A

PROJECT REPORT

ON

FINANCE

MASTER OF MANAGEMENT STUDIES (MMS)

UNIVERSITY OF MUMBAI

SUBMITTED TO

MARATHA MANDIR’S

BABASAHEB GAWDE INSTITUTE OF

MANAGEMENT STUDIES

MUMBAI CENTRAL

SUBMITTED BY

POONAM BALKRISHANA DHAKOL

MMS – 2009-2011 ROLL NO-15

FINANCE

1
 DECLARATION

I, POONAM BALKRISHNA DHAKOL of Master of Management Studies (Semester III) of

Babasaheb Gawde Institute of Management Studies (BGIMS), hereby declare that I have
successfully completed this project on ANALYSIS OF EMERGING LARGE SCALE
INDUSTRIES / BUSINESSES & THEIR FINANCIAL REQUIREMENTS as a part of my
‘Summer Internship’. The information incorporated in this project is true and original to the best
of my knowledge.

Signature

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 ACKNOWLEDEGEMENT
This project bears imprint of all those who have directly or indirectly helped and extended their
kind support in completing this express my sincere gratitude to all of them. I take this
opportunity to thank both my Industry and Institutional guide for unconditional support and
guidance.

I also express my sincere gratitude to Professor ___________________, Professor, Faculty

Guide for his sincere help and guidance in preparation of this project.

I am indebted to, my Industry guide for his Valuable help, benevolent Guidance and precious
advice throughout the execution of my project.

My sincere thanks also extend to all the managers, staffs of Punjab National Bank for providing
a helpful work environment and making my Summer Internship an exciting and memorable
experience.

whom it wouldn’t have been possible to complete this research.

I sincerely thank all the people who knowingly or unknowingly helped me in the work.

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 Content

Sr.no Topic Page no.

1 Executive summary 6

2 About Punjab national bank 8

4 Credit risk rating 15

4.1 Factors determining credit risk rating

4.2 Uses of credit risk rating

4.3 Loaning power with credit risk rating

5 Credit audit report 24

5.1 Physical stock of verification

5.2 Financial &operating performance –approach & methdology

of audit

5.3 Executive summary

5.4 Overall observation

Examples

6 Company ABC 28

7 Company XYZ 35

8 Conclusion 57

9 Bibliography 58

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5
 CHAPTER -1: Executive summary

Title of the project: ANALYSIS OF EMERGING LARGE SCALE INDUSTRIES /

BUSINESSES & THEIR FINANCIAL REQUIREMENTS

Name of the company: PUNJAB NATIONAL BANK

Mentor Name: Mr. SHRIDHAR SATHE

Objectives of Project:

• To evaluate the financial requirements involved in large scale industries / businesses.

• To analyse how risk and return are related to each other while financing to this

• To understand the criteria required for loans are sanctioned.

• Describe the process that undertaken by bank to know the level of risk involved in
financing that particular proposal ( Credit rating)

Summary of Project:

Punjab National Bank continues to maintain its frontline position in the Indian
banking industry. In particular, the bank has retained its NUMBER ONE
position among the nationalized banks in terms of number of branches,
Deposit, Advances, total Business, operating and net profit in the year 2008-
09. It under takes many of the Product and Services are offered by Bank. But to do my
summer project I got Circle office of PNB where they go through the proposals of Large
Corporate Body and decides whether to sanction the proposal or not, the decision is taken

6
 on bases on many factors but the factor is the credit risk rating factor. So I worked on to
understand the level of risk undertaken and the mitigation factors. My main aim of the
project to find out how risk and return are related to each other while financing to this
sector. I had to prepare this project by analyzing some road sectors to understand the risk
parameters and the returns from the project.

So this project will give you the brief idea about the FINANCIAL REQUIREMENTS OF
LARGE SCALE INDUSTRIES .

I have discussed following points through my project:

1) I am giving the basic information about the PUNJAB NATIONAL BANK .

2) Then I am discussing about project design i.e. how I sub-divided my whole project Into
subparts for convenience part .Then as my subject road infrastructure I have explained the
categories or the types of road, their conditions, the type of scheme used in road sector in detail.

3) In the data analysis part, I have explained the methodology undertaken by bank for finalizing
the loan.

I have tried my level best to put best efforts to take out maximum data from the given region, and
to use that data for the preparation of the project

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 CHAPTER – 2: ABOUT PUNJAB NATIONAL BANK

VISION:

"To be a Leading Global Bank with Pan India footprints and become a household brand in
the Indo-Gangetic Plains providing entire range of financial products and services under
one roof".

MISSION:

"Banking for the unbanked".

HERITAGE:

Established in 1895 at Lahore, undivided India, Punjab National Bank (PNB) has the distinction
of being the first Indian bank to have been started solely with Indian capital. The bank was
nationalized in July 1969 along with 13 other banks. From its modest beginning, the bank has
grown in size and stature to become a front-line banking institution in India at present.

• It is a professionally managed bank with a successful track record of over 110

years
• Largest branch network in India - 4525 Offices including 432 Extension
Counters spread throughout the country.
• Strategic business area covers the large Indo-Gangetic belt and the
metropolitan centres.

• Ranked as 248th biggest bank in the world by Bankers Almanac , London.

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 • Strong correspondent banking relationships with more than 217 international
banks of the world.

• More than 50 renowned international banks maintain their Rupee Accounts

with PNB.

• Well equipped dealing rooms; 20 different foreign currency accounts are

maintained at major centres all over the globe.

Rupee drawing arrangements with M/s UAE Exchange Centre, UAE, M/s Al Fardan
Exchange Co. Doha, Qatar,M/s Bahrain Exchange Co, Kuwait, M/s Bahrain Finance
Co, Bahrain,M/s Thomas Cook Al Rostamani Exchange Co. Dubai,UAE, and M/s
Musandam Exchange, Ruwi, Sultanate of Oman.

PROFILE:

With over 56 million satisfied customers and 5002 offices, PNB has continued to retain its
leadership position amongst the nationalized banks. The bank enjoys strong fundamentals, large
franchise value and good brand image. Besides being ranked as one of India's top service brands,
PNB has remained fully committed to its guiding principles of sound and prudent banking. Apart
from offering banking products, the bank has also entered the credit card & debit card business;
bullion business; life and non-life insurance business; Gold coins and asset management
business, etc.

Since its humble beginning in 1895 with the distinction of being the first Indian bank to have
been started with Indian capital, PNB has achieved significant growth in business which at the
end of March 2010 amounted to Rs 435931 crore. Today, with assets of more than Rs 2,96,633
crore, PNB is ranked as the 3rd largest bank in the country (after SBI and ICICI Bank) and has
the 2nd largest network of branches (5002 offices including 5 overseas branches ).During the FY
2009-10, with 40.85% share of CASA deposits, the bank achieved a net profit of Rs 3905 crore.
Bank has a strong capital base with capital adequacy ratio of 14.16% as on Mar’10 as per Basel
II with Tier I and Tier II capital ratio at 9.15% and 5.01% respectively. As on March’10, the
Bank has the Gross and Net NPA ratio of 1.71% and 0.53% respectively. During the FY 2009-
10, its’ ratio of Priority Sector Credit to Adjusted Net Bank Credit at 40.5% & Agriculture Credit
to Adjusted Net Bank Credit at 19.7% was also higher than the stipulated requirement of 40% to
18%.

The Bank has maintained its stake holder’s interest by posting an improved NIM of 3.57% in
Mar’10 (3.52% Mar’09) and a Return on Assets of 1.44% (1.39% Mar’09). The Earning per
Share improved to Rs 123.98 (Rs 98.03 Mar’09) while the Book value per share improved to Rs
514.77 (Rs 416.74 Mar’09)

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Punjab National Bank continues to maintain its frontline position in the Indian banking industry.
In particular, the bank has retained its NUMBER ONE position among the nationalized banks in
terms of number of branches, Deposit, Advances, total Business, Assets, Operating and Net
profit in the year 2009-10. The impressive operational and financial performance has been
brought about by Bank’s focus on customer based business with thrust on CASA deposits,
Retail, SME & Agri Advances and with more inclusive approach to banking; better asset liability
management; improved margin management, thrust on recovery and increased efficiency in core
operations of the Bank.

PNB has always looked at technology as a key facilitator to provide better customer service and
ensured that its ‘IT strategy’ follows the ‘Business strategy’ so as to arrive at “Best Fit”. The
bank has made rapid strides in this direction. All branches of the Bank are under Core Banking
Solution (CBS) since Dec’08, thus covering 100% of its business and providing ‘Anytime
Anywhere’ banking facility to all customers including customers of more than 3000 rural & semi
urban branches. The bank has also been offering Internet banking services to the customers of
CBS branches like booking of tickets, payment of bills of utilities, purchase of airline tickets etc.
Towards developing a cost effective alternative channels of delivery, the bank with more than
350 ATMs has the largest ATM network amongst Nationalized Banks.

With the help of advanced technology, the Bank has been a frontrunner in the industry so far as
the initiatives for Financial Inclusion is concerned. With its policy of inclusive growth in the
Indo-Gangetic belt, the Bank’s mission is “Banking for Unbanked”. The Bank has launched a
drive for biometric smart card based technology enabled Financial Inclusion with the help of
Business Correspondents/Business Facilitators (BC/BF) so as to reach out to the last mile
customer. The Bank has started several innovative initiatives for marginal groups like rickshaw
pullers, vegetable vendors, dairy farmers, construction workers, etc. Under Branchless Banking
model, the Bank is implementing 40 projects in 16 States. The Bank launched an ambitious
‘Project Namaskar’ under which 1 lakh touch points will be established in unbanked villages by
2013 to extend the Bank’s outreach. Under this, 30 Kiosks have been opened covering 119
Villages reaching 1.32 Lakh beneficiaries.
Backed by strong domestic performance, the bank is planning to realize its global aspirations.
Bank continues its selective foray in international markets with presence in 9 countries, with
branches at Kabul and Dubai, Hong Kong & representative offices at Almaty, Dubai, Shanghai
and Oslo, a wholly owned subsidiary in UK, a joint venture with Everest Bank Ltd. Nepal and a
JV banking subsidiary “DRUK PNB Bank Ltd.” in Bhutan. Bank is pursuing upgradation of its
representative offices in China & Norway and is in the process of setting up a representative
office in Sydney, Australia and taking controlling stake in JSC Dana Bank in Kazakhastan.

Bank has been a recipient of many awards and accolades during the year:-

• Gold trophy of SCOPE Meritorious Award for Excellence in Corporate Governance 2009 by
Standing Conference of Public Enterprises
• As per Financial Express-Ernest & young (FE-EY) India’s Best Banks Survey, PNB is

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identified as the best bank among the nationalized banks in terms of overall ranking.
• As per HT-MaRS Survey on Customer Satisfaction, PNB stood NUMBER ONE in Delhi and
Chennai in terms of customer satisfaction.
• As per the Forbes Annual list of 2000 global giants, PNB tops the list of nationalized banks
with a global ranking of 695, substantial improvement over last year’s placement at 946th
position.
• The Economic Times has ranked CEO of PNB as the 32nd Most Powerful CEO of 2010.
• Skoch Challenge Award 2010 for “Livelihood Linkage” of the milk producers in Bulandshahr
District, Uttar Pradesh.
• IDC Financial Insights Innovation awards 2010 by IDC Financial Insights

PNB is amongst the Top 1000 Banks in the World, ‘The Banker’ listed PNB at 250th place.
Further, PNB is at the 1166th position among 48 Indian firms making it to a list of the world’s
biggest companies compiled by the US magazine ‘Forbes’.

Financial Performance:

Punjab National Bank continues to maintain its frontline position in the Indian banking industry.
In particular, the bank has retained its NUMBER ONE position among the nationalized banks in
terms of number of branches, Deposit, Advances, total Business, operating and net profit in the
year 2008-09. The impressive operational and financial performance has been brought about by
Bank’s focus on customer based business with thrust on SME, Agriculture, more inclusive
approach to banking; better asset liability management; improved margin management, thrust on
recovery and increased efficiency in core operations of the Bank. The performance highlights of
the bank in terms of business and profit are shown below:

Parameters Mar'08 Mar'09 Mar'10 CAGR(%)

Operating Profit 4006 5744 7326 22.29

Net Profit 2049 3091 3905 23.98

Deposit 166457 209760 249330 14.42

Advance 119502 154703 186601 16.01

Total Business 285959 364463 435931 15.09

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Rs.Crores)

* Respective figure for the corresponding financial year

ORGANIZATIONAL STRUCTURE:

Bank has its Corporate Office at New Delhi and supervises 58 Circle Offices under which the
branches function. The delegation of powers is decentralised upto the branch level to facilitate
quick decision making.

Head Office

Circle Offices (58)

Branches (4267)

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 CHAPTER-3:Large scale industries
Large scale industries refers to those industries which require huge infrastructure, man power
and a have influx of capital assets. The term ‘large scale industries’ is a generic one including
various types of industries in its purview. All the heavy industries of India like the Iron and steel
industry, textile industry, automobile manufacturing industry fall under the large scale industrial
arena. However in recent years due to the IT boom and the huge amount of revenue generated by
it the IT industry can also be included within the jurisdiction of the large scale industrial sector.
Last but not the least the telecoms industry also forms and indispensable component of the large
scale industrial sector of India. Indian economy is heavily dependent on these large industries for
its economic growth, generation of foreign currency and for providing job opportunities to
millions of Indians.

Iron and steel industry forms the indispensable part of the large scale industrial sector of India .
The iron and steel industry had played a key role in the industrial development of India from the
pre -independence period. India has seven large integrated iron and steel plants, of which six are
owned by the public sector Steel Authority of India Limited (SAIL) and one by the private
sector, Tata Iron and Steel Company Limited (more popularly known as Tata Steel or TISCO). It
tries to trace the myriad so factors which augmented the growth of iron and steel industry in
India

Telecom industry is another key player in the large scale industrial sector of India. This Telecom
industry has underwent stupendous growth in the recent few years and is now poised to be a
stalwart of the Indian industrial arena. A major contributor towards the growth of the Telecom
industry in India is the Association of Unified Telecom Service Providers of India (AUSPI). By
the help of their performance in India, the AUSPI members are also helping to shape the future
of CDMA technology evolution. They advocate that India can and ought to take a leadership role
in defining the future evolution of CDMA

Looking for some authentic information on the automobile manufacturing industry of India ?
The automobile industry is poised for a huge growth in the next few years and has already shown
an impressive 16.82 % growth last year.

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IT industry has recently made India proud with its tremendous growth and international
standards. Millions of jobs are being generated because of this industry which though a new
entrant is a major member of the large scale industrial arena of India. There is also a insightful
speculation on the immense growth potential of this industry.

This site throws the spot light on another big league player of the large scale industrial sector of
India - the Bio-It or the pharmaceutical industry of India. Scientific advancement in discovery of
drugs and advanced researches has propelled forward Indian Bio-IT or pharmaceutical industry

Textile industry is one of the most formidable pillars of the large scale industrial structure of
India. Indian textile industry like the iron and steel industry has a huge contribution in the overall
economic growth of India. Glean information about the pros and cons of the textile industry of
India with the help of this site. This site provides you with a detailed minute on the growth and
investment potential of the Textile industry of India.

Delve into the large scale industrial sector of Indian with this web page which provides you with
ten sites on the various kinds large scale industries in India and their progress through the years.

14
 CHAPTER- 4 : CREDIT RISK RATING
Credit risk rating is a rating assigned to borrowers, based on an analysis of
their ability & willingness to repay the debt taken from the bank .this rating
is assigned on a scale, which generally has 6 to 8 levels. Companies falling in
the same credit risk category have similar probability of default .better the
rating lower is the probability of default. The probability of default increase in
an exponential manner as the credit risk deteriorates.

Definition of credit rating

“Credit rating is the risk of default by borrower due to inability and \ or
unwillingness to repay his debt in accordance with the agreed terms
and condition “

Factors determining credit risk:

Credit rating of a bank’s portfolio depends both external and

internal factors:
The external factors can be wide as well as company
specific.
Some of the economy wide factor are-
• state of the economy
• wide swing in commodity prices
• Fluctuation in foreign rates & interest rates
• Economic sanction
• Government policies

Some company specific factors are:

• Management expertise
• Company policies

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The internal factors within the bank, influencing credit
rating for a bank is:

• deficiencies in loan policies /administration

• absence of prudential credit concentration limit
• inadequately defined leading limits for loan officers /credit committees
• deficiencies in appraisal of borrowers financial position
• excessive dependence on collateral without ascertaining its quality
/reliability
• absence of loan review mechanism
• ineffective system of monitoring of accounts

Uses of credit risk rating

Credit risk rating is one of the important tools to decide in the following
matters –

Whether to lend to a borrower or not-

The credit risk rating of a borrower determines the appetite of the ban in
determining exposure level. A ban would to lend to highly rates borrowers
but would not like exposure to borrowers with the very poor credit risk
rating.

Pricing-
The risk premium to be charged to a borrower should be determined by its
credit risk rating . Borrowers with the poor credit rating should be priced
high. Credit rating, however, is just one amongst several inputs to pricing.

Risk mitigates-
The extent of collateral security required & the need to step up margin
requirement are linked to credit risk rating of a borrower. The higher the risk
category of a borrower, the greater should be the value of collateral & / or
the margins.

Product mix-
There is need to gradually shift from the present form of credit facility by
way of cash credit limit to term lending in working capital . In case of, high
credit risk category, offering demand loan for shorter durations may be
considered keeping in view the risk involved. Conversely, for those borrowers
16
with low credit risk category banks may sanction pre –determined limits for
disbursals at short notice.

Level of decision making-

The delegation of loan sanction /approval powers can be linked to the Credit
risk rating of borrowers. For low risk borrowers, higher power of approval can
be at the branch level to facilitate faster sanctioning of loans thereby
ensuring better customer service. For higher risk borrowers, approval from
higher level may be considered.

Frequency of renewal & monitoring-

Renewal of facility in case of high rated borrowers can be considered at
longer intervals as compared to low rated borrowers. Further, high –risk
borrowers should be monitored on a more frequent basis than the low risk
ones

The credit rating by the bank is done by evaluating the following four parameters.

• Management Evaluation.

• Business & Industry Evaluation.

• Financial Evaluation.

• Conduct Evaluation.

The above are the broad parameters that are evaluated while rating the borrower. The weightage
given to each parameters varies depending upon the model of credit rating chosen. The model to
be chosen for credit rating depends upon the quantum of finance and scale of operations of the
borrower.

Within each parameter there are different items to be marked/measured depending upon industry,
nature of activity and scale of operations

The ratings models are formulated for:

• Existing business and

• New Business.

Under existing Business, the model that are formulated are based on the criteria of investment
and/or turnover. They are as follows:

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 Model Investment limit Turnover limit
Small 2 Upto 50 lacs -
Small 50 lacs to 5 crores and Less than 25 crores
Medium Scale 5 crores to 15 crores or More than 25 crores and less
than 100 crores.
Large Scale Above 15 crores or More than 100 crores

Under New business, the model are:

• Entrepreneur New Business Model where the cost of the project should upto 15 crores
and the investment limit should be upto 5 crores.

• New Project Model where the cost of the project should be more than 15 crores or the
investment limit should be more than 5 crores.

Other than these there is rating model for Non Bank Finance companies (NBFC’s) which is
NBFC rating model and one known as Half Yearly Rating Model.

If an existing company is going for expansion and the addition to the gross block is more than
50% of the existing Gross block then, Single Point rating model will be considered or else the
applicable Existing business model will be considered.

Under Single Point Rating Model, the average score of applicable models under Existing and
New Business will be considered.

BUSINESS EVALUATION

Operating efficiency evaluation

Category Parameter
Operating leverage
Inventory turnover
Net sales/operating asset
Raw material consumed/net sales
Credit period allowed

MARKET POSITON EVALUTION

PARAMETER Competitive position
Expected sales growth

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 Market dominance / market share
Trend in market share

INPUT RELATED RISK

1. Availabilities of raw material /fuel

2. Management of price

3. Reliable vender base for

4. Dependence on imports

5. proximate to raw material

6. status backsword integration

PRODUCTION RELATED RISK

1. Capacity utilization

2. State of technology used

3. Flexibility in product

4. Manufacturing

5. Technology

6. Reserve / Deficit expenses

PRODUCT RELATED RISK

1. Product range

2. Product quality

3. Highly customized product

4. Thread of substitute / obsolescence

PRICE COMPETITIVENESS
1. Economies of scale

2. Brand equity

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 3. Pricing flexibility

4. Financing edge over

5. Competitors

6. Buyers power

MARKETING

1. Sailing and distribution

a. After sales and service network

b. Long term contracts \assured of takes

c. Geographical diversity of market

2. Advertisement\ other

3. Promotional strategy

Other
1. Threat from environmental factor

2. Vulnerability to events risks

3. Regional rating of states

MANAGEMENT EVALUATION
1. Actual gross sales

2. Targeted sales

3. Actual PBT

4. Targeted PBT

Subjective assessment of management

1. Management set up and corporate governance

2. Commitment and sincerity

3. Track record and sincerity

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4. Track record in debt repayment

5. Track record in industrial relation

6. Financial strength \ flexibility \ group support

7. Capital market perception

CONDUCT ACCOUNT EVALUATION

1. Preventive monitoring system rating

2. Status of account

3. Operation in account

4. Submission of financial data statement

PNB rating

Score obtained rating Description

Above 77.50 up to PNB-AAA Minimum risk
80.00
72.50 to77.50 PNB-AA+ Marginal risk
70.00 up to 72.50 AA- -
67.50 up to 70.00 A+ Moderate risk
62.50 upto67.50 A -
60.00 up to 62.50 A- -
57.50 up to 60.00 BB+ Average risk
52.50 to 57.50 BB -
50.00 up to 52.50 BB- -
47.50 to50.00 B+ Marginally accepted
risk
42.50 to 47.50 B -
40.00 to42.50 B- -
30.00 to 40.00 C High risk
30.00 & below D Caution

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Loaning powers with credit risk rating:
The loaning powers have been linked to credit risk rating of the
borrower. The officials shall exercise loaning powers linked to risk
rating of the borrower / rating of the industry.

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Credit Risk Rating of borrower Loaning powers
‘AAA’ & ‘AA’ CMs AGMs, DGMs GMs, ED & CMD
shall exercise 125% of their normal
loaning power. However, no fresh
exposure should be taken up to field
level for such accounts in case of
unfavorable (C & D rated) industries.
‘A’ CMs AGMs, DGMs GMs, ED and CMD
shall exercise 110% of their normal
loaning power.
‘BB’ Normal loaning powers by officials at
all levels to the extent of their vested
loaning powers.
‘B’ For other than unfavorable industries
– (a) Enhancement/ additional/ adhoc
exposure, officials at all levels can
exercise their normal loaning powers.
(b) For Fresh Exposure, officials other
than CMD/ED/GM (HO) shall exercise
75% of vested loaning powers except
in case of ‘B-‘ ‘B’ rated borrowers
where officials up to the level of
Circle Heads shall not exercise
loaning powers for taking fresh
exposure. However CMD/ED/ GM (HO)
shall exercise normal loaning powers
for considering enhancement/
additional/adhoc/fresh exposure.

For unfavorable industries – (a)

Enhancement/Additional/Adhoc
exposure. Cases shall be sanctioned
by the next higher authority not be
taken up to the level of Circle Heads.
(b) NO fresh exposure should be
taken up to the level of Circle Heads
in case of B (B+, B, B-) rated
borrowers. However CMD/ED/Gm
(HO) (same as above).
‘C’ & ‘D’ No fresh exposure is to be taken in
‘C’ & ‘D’ rated accounts. However,
MC is empowered to consider fresh
exposure in case of ‘C’ & ‘D’ rated
borrowers. Renewal shall be
considered by competent authority if
exit is not feasible.
Adhoc/additional/enhancement
facility is to be sanctioned by the
23
next higher authority not below the
level of Circle Heads. However,
ED/CMD shall exercise their normal
loaning powers.
While exercising higher powers i.e. 125% & 110% of normal loaning powers
of CMD/ED, the aggregate commitment power of borrower of Rs.
100crore/Rs. 75 crore should not be exceeded by them. Further while
exercising higher powers including the adhoc powers, the officials other than
CMD/ED should ensure that the total commitment does not exceed the
aggregate powers vested with the next higher authority.

Loaning Power Chart for DGMs

(Rs. In lacs)

Sr. No Nature of DGM GM ED CMD

Facility
1 Aggregate 2000 3500 7500 10000
Commitme
nt per
Borrower
(Both
Funded &
Non-
Funded)
2 Within (1)
above
A Fund- 2000 3500 7500 10000
based
Out of this Secured 2000 3500 7500 10000
(I)
Unsecured 500 875 3750 5000
B Non – Fund 2000 3500 7500 10000
Based
Notes:

1) CMD may sanction facilities/limits in excess of the aforesaid levels up

to a maximum extent of 10%, but within the overall aggregate
commitment of Rs. 100 crore.

2) In case of circle heads in the rank of DGMs/GMs and above, ‘Secured

Advances’ may be classified under two heads: (a) Advances covered
by primary security (b) Advances covered by Tangible Collateral
Security.

While exercising loaning powers, cash generating capacity of the

activity financed shall continue to remain the [primary concern for the
banks and the volume of activity, Risk rating of the borrower shall also

24
 be taken into account while determining the loan amount. In any case,
the collateral offered should be at least 150% of loan amount in case of
IP & securities which are in liquid in nature like Gold ornaments & Govt.
securities etc. and for other securities it should be at least 200% of the
loan amount/facility. However the above facilities shall be exercised in
case immovable properties are owned by the borrower.

3) In case of book debt facility, DGMs & GMs shall exercise 50% of their
FB (secured) powers and for advance against foreign usance
documentary bills, DGMs and above shall exercise 50% of their FB
(secured) powers.

4) DGMs may exercise only 50% of their non-fund based powers for
sanction of Letter of Credit (DA Basis)* limit as well as Letter of
Guarantee Limit.

25
 CHAPTER –5 : CREDIT AUDIT REPORT
Branch office mainly observe the following things

1-BO confirm that the stock audit report also observe accounts with other
banks.

2-BO to obtained latest search report of ROC to ensure satisfaction of

charges of OBC & confirm compliance

3-BO closely monitors the performance of the company

4-BO to ensure that is no adverse features

Stock audit report
The stock audit report is prepared on the basis of information & explanation
given by bank & the accounting statements provided to bank by company
representative during bank visit to their go down.

Table of contents

• Particulars

• Introduction

• General information on the borrower

• Banking arrangements

• Location visited

• Physical verification of stocks

• Financial& operating performance

• Approach & methodology of audit

• Sales & purchase

• Analysis of receivables

• Computation of drawing power

26
 • Executive summary

• Overall observation

Business activities
Manufacture exporter of dues & dyes intermediates for various
applications including textiles, paper,leather,wood stairs &
coloring of metals

Physical stock of verification

List of factory \warehouse visited along with their address

Particulars Quantity Value

Raw material stocks - -
in factory
Raw material under - -
clearance goods
under process
Finished goods(fact) - -
Stocks - -
under(transits(bond)
Bills send for - -
collocation

Financial & operating performance-

Approach & methodology of audit

The statements of stocks & book as on submitted by the firm considered as

the basis for this audit .

The following aspects were broadly reviewed

27
• The system presently followed by the borrower for the accounting &
management of inventory & receivables

• Adequacy & efficiency of the existing stocks accounting &internal

control systems

• Level of computerization

• Basis of preparation of monthly stocks statements being submitted to

the bank.

• Stock lying with third parties

• Availability of storage space \general upkeep of the factory

• The practices adopted by the borrower for renovation of stocks, the

consistency there of & their acceptability

• Creditors for purchases

• Composition, concentration, quality &reliability of receivables

• Age wise break up of receivables

• Debtors relating to group concern if any

• Credit policy of the borrower\recovery management

• Long outstanding\doubtful debts

• Availability & adequacy of various insurances, ever for stocks

• Sales & purchase

• Methods of valuation

o Raw material cost

o Semi finished goods at estimated cost

o Finished goods at cost or market value whichever is lower

o Packing material at cost

• Stores &spares at cost

28
 o Fuels at cost

o Consumable at cost

• Insurance

• Registration of charges with ROC

• 19. Submission of stocks, QIS, MSOD statement

• 20. Verification of debtor

• Drawing power calculation

• Operation in bank account-(PNB acc)

Executive summary

• Physical verification of stocks as shown in stock statement

• 100% verification of high value inventory of major inputs

• Mentioned &basis of valuation of stocks & receivables\comment on

actual position vis-a-vis data submitted to bank\if observed
quantification of the same

• Proper categorization &valuation of stocks

• Compressive details of quantity & value of chargeable stocks

• Scrutiny of records for driving

• Comments on borrowers internal procedure regarding physical

verification of inventory

• Comments on inventory management &control policies followed by the

borrowers

• Comments on arrears of statutory dues& obligation

• Comments on notes of auditors & any other qualifying remarks

contained in the last balance sheet of the borrowers comment on
general condition of storage ,plant condition ,plant layout, quality
control etc

29
• Comments on adequacy of insurance for primary as well as collateral
security

• Comments on transaction

• Comments on system for movements of goods sent for

• Comments on movement of finished goods to various distributors

centers

• Comment of sales return

• Specific comment on diversion of funds

• Any other finding during the course of stocks audit having impacts in
the account

• Net impact of observations on the value of security charged.

Overall observation

• The account operation is found to be satisfactory

• The stock\MSOD &QIS statement are promptly submitted by the

company

• There is old \obsolete stock in the company to the extent of rs

9.38 lacs

• The stocks were in conformity with the stock statement are

under issued

30
 CHAPTER – 6: COMPANY ABC
REQUIREMENT OF FINNCIAL DOCUMENTS ARE FOLLOWING:

Brief history
Company was established as a partnership firm initially the company was
engaged in the trading of dyestuff chemicals pharmaceuticals textiles and
import of iron and steel .his son shri banwarilal singania are joined the
trading business in the year 1953 at the age of 20 years .

Shri banwarilal singhania is one of the most experienced industrialist and

commands good reputation in the dyestuff industry with vast experience and
the depth knowledge of the product and market.

During the year 1978n the unit started manufacturing of nephthol dyes at
taloja near started manufacturing o f nephyhol dyes at taloja near new
Mumbai. The products of the units are mainly required by woolnyln paper
and metal industry.

31
The company was converted into public limit co. in 1997. The company
tapped international market in the year 1980 .for the gradually out of the
capacity 72% is being exported to various European countries and us. The
company has loyal customers obese who are new associated with the past
performance and present market Condition Company is hopeful to even
better its growth rate exports in the year to come

The company has also local sales which constitutes around 15-20 % of the
total turnover.

The requirement of raw materials is met through imports as well as local

purchases .imports are mainly from Europe .usa and china .which local
purchase are affected from various manufacturing units such as m\a
industries and other firms .

Company has further enhanced the investment in fixed assets in the year
2005.to the extent of rs 375 crore to improve technology.

Company has the capacity to prove 8500 mt of dyestuff annually .depending

upon local market price, company decides on varying the percentage of
trading sales-

Company is enjoying limits under multiple banking arrangements and enjoys

facilities with our bank and union bank of India .company has submitted CMA
data for renewed of units.

Financial document
1. Note to credit committee

2. Credit rating by bank

3. Rating from external agency

4. PNB’s share %- FB- 71.23%

Credit risk rating

32
The credit risk rating of a\c based on ABS for the year ended 31-3-09.has
been carried out and the same has been vetted by RMD co. the company has
secured CRR of BBB. Which represent average risk. There no limits and the
same can be per mites by the competent authority under whose power the
proposal falls.

Confirmation
o Compliance of last sanctioned terms

o Security documents are valid duly vetted enforceable

o Paper charge on securities created

o Confirm the company \directors is not under bank\ RBI \ECGC\

CIBIL defaulter| caution list

• Confirm that payment of statutory is not in arre ars –except disputed

qualities in ABS as on 31-3-09.

o Confirm that no litigation against by the company is gelding

o Corporate government practices are being followed as per

auditor’s report

• Confirm the no deviations are made from usual norms\ policy

guidelines.

• Confirm that exposure is within banks internal ceiling \RBI prudential

norms-audit\inspection\meetings.

• NFB-76.96%

GIS of the proposal for ADHOC

Sanction of adhoc pc for rs 2.50 crore s for a period of 3 months

• Dealing with PNB since 2005

• Business activity –product

• Installed capacity

33
 Manufacture exporter of dyes and dyes intermediates for various
application including textiles, paper, leather ,woods paints, and coloring of
metals etc.

Facilities sancation –position of accounts as on

7-5-2010.
Nature Limit VS DP Balance Irregulati
es
Fund based
\pobb 250000 699.43 669.43 679.16 Nil
\
FOUBP\FOBN
LC
\FOBD
PC\pcfc 1500 1845.73 1500 1137.20 Nil

Ceiling 2500 2169.43 1816.36 Nil

GDFD 92.50 100 92.50 Nil
NFB Nil
ILC\FLC(DA) 1000 476.23 Nil
LG 265 0.25 Nil
LG buyers (500) 466.49 Nil
Ceiling 1000.00 943.07 Nil

Financial position of company

31-3-07 31-3-08 31-3-09

audited audited Audited

Gross sales 99.88 117.03 105.44

%growth 4% 17.17% (9.90%)
Other income 4.00 2.12 1.87
PBT 5.47 1.28 1.35
PAT 3.06 0.75 0.79
TNW 42.62 43.03 41.06
NWC 21.62 26.47 29.08
CA 1.51 1.52 1.52

34
Debt eq.r 0.04 0.08
TOL\tnw 1.01 1.21 0.96

Financial and operating performance

Year ended 31-3-2009
Operating performance
Sales 9648.69
Net profit after tax 79.14
Depreciation 253.30
Cash accounts 332.44
NPAT\sales % 0.82
B. financial indications 5640.78
CA 1521.35
Net FA 1217.54
Non CA -
Long term liab. 1404.14
Tangible net worth 4041.33
NWC 2738.893.71
CR 0.69
Parameter Category
Gross sales growth rate (%) Growth rate
profitability OPBDIT/sales (%)
Short term bank borrowings/
Net sales (%)
Cash flow- Operating cash flow/Total debt (%)
Net Operating cash flow / Total
debt (%)
Past financials- Absolute comparison
Category- Parameter
Solvency- Debt equity ratio
TOL/TNW
Liquidity- Current ration
Debt coverage- Interest coverage ,DSCR

Profit abilities- Retune on Capital employed

35
 Balance sheet
Particulars Current year Previous year
1.Source of funds
Share capital 130584800 130584800
Reserve and surplus 273548342 288749891
Deferred tax liabilities 6515575 10921818
Secure of loan 140414209 257688360
total 551062927 687944889
2.Application of funds
Gross block
Less-depreciation 339774019 331480849
Net block 218020154 1933422648
Capital work in 121753865 138138201
progress
Investment 13532484 13535484
CA ,loan and advances
a. Inventories 267818517 300329557
b. Sundry creditors 353551867 48704633
c. Cash and bank 39806340 6121708
balances
d. Loan and 220806340 261211028
advances
564078740 672093926
Current liabilities. and 411943366 535264127
provision
Net CA(1-2) 551062927 687944889

Profit and loss account

Particulars Current year Previous year
1.Income 1073114772 1191403403
Sales and other income- (570044721) 92297411
increase\decrease in
inventories
2.Cost of production 1016070052 1283700813
Material consumed 695008019 995082697
Trading purchase 26997426 10630962
Labor cost 26567114 22623109
Manufacturing expenses 98589773 106815604
847162032 1135152373
3.Gross profit 168908020 148548440
4.Other expenditure
Selling and 98896169 82713265

36
administration expenses
Interest 30892089 27769171
Depreciation 25530437 25058398
Preliminary expenses - 50012
written off
PBT and extra ordinary 155118694 135590847
item(3-4)
13789326 12957594
Add\less extraordinary
item
Less on sale of capital 325046 115975
assets
Security transaction tax - 965
on capital gain
Net profit \loss before 13465280 12840654
tax

Limit s enjoyed in PNB

Nature of limits Limit Outstan RoI\comm Margi
rs in ding n
lacs balances
as on
31.1.010
PC\PCFC 1500 1023.47 BPLR 10%
2.50%
FOBP\FOOBP\FABC 2500 640.59 BPLR
2.50%
FB ceiling 2500
Total A 2500 1664.06 10%
ILC\FLC 2000 823.46
LG (buyers credit ) (500) 161.25 10%
LG (150) 0.25
NFB ceiling 1000
Total B 1000 9849.6
Total (A+B) 3500 2649.02

Securities

1. Primary-

37
 Hypothecation of stocks few materials, stock in process, finished
goods &stores

2. Collateral-
Hypothecation of existing \proposed fixed assets with aggregate
WDV

Calculation of permissible bank finance

1.Chargable CA 5334.47
2.otherC A 2638.32
3.toatl CA 7972.79
4.other LL 1847.20
5.WC gap 5125.58
6.25% of CA 1993.20
7.NWC 2625.58
8.5-6 4032.39
9.5-7 3500.00
10. MPBF 3500.00

Built up of NWC
Particulars Amt Amt
NWC as on 2908.
31.03.010 38
Add-cash profit 389.04
Sub total 309.04
Less repayments of 324.30
loan
Increase in FA 212.07
Increase in NCA 135.46
Sub total 671.83
NWC as on 671.83
31.03.010
2512.58
2025.58

38
 Calculation of drawing power
Valuation of summary Amt
Raw material 1293.48
WIP 1388.85
Finished goods 591.58
Total 3273.91
Less –old stock 9.38
Total stock 3264.53
Less -creditors 782.84
Les -10% margin on stock 326.45
Drawing power 2155.24
CHAPTER-7: COMPANY XYZ
REQUIREMENT OF FINANCIAL DOCUMENTS ARE
FOLLOWING

Brief history
General-XYZ pvt ltd is a private company was incorporated in Feb. 1999 .with
main objective of undertaking ship breaking activity shri abhishek
anandkumar jain shri devi ashokkumar jain have promoted the company the
promoters have acquired a plot at sosiya Bhavnagar one of the main ship
breaking centers in India

Comment on industry scenario and industry outlook with particular reference

to demand and supply

The condition in the ship breaking industry have not been very encouraging
for the last 2-3 year or so one major factor that has been a cause of concern
for the industry has been the rate of the vessel .the rate of the vessel s
which were having around us $160\170pmt had increase to us $ 390\400

Pmt during the last 18 months an increase of more than 100% this along
with the competition from china and Bangladesh has created a further panic
in the market as a result of which the availability of the vessel had
reduced .coupled with this the international freight rates firmed up over the
last year as a result of to be scrapped were being recycled and the same are
being used for voyages .only china and Bangladesh have been procuring the
vessels at the present rate of us $ 400. In view of this aspect most of the
ship breakers have deferred the purchases. The international freight rates

39
are showing some signs of decisions .once the rates declines and the vessels
would once again be available for scrapping purpose.

All the major players in the ride are gearing up for this position .so that
vessels could be procured on the best terms.

---Comments on management production and marketing-

The promoters of the company are in business for the last 7 years and
established themselves as leading ship breakers .the size of the plot
acquired by the company is 30 * 45 sq meters where it can carry out a
minimum scrapping of approx. 15000 MTPA

Present proposal

Brief of the proposal

The company has submitted ABS as on 31-03-08. And CMA data for yr 2007-
08 and required following limit

Nature Proposal
Cc(h)trading 5.00
sub limit for ship (2.00)
breaking 5.00
F B ceiling 10.00
ILC \FLC ( DA\DP) (7.00)
Sub limit for trading 10.00
activity 10.00
Non fund based ceiling
Total commitment

Justification for working capital sanction –

The company has planned to continue the scrapping of the large vessels
.under the limit for company will be in a position to scrap the large vessels
having a tonnage of approx 20000 mts .considering the present rate of the
vessels the company is confident of procuring and scrapping vessels having
an average tonnage of approx 6500 ms pa-

Taking into consideration the above factor the requirement of the LC limit of
rs.1000 wt .of vessel 6500 ml@ us $ 300 us$1950000

Conversion rate @ rs 49\- rs 975 lacs

40
 Say rs 1000 lacs

As per the present costing pattern the cost of the vessel has worked out as
below-

Cost of vessel lac

CIF value 926

Customs duty 48
Excise duty 160
Port beaching charges 16
Total 1150
The above cost of the vessel is proposed to be financed as below

Means of finance
1. Own funds 138

2. Unsecured loans 68

3. Suppliers credit 926

4. Total 1150

Vetting note

Credit risk rating

Under mild corporate model

Rating ABS Date Indicates Score

Current PNB B 31-3-09 Marginable 47.33
rating acceptable
risk
Previously PNBB+ 31-3-08 - 49.16
approved
AGM

The rating received in the below mentioned account has vetted

and the submitted for approval

Name of the a\c M\S ABC pvt ltd Brady house

Brady house ,Mumbai
Branch office activity Ship breaking an steel trading
Facilities sanctioned FBWC&NFB(LC) facilities
aggregating rs .10.00 and rs vide

41
 CH sanction dated 27-5-09

Movement of CRR % scored obtained

Parameter 31-3-08 31-3-09
Financial evaluation 38.98 18.71
Business and industry 56.25 59.38
evaluation
Management 60.71 50.00
evaluation
conduct account NA 100.
evaluation
Aggregated score 49.16 47.33
Final rating of co. PNBB+ PNBB

The score under financial have declined due to losses .education in

management evaluation is due to non achievement have declined
only marginally due to full scores obtained under conduct of account
evaluation , which was NA in previous rating.

Branch rating

The branch rating us PNB B+ with score of 49.57% .variance between

branch rating and our rating is marginally.

Major factors identified in the credit rating report

which may require attention for the taking any credit
decision is as under

• The CR as at 31/3/09 I below the benchmark

• ROCE is negative

• Estimated sales &profits have not been achieved.

Recommendations
Recommended for approval of rating of PNB B with the score of
47.33% indicating

• Average risk

42
• Approved rating report

• Credit risk rating report for MID corporate borrowers

• Name of borrower;

• Bo\Co \Ho-Bombay brandy

• House \co

• Mumbai\co

• RMD

• Constitution –private ltd company

• Industry- trading

• Activity- shop breaking & steel scrap trading

• Balance sheet as at -31st 09

• Borrower code-022089

• Rating iD-373100200968572

• Exposure – rs lakh

• Sanction limit

• Fund -500 term-0, NFB-1000, tatal-1000

• Ceiling-if any

• Proposed limits-

• Fund -500, NFB- 1000, toatal-1000-ceiling (if any)

• Draft no-7

43
 PMS REPORT

It mainly contain the following :

Part -1

Name of borrower ABC

Branch name Mumbai brady house
Activity Ship[ braking
Relationship manager Shri. Pradeep panickor
Sanction authority DGM circle
Facility FB NFB
Date of last sanction 27-3-09
Date of document 20-2-09
Date of latest review
Banking arrangement Sole banking
PNB’s share 100%
Total faun based WC 500.000
Total NFB WC 1000.00
Total loan & other facility 6.00
Total limit \ceiling 00.00
Creation \ modification charges
Date of certificate of charged held
on 5-11-09
If not filing of charges & receipt no
Details of credit rating B+
Dater of credit rating
Based on balance sheet dated
Credit rating
Asset classification code – Standard as on -31-3-09

Part 2-

Last Current
Commutation period 273 365
Aggregated PMS scored 440 440
PMS index score 418 418
PMS rank 1 1

44
Part-2(B)

It contains following:

PMS index parameter wise details

Section A - status documentation \security creation \terms of sanction

Section B - status of feed back by the borrower

Section C - irregularities with other banks \F1 & other important adverse
development

Part 3

Financial/operational performance
Actual operation of last two financial years-

Audited Audited
31/3/07 31/3/08 31/3/09 31/9/09
Production 0.00 0.00 12190.00
In quantity
Net sales 0.00 0.00 1500.00 1056.00
Other income 23.46 13.53 0.00 0.00
Operating -9.48 -4.39 7.75 0.
profit\loss 00
Pbt-\ pbl 13.98 9.14 12.75 5.00
Cash p\l 13.98 9.14 13.50 0.00
Sundary debt. 0.000 0.00 0.00 0.00

Old debtors 0.00 0.00 0.000 0.00

debtors 0.00 0.00 0.00 0.00
other
Sudary creditors 0.47 0.11 700.00 0.00
Total curr assets 155.92 130.30 1415.79
Total curr liab 6.28 3.43 1016.20
CR 24.82 57.98 1.39

45
Part-4

Details of uncomplied important terms & conditions of the

last sanction

Part-5

-status of outstanding serious inspection irregularities

Gist of out standing Branch\Ros\ZO’s
Serious inspection irregularities Commend under this head the
progress made towards removal
rectification of outstanding serious
Documents are not held on record irregularities
Since last report is to be given
Party is not available limit
Part-6
The following values of security is based on stocks \book debt statement
dated

Name of Amt of Values of Drawing Balance Irregularity

facility limit security power outstandin If any
sanction Latest g
FBWC 5000.00 0.00 0.0 0.00
Sub total 500.00 0.000 0.00 0.00

B- Non fund based

Name of Amt of Values of Drawing Balance Irregularity
facility limit security power outstandin If any
sanction Latest g
FLC 1000.00 0.00 1000.00 0.00 0.00
Sub total 1000.00 0.00 1000.00 0.00 0.00
Total- A+B+ C

Amt .

1500 0.00 1000.00 0.00 0.00

Note –the ceiling of limits A B

46
Part 7- Details of security verification, stock audit,
insurance cover held & last consortium meeting held
Section A- details of security verification

Section B- details of insurance, cover held-

Sedation C -status of stock audit

• Name of stock auditor

• Date of appointment of stock auditor

• Date of physical verification of inventory \ book debts by stock

auditor

Section D -
In case of consortium, details of last consortium meeting held

• date of last consortium meeting held

• if consortium meeting is not held during the last quarter ,then

the reason for not holding the same

• In brief-sole banking

• Action point of consortium meeting

Part 8-comments and action plan

Section-

General comments on the conduct of account & overall performance of

the borrowing company

Satisfactory action confirmed by CH for FLC issued for rs 9.8 on

25/05/09

Section B -

If there is downgrade in PMS rank or if PMS is already in early

warning \warning likely NPA\NPA category or there is increase in
aggregated PMS score on analysis of reasons (as given part-2)

47
\situation then details of steps \action already taken \proposed to be
taken to retrieve the situation be given along with time frame the
same

Section C -

- outcome \results\progress of steps taken already taken ( if results

\progress is not on expectated lines, then reason thereof & further
action plan along with time frame be also detailed).

Section D-

Follow up the exposure contain committee’s recommendation

\decision if relevant.

Financial position of the company

48
 31/3/06 31/3/07 31/3/08
audited Audited
Gross sales 87.95 0 0
Domestic 87.95 0 0
Export 0.00 0 0
%growth 0.00 0 0
Other income 12.51 23.46 13.53
Operating 9.04 4.44 1.78
profit\loss
Pbt 5.07 13.98 9.14
Pat 3.47 8.43 5.95
Cash profit\loss 5.26 8.43 5.95
Paid up capital 100 100 100
Res &surplus 15.13 24.02 30.25
Misc.expenses 0 0 0
Accumulated 0 0 0
losses
Deferred tax liab. 0 0 0
a.Tangibale net 115.13 124.02 130.25
worth
b. Investment in 0.00 0.0 0.00
allied concerns
&amt of cross
holdings
c.Net owned 115.13 124.02 130.25
fund(a-b)
Unsecured loan 11.86 38.61 8.36
total borrowing

Secured 0 0.00 00.0

Unsecured 11.86 38.61 8.36
Investment 0 0.00 0
Total assets 155.19 169.91 142.90
Out of which net 8.96 7.49 6.10
fixed assets
Net WC 146.24 132.50 135.38
CR - - -
DER 0 0 0
Operating -ve
profit\sales
TOL\TNW 0.32 0.07

Long term 155.19 163.63 139.48

sources
Long term uses 8.96 7.49 6.10
Surplus\deficit 146.24 156.14 133.33
Short term 26.00 6.28 3.43
sources
49
Short term uses 172.23 162.42 136.81

Surplus \deficit 146.23 156.14 133.38

GIST of proposal-sanction of FB WC limit of rs 5 or NFB of
rs 10 crore with a total ceiling of rs 10crore
Facilities recommended

Nature Existing Proposed

FB nil
CC h trading- (5.00)
Sub limit ship (2.00)
breaking
Fund based ceiling nil 5.00
Non fund based nil 10.00
ILC\FLC(DA\DP) nil (7.00)
Non fund based nil 10.00
ceiling
Total comment nil 10.00

Bank commitment & maximum permissible exposure

norms

a. FBWC limit 5.00 nil 5.0

b.NFB 10.00 nil 10.00
C .Term loans\s 0.00 nil 0.0
d. Investment in 0.00 nil 0.00
shares,
debentures etc
Total of a,b,c,&d 10.00 nil 10.00
Total exposure as
%age of bank’s
capital fund
Banks Well within
permissible permitted norms
exposure level in
terms of our
latest availed
balance sheet

50
Comments on financial indicators (growth, achievement
Vis-as vis) estimated-

Sales-
The sales of the company for the year ended 2006 was rs 87.95 lacs from
sales of scrap from residues ship breaking of previous yr .the company had
no sales during fy 08 .as they have not under taken any ship breaking
activity.

1.sources Actual Estimated Projected

31.03.08 31.03.09 31.03.010
a. NPAT 5.95 31.53 92.01
b. add – 0.00 0.75 1.00
depreciation
c. increase in 0.00 100.00 0.0
capital
D .increase in 0.00 140.78 170.0
term liab.
E. decrease in

1. FA 6.57 0.00 0.0

2.other non CA 0.00 0.0 0.0
3.Total 12.52 273.06 263.01
2. Uses
a.Net loss 0.0 0. 0.0
B . Decrease in 30.34 0.0 0.0
term liab.
C. Increase in FA 0.0 0.35 0.0
D. Increase in 0.0 0.0 0.0
others
E .Dividend
payment
E. Others 5.18 0 0
F .Total 35.57 0.35 0.0
3. Long term -23.05 272.71 263.01
surplus(+) 1-2
4.Increase\decr -25.62 1285.44 12074.44
ease in CA
5.Increase\decr -2.85 712.77 744.43
ease in CL-
6.Increase\decr --22.77 572.72 463.0
ease in WC
7.Inet -0.23 -300.00 -199.99

51
 surplus+\
deficit
Diffrenceof
3&6
8.Increase\decr 0.0 300.00 200.00
ease in bank
borrowing
Other income of the company for 07 was rs 23.46 lacs which mainly consist
of sundary balances written of interest receipt of rs 13.53 lacs from fixed
deposits.

Profit-
The company achieved PBT of rs 5.07 lacs in 06 & rs 13.97 lacs in 2007 & rs
9.14 lacs during FY 08 the same was due to other income earned by the
company through interest on fixed deposits

Net worth
TNW increased from rs 115.13 lacs as at 2006 to rs 124.02 lacs as at
31/3/07 rs 130.25 lacs as at 31/3/08 due to retentation of profit

NWC
NWC of company which was at 146.24 lacs in 06 reduced to 132.50 lacs due
to reduction of unsecured loan from 38.51 net profit of rs8.66 lacs during of
the same marginally increase to rs 133.38 lcs in 08.

DE Ratio
The company does not have any long term debts & is s such a debt free
company

CER
As there was no activity during the last two years the cr ratio is not
applicable

Security

1. Primary

52
Hypothecation of ship purchased\to be purchased & the scrap materials
arising thereof & book debt the company arising from the sales there of &all
other current assets of the company

-FLC\ILC (DA\DP) - documents of title to goods received under the FLC\ILC for
the imports\purchased from foreign suppliers or from the MSTC\SCI & other
agencies

2. Collateral
Hypothecation \mortgage of block assets immovable properties

Property Owned by Market Realizable Valuation

land deshraj value value date
adm.388 sq jain\mrs 7.70 7.00 19/03/09
as with santosh jain ASP
building of
plinth area
2066 sq ft
on plot no .3
block qd
pitampura
residential
scheme
,new Delhi
-34

Personal \corporate guarantee

Net means. Immovable Date

properties
guarantors previou presen previou presen Previou present
s t s t s
Mr.Abhishek NA 6.49 NA 1.0 NA 1/1/09
anandkumr
jain
Mr. Renal k NA 6.28 NA 1.03 NA 1/1/09
.jain
Mrs NA 2.27 NA 0.33 NA 1/1/09
.ushadevi
a.jain
Total 22.43 NA 2.39

53
Trading activity

Direct imports
With the condition in the ship breaking activity fluctuating a lot the
management has decided to go for the trading business which is a line akin
to the ship breaking activity. To being with the company will be trading in
the company has made a detailed study of the market & has also contacted
a no. of suppliers in the international market during the last 3 years or so

With the contacts that having been developed & having made a study of fit
to venture into trading of the iron & steel items in order that the resources
available with the company are put in use

The imports are available on 180-240 credit terms however the same should
be backed by a LC .company has contacted a few of the major suppliers who
have expressed their willingness to in their favor .

At times even for the booking of the materials the company may be required
to established a LC much in advance

The company will also open a LC on contact enter into a deal only after a
local buyer has been identified & assured of the materials being sold of
immediately on the best terms .at times depending upon the materials & the
demand & supply position the company may also go in for the imports on
cash terms

In the process the company could get a better deal & also will be in position
to sell of the materials at the earliest their by reading the carrying cost.

Working capital limits – trading activity

The company will be requiring the following working capital limit to meet its
trading activity

1- cash credit CH- 500 lacs

2- FLC\ILC –DA\DP-700

Note –o\s under 1 &2 not to exceed rs 100 lacs at any one time

LC limit of rs 1000 lacs

54
The lc limit is required to-

• Imports the material to beer traded I n as mentioned above the

goods are available on sight as well as on usance terms of 180-240
days

• For the booking of the materials in advance .At time’s supplier does
insist for a LC to book the materials. only after the Lc is established
in advance will the supplier under take to supply the good in time

• Almost 50 % of the LC limit could be utilized for the booking of the

materials

• Company has planned to import the goods on cash terms also

• The company will try to import goods on bulk terms to ensure

economies scale

• Each shipment could be staggered such that liability under the LC

does not exceed rs 500 lacs at any one time

• In support of our requirement data on CMA forms have been

enclosed with the actual for the year ended 31/3/08 & the estimated
\projections for the year ended 31/03/09 \31/03/010. for the year
ended 31/03/09 not much activity has been considered due to –

• The cash credit limit will be required to an extend of rs 500 lacs, as

against which the company has a sanctioned limit of rs 100 lacs.
Only

• Once the credit limit requested for as below are made available to
the company then the company will be in a position to participate in
the larger bids & the lift the materials within the time frame as
specified by the auction houses etc,

Computation of LC limit for trading

Total purchase for the year 3850

Estimated purchase under LC_DA 1344

55
 Average monthly purchase 112
Average usance period 180 days
Average lead time 90 days
Average usance period +av. lead 270days
time
LC requirement 1008
Say rs 1000 lacs

Total working capital limits

The overall limits to be availed of by the company for the ship breaking as
well as the trading activity will be as below-

1. Cash credit (H) : 500 lacs

(Sub –limit foe ship breaking)

2. FLC\ILC-DA\DP : 1000

(Sub limit for trading) : ( 700 )

Recommendation
In view of the forging AGMCB recommend for following:

Sanction of Rs crore
Nat6ure Proposed
CC(H) 5.00
Sub limit for ship breaking (2.00)
Fund based ceiling 5.00
ILC\FLC(DA\DP) 10.00
Sub limit for trading activity (7.00)
Non fund based ceiling 10.00
Total commitments 10.00

Allowing waiver of stock audit remittance facility & decreased LC

margin 15%& 25% concession in commitment charge as discussed
in “other issues”

56
 Co – recommendation

In view of the AGMC (B) recommendation we may consider

sanction of:

Sanction of Rs crore
Nat6ure Proposed
CC(H) 5.00
Sub limit for ship breaking (2.00)
Fund based ceiling 5.00
ILC\FLC(DA\DP) 10.00
Sub limit for trading activity (7.00)
Non fund based ceiling 10.00
Total commitments 10.00

Note on maximum permissible bank finance of trading

activity
1-

2007-2008 2008-2009 2009-2010

estimated Accepted
sales 0 32.00 32.00
2-

Inventory level actual & estimated

particulars 07-08 08-09 09-010 09-010

Stock in 0 8.34 15.01 15.01
trade (5.76) (5.74) (5.74)
Months sale
Receivable 0 4.38 9.75 9.75
Month sales (3.00)
Advance to 0 0 0 0
supplier

57
 Note on maximum permissible bank fiancé for
trading activity
1-

The achievement in sales & projections of sales for

ensuring years are as under

2007-2008 2008-2009 2009-2010

estimated Accepted
sales 0 32.00 32.00
2-

Particulars 2007- 2008- 2009- 2009-

2008 2009 2010- 2010
audited estimated projected accepted
Stock in 0 8.34 15.01 15.01
trade (5.76) (5.74) (5.74
Month sales
Receivables 0 4.38 09.75 9.75
Month sales (3.00) (3.00) (3.00)
Advance to 0 0 0 0
suppliers
Advance 0 0 0 0
payment of
tax
Cash & 0 0.02 0.01 0.01
bank
balances
Other CA 0 1.44 1.47 1.47
total 0 14.18 26.24 26.24

Receivables

Current liabilities

Particular 07-08- 08-09 09-010 09-010

58
s
audited estimated projected projected
Sundry 0.01 7.00 14.00 14.00
creditors
Advanced 0.00 0.00 0.00 0.00
from
customers
Statutory 0.33 0.11 0.50 0.50
liabilities
Other 0.00 0.05 0.10 0.10
liabilities
Total 0.34 7.16 14.60 14.60

Calculation of MPBF

Item 08-09
1.Chargeable CA 24.77
2.OCA 1.47
3.TCA 26.24
4.OCL 14.60
5.WC gap 11.64
6.NWC at 25%of total CA 6.56
Pr7.ojected NWC 6.63
8.5-6 5.08
9.5-7 5.01
10.Permissible bank finance 5.00
minimum

Built up of NWC
Built up of NWC 31.3.08 31.3.01
NWC 12.8
Net profit 31.53
Depreciation 0.75
Increase in capital 100.00
Increase interim 140.78
deposits
Total 273.06

59
 Operating statement
Actual Actual Estim Co as Projec Co
ated a t whole
whole tradin
g
31.03.0 31.03. 31.03. 31.03. 31.03. 31.03.
7 08 09 09 10 10
A-1-
Gross
income (net
of refund )
a. Domes 0.00 0.00 1500.0 1750.0 3200.0 3900.0
tic 0 0 0 0
sales
b. Less 0.00 0.00 0.00 0.00 0.00 0.00
excise duty
c.net sales 0.00 0.00 1500.0 1750.0 3200.0 3900.0
0 0 0 0
1- Other
income
a. Duty 0.00 0.00 0.00 0.00 0.00 0.00
drawb
ack
b. Cash
assista
nce
c. 0.00 0.00 0.00 0.00 0.00 0.00
Commission
etc
d.sub total 0.00 0.00 0.00 0.00 0.00 0.00
3-total 1+2 0.00 0.00 1500.0 1750.0 3200.0 3900.0
0 0 0 0
B-Cost of
sales
a. Purchases 0.00 0.00 2186 2475 3850.0 4240.0
0 0
c. Other 0.00 0.00 5 15 5.00 12.00
trading
expens
es
d. Carriag 0.00 0.00 7 12.50 10.00 10.00
e

60
 inward
s
commi
ssion
etc
e. Add- 0.00 0.00 0 0 732.50 834.17
openin
g stock
f. Sub 0.00 0.00 2197 2502.5 4597.5 5146.6
total 0 0 7
g. Less – 0.00 0.00 732 834.17 1532.5 1501.1
closing 0 1
stock
h. Subtot 0.00 0.00 465 1668.3 3065.0 3645.5
al 3 0 6
( cost
of
sales)
C-selling 4.44 1.78 25.00 45.00 68.00 105.00
general
administrativ
e expenses
D. operating -4.44 -1.78 10.00 36.67 67.00 14.44
profit before
interest &
depreciation
E-interest 5.04 2.61 1.50 1.50 10.00 20.00
F-other 23.46 13.53 5.00 5.00 0.25 3.00
income
Less other 0.00 0.00 0.00 0.00 0.00 0.00
expenses
G- PBT 13.98 9.14 12.75 39.42 56.25 131.44
Prov .for tax 5.55 3.19 - 7.88 - 39.43
H-net profit 8.43 5.95 - 31.53 - 92.01

Analysis of balance sheet form

Liabilities
Actual Actual estimate Projected
d
31.3.07 31.03.08 31.03.09 31.03.01
0
CL

61
1.short term
borrowings from
bank inc(BP\BD)
a. from 0.00 0.00 0.00 0.00
applicant bank
b. From others 0.00 0.00 0.00 0.00
c.(of which 0.00 0.00 0.00 0.00
BP\BD0
Sub total 0.00 0.00 300 500
2.short term 0.00 0.00 0.000 0.00
borrowings
others
3.sundary 0.47 0.11 700 1400
credits
4.advanced from 0.00 0.00 0.00 0.00
customer
5.provision for 3.32 3.32 11.20 50.04
tax
6.dividevd 0.0 0.00 0.00 0.00
payable
7. Other 0.00 0.00 0.00 0.00
statutory liab.
8.TL,DPG dues 0.00 0.00 0.00 0.00
In yr
09.other CL 2.49 0.00 5 10
Sub total 6.28 3.43 716.20 1460
.04
10.Total CL 6.28 3.43 1016.20 1990.64
Term liabilities
11.debentures(n 0.00 0.00 0.00 0.
ot maturing 1 00
yr)
12.deferred tax 1.00 0.86 0.00 0.00
13.term 0.00 0.00 0.00 0.00
loan(existence
due in 1 yr)
14.OCG(excl.inst 0.00 0.00 0.00 0.00
.due in yr)
15.term deposits 0.00 0.00 0.00 0.00
16.other term 38.61 8.36 150 320
deposits
17. Total term 39.61 9.22 150 320
liab.
18. Total outside 39.61 9.22 150 320
liab.

62
 Net worth 15.89 12.65 1166.20 2280.64
19. capital 100 100 200 0.00
20. Gen.kes. 0.00 0.00 0.00 0.00
21.revaluation 0.00 0.00 0.00 0.0
reserve
22.others 0.00 0.00 0.00 0.00
23.surplus+\defi 24.02 30.25 61.78 153.79
cit-
24.net worth 124.02 130.25 261.25 353.79
25. total liab. 169.91 142.90 1427.49 2634.43

Computation of maximum permissible

Finanance for working capital

Actual Actual Estima Co as Project Co as
ted whorle ed whorled
d
31.03. 31.03. 31.03. 31.03. 31.03. 31.03.1
07 08 08 09 10 0
1.toatal current 155.92 130.30 1231.3 1915.7 2452.6 2623.2
assets 0 9 2 3
2.Current liab. 6.28 3.43 770.00 716.20 1300.0 1460.6
( other than 0 4
bank narrowing
3.WC gap 149.64 126.87 461.50 699.54 1150.6 1062.5
2 9
4.minimum 38.98 32.58 307.88 353.95 652.62 655.81
stipulated net
WC
5.actual\project 149.64 126.87 311.50 399.59 640.00 662.54
ed NWC
6.3-4 110.66 44.30 153.63 345.64 500.00 506.78
7.3-5 0.00 0.00 150.00 300.00 512.62 500.00
8.maximum 0.00 0.00 150.00 500.00 500.00 500.00
permissible
bank finance –
item 6or 7
9. excess 0.000. 0.00 0.00 0.00 0.00 0.00
borrowing
If any
representing
shortfall in NWC

63
 Fund flow statement
1.sources Actual Estimated Projected
31.03.08 31.03.09 31.03.010
A .NPAT 5.95 31.53 92.01
B. Add – 0.00 0.75 1.00
depreciation
C. Increase in 0.00 100.00 0.0
capital
D. Increase in 0.00 140.78 170.0
term liab.
E. Decrease in

1.FA 6.57 0.00 0.0

2.Other non CA 0.00 0.0 0.0
3.Total 12.52 273.06 263.01
2. Uses
a.Net loss 0.0 0. 0.0
b. Decrease in 30.34 0.0 0.0
term liab.
c. Increase in FA 0.0 0.35 0.0
d. Increase in 0.0 0.0 0.0
others
e.Dividend
payment
f. .others 5.18 0 0
f. total 35.57 0.35 0.0
3. long term -23.05 272.71 263.01
surplus(+) 1-2
4.Increase\decr -25.62 1285.44 12074.44
ease in CA
5.Increase\decr -2.85 712.77 744.43
ease in CL-
6.Increase\decr --22.77 572.72 463.0
ease in WC
7.Inet -0.23 -300.00 -199.99
surplus+\defici
t
Diffrenceof
3&6
8.Increase\decr 0.0 300.00 200.00
ease in bank
borrowing

64
 Chapter - 8: CONCLUSION

Large scale sector as a whole is poised to grow. The traffic is growing considerably. As per IRC
the traffic is expected to grow @ 7.5% p.a. In the most likely scenario. Due to increase in
industrialization, Govt.’s policy to increase the road network to the rural areas also is going to
have very vital impact. Unless the connectivity in the rural areas is improved, it is very difficult
to have progress of the rural India. With many of the projects, completed and started collecting
toll, the initial opposition to the toll collection is likely to be reduced. Setting of too many toll
roads may be irritating for the users, but if the project is capable of ensuring the return of toll
paid by way of reduction in fuel consumption, saving in time then the people cannot have any
objection in paying the toll. The projects are lucrative to the private parties due to long
concession period and surety of return of investments with good returns. The projects are
lucrative to the lenders for the surety of return of funds with good rate of interest and tax
benefits. The projects are good for the government as it lays down the much required
infrastructure without costing anything to the exchequer and it is advantageous to the people
since they get better roads for fast and safe driving, less fatigue, less fuel consumption, less
maintenance of vehicles with less wear and tear of tyres and tubes.

In nut shell, it appears that, the large scale industary projects certainly will be beneficial to the
banks for financing, provided they are techno-economically viable on the scale of various
parameters suggested in the profile.

However considering the time required for financial closure, construction and repayment the
project requires commitment for over 10-12 years.

65
 CHAPTER-9: BIBLIOGRAPHAY

1) india_bnk.pdf

2) www.credit risk rating.com

3) www.punjab national bank.com

66