through an introductory reference from an existing account holder / a person known to the bank or on the basis of documents provided by the customer. The guidelines of KYC are not only for establishing the identity of the person but also satisfying about his credentials by obtaining an introductory reference from a known person. The due diligence expected under KYC procedures involves going into details. It is not a responsibility, which ends with opening of the accounts and monitoring of transactions in the initial few months of opening of the account, but monitoring should be an on-going process. Key Elements of the KYC Policy: a) Customer Acceptance Policy b) Customer Identification Procedures c) Monitoring of Transactions and d) Risk Management.. 2. TECHNICAL APPRAISAL: The technical appraisal of a credit proposal involves a detailed study of the following aspects: (1) Availability of basic infrastructure. (2) Licensing/registration requirements. (3) Selection of technology. (4) Availability of suitable technical process, raw material skilled labor etc. 3. MANAGEMENT APPRAISAL:
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In case of projects, units or enterprises run by individuals as sole proprietors or partnership firms, it is usually one or two persons who manage the entire project, unit or the enterprise whether it be of manufacturing or trading. However, in case of corporate borrowers and also in case of large borrowed accounts, it is usually a set of professionals who manage the entity each specialized in a specific area of management i.e. production, finance, marketing, personnel etc. Unless there is a complete integration of all these functions within an organization, it cannot function effectively. 4. FINANCIAL APPRAISAL: The term financial appraisal refers to the study of the following aspects of the project/unit: (I) Determination of the cost of the project. (II) Assessment of the source of funds/means of financing the project. (III) Profitability estimates. (IV) Break even analysis. (V) Cash flow projections. (VI) Projected balance-sheet. 5. ECONOMIC APPRAISAL: The performance of a project is influenced by a variety of other economic, social and cultural factors. Even if a project is technically feasible and financially viable, it may not satisfy the economic needs viz. employment potential, development of industrially backward areas, environmental pollution etc. Further as capital is a scarce resource, it is necessary that it must be allocated in such a way that it yields best possible return to the society in general and the investor in particular. As such a detailed appraisal of the project in terms of the return it generates to the investor and the
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lending institutions is necessary before a decision is taken to commit resources. 6. MARKET APPRAISAL: While appraising a proposal it is not only necessary to find out whether it is technically feasible and financially viable, but also important to ascertain the marketability of the product manufactured/sold. If goods produced cannot be sold there would be no point in producing them. Hence the marketability or salability of goods is of great importance. Existence of a market for the product provides the rationale for its production. If the product sought to be manufactured is the only one of its kind for which there are no substitutes, the marketing of the same may not be a problem excepting when it can be freely imported and that too at a lesser cost. However, if there are many competitors, the entrepreneur may find the going tough. However a combination of the factors like man behind the show, the quality of the product and the strategy for its sale will result in its successful marketing.
4.3 ASSESSMENT OF WORKING CAPITAL LIMITS
Presently, the following guidelines are in place for financing Working capital facilities: Limits up to Rs. 5.00 crore: The credit requirements of village industries, Micro Enterprises, Small Enterprises and Medium Enterprises having aggregate fund based working capital limits up to Rs.5.00 crores from the banking system, will be computed on the basis of a minimum of 20 % of their acceptable projected annual turnover for new as well as existing units. Method of assessment: The assessment of working capital credit limits should be done based on acceptable projected turnover basis and also as per the first method of lending. If credit requirement based on first method of lending is higher than the one assessed on accepted projected turnover basis, the same may be sanctioned as the guidelines stipulate that the working capital finance should be 20% of the projected accepted
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turnover or computed on the basis of first method of lending whichever is higher. If the assessed credit requirement is lower than the one assessed on projected turnover basis, the credit limit can be sanctioned at 20% of the acceptable projected turnover. Limits above Rs. 5.00 crores: For assessment of Working Capital requirements beyond Rs.5.00 crores, the extant guidelines will be followed.
a.
1st and 2nd METHOD OF LENDING:
Method of Lending 1. Total Current Assets
1st Method 1
2nd Method 1 2
2. Less: Current liabilities 2 (Other than Bank Borrowings) 3. Working Capital Gap 4. Total Current Liabilities 1-2=3 4
1-2=3 4 1-4 25% of 1
5. Actual Net Working Capital 1-4 6. Minimum stipulated Net 25% of 3 working Capital i.e 25% of CA 7. WC Gap Minimum NWC 3-6
3-6 3-5 Lower of 7 or 8
8. WC Gap- Actual/Projected 3-5 NWC 9. MPBF Lower of 7 or 8
For Trading sector, we always follow 2nd Method of lending or Turnover Method but for Manufacturing and Service sector if the limit is above
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Rs. 5 Crore then we will follow 2nd Method else we will follow 1st Method of lending.
b. Turnover method Turnover method is used as alternate method of assessment.
Particulars 1. Turnover Achieved/Projected 2. Gross Working requirement 1
Capital 25% of 1 Net 5% of 1 CA-CL
3. Minimum stipulated working Capital 4. Actual Margin
5. Gross Working Capital 2-3 Requirement-Minimum Margin 6. Gross Working Capital 2-4 Requirement-Actual Margin 7. MPBF 8. % of turnover Lower of 5 or 6 7 as % of 1
Margin (a) For Term Loan In case of factory land & building, overall margin of 30% In case of Plant & Machineries and Equipment margin is proposed at 25%
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In exceptional cases, finance may be made available against second hand machinery, with a minimum margin of 40% at the discretion of sanctioning authority, keeping in view the extant guidelines for financing against second hand machinery.
(b) For Working Capital 25% uniform margin is proposed on stocks and receivables. For export credit margin may be stipulated @ 10 %. The next higher authority is authorized to reduce margin maximum by 5% in serving cases in respect of Land & Building & Plant & Machineries & Equipments/Current Assets. If deviation is proposed beyond 5 %, Executive Director / Chairman & Managing Director is authorized for the same.
4.4 FINANCIAL RATIOS FOR CREDIT APPRAISAL
While appraising credit proposal, various ratios are analyzed to arrive at meaningful conclusions. Ratio Analysis can be expressed in percentage terms or as a simple ratio. Whenever the Bank recast the P/L A/c and the Balance Sheet, the recast figures should be taken into account for analysis. Some of the important financial ratios required for credit appraisal are as under:i. Current ratio It is also called the Liquidity Ratio and a test for short-term solvency. CURRENT RATIO= CURRENT ASSETS/ CURRENT LIABILITY Any adverse trend is carefully examined. Generally, a current ratio of 1.33:1 is considered satisfactory, which may be treated as a benchmark rather than the minimum acceptable level. It is not applied uniformly as it varies from industry to industry. The reasons for a lower or a higher current ratio to the benchmark is examined thoroughly. ii. Debt-equity ratio (D/E ratio) This ratio indicates the relationship between the external term borrowings and the own funds of the concern. Bank takes total term
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liabilities as Debt i.e. total liabilities minus net worth and total current liabilities. Equity means net worth of the concern minus intangible and fictitious assets. However, the subordinated funds (i.e. long-term unsecured loans from friends and relatives etc.) may be considered as quasi-equity, generally for non-corporate borrowers and included in equity while arriving at ratio, if the borrower retains the same at the existing/ projected level. The subordinated debt however should not exceed borrowers capital plus free reserves less intangible assets. DEBT-EQUITY RATIO = TOTAL TERM LIABILITIES (TTL)/ TANGIBLE NET WORTH (TNW) A ratio of 3:1 is considered satisfactory. However, higher ratio may be allowed keeping in view the activity of the borrower, industry, sectoral classification such as SSI units, other priority sector advances etc. Apart from TTL/ TNW, Bank also assesses the D/E Ratio as Total outside Liabilities (TOL) to Tangible Net worth (TNW). TOL is calculated as total of all liabilities of a company/ firm on liability side of balance sheet minus the net worth. A ratio of 4.5:1 is considered satisfactory. Deviations (if necessary): a) In case of infrastructure projects and capital goods manufacturers, deviations are permitted by the sanctioning authority taking into consideration the size of the project, total funds, outlay, gestation period etc. b) The sanctioning authority accepts higher ratio provided the same is properly justified and explained in the credit appraisal. iii. Fixed assets coverage ratio (FACR) This ratio shows the number of times the value of Net Fixed Assets (after depreciation) covers term liabilities. FIXED ASSETS COVERAGE RATIO = NET FIXED ASSETS/ TERM DEBTS (MEDIUM & LONG) FACR of more than 1 is considered reasonable.
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iv. Debt service coverage ratio (DSCR) Ability of a concern to service its term liabilities is assessed from this ratio which is applied while appraising all Term Loan proposals, studying rehabilitation/ reschedulement/restructuring proposals etc. DSCR measures whether interest and installments can be paid out of internal generation of funds. A ratio of 1.75 would indicate that the concerns internal generation of funds would be 1.75 times of its commitments towards term loan obligations and interest thereon. It works out as under:DSCR = (PROFIT AFTER TAX + DEP. + INT. ON TL)/ (INT. ON TL + TL INSTALLMENTS) The average DSCR of 1.75 is considered reasonable. However, in any year it should not be less than 1.25. v. Break-even point The Break-Even Point (BEP) is the point where total costs equal sales. The BEP is the point at which, cost or expenses and revenue are equal: there is no net loss or gain, and the unit has broken down. This ratio is extremely useful in analysis of Term Loan proposals. BEP is calculated in order to determine at what level of sales the unit will be able to recover the costs and will be generating profit at the sales level above BEP. The BEP is calculated as per below mentioned formulae:BEP (NO. OF UNITS) = FIXED COST/ CONTRIBUTION PER UNIT CONTRIBUTION (PER UNIT) = SELLING PRICE PER UNIT- VARIABLE COST PER UNIT BEP (SALES) = (FIXED COST/ CONTRIBUTION PER UNIT) * SELLING PRICE PER UNIT. Bank calculates BEP in all credit proposals involving sanction of fresh term loan of Rs. 20 crore and above to part fund, setting up of new units or expansion of existing facilities. A lower BEP suggests that unit has adequate margin of safety. Margin of safety is computed as 1 minus BEP and indicates the proportion of sales which is available as cushion for
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any increase in variable cost and is considered as profitability zone of the unit. The sanctioning authority assesses the viability of the unit in terms of BEP and justifies the accepted BEP before recording it in the proposal. vi. Internal rate of return (IRR) The internal rate of return is used to measure and compare the profitability of investment in financing a large project. It is also called the discounted cash flow rate of return (DCFROR) or simply the rate of return (ROR). The internal rate of return on an investment or potential investment is the annualized effective compounded return rate that can be earned on the invested capital. The IRR of an investment is the interest rate at which the investment has a zero net present value. A project is considered viable if it is generating an IRR greater than the cost of capital. Bank compares the project IRR with the weighted average cost of funds proposed to be invested in the project. The projects whose IRR is greater than cost of funds, are considered for funding. vii. Net present value (NPV)
Net Present Value is the total Present Value (PV) of the project cash flows. It is a standard method using the time value of money to appraise long-term projects. NPV measures the excess or shortfall of cash flows, in present value terms, once financing charges are met. Borrowers weighted average cost of capital (after tax) can be used to discount back the cash flows of the project to arrive at the Present Value. Alternatively, the discount rate which the capital needed for the project could return, if invested in an alternative venture. When analyzing projects, it is appropriate to use the applicable interest rate as the discount factor. The following sums up the NPVs in various situations:
If NPV>0
It means The
Then
investment The project may be accepted

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would add value to the firm NPV<0 The investment The project should be rejected would subtract value from the firm The investment would neither gain nor lose value for the firm Bank remains indifferent in the decision whether to accept or reject the project. This project adds no monetary value. Decision should be based on other criteria, e.g. strategic positioning or other factors not explicitly included in the calculation However, NPV= 0 does not mean that a project is only expected to break even , in the sense of undiscounted profit or loss (earnings). It shows net total positive cash flow and earnings over its life. .
NPV=0
viii. Interest coverage ratio Interest Coverage Ratio indicates the number of times a firms income in an accounting period can pay off the interest on term debt during the same period. Since it measures the ability to pay interest-due from the earnings of the firm, this ratio is used in computing the firms borrowing capacity and in assessing the risk of servicing of debt: INTEREST COVERAGE RATIO = EBIT/ INTEREST EXPENSE The Interest Coverage ratio is also calculated as Earnings before Interest, Tax, Depreciation and Amortization (EBITDA)/ Interest expense. This is a measure of calculating the companys operating cash flow coverage of interest expenses. The higher the Interest Coverage Ratio, more secure the Bank is in respect of the interest servicing ability of the borrower. An Interest Coverage Ratio of 5 is considered satisfactory.
4.5 RATIOS AND THEIR PERMISSIBLE LIMITS:
Important
Financial Permissible
Permitted
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Ratio Current Ratio TOL/ Equity (TOL/TNW) Debt Equity (TTL/TNW) Debt Service Ratio
Limits 1.33 4.5:1
Deviations 1.20 1.50 4:1 1.50
Ratio 3:1 Coverage 1.75
4.5 CREDIT RATING
Internal credit rating system Risk assessment model (BOBRAM) Bank has introduced Basel II complaint credit risk rating models of M/s CRISIL. The new rating models are based on 2 dimensional rating methodologies specified under Basel II requirements wherein 4 types of risks viz. industry risk, business risk, financial risk and management quality risk are assessed pertaining to the characteristics on an obligor (borrower) while facilities proposed / sanctioned to a borrower are assessed separately under second dimension of rating i.e. Facility rating. Thus 3 ratings are worked under BOBRAM models viz 1) obligor (borrower) rating for credit worthiness indicating the probability of default (PD) 2) Facility rating - representing the Loss Given Default (LGD) and 3) Composite Rating- which is indicative of the Expected Loss (EL) and it is worked out as the matrix of Obligor Rating and Facility Rating. These rating models are applicable to all commercial advances i.e. existing as well as new exposures (FB+NFB) with the exposure of Rs 25 lac and above, in case of MSME exposures above Rs 2 crore. The details of applicability of these models are as under: Sr no 1 Model Large corporate Applicable for rating of 1. Manufacturing unit with annual net sales of over Rs 50 crore and
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infrastructure projects which have started cash generation \s from the project operations with part/ full implementation. 2. 2 Service sector units with annual net sales over Rs 50 crore
SME Manufacturing units with annual net sales of (manufacturing Rs 50 crore and below sector) including commercial enterprise SME (service) Traders Banks NBFCs Service sector units with annual net sales of Rs 50 crore Units engaged in trading irrespective of sales turnover activities
3 4 5 6
Organizations engaged in banking activities Organizations registered with RBI/ NHB for carrying out non-banking financial activity/ housing finance activity Entities engaged in broking business in shares/ securities Infrastructure power projects ( generation & distribution)build stage i.e. implementation stage where cash generation from the project is not yet started Infrastructure roads & bridges projects build stage i.e. implementation stage where cash generation from the project is not yet started. Infrastructure- ports projects build stage i.e implementation stage where cash generation from the project is yet not started. Infrastructure telecom projects- build stage
7 8
Brokers Infrastructure ( power)
Infrastructure (roads & bridges)
10
Infrastructure (ports) Infrastructure
11
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i.e implementation stage where cash generation from the project is yet not started..
Method of credit rating The credit risk rating process as per New CRISIL Rating Models involves three types of ratings for each credit facility viz.
a.
Obligor ( Borrower) Rating - for credit worthiness indicating the Probability of Default (PD) Facility Rating - representing the Loss Given Default (LGD) and Composite Rating - which is indicative of the Expected Loss (EL)
b.
c.
The risk rating flow chart under CRISIL NEW rating models is as under: Composite rating
(Indicator of expected loss) EI
Obligor (borrower) rating. Indicator of probability of default I.e PD . Evaluation of

Creditworthiness of a Obligor (Borrower).
Facility Risk Rating (indicator of Loss Given Default i.e. LGD) .Evaluation of Riskiness of a Facility
Obligor (borrower) rating Industry risk Business risk 3. Financial risk 4. Management risk
1. 2.
Project Risk Rating Project Implementation Post Implementation
1. 2.
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Project implementation risk 1.construction risk 2.fund risk
Post project implementation risk 1 .Industry risk 2.Bbusiness risk 3.Financial risk
Obligor (borrower) rating The obligor (Borrower) rating is indicative of creditworthiness of an obligor or the Probability of Default (PD) and it is based on the assessment of past and projected cash flows of the company. Obligor Rating Grades range from BOB-1 to BOB-10.However depending upon the model used, the rating grades ranging from BOB-1 to BOB- 10 or BOB-3 to BOB-10 or BOB-6 to BOB -10 are generated as follows: Sr. No Model Obligor (Borrower) Rating Grades
a) For Borrowers under Large Corporate BOB-1 to BOB-10 (Mfg /Services), Banks, NBFCs and Broker categories. b) For Borrowers under Infrastructure project having operations phase or expansion / diversification project category.
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a) For Borrowers under SME BOB-3 to BOB-10 (Manufacturing) and SME (Services) categories. b) For Existing and New Borrowers under Trader Category
Green Field Project Borrowers under BOB-6 to BOB-10 Large Corporate (Mfg / services) -with project, SME (Mfg./ Services)- with project and Infrastructure (Power/ Port/ Road/ Telecom)-Build Phase categories.
Facility rating Facility Rating involves assessment of the security coverage for a given facility and indicates the Loss Given Default (LGD) for a particular facility. Facilities proposed/ sanctioned to a company are assessed separately under this dimension of rating. Facility Rating grades range from FR-1 to FR-8. Composite rating The Composite Rating (CR) which is the matrix or the combination of PD and LGD; indicates the Expected Loss in case the facility is defaulted. The Composite Rating is worked out automatically by the software based on the matrix of Obligor (Borrower) Grade (BOB Rating) and Facility Rating Grade (FR). Composite rating grade ranges from CR-1 to CR-10 CUT- OFF GRADE FOR ACCEPTANCE Bank has accepted BOB-6 as the cut-off point for the acceptance of an obligor (borrower) based on Obligor (Borrower) rating carried out as per the applicable model. External Credit Rating System
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External Credit Rating should be carried out in all SME loan accounts with credit limits of above Rs 5 crores by any one of the RBI approved external credit rating agencies. Presently ICRA, CARE, CRISIL and FITCH are the only Reserve Bank of India approved external credit rating agencies in India Techno-economic viability study It is done to ensure that the project is technically and economically viable. Amount Below 5 crores 5-10 crores Above 10 crores Conducted By TEV study not needed Empanelled consultant of bank Official Finance Mumbai of Project Dept from
4.6 LOAN PROCESSING PROCEDURE AT BANK OF BARODA

Borrower / client
PROJECT REPORT & ALL DOCUMENTS & SUBMISSION OF APPLICATION BANK
VERIFICATION OF DOCUMENT
INSPECTION OF SECURITIES AND FIED VISIT Power project financing in Bank of Baroda |
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CMA PREPARATION
CIBIL REPORT
CREDIT RATING
REPAYMENT OF INTEREST AND INSTALLMENTS
LOAN APPRAISAL NOTE
LOAN SANCTION
DISBURSEMENT OF LOAN
GENERATION OF LOAN ACCOUNT
POST SANCTION MONITORING
1.
Applications for loans Standard schedule of fee / charges relating to the loan application depending on the segment, to which the accounts belong, will be made available to all the prospective borrowers in a transparent manner, along with the loan application, irrespective of the loan amount. Likewise, amount of fee refundable in the event of nonacceptance of the application, prepayment options and any other matter which affects the interest of the borrower will
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also be made known to the borrower at the time of application. Receipt of completed application forms will be duly acknowledged. The acknowledgement would also include the approximate date by which the applicant should call on the Bank for preliminary discussions, if deemed necessary. All loan applications will be disposed of within a period of 4 weeks from the date of receipt of duly completed loan applications i.e. with all the requisite information/papers. In case of rejection of loan application, irrespective of category of loans or threshold limits, the same would be conveyed in writing along with the main reason(s), which led to rejection of the loan application. CHECKLIST OF DOCUMENTS Proof of identity Voters ID card / Passport /driving licence / PAN Card / signature identification from present bankers of proprietor, partner or Director (if a company). Proof of residence Recent telephone bills, electricity bill, property tax receipt / passport / voters ID card of proprietor, partner or Director (if a company). Proof of business address Proof of Minority Memorandum and articles of association Company/Partnership Deed of partners etc. of the
Assets and liabilities statement of promoters and guarantors along with latest income tax returns. Rent Agreement (if business premises on rent) and clearance from pollution control board if applicable. SSI registration if applicable.
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Last three years balance sheets of the units along with income tax /sales tax returns etc. (Applicable for all cases from Rs.2 lacs and above). However, for cases below fund based limits of Rs.25 lacs if audited balance sheets are not available, then unaudited balance sheets are also acceptable as per extant instructions of the bank. For cases of Rs.25 lacs and above, the audited balance sheets are necessary. Profile of the unit (includes names of promoters, other directors in the company, the activity being undertaken, addresses of all offices and plants, shareholding pattern etc. (APPLICABLE FOR CASES WITH EXPOSURE ABOVE Rs.25 LACS). In case of takeover of advances, sanction letters of facilities being availed from existing bankers/Financial Institutions along with detailed terms and conditions. Project report (for the proposed project if term funding is required) containing details of the machinery to be acquired, from whom to be acquired, price, names of suppliers, financial details like capacity of machines, capacity utilisation assumed, production, sales, projected profit and loss and balance sheets for the next 7to 8 years till the proposed loan is to be paid, the details of labour, staff to be hired, basis of assumption of such financial details etc. (APPLICABLE FOR CASES WITH EXPOSURE ABOVE Rs.25 LACS). Review of account containing month wise sales (quantity and value both), production (quantity and value), imported raw material(quantity and value), indigenous raw material (quantity and value), value of stocks in process, finished goods (quantity and value), debtors, creditors, bank's outstandings for working capital limits, term loan limits, bills discounted. (APPLICABLE FOR CASES WITH EXPOSURE ABOVE Rs.25 LACS). Photocopies of lease deeds/title deeds of all the properties being offered as primary and collateral securities.
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Position of accounts from the existing bankers and confirmation about the asset being Standard with them (In case of takeover). Last three years balance sheets of the units along with income tax /sales tax returns etc. (Applicable for all cases from Rs.2 lacs and above). However, for cases below fund based limits of Rs.25 lacs if audited balance sheets are not available, then unaudited balance sheets are also acceptable as per extant instructions of the bank. For cases of Rs.25 lacs and above, the audited balance sheets are necessary. Manufacturing process if applicable, major profile of executives in the company, any tie ups, details about raw material used and their suppliers, details about the buyers, details about major competitors and the company's strength and weaknesses as compared to their competitors etc. (APPLICABLE FOR CASES WITH EXPOSURE ABOVE Rs.25 LACS).
2. Roc search report It is done for limited company to see whether they are registered or not. It cannot be done for proprietorship/partnership firms. It is to ensure whether there is charge against the Director/company, whether the balance sheet submitted to bank is the same submitted to the registrar. The search report is done by Chartered Accountant. 3. Legal search report It is done by empanelled advocate of the bank. It is to ensure that the land is mortgagable or not, to ensure that there is no legal restrictions on the land (land being agricultural). 4. Valuation report It is done by the empanelled valuer of the bank. He does the valuation of the land to ensure whether the land is worth the value which the borrower is showing. 5. CIBIL report
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It is done to ensure the whether the credit worthiness of the borrower, to ensure there are no filed cases against him. Moreover it can also disclose where has the borrower applied other than our bank for the loan. 6. RBI willful defaulters list It is to ensure the borrower name is not there. The list is updated by all banks into RBIs database of the defaulters and the information can be checked there. 7. ICAI There banks checks whether the Chartered Accountant of the company is genuine CA or not. 8. Restructuring of balance sheet as per CMA requirement a. The balance sheet of a corporate entity as per Companies Act needs to be restructured by the Bank before a meaningful analysis can be made. b. The balance sheet prepared as per the Companies Act lists the assets and liabilities in the descending order of "Security". However, as per the CMA format the assets and liabilities are listed out in the descending order of "Liquidity". c. The CMA format has also incorporated certain changes in respect of classification of preference share capital, fixed assets, current assets, etc.
9. Analyzing & benchmarking with ratios As mentioned earlier the benchmark required , all the ratios are checked and analysed. 10. Assessing Working Capital Limits
It is done by the two methods mentioned earlier. It is done only for CC facility. 11. Pre-sanction inspection
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It is done by the bank officials. They visit the site and do the inspection of securities. Also they look at the present status of the project in case of TL facility. 12. TEV report
It is done to ensure whether the fresh proposal is techno-economically viable or not. Other details have been mentioned earlier. 13. Credit rating
Bank has taken the BOBRAM Model for rating. Credit rating Input sheet is first filled according to the model and then rating is done 14. Interest rate determined
As per the credit rating of the proposal, interest rate is determined. Interest Rate Structure is attached in the annexure. Finally the APPRAISAL NOTE is made according to Banks format along with Terms and conditions. 15. Loan appraisal and terms / conditions
In accordance with Banks prescribed risk based assessment procedures, each loan application will be assessed and suitable margin/securities will be stipulated based on such risk assessment and Banks extant guidelines, however without compromising on due diligence. The sanction of credit limit along with the terms and conditions thereof is to be conveyed to the loan applicant in writing and applicants acceptance of such terms and conditions will be obtained in writing. Such terms and conditions as have been mutually agreed upon between the bank and borrower prior to the sanction will only be stipulated. Copy of loan documents, along with a copy each of all relevant enclosures quoted in the loan agreement should be furnished to all the borrowers at the time of sanction / disbursement of loans. Standard sanction letter would include instances of approval, disallowance, etc.
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The bank is under no legal obligation to increase/additional limits/facilities without review/assessment.
consider proper
In case of lending under consortium arrangement, the participating bank would decide the timeframe to complete appraisal of the proposal and communication of the decision. The Bank will abide by the decision of the consortium. Sanction of loan
16.
Sanctioning is done by higher authorities as per their discretionary Lending Powers(DLP)If any advance sanctioned is not availed within four months (six months in case of priority sector advance) from the date of sanction, the facility should not be allowed without referring the matter to the sanctioning authority. 17. Review after Sanction
Credit facilities sanctioned to borrowers are subjected to annual review as per the prevailing guidelines. Branches have been authorized to review advance accounts of borrowers in trading activities, Micro & Small Enterprises, borrowers in rural area, borrowers having only term loan accounts, financed under government sponsored program, borrowers enjoying only guarantee facility etc. with limits upto Rs. 20/lacs pending receipt of audited financial statements provided the conduct of the account is satisfactory in terms of various parameters stated below: a. Satisfactory conduct and turnover in the account b. Fulfillment of repayment obligations (Interest/ Installments) c. Adequacy of securities, drawing power, insurance coverage etc. d. Rectification of inspection irregularities submission of financial statements) (other than non
e. Compliance of all terms and conditions of previous sanction. f. Satisfactory trend in production and /or Sales as per projections.
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g. Documentations and mortgages in the account being complete, valid and enforceable h. Prompt payment of bills under LCs, realization of BP/BDs, Guarantee Commission etc. i. Submission of Income Tax / Sales Tax returns filed with statutory Authority as per time schedule prescribed, wherever applicable (which will also indicate about the sales and profitability of the operations). The financial statements should, however, be obtained within 9 months from the close of the financial year and is satisfied upon by the sanctioning authority on financial parameters emerging out of the Balance Sheet/ Profit and Loss Account submitted by the borrowers at a later date. If the financial parameters emerging from the submitted Balance Sheet are not found satisfactory, appropriate actions, as may be warranted, should be initiated. The account should not be reviewed without financial statements for two consecutive years. The above procedure has been adopted to ensure timely review of small sized advance accounts and to reduce the number of un-reviewed accounts. 18. Short Review/Status Note:
The bank has also the practice of Short Review/Status Note, which is done when it is not possible to carry out a comprehensive Regular Review of the account within the stipulated period pending receipt of certain particulars/information or where the account is placed under special monitoring, etc. 19. Documentation
Documentation forms an important part of lending which establishes the following: Legally enforceable contractual relationship between the Bank and the constituent such as Lender/Borrower.
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The nature and description of the security, if any, offered for the advance, and the terms and conditions of sanctioning the advance. Banks unfettered rights for crystallization of securities when necessary .When an unlikely event of default happens, as a last resort, documents obtained by the Bank form the basis upon which the Bank may file a suit, as and when found necessary, in a competent Court of Law against the defaulting borrower/guarantor. Creation of Security is also an important aspect involving creation of mortgage, assignment etc. Such charges are also to be registered with competent authorities in case of certain type of organization say with Registrar of Companies in case the borrower is a Limited Company. Verification of documents
20.
Advances accounts with aggregate limit of above Rs. 1 crore (Funded plus Non-Funded) would be verified by the Banks Law officer posted in their respective Zone / Region and the documents relating to Advance Accounts with aggregate of Rs. 10 lacs and above but up to and inclusive of Rs. 1 crore shall be verified by the Banks identified Advocate / Lawyer other than the one who has given the Title Opinion / Non-Encumbrance Certificate (NEC) /Report in respect of mortgage(s) in the account. 21. Requirements before disbursements
In case of advances accounts falling within the discretionary Lending Powers of the Branch Manager: The Branch Manager has to make necessary arrangements to ensure compliance of the following aspects before making any disbursement under fresh / increase credit facilities and the proper record in this respect has to be kept by the Branches for perusal of higher authorities / inspecting officers /auditors: a. Full compliance of the stipulated terms and conditions (unless specifically exempted by the competent authority)
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b. Getting the documents duly vetted (wherever required) as per Banks extant guidelines. c. Ascertaining that the Borrower has obtained necessary license, permission, clearance required for running the business. d. Pre-disbursement inspection / site visits.
22.
Insurance
All assets (stocks / fixed assets) charged to the Bank as security for advances are to be comprehensively insured against the risk of theft / burglary, fire &Strikes, Riots, Malicious Damages (SRMD), with an insurance company, in the name of borrower / guarantor, with Bank Clause, at the borrower's expenses, unless insurance is specifically waived or not required to be taken as per provisions relevant to the lending scheme. 23. Disbursement of loans including changes in terms and conditions Disbursement of loans sanctioned is to be made immediately on total compliance of terms and conditions including execution of loan documents governing such sanction. Any change in terms and conditions, including interest rate and service charges, will be informed individually to the borrowers. Changes in interest rates and service charges will be effected prospectively. Consequent upon such changes any supplemental deeds, documents or writings are required to be executed, the same shall also be advised. Further, availability of facility will be subject to execution of such deeds, documents or writings. Post disbursement supervision
24.
Before taking a decision to recall/accelerate payment or performance under the agreement or seeking additional securities the Bank would give reasonable notice to the borrower.
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All securities pertaining to the loan would be released on receipt of full and final payment of the loans subject to any legitimate right or lien and set off for any other claim that the Bank may have against the borrowers.
4.7 DETAILS OF A PROPOSAL NOTE
A proposal is divided into two parts i.e. Section I and Section II. Section I comprises of the details of the Proposal while Section II deals with the Financial Parameters and their Assessment. The section 1 has the Gist of the Proposal where the details of the facilities are mentioned clearly. Sometimes certain concessions and deviations are allowed to the borrower considering the conduct of the account, the duration of relationship with the bank and more importantly the Banks business with the least exposure to risk. The gist is followed by the Banking Arrangement i.e. whether sole banking or consortium or multiple banking and also the status with other banks as well. It also incorporates the name of the Directors, Guarantors and the shareholding pattern. Then the Background of the Company is also studied well followed by the Inspection report and necessary compliances from various departments. Finally, this section ends with the justifications and recommendations to be made by the Credit Officer which forms an indispensable part of a proposal. This is where all the views regarding the concern is penned down precisely which is to be counted by the next higher authority before approving it for sanction. These justifications give the reason regarding the deviations, outstanding etc. Then we will have Section 2, which forms the backbone of a credit appraisal as it shows the Financials of the borrower and also interprets them from various angles. It shows the health of the borrower concerning the repayment of interest and principal. It is prepared from the CMA (Credit Monitoring Arrangement) submitted by the company. So a comprehensive appraisal contains the above items which form the basis for sanctioning credit to the borrowers or to reject the proposal.
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This is beneficial not only to the bank but also helps the customers from getting into any problematic situation in future which may not be noticed while applying for the credit facility.
5. Case study: Financing power projects by bank of Baroda.

5.1 PURPOSE: To bridge the nations electricity deficiency, implementing a 600 MW (2 x 300 MW) domestic coal based power project in Tadali industrial area, chandrapur district , Maharashtra. 5.2 PROJECT DETAIL
Project structure: Maharashtra /other states utilities (offtakers) Railway (coal transportation
**** limited (equity contribution) **** Private limited Lenders (financing agreement)
SECL (coal supply)
Package contractors Power project financing in Bank ofsupply)| (equipement Baroda international (owners engineer)
*****
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Location: The total land required for the power project is about 456 acres. The land is notified industrial land and forms part of the Tadali industrial area developed by Maharashtra industrial development corporation (MIDC). The site is at a distance of about 11 kms from chandrapur town and is located at a distance of about 150 kms from Nagpur. The land is conveniently located at a distance of 3.5km from the nearest railway station, Tadali station. The site is also in close proximity to the state highway which is 500 m away from the site. The nearest port is Vishakhapattanam port which is 700 kms away from the site. The project is at a distance of 9.3km from the river Wardha. The land is nonagricultural and uninhibited so no need for rehabilitation & resettlement (R&R) issues are envisaged. Land: The total area required for the project is 456 acres. The break-up of the land requirements is given below: Description Main power plant Residential quarters Ash dyke Total Area required (acres) 335 25 96 456
The site is a notified industrial land and forms part of Tadali Industrial Complex developed by MIDC about 120 km away from NagpurHyderabad highway. The land is acquired from MIDC on a lease of 95 years. The project needs about 10 acres of land for construction of railways sidings and coal transportation infrastructure from the nearest
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railway station to the project site. The company is in process of acquiring that land. Raw material: WATER The total catchment area of Wardha River is about 40,000 square km and it discharges about 2500 million cubic meters of water annually. The amount of water required for the project is estimated at about 2,174 cubic meters per hour. The project would utilize water from river Wardha to meet both its consumptive and cooling water requirements. The project site is located at 9.3 km away from the river. The company has already entered into a Water supply agreement for drawl of 19.27 million cubic meters of water with irrigation Department of government of Maharashtra. The company has entered into an agreement with GoM for putting of underground pipeline from the river to the project site. The water resources department GoM had earlier certified the availability of 19.27 million cubic meters from river for the project. The irrigation department of GoM has given approval for constructing two radial wells of equal capacity of 6 million cubic meters.
PRIMARY FUEL The project envisages usage of domestic coal as primary fuel for the project. The aggregate coal required to operate the plant at a Plant Load Factor of 85% out to about 2.70 million tons per annum. Coal shall be supplied under longer term linkage from south eastern coalfields limited (SECL). The company has already been awarded coal linkages in two stages for 1.3 MTPA and 1.43 MTPA for supply of coal from SECL. The coal is envisaged to be transported through Indian railways from SECL mines to the project site. As per the current railway freight rates, the freight of transportation of coal over a distance of 650 km is Rs 578 per ton. SECONDARY FUEL Heavy fuel oil (HFO) and light diesel oil (LDO) shall be used as a secondary fuel. LDO would be used for start-up and HFO for flame
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stabilization purposes at low loads. The annual requirement of secondary fuel LDO/HFO is estimated at about 4.5 million litres per annum. The secondary fuel would be sourced from nearby oil depots.
5.3 OFF TAKE: The project has been originally conceptualized under the policy of government of Maharashtra on investment in the power generation sector for capacity addition of above 500 MW. According to the policy , GOM shall acquire land for project provide all clearances under a single window and facilitate connecting infrastructure, right of way, water availability , fuel linkage and evacuation facilities. The rest of the power will be sold to the state of Maharashtra through competitive bids called MSEDCL or other utilities in the state of Maharashtra or directly bulk credit worthy customers and a long term Power Purchase Agreement (PPA) shall be entered into for the same. The balance 50% will be sold through merchant basis. A condition has been stipulated that a long term PPA with a utility or with a power trader with back to back arrangements with utility/ bulk credit worthy customers , for at least 50% capacity at tariff comprising charge sufficient to cover 50% of capital cost and fuel cost being through shall be executed prior o first disbursement.
5.4 POWER EVACUATION: The company proposes to sell 50% of the power capacity within Maharashtra and 50% on merchant basis. The evacuation of power is proposed through the chandrapur substation of Maharashtra state electricity transmission company limited (MSECTL) ,which is situated at a distance of 10 km from the project site for which the company has receive in principle clearance from MSETCL for 300 MW and has applied for access for another 300 Mw. The substation currently pools power of about 2300 MW of power capacity and is being expanded for pooling of another 1000 MW of power. The company has also applied for open access to power grid corporation of India limited (PGCIL) grid for selling of power outside the state of Maharashtra, if required. The transmission lines connecting the project to chandrapur substation and associated
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infrastructure shall form part of the project and are estimated to cost about Rs 290 million. A condition has been stipulated that the company shall make necessary arrangement for open access for entire 600 Mw prior to first disbursement.
5.5 OPERATION & MAINTENANCE The company proposes to undertake operation and maintenance of the project in house with the support of its technical team and expert engineers. The scope of work includes preparation of the detailed Project Report (DPR) for the proposed project and review of engineering services provided by project contractors including review of progress made in project implementation. The O&M team of the power station would be headed by a Senior Vice President, under whom separate groups viz. Operation, Mechanical, Electrical, Civil and C&I maintenance would operate. In addition to these groups, operation and efficiency improvement group and maintenance planning group would monitor the efficiency in operations and maintenance management respectively and suggest continua improvements. 5.6 IMPLEMENTATION ARRANGEMENT: The company is in discussion with various china suppliers for sourcing the BTG (boiler turbine and generator) package for the project. The company has also indicated that the BTG contract is expected to be awarded to a Chinese manufacturer and the contract is expected to be finalized shortly. A condition has been stipulated that prior to first disbursement the company shall have awarded BTG contract and all other key contractors for balance of plant shall have been identified and the agreements with them have been finalized and reviewed by the lenders engineer. 5.7 SCHEDULE OF IMPLEMENTATION: The project is proposed to be implemented by way of packaged contracts. The two units of the project are expected to be completed within 33 and 36 months respectively from notice to proceed to the BTG contractor. Particulars Timelines
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Notice to proceed Day 0 Complete production (unit I) Day 0 +33 months Commercial production (unit II) Day 0+36 months Total implementation period 36 months It may be noted that the exact implementation schedule would be finalized after the finalization of the key contracts and review by the lenders engineer and shall be incorporated in financing documents. 5.8 COST OF THE PROJECT The project is estimated to be set up at an aggregate cost of Rs 28.50 billion comprising of expenditure towards land, plant, and machinery, civil works, transmission line, preliminary &preoperative expenditure, and interest during construction period. A summary of the components of Project cost is presented below: Particulars Land and site development BTG supply BTG erection Balance of plant including civil works Railway siding Transmission line Miscellaneous infrastructure works Consultancy charges & overheads Taxes & duties Finance costs Working capital margin Contingencies Total Amount (Rs) 500.00 10416.00 800 8000 370 290 860 977 2721 2508.70 486.05 570.00 28500.00
5.9 MEANS OF FINANCE

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The cost of the project estimated at Rs 28.50 billion is proposed to be financed by debt and equity in the ratio of 75:25 respectively. The proposed components of financing shall be as under: Sources Senior debt Equity Total % 75% 25% 100% Amount 21,375.0 7125.0 28500.00
5.10 MARKET AND SELLING ARRANGEMENTS 50% of the power generated from the project would be sold to power utility companies under long term PPA in the state of Maharashtra. The company shall enter into the PPA prior to first disbursement under the proposed facility. The company plans to sell the remaining 50% power on merchant basis. The company expects to get a minimum tariff including minimum capacity charge sufficient to cover 50% of capital costs and variable charge linked to CERC escalation index from power utility companies through long term PPA and tariff of Rs 3.00 per unit on merchant basis 5.11 APPROVALS AND CLEARANCES The company has obtained some of the statutory approvals and clearances required for implementation and operations of the project and are in process of obtaining other clearances. The details of the approvals and clearances required for the project are project are provided below: Approval/consent Environmental clearances Authority/agency Ministry environment forest Status of The project has been and awarded environmental clearance.
Pollution clearance Water availability
Maharashtra pollution Clearance received control board Government of Received Maharashtra irrigation agreement an signed
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department
with irrigations department of GOM for drawl of water from wardha river on July 31, 2009. Company has received principle clearance from MSECTL for 300 MW and has applied for access for another 300 MW. The company has also applied to PGCIL grid of Obtained on 13, 2009. march
Open access transmission
for MSECTL/PGCIL.
Stack height clearance Airport authority for chimney India (AAI) Coal availability CIL/SECL
Coal linkages awarded from secl vide LOA dated august 20, 2008 for 1.3 MTPA and subsequently for 1.43 MTPA on June 6, 2009.
5.12 PROFITABILITY PROJECTIONS: Financial projections: The projection of financial performance of the company for the first four years of operations is provided below. The assumptions of profitability projections are provided in annexure II. The projected Profit and loss account, balance sheet and cash flow statement are provided in annexure III. Financial year 2015 2017 2019 2021
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ending March 31st Year of operation Total operating income (TOI) EBIDTA EBIDTA/ TOI (%) Interest Depreciati on Operating profit ( OP) PBT PAT PAT/TOI % Net cash accruals (NCA) Net fixed assets Tangible net worth (TNW) Exposure in subsidiari es / group company Adjusted TNW (TNW) Long term debt (LTD) (A) Working capital bank finance (B) Total debt
2 11550.8
4 11731.5
6 11928.2
8 12142.6
5988.5 51.85 2475.7 1479.1 2033.7 2033.7 1688.1 14.61 3167.2 25797.3 9344.1 -
5739.8 48.93 2071.6 1479.1 2189 2189 1817 15.49 3296.1 22834.9 12895.8 -
5472.2 45.88 1640.7 1479.1 2352.3 2352.3 1952.6 16.37 3431.7 19876.7 16.735.5 -
5178.5 42.65 1210.3 1479.1 2489 2489 2066.0 17.04 3545.1 16914.3 20806.6 -
9344.1 19883.7 1835.3
12895.8 15907 1888.7
16735.5 11930.2 1946.5
20806.6 7953.5 2009.8
21719.0
17795.7
13876.8
9963.3
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(A+B) Total debt /ATNW LTD/ATNW Total current assets Total current liabilities Net working capital Current ratio ROCE % Interest cover Total debt/EBID TA Total debt/ NCA DSCR Average DSCR
2.32 2.13 5265.9 1835.3 3430.6 2.87 15.43 2.28 3.63 6.86 1.42
1.38 1.23 7856.6 1888.7 5967.8 4.16 14.79 2.59 3.10 5.40 1.34
.83 .71 10735.6 1946.5 8789.1 5.52 13.93 3.09 2.54 4.04 1.42 1.48
.48 .38 13855.5 2009.8 11845.7 6.89 12.86 3.93 1.92 2.81 1.52
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PARAMETERS
INDICATIVE LEVEL AS PER LEVEL AS PER LOAN POLICY 1.33
COMPANYS LEVEL AS 31.3.14 (PROJECTED) 2.12
i.current ratio
ii.
DE ratio (TOL/TNW)
4.5:1
3.00
iii.
Debt/ equity (TTL/TNW) Average Minimum DSCR
3:1
2.79
iv. DSCR iv.
1.75 1.25
1.48 1.30
v.
Promoters contributi on
25%
25%
5.13 BANK OF BARODA RATINGS OF THE COMPANY
Internal credit rating Obligor rating Facility rating Combined rating BOB 6 (moderate safety) FR 4 (adequate safety) CR 6 (moderated expected loss)
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External credit rating External credit rating of the company not taken up as it is a Greenfield project under implementation and at a nascent stage.
5.14 SENSITIVITY ANALYSIS: The 600 MW power project is assumed to operate at a base rate PLF of 85% with 50% of power proposed to be sold in Maharashtra under long term PPA and the balance 50% to be sold on merchant basis at a tariff of Rs 3.00 per unit with no escalation. This gives a minimum debt service coverage ratio (MDSCR) of 1.30 and average debt service coverage ratio (ADSCR) of 1.48. The effect of adverse variations in critical factors is analyzed below: 1. Plant Load Factor PLF ADSCR MDSCR Base case 85% 1.48 1.30 Sensitivity 80% 1.39 1.22 70% 1.22 1.07
2. Station heat rate (SHR) SHR ADSCR MDSCR Base case 1.48 1.30 Sensitivity 2500 1.44 1.28 2750 1.36 1.23
3. Landed coal price Landed price ADSCR MDSCR coal Base case (Rs Sensitivity 1,681/ ton in year 1) 10% increase 1.48 1.40 1.30 1.25
25% increase 1.28 1.17
4. Interest rate
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Interest rate ADSCR MDSCR
Base rate 11.00% 1.48 1.30
Sensitivity 13.50% 1.37 1.18
15.00% 1.31 1.12
5. Merchant power tariff Merchant tariff Base rate (Rs per unit) 3.00 ADSCR 1.48 MDSCR 1.30 5.16 BANKING ARRANGEMENT Term loan: Consortium arrangement (leader: ICICI bank) Name of the instituti on Bank of Baroda IDBI UCO bank Axis bank ICICI Bank Allahaba d bank Total s Limit Outstandi ng as on 30.3.2011 100 150 Nil 45 75.00 Excess /overd ue present exposure) Securi ty and its value Charge of the fixed assets of the project on paripassu basis Sensitivity 2.70 1.32 1.18 2.50 1.21 1.09
400 310 477 200 450 300 2137.5 0
Exposure to industry (including (infrastructure power generation)
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a. Sectoral cap industry b. Banks exposure c. Zones exposure d. NPA at bank level e. NPA at zonal level
18500.00 14866.52 798.89 0.00 0.00
Cost of project particulars Land and development BTG Supply Amou nt 50.00 1041.6 0 80.00 800.00
Means of finance Particula rs Equity Term loans from Bank of Baroda IDBI 400.00 310.00 Amoun t 712.50
BTG erection Balance of plant including Civil works Railway siding Transmission line Miscellaneou s Infrastructur e works Contingencie s
37.00 29.00 86.00
UCO AXIS ICICI*
477.50 200.00 750.00*
57.00
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Total hard cost (including contingencie s) Taxes duties &
2180.6 0
97.75 272.17 250.87 48.61
Finance costs Working capital margin
5.17 RISK ANALYSIS, MITIGATION AND SWOT ANALYSIS The key risks of the project and mitigation measures are analyzed below: PRE CONSTRUCTION AND CONSTRUCTION RISKS FINALIZATION OF KEY CONTRACTS :
Proposed mitigation mechanism - The project is proposed to be implemented by way of packaging contracts and the company is expected to award the BTG contract to a Chinese manufacturer shortly. A condition has been stipulated that all the key contractors required for the implementation of the project have been identified and the agreements with them have been finalized and reviewed by LE prior to first disbursement. LAND: Proposed mitigation mechanism- Entire land required for the project except that of 10 acres required for the railway sidings has been acquired and is under possession of ####. #### has entered into lease agreement with #### has entered into lease agreement with MIDC on September 7, 2009 for land of 445 acres for a period of 95 yrs and has already paid upfront lease payment of Rs 312.9 million. The company is in process of acquiring 10 acres of land for railway sidings, which is also owned by MIDC. The project land is part of the Tadali industrial area developed by MIDDC. There are no rehabilitation and resettlement requirement and the land also does not form part of any notified forest area.
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APPROVALS AND CLEARANCES:
Proposed mitigation mechanism The company has obtained clearance from airport authority of India for chimney height and for drawl of water and has entered into water supply agreement with GOM . the company has been awarded the environment clearances from ministry of environment and forest (MOEF). FINANCING RISK: EQUITY
Proposed mitigation mechanism- The entire equity amount of Rs 71265.0 million shall be brought in by **** limited . it may be noted that **** generated net cash accruals of RS 6.66 billion during FY 2009 and had cash and cash equivalent of RS 14.90 billion at march 31, 2009
TERM LOAN:
Proposed mitigation mechanism- ICICI bank has underwritten the entire debt of Rs 213750.0 million and it is being syndicated. OPERATIONAL RISK
WATER AVAILABILITY-
Proposed mitigation mechanism- The company has executed a water supply agreement with irrigation department of government of Maharashtra for drawl of 19.27 million cubic meters of water a annually against the required of 19.05 million cubic meters. Water would be procured from wardha river, which is about 9.3 km from the project The total catchment area of Wardha River is about 40000 sq km and it discharges about 2500 million cubic m of water annually. The water resources department of government of Maharashtra has also issued a water availability certificate for availability of 19.27 million cubic m of water for the project. EQUIPMENT UNDER PERFORMANCE
Proposed mitigation mechanism- The BTG contract is expected to be awarded to a leading and experienced equipment manufacturer in china. Further, the contract would provide for adequate liquidated damages for shortfall in performance parameters. A condition has been
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stipulated that LE shall vet the contracts of major equipments prior to first disbursement. TRANSPORT LINKAGE
Proposed mitigation mechanism- The project site is 11 km from chandrapur town and 150 km from Nagpur. Nearest railway station is Tadali, which is 3.5 km from the site. Further state highway is just about 500 m away from the project site. Coal would be transported through railroad network from SECL mines which are situated at a distance of about 650 km from project rite. The company shall enter into a tripartite fuel supply agreement for supply of coal from SECL and transportation of the same through railways. A condition has been stipulated that transportation of coal as per the transportation schedule as certified by the LE prior to disbursement. PORT LINKAGE Proposed mitigation mechanism- The nearest port is Vishakhapatnam port which is about 700 km from the project. In case the company is required to import coal for operating the project at higher PLF or in case of short supply from SECL, the coal shall be required to be transported through railways from Vishakhapatnam port to the project site. OFF TAKE RISK: PAYMENT RISK
Proposed mitigation mechanism- #### proposes to enter into PPA with utilities in the state of Maharashtra for 50% of the power. It may be noted that the payment mechanism in the model PPAs under bidding route provides for unconditional, revolving and irrevocable letter of credit for 1.1 times the average monthly tariff payment. The company proposes to sell balance 505 of power on merchant basis where payment risk is not high. OTHER RISK: FORCE MAJURE
Proposed mitigation mechanism- #### proposes to take out a comprehensive insurance policy package during the construction / operation period for this project. A condition has been stipulated that the company shall ensure that all requisite insurance policies are taken
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prior to first disbursement and premiums are period and are suitably endorsed in favor of lenders/ security trustee. INTEREST RATE FLUCTUATIONS
Proposed mitigation mechanism- Interest during construction will be part of the project cost. Project cost also include a contingency provision of RS 570 million and **** will provide sponsor support for meeting all cost overruns. The financial projections of the project during operations periods assume an interest rate of 11% per annum.
SWOT ANALYSIS:
Strength:
DIPL has secured coal linkage for entire 2.73 million tons per annum from south eastern coalfields limited. The project shall require about 2.70 MTPA of coal at PLF of 85% . Thus fuel risk is minimized. The cost of energy (excluding return on equity) for the project is expected to be competitive at about Rs 2.45 per project is expected to be competitive at about Rs 2.45 per kWh, which will enable the company to earn satisfactory returns even in competitive bidding scenario and the variable cost is also expected to be dispatch as the same is based on domestic coal prices. The total land required for the power project is part of a notified industrial land forms part of the Tadali area developed by MIDC. The company has already acquired the 445 acres of land from MIDC under a lease of 50 years. The site is well connected with rail road network with established infrastructure which would help in smooth implementation and operations of the project. The project shall be based on sub critical technology for thermal power projects. The project has obtained water clearances for the entire water requirement of 19.05 million cubic meters per annum. In this regard the company has already entered into an agreement with Government of Maharashtra for drawl of water from Wardha River.
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The company has also obtained permission for construction of radial wells for shortage of about 6 million cubic meters of water for usage during lean season.
Location of the project in western region is another point of strength considering the severe power shortage in western India. A dedicated transmission line is included in the cost of project which will enable the company to supply power to MSETCL grid. Weakness:
The company has not tied up PPA for the power generated from the project. The company however proposes to sell 50% power under long term arrangements within the state of Maharashtra through competitive bids or through a power trader with back to back arrangements with utilities / bulk credit worthy customers and shall be entering into a long term PPA for the same . The company proposes to sell the balance power on merchant basis. Lease deed for 10 acres of land for railway siding yet to be executed.
Mitigation: company has assured for finalization of the same early date before disbursement of the facility. Some approvals/clearances are yet to be received by the company.
Mitigation: It has been stipulated that company to submit all necessary clearances/ approvals before disbursement. Opportunity:
With several reforms implemented in past by government of India such as the electricity act 2003,national tariff policy 2006, APDRP etc and further strengthening and opening of the sector power , it is expected that more and more opportunities would emerge for private sector parties in the energy sector in India. The project site is located in the eastern part of the state of Maharashtra which falls in centre of India. The project site will enable the company to sell power not only in power deficit state of Maharashtra but also to other states in western and northern region.
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Threat:
The other projects coming up in the surrounding region may provide competition to the company with regard to tie up of plant capacity with other state utilities/bulk customers.
A condition has been stipulated that prior to disbursement the company shall execute a long term PA with a utility or with a power trader with back to back arrangements with utility/ bulk credit worthy customers, for at least 50% capacity at tariff comprising of capacity charge sufficient to cover 50% of capacity cost and fuel cost being pass through. The balance power shall be sold on merchant basis. It may also be noted that the western and northern regions are facing acute power shortages and therefore power from the project can be directed to these regions.
5.18 OBSERVATION The company has proposed a thermal power plant of 600MW at the tadali region. The cost of the project is estimated at about 28.50 billion which the company proposes to finance through debt equity ratio of 75:25. The
company proposes to avail term loans from various banks and financial institutions for the debt requirement of Rs 21.38 billion to part finance the project and the remaining 7.12 billion will solely be contributed by its holding company. The credit rating of the company done by bank of Baroda is tabulated below: Internal credit rating Obligor rating Facility rating Combined rating BOB 6 (moderate safety) FR 4 (adequate safety) CR 6 (moderated expected loss)
External credit rating External credit rating of the company not taken up as it is a Greenfield project under implementation and at a nascent stage.
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the profitability ratios are given below: PARAMETERS INDICATIVE LEVEL AS PER LEVEL AS PER LOAN POLICY 1.33 COMPANYS LEVEL AS 31.3.14 (PROJECTED) 2.12
i. current
ratio
ii.
DE ratio (TOL/TNW)
4.5:1
3.00
iii.
Debt/ equity (TTL/TNW) Average Minimum DSCR
3:1
2.79
iv. DSCR iv.
1.75 1.25
1.48 1.30
Based on the profitability projections given by the company and the ratios calculated by the bank suggests that the company can repay the loan in the mentioned time period. The company has secured the required approvals from the government of India and other important concerned government organizations regarding the project.
6.
Conclusion:
Credit Appraisal is a process of appraising the credit worthiness of loan applicants. The funds of depositors i.e. general public are mobilized by means of funding loan. Thus it is extremely important for the lender to
Bank of Baroda
78
assess the risk associated with credit; thereby ensure the security for the funds deposited by the depositors. In Bank of Baroda, the credit appraisal is done after thorough study of the project and makes available credit facilities to the customers as per the evaluation done by the bank bout the various aspects of the borrower. Credit appraisal is the major challenge faced by the banks today, because of increase in default rate. Proposals are becoming riskier day by day. And after US meltdown, it becomes even important for the lenders to properly analyze the proposals and approve the loan. Commercial real estates is itself a huge fund required sector. Default will further make this sector much more risky. Similarly, SME sector also faces challenges in availing loan. One of the examples is of Tata-Chorus Deal. SBI has passed $1 billion dollar loan to Tata Steel for the purchase of chorus Steel within very short span of time. But SMEs being not so large in scale cannot avail such advantages. Nowadays government is also encouraging the people to avail loan as its a major economy booster for the country. Various policies have been formed to facilitate loan in much more organized and risk free way. But more steps need to taken to encourage this sector as this sector will heavily contribute to our economy. Boosting of this sector not only helps India to grow faster but it will also help to eliminate unemployment problem which is a major concern for India currently. More and more SME sectors in agriculture will help India to be self sufficient in food and help India to control inflation rate in future. Government need to take more initiative to promote this sector. But last but not the least; lenders should also give proper attention because without proper understanding between the lenders and borrowers, things will not fall in place as planned and may lead to miscommunication and thus, disadvantage for both parties concerned.
Bank of Baroda
79
Annexure I:
DSCR CALCULATION: FOR FY Profit tax 2014 after 53.1 0 73.8 0 117. 20 244. 10 117. 20 2.08 2015 168. 80 147. 90 226. 90 543. 60 149. 10 376. 00 1.45 2016 173. 50 148. 30 208. 40 530. 20 198. 80 407. 20 1.30 2017 181. 70 147. 90 185. 90 515. 50 198. 80 384. 70 1.34 .49 1.30 2.08 2018 188. 70 147. 90 164. 00 500. 60 198. 80 362. 8 1.38 2019 195. 30 147. 90 142. 20 485. 40 198. 80 341. 00 1.42 2020 200. 50 148. 30 120. 0 469. 40 198. 80 319. 40 1.47
Depreciatio n Total interest Total Debt repayment Total DSRC Average DSCR Minimum DSCR Maximum DSCR
Annexure II
Assumptions of profitability Technical details Capacity unit 1 Capacity unit 2 Total MW MW 300 300 600
project MW
Bank of Baroda
80
capacity Implementation period Zero date (NTP) Months to complete COD Financing structure Equity Senior debt Interest rate of senior debt during construction Interest rate of senior debt post COD Repayment assumptions Moratorium from COD period Months 12 43 15 25% 75% 11.25% 31st march 2010 42 30th 2013 September
11.00%
Equal quarterly Numbers installments Final maturity Technical assumptions First year PLF Subsequent PLF period Kcal/kwh % Years
75% 85% 2400 8.50%
Station heat rate Auxiliary consumption Revenue
Bank of Baroda
81
Capacity sold % through bid PPA Capacity merchant sold to %
50% 50%
Tariff for sale through bid PPA Capacity charges Variable charges Tariff for merchant sale Rs /unit Rs /unit to Rs /unit 1.50 On actual basis 3.00
Fuel assumptions Linkage coal Gross calorific value Kcal/kg of the linkage coal Coal cost as on date Escalation cost in coal Rs/tone Rs/tone 4000 790.00 5.0% 972.00 650.00 2.00% 707.00 .80%
Coal cost as on COD Transportation as on date
cost Rs/tone
Escalation in transportation cost Transportation as on COD Coal loss cost Rs/tone
transportation %
Expenses O & M expenses Rs million/MW 1.0
Bank of Baroda
82
Escalation in O & M % costs Depreciation rates Average depreciation book
4.0%
5.28% 15.00%
Average income tax depreciation Working capital Coal cost Spares Receivables Working margin capital Months % of O expenses Months &
1 M 20.0% 2 25% term (part cost) from long sources of project
Increase in working capital
25% through internal accruals & 75% through loan 11.25%
Interest on working % capital loan

Annexure III
Projected profit and loss statement: Financial 2014 year ending march 31 No months of 6 2015 2016 2017 2018 2019
12
12
12
12
12
Bank of Baroda
83
Year of 1 operation Sales (million units) Revenues Operating income Expenses Fuel Coal Fuel oil O&M EBIDTA Interest Working capital interest Depreciatio n Profit before tax Tax Profit tax 1799
2 4088
3 4088
4 4088
5 4088
6 4088
5045 _ _ 1996 100 311 2637 1172 88
11551 _ _ 4706 207 649 5989 2269 206
11639 _ _ 4883 214 677 5866 2084 209
11731 _ _ 5068 220 704 5740 1859 212
11828 _ _ 5260 227 732 5609 1640 216
11928 _ _ 5461 234 761 5472 1422 219
738 640 109
1479 2034 346 1688 3167 2021
1483 2090 355 1735 3218 2022
1479 2189 372 1817 3296 2023
1479 2274 386 1887 3366 2024
1479 2352 400 1953 3432 2025
after 531
Gross cash 1269 accruals Financial 2020 year ending march 31
Bank of Baroda
84
No months
of 12
12 8 4088
12 9 4088
12 10 4088
12 11 4088
12 12 4088
Year of 7 operation Sales (million unit) Revenue Operating income Expenses Fuel Coal Fuel oil O&M EBIDTA Interest Working capital interest Depreciatio n Profit before tax Tax Profit tax 5671 241 794 5327 1206 222 12033 4088
12143
12257
12376
12501
12631
5890 249 826 5178 984 226
6119 256 859 5024 766 230
6357 264 893 4826 547 234
6607 272 931 4691 329 237
6867 281 969 4515 109 242
1483 2416 411
1479 2489 423 2066 3545
1479 2549 433 2116 3595
1479 2603 442 2160 3639
1483 2641 449 2192 3675
1479 2684 456 2228 3707
after 2005
Gross cash 3488 accruals
Bank of Baroda
85
Projected cash flow statement: No months No months of 2014 of 6 2015 12 2 2016 12 3 2017 12 4 2018 12 5 2019 12 6
Year of 1 operation Sources funds Profit tax of
after 531 738
1688 1479 3167 274 3441
1735 1483 3218 21 3239
1817 1479 3296 32 3238
1887 1479 3366 28 3395
1953 1479 3432 30 3461
Depreciatio n
Cash from 1269 operations Working capital loan Total sources Application of funds Repayment of debt _ 1561 2830
1491 365
1988 29
1988 43
1988 38
1988 39
Increase in 2082 working capital Total applications 2082
1856 1585 1234
2017 1222 2819
2031 1297 4041
2026 1368 5338
2028 1433 6707
Net cash 748 generated Opening 486
Bank of Baroda
86
cash balance Closing cash balance DSCR 1234 2819 4041 6707 8140
2.05
1.42
1.30
1.34
1.38
1.42
Financial year ending march 31
2020
2021
2022
2023
2024
2025
No of 12 months Year of 7 operatio n Sources of funds Profit after tax Deprecia tion Cash from operatio ns Working capital loan Total sources 2005 1483 3488
12 8
12 9
12 10
12 11
12 12
2066 1479 3545
2116 1479 3595
2160 1479 3639
2192 1479 3675
2228 1479 3707
26
37
34
35
32
44
3514
3582
3629
3674
3707
3751
Bank of Baroda
87
Applicati on of funds Repayme 1988 nt of debt Increase in working capital Total applicati ons 35 1988 1988 1988 1988 1988
50
45
47
42
58
2023
2038
2033
2035
2030
2046
Net cash 1491 generate d Opening cash balance Closing cash balance DSCR 8140
1544
1595
1639
1677
1704
9631
1595
12771
14411
16087
9631
11176
11176
14411
16087
17791
1.47
1.52
1.58
1.68
1.72
1.81
Projected balance sheet: Financial year ending march 31 2014 2015 2016 2017 2018 2019
No of 12 months
12
12
12
12
12
Bank of Baroda
88
Year of 1 operatio n Sources of funds Share capital Reserves & surplus Secured loans Total sources of funds Applicati on of funds Gross block Less: deprecia tion Net block Total fixed assets Net current assets 28014 738 7125 531
7125 2219
7125 3954
7125 5771
7125 7658
7125 9611
21375 29031
19884 29228
17895 28974
15907 28803
13919 28703
11930 28666
27276 27276
Bank of Baroda
89
Current assets Inventor y Debtors Cash balance Current liabilities Net current assets
3316 396 1686 1234 1561 1755
5266 522 1925 2819 1835 3431
6517 541 1935 4041 1857 4660
7857 563 1955 5338 1889 5968
9263 585 1971 6707 1917 7346
10736 607 1988 8140 947 8789
Total 29031 applicati on of funds
29228
28974
28803
28706
28666
Projected balance sheet (contd) Financial year ending march 31 2020 2021 2022 2023 2024 2025
No of 12 months Year of 7 operation Sources of funds Share capital Reserves 7125 11616
12 8
12 9
12 10
12 11
12 12
7125 13682
7125 15797
7125 17958
7125 20150
7125 22378
Bank of Baroda
90
& capital116 16 Secured loans Total sources of funds Applicati on of funds Gross block Less: depreciati on Net block 28014 9620 28014 11100 28014 12579 28014 14058 28014 15541 28014 17020 9942 28682 7953 28760 5965 28888 3977 29059 1988 29263 _ 29503
18393
16914 16914
15435 15435
13956 13956
12473 12473
10994 10994
Total fixed 18393 assets Net current assets Current assets inventory Debtors Cash balance Current liabilities Net current 12262 630 2000 9631 1973 10289
13856 656 2024 11176 2010 11846
15496 682 2043 12771 2043 13452
17182 708 2063 14411 2078 15103
18900 735 2078 16087 2110 16790
20663 766 2105 17791 2153 18509
Bank of Baroda
91
assets Total applicatio n of funds 28682 28760 28888 29059 29263 29503
References
www.bankofbaroda.com http://business.mapsofindia.com/india-industry/banking.html http://www.business-standard.com/india/news/sme-portfolios-toqualify-for-priority-sector-lending/218644/ http://www.sbbnetwork.org/blogs/9?year=2011&month=5 http://www.caclubindia.com/articles/sme-financing-solutions8125.asp http://www.dare.co.in/people/featured-investor/os-vinodcgtmse.htm http://dare.co.in/funding/banks-loans/why-loans-for-womenentrepreneurs-are-not-taking-off.htm http://indiamartknowledge.blogspot.com/2011/01/finance-for-smegovernment-funding-and.html http://www.investopedia.com/

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2011 -13

[ FINANCING IN POWER PROJECTS BY BANK OF BARODA ]

Power project financing in Bank of Baroda |

INTRODUCTION TO THE INDIAN POWER SECTOR:

Installed capacity share by sector:

Installed generation capacity:

Demand supply forecast:

Power project financing in Bank of Baroda |

Power project financing in Bank of Baroda |

2.4 DEFICIT/SURPLUS SCENARIO

PEAK DEMA ND (MW)

PEAK MET (MW)

PEA K DEFI CIT/ SUR PLU S (MW )

PEAK DEFICI T /SURP LUS (%)

ENERG Y AVAILA BLE (MUs)

ENERG Y DEFICI T/SURP LUS (MUs)

ENERGY DEFICIT/ SURPLUS (%)

NORTH WEST SOUTH EAST NORTHEAST

33034 37240 28340 1901 1820

224218 254486 204086 82127 9407

199928 213724 188865 78370 8134

24290 40726 15221 3757 1273

10.8 16.00 7.50 4.60 13.50

Power project financing in Bank of Baroda |

Percentage 52.5% 34.0% 13.5% 100%

Power project financing in Bank of Baroda |

3.1 ABOUT BANK OF BARODA:

A Saga of Vision and Enterprise

JOINT VENTURE Zambia

REPRESENTATIVE OFFICES Australia

Power project financing in Bank of Baroda |

Republic of South Africa

3.4 BANKS MISSION STATEMENT

3.6 PRODUCTS AND SERVICES

3.8 DOMESTIC LOAN POLICY

Power project financing in Bank of Baroda |

Power project financing in Bank of Baroda |

4. Project appraisal at bank of baroda:

4.2 CREDIT APPRAISAL SYSTEM

Borrower appraisal / know your customer (KYC) norms:

Power project financing in Bank of Baroda |

4.3 ASSESSMENT OF WORKING CAPITAL LIMITS

1st and 2nd METHOD OF LENDING:

Method of Lending 1. Total Current Assets

1-2=3 4 1-4 25% of 1

3-6 3-5 Lower of 7 or 8

8. WC Gap- Actual/Projected 3-5 NWC 9. MPBF Lower of 7 or 8

b. Turnover method Turnover method is used as alternate method of assessment.

Particulars 1. Turnover Achieved/Projected 2. Gross Working requirement 1

Capital 25% of 1 Net 5% of 1 CA-CL

3. Minimum stipulated working Capital 4. Actual Margin

Power project financing in Bank of Baroda |

4.4 FINANCIAL RATIOS FOR CREDIT APPRAISAL

investment The project may be accepted

Power project financing in Bank of Baroda |

Limits 1.33 4.5:1

Deviations 1.20 1.50 4:1 1.50

Ratio 3:1 Coverage 1.75

4.5 CREDIT RATING

Brokers Infrastructure ( power)

Infrastructure (roads & bridges)

Infrastructure (ports) Infrastructure

Obligor (borrower) rating. Indicator of probability of default I.e PD . Evaluation of

Power project financing in Bank of Baroda |