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INTRODUCTION
PROJECT APPROACH
PROJECT
Means a location specific activity with specific objectives, time and cost limitations and of
non-repetitive nature.
In banking, we refer to projects as an activity in which financial resources are expended to
create capital assets that produce benefits over an extended period of time and which
logically lends itself to planning, financing and implementing as a unit.
PROJECT INCLUDES
Capital investment
Creation of capital assets
Generation of benefits over an extended period of time.
PROJECT CYCLE
IDENTIFICATION
FORMULATION
APPRAISAL
Includes analysis and scrutiny of each and every aspect, details and assumptions.
Banks undertake appraisal of projects before financing.
IMPLEMENTATION
MONITORING
EVALUATION
Conducted ex-post for the purpose of learning lessons of success and failure from the project;
Several organizations like NABARD and its Training Establishments may conduct such
evaluation studies and publish them for wider circulation.
Entrepreneur seeking financial assistance should furnish detailed information about the
project in prescribed form;
A team comprising say, an economist, an engineer and a financial analyst, should do the
appraisal of the project.
The first step in detailed appraisal is in regard to information submitted by the entrepreneur, i.e.-
A proposal is rejected without detailed appraisal if it has some of the following features -
NEXT STEP
Before providing financial assistance to a unit, it becomes necessary for a financial institution to
examine -
Some of the basic tests adopted to examine various aspects of appraisal are -
Technical Appraisal
Commercial Appraisal
Financial Appraisal
ü Cost of the project and means of finance
ü Profitability estimate and cash flow
ü Ratio analysis
ü BEP analysis
TECHNICAL APPRAISAL
COMMERCIAL APPRAISAL
FINANCIAL APPRAISAL
MANAGEMENT APPRAISAL
The most important aspect of project appraisal is the management appraisal. Some of the points
to be considered while appraising the management are -
Qualities of entrepreneur
ü Honesty and integrity
ü Involvement in the project
ü Financial resources in case of overrun, whether he can arrange resources
ü Competence
ü Risk taking
ü Initiative
ü Intelligence
ü Drive and energy
ü Self confidence
ü Frankness
ü Patience
Types of organisation
ü Sole proprietorship
ü Partnership
ü Corporate sector
9 Board of Directors
9 Committee of the Board
ENVIRONMENTAL APPRAISAL
Costing of the project investments has to be done with special reference to the structural
designs, equipments and other structures proposed to be imported / procured from local
sources.
APPRAISAL OF TECHNOLOGY
Appraisal of new, innovative, imported technology has to be done with reference to its
soundness, productivity and adaptability.
When the projects are promoted by first generation entrepreneurs, the success or failure
depends not only on the projects and products proposed to be produced but also the
entrepreneurial capabilities and managerial skills of the promoters. Therefore, a
comprehensive appraisal of their strengths and weaknesses has to be done.
While discussing the credentials of the promoters, a paragraph should be incorporated giving
details in regard to the various companies / undertakings in which the promoters are
interested and the turnover and the working results of these companies. In respect of the
companies which are quoted in the stock exchange, the latest share price also will have to be
incorporated in the paragraph.
The impact of the project on the ecology of the area and environmental problems, if any,
likely to generate due to it have to be analyzed and presented in detail.
The performance of the sector in the country in general and in the respective state in
particular to which the concerned project pertains has to be analysed keeping the potential
and the problems of the sector in view and suggesting remedial measures needed, if any, for
development in future with a special reference to exports.
In respect of sophisticated high-value projects, the products are usually marketed in foreign
countries. At times, a part of the production is marketed in the domestic market also.
Therefore, the demand and supply of the products in the global market as also in the domestic
market has to be assessed. Local demand and supply position will have to be highlighted.
While discussing aspects relating to marketing, mere mention about buy-back arrangements
with foreign collaborator would be inadequate. Analysis has to be made about the global
demand for exportable products and supply by different countries in this regard. The
percentage of growth of the particular product over a period in the international market
should find a mention. In case where selling arrangements have been made with the foreign
parties, the details in this regard along with the selling commission to be paid should find a
mention.
TECHNO-FINANCIAL STUDY
Apart from other details, the techno-financial study should indicate the dates on which the
studies were conducted and the names of the officers who were associated with the study.
The report should invariably mention whether the joint appraisal was done along with bank’s
representatives.
Air lifting capacity in the concerned airport for that particular product will have to be
mentioned in the appraisal report.
COLLABORATORS
While discussing the aspects relating to import of technology, full details in regard to foreign
collaborator, Indian companies for which they have rendered technical assistance, etc. will
have to be recommended. As far as possible, the standing of the foreign collaborators will
have to be collected and incorporated.
Man power requirements will have to be classified into three categories, viz. professional
management at senior level, skilled and unskilled labour and specific number of personnel in
each of these categories will have to be indicated vis-a-vis availability.
The project outlay and the source from which this is being met will have to be incorporated.
The percentage of individual items to the total outlay has to be worked out.
While preparing appraisal reports in respect of bigger projects for commercial banks, the
promoter’s experience in the particular line should be kept in view. Besides, if the projects
are to be implemented by first generation entrepreneurs even if they have the required
background in the proposed line of activity, bigger outlays should not be considered for such
entrepreneurs, to start with. The projects could be implemented in phases by the entrepreneur
in view of the inherent risk involved in implementation of large outlay projects.
For realistic appraisal of the projects on hi-tech, export oriented, agro-processing, etc. there is
a need to collect, update and maintain adequate data on the size of the domestic / foreign
markets, product prices and fluctuations, the sources and credibility of technology suppliers,
demand and supply of products in domestic as well as foreign markets, availability of
alternative technologies and relative costs, raw materials, cost of various components of the
investments, freight rates, import duties, market fees, etc. We have to collect reliable data on
product prices for the part 2 to 3 years in the international market by writing to various
agencies like APEDA, MPEDA, Ministry of Commerce, Ministry of External Affairs,
Embassies and other related agencies to build up a reliable data base for day-to-day use of
project appraisal.
MEANS OF FINANCE
Whenever the project outlay is reduced, the reasons for the reduction in the various
components of the outlay should be given item-wise. The reduction in the outlay effected
should be reflected in the bank loan retaining the margin as originally proposed.
1. GENERAL
2. TECHNICAL ASPECTS
a. Breed and production criteria, e.g.. lactation period, dry period, inter-calving
period, average milk yield/day, etc.
b. Housing needs, category-wise (adults, calves, etc.) space requirement, equipments
needed and arrangements for supply of electricity and water.
c. Civil structures like feed store, fodder godown, milk processing room, etc. if
required, with site maps and detailed estimates. District Schedule of Rate (PWD),
trace maps and blue prints of construction approved by Architect / Civil Engineer.
d. Feeding conditions : Availability of green and dry fodder and concentrate feed and
arrangements for their production supply and procurement. Give feeding schedule
per day (requirement of feed and fodder).
e. Marketing facilities : Arrangements for collection of milk, capacity of processing
plant and potential for handling additional milk. Distance of the milk collection
centre from the scheme area.
f. Animal breeding facilities : Distance of AI centre from the scheme area and type
of semen available or chilled of frozen semen, F-1 or F-2 crossbred to all semen
with 50% or 75% exotic blood level respectively.
g. Veterinary aid facilities : Location of veterinary hospitals / centres in scheme area
and distance from the scheme area. Details of facilities available at the veterinary
and centre and staff position at the veterinary aid centre / hospital and issue of
health certificates for animals to be purchased.
h. Plant and machinery, e.g.. feed plant, chilling plant, tractor, mini truck / van, chaff
cutter, etc. and recent quotations in support of costs.
i. Average unit cost of milch cattle quality / breed-wise, housing, etc. unit cost
approved by Unit Cost Committee.
j. Comments on technical feasibility of the project.
3. FINANCIAL ASPECTS
4. INFRASTRUCTURAL FACILITIES
1. GENERAL
2. TECHNICAL ASPECTS
a. Availability of one-day old quality chicks, foundation stock, equipment, etc. and
arrangements for procurement, distance of hatcheries and their capacities for
supplying the chicks.
b. Breed of proposed birds, age of birds, source of availability, vaccination of the
birds, etc.
c. Production criteria of birds : Average hen-housed egg production, average body
weight at culling time, average body weight of broilers, marketable age, mating
ratio in breeding farm / hatchery, suitability of eggs and hatchability, livability of
chicks, sex ratio, supply of free chicks, etc.
d. Mortality estimates during growing and laying stages.
e. Calendar for replacement and production of chicks (batch-wise and shed-wise).
f. Housing needs (deep litter / cage system) for growing and laying stages and
distances between the sheds. Distance between sheds and hatchery, feed mill,
quarters, etc. as per Bureau of Indian Standards (ISI) specifications.
g. Civil structure like feed, medicines and eggs stores, office buildings, roads, etc.
with site maps and plan estimates. PWD - Dist. Schedule of Rate, trace map and
blue print of construction approved by Architect / Civil Engineer.
h. Equipment needed (with quotations) e.g.. feeders, waterers, nests, etc.
i. Plant and machinery, e.g.. standby electric generator, de-beaker, vaccinator, feed
plant, deep freezer, incubators, vehicles, etc. with recent quotations in support of
costs. Clearance from State Electricity Board for availability of electricity and
Central Ground Water Board for feasibility of wells.
j. Arrangements of supply of electricity, water, etc. with source of supply and cost
assessment of connected load, essential load, water requirement, etc.
k. Training needs of farmers, if required (agency and facilities available).
l. Size / type of the units, physical components, their unit cost breakup and whether
the same has been approved by the Unit Cost Committee.
m. Comments on technical feasibility of the project.
4. INFRASTRUCTURAL FACILITIES
a. Arrangements for availability of working capital till the income generation stage.
b. Source of availability of feed, the approximate distance and arrangements for
procurement / supply.
c. Distance of veterinary aid centre from the scheme area.
d. Arrangement for marketing of eggs and culled birds (broilers and spent hens).
e. Details of technical guidance, training facility, veterinary health facility and
marketing support available from Government and whether budgetary provision
has been made for the same.
f. Mode of providing insurance cover.
g. Supervision and monitoring arrangements available with the financing
institutions.