A Report on Credit Appraisal for MSMEs With Reference To Union Bank of India

As part of POST GRADUATE DIPLOMA IN MANAGEMENT

SUBMITTED BY SUDARSHAN REDDY.K B4-54

Under the esteemed guidance of Dr. N.C.RAJYA LAKSHMI Professor - Finance Department

SIVA SIVANI INSTITUTE OF MANAGEMENT KOMPALLY, SECUNDERABAD. 2010-2012

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DECLARATION

I hereby declare that the project entitled Credit Appraisal for SMEs submitted for the PGDM-BIFAAS is my original work and the project has not formed the basis for the award of any degree, diploma, associate ship, fellowship or similar other titles. It has not been submitted to any other university or institution for the award of any degree or diploma.

ACKNOWLEDGMENT
I sincerely feel the credit of the project work could not be narrowed to only one individual. This work is an integrated effort of all those concerned with it, it would have been quite difficult without their direct & indirect co-operation. I wish to express my appreciation and gratitude to all the concerned people. It is my privilege to thank HANMANTHA REDDY( SENIOR MANAGER OF UBI)whose guidance has made me learn and understand the finer and complicated aspects of banking, in general and of Credit Appraisal Process, in particular. The help and guidance which he has extended to me has made me feel as being an integral part of the organization. First and the foremost my intellectual debt is to Dr N.C.RAJYA LAKSHMI who have contributed significantly towards the completion of the project. They have provided the guidelines on which this project was made. I am thankful to all the people who have given their precious time and provided me with requisite data without which this project would not have completed .I also thank them for giving their valuable suggestions during the entire period of research. However, I accept the sole responsibility for any errors of omission and commission. Sudarshan Reddy.K Roll no: B4-54

TABLE OF CONTENTS Importance of the study Literature review Objectives of the study Proposed methodology Abstract Industry profile Company profile Bank credit Types of products offered by bank Introduction to MSME Documentation MSME schemes in UBI An overview of credit appraisal Assessment of credit needs Financial statement analysis Risk associated with bank lending 17 principles for bank lending to avoid risks Financial ratios Credit rating Working capital assessment Term loan Process note of Sri Sai Krishna Educational Society Glossary Bibliography

PAGE NO 6 7 8 8 9-10 11 12-14 15 15-17 18 19-21 22 23 24 24 24-25 26-28 28-30 30-32 32-34 34-37 38-80 80-81 82

1.0 IMPORTANCE OF THE STUDY

The credit appraisal process is the scientific way of giving the credit to client by analyzing the credit worthiness of the company through different parameters. The first step in credit appraisal is to understand the Indian banking industry and the performance of the few Indian banks in the previous financial years since project undertaken is in banking industry a glance on small scale industry in India is given and the steps taken by the banks to development and welfare of SSI. As far as the credit appraisal in India is considered, banks ask for the balance sheet when we get a new account. If it is an existing concern, banks go through the balance sheet and the profit and loss statement for the past three years, analyze it, have the project report of the company to see how it has been doing and then, on the basis of the project report, banks would assess what the requirement is - whether it is a term loan required to purchase plant and machinery etc. or it is just working capital required for running the concern. Over a period of time, there has been an increased emphasis in monitoring the account. For instance, banks take monthly information now where earlier it used to be quarterly. Everything is computerized so it's easy for the borrowers to give the required information to us - their actual sales against what their projections were, what they have done etc. Know your borrower like the back of your palm. One thing would stress a lot is regular contact with the customer. Traditionally banks say, know your borrower like the back of your palm. Judge the promoters also - their policies, their scheme of things, for example, if they have participated in a fair abroad, the number of enquiries they generated; the number of those enquiries that have fructified as orders and the number that have just remained as enquiries etc. Then, their business clientele - are they spread out or are they just banking on 2-3 clients, how are they manning their receivables etc.

1.2 LITERATURE REVIEW FICCIS ANNUAL SURVEY ON BANKING SECTOR FOR CONSOLIDATION
September 23, 2006: The Indian banking sector is all for consolidation of the financial sector now and is fully endorses the need for creating six or seven banks of the size of the State Bank of India, while bulk of the public sector banks lament lack of sufficient autonomy to offer attractive incentive packages to their employees to ensure commitment and raise productivity. These and other prescriptions revealed by FICCIs annual survey on the Indian Banking System: The Current State and the Road Ahead. The FICCI Survey, which zeroes in on the potential offered by Indian banking system and achievement of global competitiveness by Indian banks, throws up key areas that need focused attention and immediately tackled for future growth. These areas, pinpointed by the survey respondents include: Diversification of markets beyond big cities (84.2% of the respondents), HR Systems (63.15%), Size of Banks (52.63%) High Transaction Costs (47.3%), Banking Infrastructure (42%) and Labor Inflexibilities (42%).

The following are the major highlights of the FICCI Survey: Some of the major strengths of the Indian banking industry, which have helped mark its place on the global banking scene as highlighted by our survey respondents were Regulatory Systems (84.21%), Economic Growth Rate (63.15%), Technological Advancement (52.63%), Risk Assessment Systems (47%) and Credit Quality (42.1%) Some of the areas that need to be geared up for future growth, identified by the survey respondents are Diversification of markets beyond big cities (84.2%), HR Systems (63.15%), Size of banks (52.63%) High Transaction Costs (47.3%), Banking Infrastructure (42%) and Labor Inflexibilities (42%).To a question on achieving global competitiveness, Consolidation in the financial sector has emerged to be the most significant measure required to create world class banking system followed by Strict Corporate Governance Norms, Regional Expansion, Higher FDI limits and FTAs.

1.2 OBJECTIVES OF THE STUDY The objective of research is to study the MSME banking in Union Bank of India. The area of study in MSME banking in Union Bank of India include
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Working Capital Financing and Term Loan Financing: To support extended both as Fund based and Non-Fund based facilities to Corporate, Partnership firms, Proprietary concerns. Working Capital finance extended to all segments of industries. The project research focuses on determining the various factors considered in analyzing the financial needs (working capital) of their clients and determining the limit of finance. The objective of the project is also to study the well documented loan policy.

The study would involve the following:

Assessment of the advances. Processing of the advances.

To understand the conceptual framework To analyze the project

1.4 LIMITATIONS OF THE STUDY

Every study or research is conducted under some limits and there are some restrictions which have some impact on the project. Limitations of this project are:

Coverage: The study aims at covering the corporate banking in respect of MSMEs of Union Bank of India only. The study aims at gaining the practical knowledge by taking help of bank personals. So there might have been tendencies among the personals to amplify or filter their responses due to time limitation.
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Credit appraisal for working capital finance is to study that needed specialized knowledge of the area, so there is chance for interpretational error on my par.

1.5 PROPOSED METHODOLGY

Since the research carried out for this project is descriptive in nature, the various documents and official files would require for understanding the methodology used by the banks. The data collection can be done by personal interview or direct observations. At the same time, related articles, newspapers, magazines, inhouse journals of banks, etc were referred. The information on the project under consideration can be obtained by the bank employees and officials. Also I went through various files and the official correspondence of the bank for better understanding the topic under the study. The methodology also include finding out the financial ratio, understanding the credit rating and assessment of working capital and term loan of the companies by making the fresh proposal for working capital and term loan.

1.6 ABSTRACT
The project undertaken is credit appraisal for SMEs. The project emphasis on understanding the procedure and process used by union bank of India to assess the credit worthiness of the borrower. Small scale industry in India is booming and contributing to 40% of GDP, many banks are focusing their attraction towards this sector. The credit appraisal process is the scientific way of giving the credit to corporate client by analyzing the credit worthiness of the company through different parameters. The first step in credit appraisal project is to understand the Indian banking industry and the performance of the few Indian banks in the previous financial years since project undertaken is in banking industry a glance on union bank of India and small scale industry in India is given and the steps taken by the banks to development and welfare of SSI. The credit appraisal for SME starts with Understanding the need of loan to the borrower i.e. for which purpose the loan is required. After this next step is to analyze the financial statement of the company to whom the loan is to be sanctioned. The main things which are taken into consideration while analyzing the
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financial statement are type of statement, nature of activity, accounting policy, qualities of assets and liabilities , unit wise performance result of the company & directors report. After analyzing the financial statement the second step is to study the principle given by Basel committee on banking supervision which basically Indian banks have to be following as per the order by Reserve Bank of India. The third step is to analyze the key financial ratios of the company such as: Leverage ratio, liquidity ratio, profitability ratio, turnover ratio, inventory norms. The next step is to understand the methodology used to determine the credit rating. Since the credit rating methodology differ from bank to bank in term of the weight age given to the parameters but the parameter used by the banks to assess credit worthiness are almost same to all company. The banks mainly provide two types of credit facility known as term loan and working capital loan. The working capital loan is given by three methods namely- projected balance sheet method, MPBF method and cash budget method. Term loan is the loan given by the company for a long term generally more than one year and less than 10 years to company. The term loan is assessed by the break even analysis, cost benefit ratio, payback period. While appraising the term loan technical, managerial, financial feasibility is checked. The debt service coverage ratio is used for assessing the company capacity to pay back installment of loan and int. on term loan. The sensitivity analysis is used to check the company ability to pay back the loan by changing the independent variables and consequently monitoring the effect on dependent variables. The last step is to understand the classifications of NON PERFORMING ASSET and the provision to recovery of NPA. The research report contains the whole procedure & process which is used by the bank to give credit to SMEs.

1.0 INDUSTRY PROFILE

With the Indian economy clipping at 9 per cent, consumption levels soaring and investment riding high, the Indian banking sector is on an upswing. According to the Annual Statement on Monetary Policy for the year 2009-10 released by the Reserve Bank of India (RBI), the Indian economy has witnessed robust growth during 2009-10 for the fourth year in succession. India could become the third largest banking hub in the world by 2040, according to a PricewaterhouseCoopers (PwC) report. The potential banking market waiting to be tapped in India is fairly huge. Out of the 203 million Indian households, three-fourths, or 147 million, are in rural areas and 89 million are farmer households. In this segment, 51.4 per cent have no access to formal or informal sources of credit, while 73 per cent have no access to formal sources of credit. Similar data is not available for non-farm and urban households. Given the huge potential, corporate houses like the Tatas and Reliance - Anil Dhirubhai Ambani Group, besides several others, are said to be interested in having a slice of the banking pie. An under-penetrated market and the opportunity to service a large, young, working age population, which will create and therefore need help to manage wealth, emerging Indian multinationals with global horizons, entrepreneurs with surplus wealth and limited investment options makes India an extremely attractive market. Retail Banking Following the trend in other emerging economies, India is experiencing a boom in retail banking. Drawn by the promise of huge returns in this sector, a number of foreign banks are falling over each other to acquire a slice of the banking pie. A year and a half ago, Deutsche Bank launched its retail operations in India. Earlier, another German company BHW Holding AG positioned itself in this space by taking over Birla Home Finance Ltd. Now there are 29 foreign banks have a presence in India through their 268 branches. In May 2009, the 300-year old Barclays Plc followed suit. Besides credit cards, its retail foray will be in the personal loan segment. These late entrants join the ranks of Citibank India, HSBC, ICICI Bank and HDFC Bank Ltd that have aggressively begun tapping this business.

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2.1 OVERVIEW OF UNION BANK OF INDIA

CORPORATE MISSION
A logical extension of the Vision Statement is the Mission of the Bank, which is to gain market recognition in the chosen areas. To build a sizeable market shares in each of the chosen areas of business through effective strategies in terms of pricing, product packaging and promoting the product in the market. To facilitate a process of restructuring of branches to support a greater efficiency in the retail banking field. To sustain the mission objective through harnessing technology driven banking and delivery channels.

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The dawn of twentieth century witnesses the birth of a banking enterprise par excellence- UNION BANK OF INDIA- that was flagged off by none other than the Father of the Nation, Mahatma Gandhi. Since that the golden moment, Union Bank of India has this far unflinchingly traveled the arduous road to successful banking........ a journey that spans 88 years. We at Union Bank of India, reiterate the objective of our inception to the profound thoughts of the great Mahatma... We should have the ability to carry on a big bank, to manage efficiently Crores of rupees in the course of our national activities. Though we have not many banks amongst us, it does not follow that we are not capable of efficiently managing Crores and tens of Crores of rupees." Union Bank of India, a public sector bank was incorporated in 1919.After the inauguration by father of nation mahatma Gandhi bank has travelled a long successful journey of 88 yrs of banking. Union Bank of India is committed to maintain its identity as a leading innovative commercial Bank, alive to the changing needs of the society. Union Bank has offered vast and varied services to its clientele taking care of their needs. Today, with its efficient customer service, consistent profitability & growth, adoption of new technologies and value added services, Union Bank truly lives up to the image of, GOOD PEOPLE TO BANK WITH. The key business areas of the bank are retail banking, international banking, corporate banking & treasury. As Retail banking is growing very fast in Indian banking industry union bank of India is also showing strong growth in this sector. The bank provide housing, retailing trade, automobile, consumer, education and other personal loans and deposits services such as fixed , saving and demand deposits for the valuable clients. The bank has increased foreign exchange turnover from 361.02 bn in 2004-05 to408.94 bn in 2006-07 with annual growth rate of 13.27%. The corporate banking sector offers various loan and free based products and services to its small and medium enterprises, agriculture sector. To boost SME Segment the bank has set up separate SME cells .the total employee strength of bank are 25,421. Union bank of India is targeting a 25% growth in its SME portfolio. The bank SME portfolio in 2005-06 was 6,839 crore and its target in 2006-07 is 8,540 crore. Union bank of India has made an agreement with SIDBI to provide loan to SMEs. The bank is converting 32 small scale industry branches to SME branches. Union bank of India and SIDBI are also in the process of putting up marketing teams in 15 centers for identifying and appraising SMEs units and lending them.

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Union bank of India has a network of more than 2100 branches all over India. The Bank came out with its Initial Public Offer (IPO) in August 20, 2002 and govt.of India holds 55.4% of the bank followed by FII 19.9% & Indian public hold14.8% of the bank. The Bank has over the years earned the reputation of being a techno-savvy Bank and is one of the front runners amongst public sector bank in the field of technology. It is one of the pioneer public sector banks, which launched Core Banking Solution in 2002. Online Tele banking facility is available to all its Core Banking customers. The multi facility versatile Internet Banking Solution provides extensive information in addition to the on line transaction facility to both individuals and corporate banking with the Core Banking branches of the Bank. In addition to regular banking facilities, today customer can also avail variety of value added services like cash management service, insurance, mutual funds, Demat from the Bank.

2.0

BANK CREDIT

Bank credit has to do with the amount of funds that an individual or a business may be able to borrow from one or more lending institutions. In effect, bank credit is a measure of how much in the way of cash loans may be issued, based on the credit history and the assets of the company or person. Here is some information about how bank credit works, and why knowing your bank credit rating may be very important. Because bank credit focuses on the borrowing capacity of the individual or business entity, the premise is a little different than the extension of a line of credit. First, bank credit has to do with loans that are taken out for specific purposes, rather than general purposes. Second, they often involve some sort of collateral that helps to ensure the repayment of the loan in the event of default. A basic philosophy of the banking system is that when money is loaned out, there must be a reasonable expectation of repayment of the loan, plus interest. This means that looking at the overall financial status of the applicant is important. Assets such as property, savings and stock accounts, current indebtedness, employment status and annual net salary or wages, and overall credit rating are all components that factor into determining the bank credit of the applicant. This is a far more comprehensive approach than is normally used for the issuing of a credit card.

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Understanding the importance of bank credit often becomes apparent when applying for a mortgage to finance the purchase of a new home. Depending on the overall financial health of the prospective homeowners, there may or may not be a sufficient level of bank credit to allow the approval of the mortgage. This may be true even if the applicant can demonstrate a steady source of income and is not in arrears on any current financial obligations. There are some ways to improve a bank credit rating. First, look at credit card debt and eliminate it if at all possible. Also, cut down on the number of open credit card accounts. The combined worth of your lines of credit will impact your bank credit rating. Fewer credit cards mean less potential to incur large balances that would hinder repayment of a loan or mortgage. Keep one or two credit cards and pay them off each payment cycle. This maintains a healthy credit record and will reflect favorably on your bank credit and will increase your borrowing power with your local financial institution.

3.1 TYPES OF FUNDING OFFERED BY THE BANK

Cash is the lifeblood of any business and most businesses need some financial help to get started, grow and develop. Finance for business comes in three different forms equity, grants and bank finance. Before approaching the bank, first investigate the other forms of finance grants and financial supports available to you. Once you have organized either a grant and/or equity, you are more likely to be successful with any application to your bank. As with securing funding from other sources, getting bank finance is essentially a selling exercise you need to sell the concept of your business idea to the bank. Banks will assess the levels of risk of your proposal and need to satisfy themselves that the potential rewards match the risk ultimately, does your proposed business venture have the capacity to repay the debt.

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DIFFERENT TYPES OF BANK FINANCE

Working Capital Finance - short term Product Description

Supported by all features of a business current account A flexible source of short term working capital finance No fixed repayment schedule Confidential debt-financing facility Helps businesses overcome cash flow problems caused by overdue invoices, giving immediate access to up to 80% of invoiced debt.

Overdraft

Invoice Discounting

Repaid as debts are received

Capital Finance - short to medium term Product Term Loans Description

Fixed or variable interest rates Monthly repayments over a period of one to seven years Finance to fund businesses awaiting grant cheques or drawdown of approved commercial mortgages or loan agreements. Finance to spread the cost of insurance, corporation tax or other annual payments. Equipment or Transport finance-allow repayments against your taxable profits. Hire Purchase-for the use of asset purchase Repayment over five years or life of tie asset

Bridging Finance

Finance & Leasing Options

Capital Finance - long term Product Description

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Long term finance for the purchase of a business premises, refinancing an existing property or the purchase of investment property. Three types - straightforward repayment, commercial endowment or a pension mortgage.

Commercial Mortgage

Repayment over 15 years 10 year fixed loan for fixed assets such as property, plant or machinery and pay for them over the period of their useful life.

Fixed Asset Loan

Specialist

Option to postpone capital repayments for up to two years, where appropriate. Banks will provide a range of specialist products & services to fund expansion or merger / acquisition plans.

4.0 INTRODUCTION TO MSME FINANCING

MSMEs are crucial to the economic growth process and play an important role in the countrys overall production network. They are drivers behind a large number of innovations and contribute through creation of employment, investments and exports. The MSME participation in the global economy reveals mainly three lines of activity trade, technology and investment. The MSMEs play a pivotal role in the overall industrial economy of the country. India has nearly 13 million MSMEs which produce a diverse range of products (about 8000 odd items), including consumer items, capital and intermediate goods. In terms of value, the sector accounts for about 45% of the manufacturing output and around 40% of the total export of the country.

MSME DEFINITION

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Govt. of India has enacted the micro, small and medium enterprises development act, 2006, on June 16, 2006 which was notified on October 2, 2006. As per the MSMED act, 2006, the definition of micro, small and medium enterprises is modified and is required to be implemented by the banks with immediate effect. Micro enterprises (manufacturing sector): It is an enterprise where investment in plant and machinery (original cost excluding land and buildings and other related items) does not exceed rs. 25.00 lacs. Micro enterprises (service sector): It is an enterprise where investment in equipment does not exceed rs. 10.00 lacs. Small enterprises (manufacturing sector): It is an enterprise where investment in plant and machinery (original cost excluding land and buildings and other related items) more than rs. 25.00 lacs but does not exceed rs. 5.00 crores. Small enterprises (service sector): It is an enterprise where investment in equipment more than rs. 10.00 lacs but does not exceed rs. 2.00 crores. Medium enterprises (manufacturing sector): It is an enterprise where investment in plant and machinery (original cost excluding land and buildings and other related items) more than rs. 5.00 crores but does not exceed rs. 10.00 crores. Medium enterprises (service sector): It is an enterprise where investment in equipment more than rs. 2.00 crores but does not exceed rs. 5.00 crores. The small and micro (service) enterprises shall include small road and water transport operators, small business professional and self employed persons and all other small enterprises. The definitions of the same areas under:

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Small road and water transport operators (owning a fleet of vehicles not exceeding 10 vehicles). Small business (whose original cost price of the equipment used for the purpose of business does not exceed rs. 20.00 lacs).

Professional and self employed persons (whose borrowing limits do not exceed rs. 10.00 lacs of which not more than rs. 2.00 lacs should be for working capital requirements except in case of professionally qualified medical petitioners setting of practice in semi urban and rural areas, the borrowing limits should not exceed rs. 15.00 lacs and a sub-ceiling of rs. 3.00 lacs for working capital requirements).

Since retail trade has been categorized as a separate sector it does not form a part of MSE sector.

4.1

DOCUMENTATION

A. The existing units are expected to approach the bank with the following documents: A.1 For Existing Units seeking WC facilities:

Last 3 years audited balance sheet with notes on account & annexure Last 3 years audited profit & loss statement with notes on accounts & annexure Last 3 years IT returns Last 3 years balance sheet & profit & loss statement of associate / sister concerns CMA data Order book position / contracts / proof of demand Last sales tax assessment order Statutory clearance certificate Lead Bank assessment note in case of consortium finance. Details of Associate / Sister / Group Concerns with names, bankers, credit facilities enjoyed present status etc.
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Details of Collaterals wherever applicable.

A.2 Additional documents required in case of take over account:

NOC / status of the account Credit report from the existing bankers Statement of account for last 1 year.

A.3 Additional documents required for Term Loan / LC for capital goods application, if they are not included in project report:

Cash flow statement for entire repayment schedule Fund flow statement for entire repayment schedule. Profitability projections and assumptions for entire repayment period Break-even analysis. IRR working DSCR working CA certificate for promoter's contribution Project Report covering: a) Details of cost of machinery, suppliers of machinery b) Quotations / proforma invoices from suppliers c) Installed capacity calculation d) Raw material details & their availability e) Market survey: viability reports from market, reports from associations f) Project implementation schedule. g) Status of various clearances required.

A.4 Additional documents required in case of factory building:

Building approval plan

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Estimate from Architect Statutory clearances: Environment, pollution clearance, and other applicable clearances. Power & water sanction proof, Any other clearances like explosive license etc wherever applicable to different projects.

A.5 Additional documents required for raw material LC:

Pattern of purchase Quantum & Value of import and domestic purchases. Import license Percentage of Total Purchase under LC Lead-time required DA period in case of DA LC

A.6 Additional details required in case of Bank Guarantee:

Details of existing guarantees & facilities Bid bond / security deposit Details

B. In case of New Projects seeking TL & WC facilities Complete Project Report to be submitted including the following by the Entrepreneurs:

Projected Balance Sheet for the entire repayment period, Projected P & L Account for the entire repayment period, Presumptions made in Projected Profitability Estimates Projected Cash Flow Statement for the entire repayment period, Projected Fund Flow Statement for the entire repayment period, Break Even Analysis DSCR Computation for the entire repayment period, with Average DSCR Calculation, IRR Computation, CA certificate for promoter's contribution
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IT return & personal Balance Sheet of the promoters & guarantors Bio data of Promoters / Directors Details of cost of machinery viz Name of Machine, Machine Capacity, Supplier of machinery, Quoted Value etc. Estimates of Construction by Architect / Chartered Engineer. Copies of Various Basic / Statutory Approvals to establish the unit & to run the activity. Installed capacity calculation Raw material details & their availability Market survey: viability reports from market, reports from associations Project implementation schedule. Market Demand & Market Arrangements Details of Collaterals wherever applicable.

4.2

MSME SCHEMES IN UBI

Union Bank of India has adopted a policy package for stepping up credit to Small & Medium Enterprises. Union Bank of India has adopted a policy package for stepping up credit to Small & Medium Enterprises [SME] with the approval of the Board in its meeting held on 30th September 2005 and subsequently following steps have been initiated in this direction.

Union High Pride Union Procure Union Supply Union Cyber Union SME Plus Union Transport Financing SMALL HOSIERY UNITS in Kolkata Financing the purchase of GENERATOR SETS in power deficit states Financing REPLACEMENT OF OLD TAXIES in Kolkata metropolitan development area Financing purchase of LPG driven AUTO RICKSHAW in Chennai metropolitan area
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5.0AN OVERVIEW OF CREDIT APPRAISAL

Credit appraisal is done to evaluate the credit worthiness of a borrower. The credit proposal is prepared to indicate the need based requirement and the rationale for its recommendation. Bank has in place a welldefined framework for approving credit limits of different segments. Requests for credit facilities from the prospective borrowers shall be on the prescribed format and the full-fledged proposal should be prepared for submission to the appropriate sanctioning authority for approval. These proposals analyze various risks associated with bank lending i.e. business risks, financial risks, management risks, etc. and clarify the process by which such risks will be managed on an ongoing basis the credit appraisals for any organization basically follow the following process Assessment of credit need Financial statement analysis Credit rating Working capital requirement Term loan and sensitivity analysis

5.1 ASSESSMENT OF CREDIT NEED

The first step in the process of credit appraisal is to assess the need for loan to the borrower. In the first step the need of financial requirement is understand i.e. for which purpose the loan is required .The banks basically provide two types of credit facilities to their clients.

Fund based facility Fund based facilities provided by the banks are basically term loan & working capital loan. Non fund based facility Non fund based facilities provided by the banks are letter of credit, letter of guarantee, packing credit.

The banks basically follow three method prescribed by TANDON COMITEE REPORT to RBI {central bank in India} 1 FIRST METHOD: borrower will contribute 25% of working capital gap 75% would be financed by bank borrowing. Minimum current ratio would be 1:1
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2 SECOND METHOD: borrower will contribute 25% of total current asset and the remaining working capital gap is filled by bank borrowing {WC gap borrower contribution}.the current ratio given by this method would be1.3:1. 3 THIRD METHOD: borrower will contribute 100% of core asset and 25% of balance of current asset. The remaining working capital gap will be bridged by the borrowing. The first two methods are accepted by RBI for the implementation .This is applied to the entire borrower having the credit limit in excess of 20 lacs from the banking system.

5.2 FINANCIAL STATEMENT ANALYSIS

Key points to be checked in financial statement:

Type of statement: Examine weather financial statement is audited or unaudited. If the report is audited study the auditor certificate. Nature of activity: Engaged in trading or manufacturing activity or services, what kind of the products the company dealt in. if it is a software industry does it have a technical component and skilled manpower.

Series of statement: examine the financial statements important factor to note the trend has taken place from one year to another year. For the last 2 or 3 years to know about the trend in the performance of the firm. The

Accounting policy which accounting policy the organization is following. Weather depreciation is charged on WDV {written down value} method or using SLM {straight line method}.

5.2.1 RISK ASSOCIATED WITH BANK LENDING:

Banks mainly faces three kind of risk which has impact on profitability of the bank. These risks are Credit risk Market risk Operational risk

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Credit risks basically is the major risk which is faced by the bank on account of their business activity, which including the lending to corporate world, individual bank, another bank or financial institution. Credit risk is of two types borrower risk portfolio risk

Borrower risk may be the possibility of that a borrower will fail to meet his financial obligations in accordance with agreed term. Portfolio risk arises due to credit concentration/ investment concentration i.e. most of the credit is given to only one type of group and the possibility of default. Market risk is the variability in the profitability of the firm due to change in market variables. This is manly of three types. interest rate risk exchange rate risk

Interest rate risk the risk in the erosion of earning due to variation in the interest rate within the time period is referred as interest rate risk. Exchange rate risk this risk is of two types Transaction risk Translation risk

Transaction risk is the risk basically arises due to the fluctuation in the price of a currency, upward or down ward; result in a loss on a particular transaction. Translation risk in a situation of a translation the balance sheet of a bank affected adversely due to exchange rate movement and change in the level investment or borrowing in foreign currency even without having translation at a particular time. Liquidity risk liquidity risk arises out of the possibility that would not be able to meet its financial obligation as they become due for the payment. the risk basically arise due to mismatch between the cash inflow or out flow of the funds or funding the long term asset term asset by short term liability. Surplus liquidity also is the loss to the banks as the money is not used to raise the income to the bank. There are many indicators of Credit Risk Problems which show the risk in bank lending. Generally high level of non-performing assets of the bank or Heavy Provisions shows the greater risks. This can be also

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assessed through the balance sheet and p/l account of the company. It is red indicator to the bank which shows that bank has one of the problems with the credit policy. I. Generally an indicator of poor quality of a credit portfolio. II. Implies poor risk selection and/or poor credit monitoring. III. Very rapid expansion of credit portfolio size. It is not necessary that an above indicator of problems always be true but it often reflect future problem. 5. 2. 2 The seventeen basic principles for bank lending are given below to avoid the risks associated with bank lending. ESTABLISHING AN APPROPRIATE CREDIT RISK ENVIRONMENT Principle 1: The board of directors should have responsibility for approving and periodically reviewing the credit risk strategy and significant credit risk policies of the bank. The strategy should reflect the banks tolerance for risk and the level of profitability the bank expects to achieve for incurring various credit risks. Principle 2: Senior management should have responsibility for implementing the credit risk strategy approved by the board of directors and for developing policies and procedures for identifying, measuring, monitoring and controlling credit risk. Such policies and procedures should address credit risk in all of the banks activities and at both the individual credit and portfolio levels. Principle 3: Banks should identify and manage credit risk inherent in all products and activities. Banks should ensure that the risks of products and activities new to them are subject to adequate procedures and controls before being introduced or undertaken, and approved in advance by the board of directors or its appropriate committee. A.OPERATING UNDER A SOUND CREDIT GRANTING PROCESS Principle 4: Banks must operate under sound, well-defined credit-granting criteria. These criteria should include a thorough understanding of the borrower or counterparty, as well as the purpose and structure of the credit, and its source of repayment.

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Principle 5: Banks should establish overall credit limits at the level of individual borrowers and counterparties, and groups of connected counterparties that aggregate in comparable and meaningful manner different types of exposures, both in the banking and trading book and on and off the balance sheet. Principle 6: Banks should have a clearly established process in place for approving new credits as well as the extension of existing credits. Principle 7: All extensions of credit must be made on an arms-length basis. In particular, credits to related companies and individuals must be monitored with particular care and other appropriate steps taken to control or mitigate the risks of connected lending. B. MAINTAINING AN APPROPRIATE CREDIT ADMINISTRATION, MEASUREMENT AND MONITORING PROCESS Principle 8: Banks should have in place a system for the ongoing administration of their various credit risk-bearing portfolios Principle 9: Banks must have in place a system for monitoring the condition of individual credits, including determining the adequacy of provisions and reserves. Principle 10: Banks should develop and utilize internal risk rating systems in managing credit risk. The rating system should be consistent with the nature, size and complexity of a banks activities. Principle 11: Banks must have information systems and analytical techniques that enable management to measure the credit risk inherent in all on- and off-balance sheet activities. The management information system should provide adequate information on the composition of the credit portfolio, including identification of any concentrations of risk. Principle 12: Banks must have in place a system for monitoring the overall composition and quality of the credit portfolio. Principle 13: Banks should take into consideration potential future changes in economic conditions when assessing individual credits and their credit portfolios, and should assess their credit risk exposures under stressful conditions. C. ENSURING ADEQUATE CONTROLS OVER CREDIT RISK Principle 14: Banks should establish a system of independent, ongoing credit review and the results of such reviews should be communicated directly to the board of directors and senior management.
26

Principle 15: Banks must ensure that the credit-granting function is being properly managed and that credit exposures are within levels consistent with prudential standards and internal limits. Banks should establish and enforce internal controls and other practices to ensure that exceptions to policies, procedures and limits are reported in a timely manner to the appropriate level of management. Principle 16: Banks must have a system in place for managing problem credits and various other workout situations.

D. ROLE OF SUPERVISORS Principle 17: Supervisors should require that banks have an effective system in place to identify measure, monitor and control credit risk as part of an overall approach to risk management. Supervisors should conduct an independent evaluation of a banks strategies, policies, practices and procedures related to the granting of credit and the ongoing management of the portfolio. Supervisors should consider setting prudential limits to restrict bank exposures to single borrowers or groups of connected counterparties. SOURCE: RESERVE BANK OF INDIA

5.2.3 FINANCIAL RATIOS

LEVERAGE RATIOS: a) Debt-equity ratio: Long term liabilities Tangible Net worth Ratio indicates term lenders stake vis--vis stake of the owner. It should be between 1.5 and 2. Long term liabilities may include term loans, debentures deferred payment guarantees, fixed deposit. Tangible net worth = Equity share capital + Preference share capital redeemable after 3 years + reserves and surplus + Subsidy Intangible assets - accumulated losses, if any.

27

b) Fixed assets coverage ratio: Fixed assets + other non-current assets * 100 Tangible net worth + Long term liabilities It indicates coverage of long-term uses by long term sources. Lower percentage indicates extent of net working capital available. PROFITABILITY RATIOS: a) Profit margin on sales: Net Profit * 100 Sales It indicates profitability of the firm after accounting for all the expenses and taxes. To be compared with similar size units belonging to the same industry. It is to be compared with the similar size units belonging to the same industry. b) Cost of sales to sale: Net profit * 100 Sales It indicates cost efficiency. It is to be compared with the similar size units belonging to the same industry. c) Return on investment: PBIT * 100 Capital employed (Net fixed assets + Total CA) It indicates the rate of return on total funds employed. It should be more than average cost of capital. d) Return on net worth: Net profit after preference dividend * 100 Equity capital +reserves and surplus It is the ratio of return on owners fund. d) Debt service coverage ratio Profit after tax + depreciation + interest * 100 Interest + Installments of term liabilities Payable during the year The ratio indicates the extent to which the amount of interest and installments payable during the year are covered by the funds generated during the year. The minimum 1.5 is expected. TURNOVER RATIOS a) Total asset turnover ratio: Sales Net fixed assets + current assets It indicates how well the assets are used. It is to be compared with similar size units belonging to the same industry.
28

b) Working capital turnover ratio: Sales Total current assets It indicates how well the current assets are used. It is to be compared with similar size units belonging to the same industry. Location of the unit also needs to be taken into consideration. c) Inventory turnover ratio: Cost of goods sold Average inventory It indicates the extent of excess inventory. Trend over a period of line compared with similar size units belonging to same industry.

5.3 CREDIT RATING

R.B.I. has given considerable emphasis on having a proper risk rating in place as a credit rating system is considered as an instrument that helps the bank in Measuring the Credit Risk at the transaction level. Pricing the Credit Risk Providing triggers for action on Portfolio Management Frequency of inspection

The following three credit rating models are used at UBI for evaluating the credit worthiness of a borrower in the SME sector. Rating Model 1 For Small Borrowers with Credit Limit between 2 Lacs to 100 Lacks. Rating Model 2 For borrowers with Credit Limit between 10 Lacs to 5 Crores. Rating Model 3 For borrowers with Credit Limit between 1 Crore to 10 Crores. The credit rating technique used by the banks differs from bank to bank. As stated in the Basel committee reports the top management is responsible for framing the policy of bank. The common parameters, which are taken into consideration before preparing the credit rating module, are below Operational performance of unit Sales trend during last 3 years. Profit trend during last 3 years. Achievement of sales projections Achievement of profit projections Net worth
29

Historical risks associated with unit

Geographical location Threat of obsolescence Industry type (sunrise, old, sunset) Industrial relation Regulatory risks and transaction/ compliance risk Repayment records Relationships of clients with the banks a/c Sector specific threat (external macro economic factors) Tax and duty barriers Conduct of fund and non-fund based accounts with banks /financial institutions- whether these are regular or irregular. Compliance of terms and conditions stipulated by banks while sanctioning of loan. Position of annual renewal/ review of loan facilities. Nature and value of securities (primary/ collateral) offered to cover loan facility. Validity of creation of charge on the securities. Position of contingent liabilities, if any. Transparency and disclosures in audited annual accounts. Position with regard to submission of balance sheet and P&L account, monitoring data and inventory statement etc. Auditors comments on quality and valuation of all types assets. Financial risk Return on equity ratios Debt service coverage ratio Total debt to net worth Operating profit to net sale Returns on assets Current ratio
30

Nwc/ current asset Net profit to net sales Return on capital employed

After evaluating the risk level involved the lender bank decided on lending Interest Rate. In UBI they are categorized in 9 segments 1. Lowest Risk CR-1 2. Low Risk CR-2 3. Medium Risk CR- 3 4. Moderate/ Satisfactory Risk CR- 4 5. Fair Risk CR- 5 6. High Risk CR- 6 7. Higher Risk CR- 7 8. Highest risk CR- 8 9. NPA CR- 9 In UBI, a business receiving Credit Rating above level 6 are not considered good from point of investment and thus are avoided.

5.4 WORKING CAPITAL ASSESSMENT:

Apart from financing for investing in fixed assets, every business also requires funds on a continual basis for carrying on day to day operations. These include amounts expenses incurred for purchase of raw material, manufacturing, selling, and administration until such goods are sold and the monies. While part of the raw material may be purchased by credit, the business would still need to pay its employees, meet manufacturing & selling expenses (wages, power, supplies, transportation and communication) and the balance of its raw material purchases. Working capital refers to the source of financing required to by businesses on a continual basis for meeting the short term needs. Limits to the various borrowers are assessed depending upon their requirements and their line of activity.

31

OPERATING CYCLE OF THE COMPANY: The operating cycle is the average time between purchasing or acquiring inventory and receiving cash proceeds from its sale. From the operating cycle the bank can understand about the future working capital requirement of the company. DURATION OF OC = R.M stock + WIP + FG stock holding period +ACP APP NO. Of OCs in a year = 360/ 12 Duration of OCs WC requirement forecast = annual operating cost No. of OCs in a year Stock holding period = stock Cost at which stock is valued R.M. stock holding period = Average stock of raw material Value of R.M. consumed per day

WIP period = Average stock of WIP Cost of production/day FG stock holding period = Average stock of finished COGS per day ACP = debtors * 360 Credit sale APP = creditors *360 Cr. Purchase 1. TURNOVER METHOD: (Working Capital Requirements)

32

Under this method the bank finances maximum of 20% of the projected sales of the borrower and the borrower has to contribute 5% as his margin. This method is applicable for the following sectors:1. For SSI borrowers up to Rs.5.00 crores. 2. For Non SSI borrowers up to Rs. 1.00 Crore. 2. MAXIMUM PERMISSIBLE BANK FINANCE (MPBF) METHOD: Under this method the borrowers requirements are assessed based on the past practice/holding levels while the projections should be reasonably conform with the past trends, deviations can be accepted subject to satisfactory justification. This method is called as Tandon Committee Method of lending. It is applicable for working capital requirement of the borrowers coming under the following categories: i) For SSI borrowers: Rs.5 crores and above but less than Rs.50 crores ii) For non SSI Borrowers: Rs.1 crore and above but less than Rs.50 crores Working Capital assessment on the formula prescribed by the Tandon Committee. Working Capital Requirement (WCR) = [Current assets Current Liabilities] Permissible Bank Financing [PBF} = WCR Promoters Margin Money i.e. PMM (to be brought in by the promoter) As per Formula 1: PMM = 25% of [CA CL] and thereby PBF = 75% of [CA CL] As per Formula 2: PMM = 25% of CA and thereby PBF = 75% [CA] CL 3 CASH BUDGET METHOD: The borrower is required to submit the cash budget to the bank along with actual as well as projected financial statements. The budget in the prescribed format is to be prepared for a period of one year and then split into forecasts for shorter periods say monthly or quarterly. The budget will provide the following information. i. The peak level of bank finance required during the course of the year. ii. The current level of bank finance required as forecasted by the split budget (on monthly/quarterly) basis. The following borrowers are assessed under this method:

33

a) Borrowers dealing in cyclical industries like tea, sugar etc. b) Borrowers availing Fund Based Working Capital limits of Rs.50 crores and above from the banking industry.

5.5 TERM LOAN

Term loans are a lump-sum payment with payback over a specified period of time. They may be used to finance equipment, a change in ownership, a new business acquisition or other long-term needs of a company. The period of loan vary from 3 to 10 years. Investment of these loans from firms is in plant and machinery, vehicles and certain other equipments. Repayment period for the term loan is calculated by DSCR and the repayment should start immediately after the cash generation. The formula for calculating DSCR (NPAT +int.on term loan + deprecation) (Int. on term loan +installment of term loan) The idle ratio is considered to be 2:1while in case of SSI 1.5:1 ratio is considered to be good. Appraisal for long term in case of an industry or a project is a long term investment decision. So it should require a detailed study. The appraisal is done on the basis of following steps:

1. Technical Feasibility: The infrastructure required for the manufacturing process is studied here. The location selected should be ideal with regard to transportation, communication network, availability of water, climatic conditions, and availability of manpower and disposal of waste. Size of the plant & type of technology adopted is another important aspect. The size of the plant or its capacity should be matching to the requirements of the estimates of the project. 2. Economic Feasibility:

34

The unit should undertake detailed market study. The demand & supply gap of the product should be assessed. The time of the unit entering into the market is also important.

3. Financial Feasibility: The cost of the project & the estimated time for execution is an important factor. The promoters efficiency to complete the project within the given period is most important. The source of finance, without leaving any gap & availability of cash at the right time is to be ensured. Possibility of cost escalation, cost overruns etc. to be assessed. The financial feasibility is assessed by financial projection, fund flow and cash flow statement, ratio analysis and by non discounted and discounted cash flow statements. Payback period method: Payback period is calculated by comparing cash out flow (investment) with cash inflow (cash profit) and finding out that at what time they will be equal. Lower the payback period better the project. Average rate of return: It is calculated as Average profit after tax Average book value of investment It is compared with the rate of return of other market investments. Discounted cash flow technique I. Net present value It is calculated as =present value of cash inflow present value of cash outflow The project is accepted if NPV is positive and rejected if NPV is negative 2 Benefit cost ratio: The entire cash inflow is discounted at the rate of interest to arrive at present value rate.

35

BCR= present worth of the benefits (cash inflow) Present worth of cost (investment) The project is accepted if the BCR is more than one and rejected if BCR is less than one. Break even analysis: Breakeven point is the point of sales at which a units makes no profit or no loss. A unit can earn profit only if its level of sale is above the break even point. Once the BEP is calculated, the sales projection made in the profitability statement is compared with the break even point of sale. In case the difference between projected sale and BEP sale is very low, it is very risky to finance the project. On the other hand if projected sale is high than BEP the profitability of earning some profit is still there are some deviations in the project. BEP can be classified in three ways 1. in terms of no. of units of sale 2. in terms of sale in rupees 3. in terms of capacity utilization 1. BEP in units = fixed cost Contribution/ unit 2. BEP in rupees = fixed cost * total sales in rupees Total contribution 3. BEP BEP in capacity = No. of units at BEP * 100 Total capacity To study the viability of the project the project having BEP above of 75% of capacity utilization should not be accepted for finance. Sensitivity analysis:

36

While giving credit to the company an exercise is done known as sensitivity analysis. In this method we basically check the volatility in the profit of the company due to change independent variable. The subsequent DSCR is calculated and the ability to pay back term loan is calculated.

REGIONAL OFFICE, HYDERABAD RO/SARAL/362 Date: 28.02.2011

MEMORANDUM TO THE COMPETENT AUTHORITY FOR APPROVAL PROPOSAL FOR NEW TERM LOAN FACILITY OF `.150.00 LAKHS AND RENEWAL OF EXISTING TERM LOANS AND SOD (TD) GROUP BANKING MONTH OF REVIEW ASSET CLASSIFICATION INTERNAL CREDIT RATING STATUS OF ACCOUNT : : : : : : -Sole Banking January 2011 Standard CR 4 Regular OUR SHARE: N.A. LEAD BANK: N.A.

1 .

a) NAME OF THE ACCOUNT

: M/s ABC Educational Society Units: M/s.G Pullaiah College of Engg. & Technology M/s. Ravindra College of Engg. for Women

b) BRANCH / ZONE

: Kurnool

37

c) 2 .

DATE OF INCORPORATION

: 15.02.2006 : Registered under the Societies Registration Act XXXV of 2001 Vide Registration NO: 92 of 2006 dated: 15.02.2006.

CONSTITUTION

3 . 4 .

LINE OF ACTIVITY ADDRESS Regd. / Admn. Office Unit / Works

: Providing education in Technical and Management courses

: H. No : 80/112-G-1-1, Abbas Nagar, Kurnool. : Ravindra College of Engineering for Women and G.Pullaiah College of Engineering & Technology both located at Sudhireddy Palle Village, Pasupula Panchayat, Kurnool District. (2 Km away from Kurnool on Kurnool to Guntur State Highway )

5. NAMES OF PROPRIETORS / PARTNERS / DIRECTORS & THEIR MEANS: Name Shri G.V.M.Mohan Kumar Shri G.Ch.Pullaiah Shri G.Pullaiah Shri G.Gopinath Shri G.Ranganayakulu Smt. G.Subbamma Smt. Alluramma Smt. G.Venkata Subbamma Shri P.V.Ramana Designation Chairman Vice Chairman Secretary/Correspondent Joint Secretary Treasurer Member Member Member Member Means (Rupees in Lakhs) (As on 14.12.2010) 60.00 135.30 108.30 15.00 96.61 50.00 75.00 70.00 30.00 TOTAL 613.20

38

6. 6.1

CAPITAL STRUCTURE SHAREHOLDING PATTERN

: :

Not Applicable Not Applicable

However, the capital of the society is as follows.

Capital of the society, including the profits added to the capital account is `.403.32 Lakhs as on 31.03.2010 (consolidated financials of both the units viz., M/s. Pullaiah College of Engineering & Technology and M/s. Ravindra College of Engineering for Women). Capital of Ravindra College of Engineering for Women as per 31.03.10 financials is `.188.50 Lakhs and Capital of Pullaiah College of Engineering as per 31.03.10 financials is `.214.83 Lakhs. 7. SECTOR / BSR CODE : 80003-Technical & vocational Education (MSME Services - Education)

8.

COMMENTS ON LATEST : Branch has submitted the Credit Reports on the CREDIT / SEARCH REPORT members of the society, as per which they have good means..

9.

WHETHER A/C IS TAKEN / TO : Not Applicable BE TAKEN OVER. IF SO NORMS FOR TAKE OVER ARE FUL FILLED

9.1

DUE DILIGENCE

: Existing Account. However, branch to conduct periodical inspection of the colleges, prime securities and collaterals and reports to be held on record.

10.

DEALING WITH BANK SINCE

: Promoters are Banking with us since 1995 and Society is banking with us since inception of it i.e. 2007

11.

CREDIT FACILITIES SINCE

: Society has been enjoying credit facilities from 2007.

39

12.

TOTAL INDEBTEDNESS

(Rupees in Lakhs)

NON-FUND BASED Existing Our Bank SOD (TD) Sub - Total Term Loan I Term Loan II Term Loan III Term Loan IV Term Loan V Sub-Total
Other Banks

FUND BASED Existing Proposed Existing

TOTAL Proposed

Proposed

------------

------------

55.00 55.00 168.88 155.78 164.16 180.00* -668.82 -11.03 734.85

55.00 55.00 113.88 124.62 164.16 180.00 150.00 732.66 -16.54 804.20

55.00 55.00 168.88 155.78 164.16 180.00* -668.82 -11.03 734.85

55.00 55.00 113.88 124.62 164.16 180.00 150.00 732.66 -16.54 804.20

Fin. Institutions TOTAL

* The TL IV is not disbursed fully.

13.1 BRIEF BACKGROUND: The Society was established on 15th day of FEB 2006 and Registered under the Societies Registration Act XXXV of 2001 Vide Registration No: 92 of 2006 dated 15.02.2006 with an intension to establish the Technical, professional educational institutions to cater the needs of the students of the Kurnool District. Accordingly M/s. G. PULLAIAH COLLEGE OF ENGINEERING AND TECHNOLOGY was started from the academic year 2007-08.

The society has availed four Term Loans, brief details of which are as follows.
40

Term LoanI of Rs.2.31 Crore sanctioned by Central Office Vide their Executive Summary No. CD:SZII:1001:07 dated 20.07.2007 for construction of buildings, Equipments / Computers, Library, Furniture etc. for setting up of G.Pullaiah College of Engineering and Technology.

Term Loan-II of Rs.1.87 Crore sanctioned by Central Office their Executive Summary No. MSME:SZII:574:08 dated 10.10.2008 for construction of additional buildings, Furniture & Fixtures, Computers, Laboratory equipments, Library etc. for setting up of MCA Course in G. Pullaiah College of Engineering and Technology.

Term LoanIII of Rs.1.97 Crore sanctioned by our office vide Executive Summary No. RO:CR:MNK:111 dated 24.03.2009 for acquiring Lab equipment, Computers, Furniture & Fixtures, Library Books etc. for the other college exclusively for women in the name of Ravindra College of Engineering for Women established by the Society and

Term Loan IV of Rs.1.80 Crore sanctioned by our office vide Executive Summary No. RO: SAL: KC: 35460: 09-10 dated 06.02.2010 for construction of own buildings for Ravindra College of Engineering for women.

Subsequently, the society has also availed the SOD (TD) facilities of `.55.00 Lakhs, sanctioned vide our Executive Summary No. RO/SARAL/128 dated 21.06.2010 and vide which we have also renewed the Term Loans availed by the society. Now, our Kurnool branch has recommended for sanction of additional term loan of `.175.00 Lakhs vide their proposal dated 16.12.2010.

41

14. Year Ending Capital Reserves & Surplus Intangible Assets

FINANCIAL INDICATORS 200708 (Audi.) 66.91 0.00 0.00 66.91 405.82 35.29 508.02 332.71 200809 (Audi.) 154.91 0.00 0.00 154.91 578.13 106.50 839.54 581.22 200910 (Audi.) 403.32 0.00 0.00 403.32 602.55 82.01 1087.8 8 958.59

: (Rupees in Lakhs) 201011 (Esti.) 536.50 0.00 0.00 536.50 542.49 82.50 1161.4 9 1085.9 8 0.00 0.00 201112 (Proj.) 676.96 0.00 0.00 676.96 402.71 84.50 1164.1 7 977.38 201213 (Proj.) 862.21 0.00 0.00 862.21 283.92 86.50 2013-14 (Proj.) 1065.82 0.00 0.00 1065.82 177.06 88.50 201415 (Proj.) 1286.0 7 0.00 0.00 1286.0 7 101.32 90.50 1477.8 9 712.51 201516 (Proj.) 1522.8 5 0.00 0.00 1522.8 5 76.14 93.50 1692.4 9 641.26 2016-17 (Proj.) 1753.38 0.00 0.00 1753.38 53.34 96.50 1903.22 577.13

Tangible Net Worth Long Term Liabilities Unsecured Loans Capital Employed Net Block of fixed assets Investment s Non Current Assets Net Working Capital Current Assets Current Liabilities Current Ratio

1232.63 1331.38 879.64 791.68

0.00 170.75

0.00 71.71

0.00 0.17

0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00

4.56

186.61

129.12

75.51

186.79

352.99

539.70

765.38

1051.2 3 1403.6 5 352.42 3.98

1326.09

59.07 54.51 1.08

303.58 116.97 2.60

339.77 210.65 1.61

487.24 411.73 1.18

584.79 398.00 1.47

724.08 371.09 1.95

926.97 387.27 2.39

1140.9 3 375.55 3.04

1693.68 367.59 4.61

42

Debt Equity Ratio DER (TOL/TN W) Fee Receipt Other Income Net Profit Before tax Net Profit After Tax

6.59

4.42

1.70

1.16

0.72

0.43

0.25

0.15

0.11

0.09

7.41

5.17

2.22

1.93

1.31

0.86

0.61

0.44

0.34

0.30

94.18 10.58 25.09 25.09

243.67 63.61 87.99 87.99 19.66 107.65 1.91

466.54 55.03 156.57 156.57 71.68 228.25 1.99

858.00 40.08 73.17 73.17 107.61 180.78 1.15

946.00 42.79 140.46 140.46 108.60 249.06 1.25

1010.00 1098.00 49.41 185.25 185.25 97.74 282.99 1.57 53.85 203.61 203.61 87.96 291.57 2.14

1200.0 0 60.34 220.25 220.25 79.17 299.42 2.30

1279.0 0 65.97 236.78 236.78 71.25 308.03 3.29

1331.00 74.31 230.53 230.53 64.13 294.66 6.10

Depreciatio 9.17 n Cash Accruals DSCR 34.26 2.12

14.1 COMMENTS ON FINANCIAL INDICATORS

CAPITAL/TNW: The Capital of the society is increased to `.154.91 Lakhs and `.403.32 Lakhs during 2008-09 and 2009-10 respectively, which is mainly due to the excess of income over the expenditure of the society in the respective financial years. As per the Audited financials as of 31.3.2010, the society has infused further capital especially in the Ravindra College of Engineering for Women, which has resulted in the increase in consolidated capital of the society. The reserves and surplus of the society is not shown separately since the excess of income over expenditure is added to the capital of the society.

NET - BLOCK OF ASSETS: The Net block of assets of the society has been increasing over the period due to addition of various assets viz., Buildings, Laboratory equipments, furniture & fixtures and Library Books etc. since there is the addition of students and other colleges.
43

FEE RECEIPTS: The society has recorded the fee receipts of `.466.54 Lakhs during 2009-10 and estimates the same at `.858.00 Lakhs (excluding other income of `.40.08 Lakhs) for the year 2010-11, with a growth rate of around 184% over that of the previous year fee receipts. The society has submitted the break up of estimated earnings along with its project report for new term loan, the details of which are as follows.

Fee received from G. Pullaiah College of Engg. And Technology Course Mgt. Fee per Total Fee Quota Cand. IV B. Tech III B. Tech II B. Tech I B. Tech III MCA II MCA I MCA II MBA I MBA 40 91700 3668000 5135200 4860100 6992000 600000 50000 100000 900000 900000 23205300 Conv. Fee per Cand. Quota 199 253 197 209 44 27 32 40 42 27500 30200 30200 31000 26700 26700 27000 26700 27000 Total Fee 5472500 7640600 5949400 6479000 1174800 720900 864000 1068000 1134000 30503200 Total Strength 239 259 250 285 56 28 34 58 60 Gross Fee 9140500 12775800 10809500 13471000 1774800 770900 964000 1968000 2034000 53708500

56 91700 53 91700 76 92000

12 50000 1 50000 2 50000 18 50000 18 50000

Fee received from Ravindra College of Engineering for Women

44

Course Mgt. Quota III B. Tech II B. Tech I B. Tech II MBA I MBA

Fee per Total Fee Cand. 45 91700 60 91700 74 92000 4126500 5502000 6808000 850000 350000 17636500

Conv. Fee Total Fee Quota per Cand. 152 170 223 42 22 30200 30200 31000 26700 27000 4590400 5134000 6913000 1121400 594000 18352800

Total Gross Fee (In Strength 197 230 297 59 29 8716900 10636000 13721000 1971400 944000 35989300

17 50000 7 50000

As per the above details, the society may achieve the fee receipts of `.896.98 Lakhs during the current year at the end of 31.03.2011. We may accept the estimated receipts of the society since there will not be any variation in the structure of fee collected unless any non payments of fee by the candidates.

NET WORKING CAPITAL: The NWC of the society has decreased during 2009-10 from that of the previous year which is mainly due to considerable increase in the term loan installments due in next 12 months. However, Net working capital of the society is at comfortable level during 2009-10, which is also evident from the satisfactory current ratio of the society.

PROFITABILITY: Since the borrower is a non profit society, excess of income over the expenditure was calculated in lieu of the profit. The excess of income over expenditure has been gradually increasing during the last three years. The estimated income over the expenditure of the society for the current fiscal i.e. 2010-11 is envisaged at lower level compared to that of 2009-10, which is around 50% of the excess income of the last year i.e. 2009-10. However, the fee receipts (revenue) estimated at around 200% during the current fiscal of 201011. Upon enquiry, branch has informed vide their letter no. 02/2011 dated 02.02.2011 that the reduction in
45

estimated profits (excess of income over expenditure) is due to provision of `.107.63 Lakhs under miscellaneous expenditure in anticipation of various other expenses since the society intends to conduct placement meet with MNCs from Hyderabad / Bangalore etc. Moreover, the society also plans to conduct Seminars, Conferences, Guest Lectures and Student Meets etc. for the final year students in order to have edge over the other colleges for which the society will incur additional expenses in 2010-11.

CURRENT RATIO: Current Ratio of the society during 2009-10 is at comfortable level, although it has decreased to 1.61:1 from that of 2.60:1 during 2008-09, which is mainly due to considerable increase in term loan installment to be paid in the next twelve months. For the purpose of calculating the Current Ratio, the assets and liabilities of the society are grouped as under:

Year

200708 (Audi.)

200809 (Audi.)

200910 (Audi.)

201011 (Esti.)

2011- 2012- 2013- 2014- 2015- 201612 13 14 15 16 17 (Proj.) (Proj.) (Proj.) (Proj.) (Proj.) (Proj.)

Current Assets Cash and Bank Balance Sundry Debtors Other Current Assets Total 9.07 2.48 7.75 6.93 8.52 9.60 10.14 11.87 13.27 15.37

5.00 45.00

27.70 273.40

119.90 212.12

268.19 212.12

364.15 212.12

502.36 212.12

704.71 212.12

916.94 212.12

1178.2 6 212.12

1466.1 9 212.12

59.07

303.58

339.77

487.24

584.79

724.08

926.97

1140.9 3

1403.6 5

1693.6 8

Current Liabilities: Bank Borrowing s Sundry Creditors Advances 0.00 0.00 0.00 55.00 55.00 55.00 55.00 55.00 55.00 55.00

27.48 0.00

40.02 0.00

53.42 0.00

154.92 0.00

159.90 0.00
46

168.21 0.00

173.75 0.00

181.52 0.00

187.55 0.00

206.85 0.00

Received Installmen ts due in next yr. Misc. Current Liabilities Provisions Total Net Working Capital Current Ratio 24.00 69.17 146.00 185.00 161.00 116.00 115.98 84.85 43.00 25.00

3.03

7.78

11.23

16.81

22.10

31.88

42.54

54.18

66.87

80.74

0.00 54.51 4.56

0.00 116.97 186.61

0.00 210.65 129.12

0.00 411.73 75.51

0.00 398.00 186.79

0.00 371.09 352.99

0.00 387.27 539.70

0.00 375.55 765.38

0.00 352.42 1051.2 3 3.98

0.00 367.59 1326.0 9 4.61

1.08

2.60

1.61

1.18

1.47

1.95

2.39

3.04

15. EVALUATION OF MANAGEMENT: M/s ABC Educational Society was established in 15th Day of Feb -2006 under the chairman ship of Shri G. V. Mohan Kumar with the active involvement of Secretary cum Correspondent Shri G. Pullaiah and other members of the society. The chairman and the Secretary cum Correspondent are well qualified and having sufficient experience in maintaining and development of educational institutions. Shri G. Pullaiah, the Secretary & correspondent is also the Secretary cum Correspondent for M/s. GVM Educational Society and M/s Ravindra Vidya Niketan at Kurnool with sufficient experience and Administrative skills for development of the educational institutions for the last 10 to 15 years. Added to this the management has recruited the technical staff with out any compromise and placed them on the respective roles, who are functioning effectively. 16. EVALUATION OF INDUSTRY: Market potential / demand situation The industrial out look in India in the last 3-4 years up to mid-2008 has been very encouraging particularly in the infrastructure and core sectors. These sectors have registered high growth rate, and they are in need of high quality engineers. Further the Automobile and Textile sectors are also expected to be in the high growth path. India and China are expected to be in the high growth path. India and China are expected to be the fastest growing economies in the next decades and this will throw up tremendous demand for Engineering, MBA & MCA graduates. But due to the present slowdown, the requirement for the professionals has come down drastically. However, the job market is also getting recovered slowly and
47

may gain momentum in the coming years. Even though there is a recession in the software industry it is highly felt that the professional courses are more comfortable as the opportunities are plenty and the encouragement of reimbursement of fee given by the Government of Andhra Pradesh is a boosting factor for the admission of students into the Engineering courses. Intensity of competition in the industry

There has been double fold increase in the number of colleges offering Engineering, MBA& MCA. Colleges imparting quality education with good infrastructure are only being chosen by students. The society is already having competent educationalist as faculty members to attract students. The competition among the professional colleges has been increasing. 17. Evaluation of business risk: Diversity in customer base and products The society has been adding new courses to suit the requirements of the students. Market share of the companys main products There are many educational institutions providing technical education viz., Engineering, MBA and MCA etc. Hence, the market share of the institution can not be quantified. However, the following are a few professional colleges situated in and around Kurnool. 1. 2. 3. 4. 5. 6. 7. 8. M/s G Pulla Reddy Engg. College, Kurnool. M/s SAFA College of Engg. & Technology, Kurnool. M/s R G H Engg College, Nandyal. M/s ALPHA College of Engg. & Technology. M/s St. John Engg College, Yemingnoor. M/s K V Subba Reddy College of Engg. for Woman, Kurnool. M/s Brindavan Institute of Technology, Kurnool. M/s Kottam College of Engg. Kurnool.

Availability of raw material Not Applicable since the borrower is a service oriented institution offering Technical Education. Selling and distribution arrangement Not Applicable. The admissions into the first year courses are purely taken on counseling by the University based upon the merit in the respective entrance examinations and for management Quota the society has to depend upon High Net worth Individuals from Local area. Technology issues if any The society is providing all the infrastructure facilities required for all the streams of courses.

48

18 18.1

CONDUCT OF THE ACCOUNT Regularity in submission of - Stock / Book Debt Statement - MSOD - QPR / Half Yearly Statement - Financial Statements - CMA Data Name of the Statement/ Return

: Not Applicable. The society has availed TL & SOD (TD)

Submitted -: No. of Statements / Last Stat. / Return recd. Return recd. During the year

18.2 Stock Statement / BD MSOD QPR / Half Yearly Statement Not Applicable Not Applicable

49

18.3

COMMENTS ON OPERATIONS / : Indicate Whether OVERDUES (1) Turnover in the account is commensurate with the limits. So far, the society has availed the SOD (TD) limit of `.55.00 Lakhs during July 2010 and the Credit turnover in the account from 09.07.2010 to 01.01.2011 is `.89.00 Lakhs against the limit of `.55.00 Lakhs. Branch to ensure that the society routes all the business transactions through the account. (2) The frequent excess is given. No EOL was observed in the account as verified in the finacle. (3) Cheques are returned frequently. No cheque returns are observed in the account as verified in the finacle.

19. 19.1 19.2 19.3 19.4

COMPLIANCE TO TERMS OF SANCTION: Completion formalities of Mortgage : Branch reported compliance. : Not Applicable.

Registration of Charges with RoC

Whether documents valid and in : Yes force Whether all other terms and conditions complied with Branch confirmed compliance of Terms & conditions including registration of EM with SRO vide their Letter No. ADV/KUR/11-05 dated 08.01.2011. : Complied.

19.5

Compliance of RBI guidelines

50

19.6

Whether consortium meetings : Not Applicable held at prescribed periodic intervals where the Bank is the leader Payment of Statutory Dues like : Branch to obtain a declaration from the society PF, ESI, Lease Rent/Property Tax certified by a CA to the effect that no statutory dues to Govt. bodies etc. and period of are due by the society. default and quantum thereof in terms of IC No.8430 dated10.09.2009. (declaration certified by CA to be submitted)

19.7

19.7

DATES DURING YEAR

OF INSPECTION : 29.1.2010, 15.12.2010 THE FINANCIAL

20

NATURE & VALUE OF COLLATERAL SECURITY:

Nature / Description of collateral security indicating area & location of property

Date of valuation and Value (Rs. in name of Crore) Valuer 19.3.08

Insurance Amount & Date of Expiry

Rem arks

1. Land & Building owned by ABC Educational Society admeasuring Ac 3.51 cents in Sy No 312/A1, 312/A2, 312/A3, 312/A4, 312/A5 (Ac 2.34) Sy No. 314/2 (Ac 1.17) 2. 2.50 acres of Land & Buildings owned by Mr. G Pullaiah, Mr. G Ch Pullaiah and Mr. G Ranganayakulu at in Sy no 314/1 in Sudireddypalli Village, Pasupula Grampanchayath, Kurnool being used by GVM Edu. Society to run Ravindra School,

2.05 5.30 (BM vetted the valuation at `.5.00 Crore)

51

Mr. Y Rambhupal Reddy 29.06.2010

Insured for `.4.00 Crore and valid up to 26.01.2012 (Building) Insured for `.4.80 Crore and valid up to 28.08.2011 (Building) ---

Shri S. Venkateswar a Rao,

Nandikotkur Road, Kurnool.

approved Previous value valuer of our is `.2.79 Cr bank. Insur ance is expir ing on 28.0 1.20 12 Insur ance is expir ing on 26.0 1.20 12 Insur ance is expir ing on 26.0 1.20 12

25.11.2008 3. Land & Building owned by Smt G Subbamma W/o G Pullaiah and Sri GVN Mohan Kumar S/o G Pullaiah bearing No 80/129-E-9-2 in Plot No 26 at Abbas nagar, Kurnool of 6.75 cents or 2940 sft in Sy No 561/A, 562/2A & 564/2A.

0.75

Mr. Y Rambhupal Reddy

Building is insured for `.0.45 Crore.

16.01.2009 4. Land & Building owned by Mr. G Pullaiah S/o G Venkataiah bearing No 80/112-G-10-5-A in plot No 20 of Abbas Nagar, Kallur, Kurnool in Sy No 561, 562/2 and 564/2 of 8.27 cents or 3600 sft, housing junior college of the society.

1.25

Mr. Y Rambhupal Reddy

Building is insured for `.0.85 Crore

25.11.2008 5. Land & Building owned by Mr. G Ch Pullaiah S/o Venkataiah bearing No 80/130-2 in plot No 23 of Abbas Nagar, Kallur, Kurnool in Sy No 561, 562/2 & 564/2 of 6.94 cents or 3020 sft, housing Junior college of society. TOTAL Security for the SOD (TD) of `.55.00 Lakhs: Residential plots bearing no. 1, 2 & 3 admeasuring 306.67 sq. yards, 266.67 sq. yards & 266.67 sq. yards respectively in an approved lay out (L. P. No. 1.17 Shri S. Venkateshwara Rao, Panel Valuer Not Applicable (Open

1.03 10.08

Mr. Y Rambhupal Reddy

Building is insured for `.0.75 Crore

--

52

347/1980) in Sy. No. 713/A2, at Kalluru, within Kurnool Municipal Corporation limits in the name of Shri G V M Mohan Kumar S/o. G. Pullaiah, member of the society.

Dt. 21.04.2010

Plots)

Prime Security (For TLI, TLII and TLIV): Land & Building owned by the society admeasuring 10.175 acres at Pasupula Panchayath, Sudireddypalli village, Kurnool Mandal in Sy No 314/1 (Ac 2.67 ), Sy No 312/A, 312/A3, 312/A4, 312/A5, 312/C and 311/C1 (Ac 7.50) where the engineering / MBA/MCA colleges are located along with all the equipments, computers, furniture & fixtures, Computers etc. acquired out of our finance by the society. 12.20 29.06.10 Valuation is for land and buildings only.

(BM vetted the valuation at `.12.00 Crore) Previous Value is `.3.05 Cr

S.Venkateswara Rao, approved valuer.

Insured for `.5.10 Crore and valid up to 26.01.2012.

Primary Security (For TLIII): The assets acquired by M/s. Ravindra College of Engineering for Women out of our Term Loan II viz., Lab equipments, Furniture & Fixtures, Computers, Library Books etc. Hence, the value of the Prime Security for all the existing four term loans i.e. all the buildings (valued at `.12.00 Crore) and labs, computers, air conditions, furniture & fixtures and other equipments (`.2.01 Crore as per Audited Financials as of 31.03.2010) procured by Ravindra College of Engineering for Women would be `.14.01 Crore.

Prime Security (For the proposed Term Loan V): The assets to be acquired by the society through its two colleges i.e. M/s. G. Pullaiah College of Engineering and Technology and M/s. Ravindra College of Engineering for Women, which include Furniture & Fixtures, Computers, Lab Equipments, Air Conditions, Air coolers and Library Books etc. However, all the existing securities covering the Term Loans to be extended to SOD (TD) limit of `.55.00 Lakhs and vice versa. Collateral Coverage = Collateral / Limit: (Rupees in Lakhs) 53

For the SOD (TD) facility 1.17/0.55 = 212.73%

For the Four Term Loans (excluding proposed TL V) 10.08 / 5.83 = 172.89%

For the Five Term Loans (Incl. proposed TLV) 10.08 / 7.33 = 137.52%

Collateral Coverage to the total exposure (SOD (TD) and Five Term Loans): 10.08/7.88 = 127.92% 20.1 PERSONAL GUARANTEE (with means):
Name G.V.M.Mohan Kumar G.Ch.Pullaiah G.Pullaiah G.Gopinath G.Ranganayakulu Smt.G.Subbamma Smt.Alluramma G.Venkata Subbamma P.V.Ramana Chairman Vice Chairman Secretary / Correspondent Joint Secretary Treasurer Member Member Member Member TOTAL 613.20 Designation Means (Rupees in Lakhs) 60.00 135.30 108.30 15.00 96.60 50.00 75.00 70.00 30.00

21

WHETHER THE NAME OF THE COMPANY / DIRECTORS FIGURE IN RBI DEFAULTERS / CAUTION LIST / WILFUL DEFAULTERS / ECGC. IF YES, PLEASE FURNISH DETAILS: NO

We have verified the following defaulters list in CIBIL & Cyberline (Capitalline) on 17.01.2011, where in the names of society and its members are not appearing. List Suit-Filed (Willful Defaulters) of `.25 Lakhs above Suit Filed Accounts of `.1.00 Crore & above List of defaulters (Non-Suit Filed) List of Wilful defaulters Date Verified in CIBIL list as on 17.01.2011 Verified in CIBIL list dated 17.01.2011 Verified on 17.01.2011 in Capital line data base Verified on 17.01.2011 in Capital line data base 54

List of Caution Advise

Verified on 18.01.2011 in Capital line data base

21.1

WHETHER DIRECTOR / PARTNER / : PROPRIETOR IS A DIRECTOR IN OUR / OTHER BANK OR IS RELATED TO THEM. IF YES -

Not Related

i) ii)

Name of such Director with name of the Bank Type of Relation

: :

---

21.2

Any litigation in force against the firm / company or against the Partners / Directors. If so, mention details and present position.

No

22.

AUDIT OBSERVATIONS

INTERNAL AUDIT Date of Audit 25/10/2010. 22.1 Internal AUDIT OBSERVATIONS : : BRANCH REPLIES 1. Fresh Valuation reports properties) is held on record. dt.29.6.2010 (2

1. Valuation reports are expired in properties : mortgaged to Term Loan I on 9.4.2010 and TL II on 23.05.10. 2. SD 19 is partially blank in filling interest rate in : TL III. SD-01 documents are blank in TL IV. 55

2. SD 19 dated 15.04.09 filled and SD-01, dated 09.07.2010 for `.55.00 Lakhs filled in.

3. Declarations are not notarized in TL IV collaterals. 4. Monitoring reports like MCMR not submitted.

3. (No reply from branch) RO Comment: Branch to comply the same before release of new term loan. 4. MMR (Hard copy) for Nov 2010 submitted. RO Comment: Branch to submit the same through LAS only. 5. Advised the party to submit latest ECs & Tax paid receipts immediately. 6. Inspection carried out on 15.12.2010. Reports held on record.

5. Latest ECs & Tax paid receipts are not obtained as per sanction stipulations. 6. Periodic inspection of securities is not done.

: :

7. Last Audit irregularities are still persisting like : - Not obtained declaration from the society on the details of sundry debtors duly certified by CA before releasing the sanctioned limit. - Satisfactory Credit report on the society from ICICI Bank and Sri Ram City Finance, KVB and Chola-mandalam were not held as per sanction stipulations.

Audited Financials as of 31.03.2010 is enclosed in full. (3CD) duly signed by the Auditors. (No Reply from Branch)

Branch should rectify all the Audit irregularities and confirm before disbursement of additional term loan.

22.2 22.3 22.4 22.5

Concurrent Statutory RBI Inspection Stock Audit

: -: -: -: --

23.

ANY IRREGULAR FEATURE : Branch has submitted the MCMR for November 2010. OBSERVED IN THE However, many of the columns in the report are not duly MONITORING REPORT filled in by the branch. Hence, branch to duly fill all the columns and give satisfactory remarks, wherever applicable.

24

EXPOSURE DETAILS FROM OUR BANK

(Rupees in Lakhs)

Nature of Facility

OUR BANK

56

Limits Existing A. NON FUND LIMITS Letter of Gtee. Sub-total [A] ---

Limits Recommended

D.P.

O/s as on 26.02.11

Value of Securities [Our share]

Irregularities, if any

---

---

NIL --

--

---

B. FUND BASED LIMITS

Rs.1.17 Crore

SOD (TD) Sub-total [B] C] TERM LOAN Term Loan I Term Loan II Term Loan III Term Loan IV Term Loan V Sub-total [C] GRAND TOTAL [A+B+C]

55.00 55.00

55.00 55.00

---

55.19 55.19

(Collateral) --

Int. for Jan, 11 is due. --

168.88 155.78 164.16 180.00* -668.82 723.82

113.88 124.62 164.16 180.00 150.00 732.66 787.66

--------

115.20 126.06 166.07 166.20 -573.53 628.72 --Rs.10.08 Crore

Interest for the month of January 2011 is due.

(Collateral)

---

* The TL IV is not disbursed fully. 24.1 24.2 DETAILS OF EXCESSES ALLOWED DURING THE YEAR: Nil. OTHER EXPOSURE, IF ANY, INCLUDING INVESTMENTS:

Exposure by way of Loan Against Deposit (three accounts) to the tune of `.55.57 Lakhs is outstanding in the name of society as on 16.01.2011, wherein the interest is not serviced regularly. Branch to ensure that the society is servicing the interest regularly. 24.3 OTHER LIABILITIES OF DIRECTORS PARTNERS [in their individual capacity] / :

Name

Nature of Limit

O/s as on 57

Status

17.01.2011 G.V.M. Educational Society (703/9537) GVM Mohan Kumar (703/9311) G.Ranganayakulu, G.Pullaiah and others (658/4803) G. Ranganayakulu SOD (Dep) SOD (Dep) Union Rent `.38.69 Lakhs `.49.00 Lakhs Union Rent `.34.50 Lakhs `.27.72 Lakhs Overdue of `.0.66 Lakhs. Standard `.2.00 Lakhs `.3.42 Lakhs Interest to be recovered and confirmed to RO. Interest to be recovered and confirmed to RO.

25

EXPOSURE DETAILS FROM BANKING SYSTEM (Incl. Our Bank)

: (Rupees in Lakhs)

Name of the Bank

Fund Based %Share Amt. 723.82

Non-Fund Based %Share NIL Amt. NIL

Comments on conduct of the Account Branch reported that conduct is satisfactory

UNION BANK OF 100 INDIA, KURNOOL

25.1

CONDUCT OF THE ACCOUNT AND EXPOSURE DETAILS FROM FINANCIAL INSTITUTIONS

: (Rupees in Lakhs)

BANK / FIN. INSTITUTION Shriram City Union Finance Shriram City Union Finance Shriram City Union Finance Shriram City Union Finance

Date of Loan 23.09.08 23.09.08 23.09.08 26.09.07

Purpose of Loan Vehicle Loan AP21W 3092 Vehicle Loan Vehicle Loan AP21W 3091 Vehicle Loan 58

Amt of Loan 5.50

Date of EMI 15.10.08

Date of Last EMI 15.08.2011 15.08.2011 15.08.2011 15.09.2010

O/s as on 01.01.11

1.74 1.26 1.74 A/c. closed

4.00 15.10.08 5.50 15.10.08

4.00 15.11.07

AP 21V 4569 TATA Motors Finance Ltd Cholamandalam Finance Cholamandalam Finance 15.05.08 31.08.09 31.08.09 Vehicle Loan AP 21V 2889 Vehicle Loan AP 21TU1260 Vehicle Loan AP 21W 1633 3.00 4.50 5.00 11.06.08 01.10.09 01.10.09 11.04.2010 01.04.2012 01.04.2012 Total Amt. Repaid 2.43 2.70

Branch has submitted the details of above accounts along with the account statements / account closure certificates from the above financiers vide letter no. ADV/KUR/11-05 dated 08.01.2011, as per which the repayment of installments is regular.

25.2

VALUE OF ACCOUNT

: Previous Year (2008-09) (2009-10) 87.94 -Amount -Amount 152.08 --

(Rupees in Lakhs)
Current Year

i) Advances:

- Interest Income - Fee based Income ii) Retail / Consumer Finance (To employees associates) iii) Deposits Own Third Party

41.79 -No. of Accounts -No. of Accounts 6 --

25.3 DETAILS OF THE FOREIGN CURRENCY EXPOSURE COMMITMENTS AND UNHEDGED PORTION IF ANY: NIL

26

OPERATIONAL EXPERIENCE WITH REGARD TO GROUP CONCERNS: (Rupees in Lakhs)

59

M/s. Ravindra Vidya Niketan Edu. Society Year 2008-09 (Audi.) Capital Reserves & Surplus Net Worth Intangible Assets Tangible Net Worth Long Term Liabilities Capital Employed Net Block Non Current Assets Net Working Capital Current Assets Current Liabilities Current Ratio Debt Equity Ratio DER (TOL/TNW) Fee Receipts Other Income Net Profit Before Tax Net Profit After Tax Depreciation Cash Accruals 29.85 0.00 29.85 0.00 29.85 28.91 58.76 47.19 12.77 -1.20 11.73 12.93 0.91 0.97 1.40 66.72 0.02 2.10 2.10 6.55 8.65 2009-10 (Audi.) 56.55 0.00 56.55 0.00 56.55 42.36 98.91 64.51 18.02 35.39 38.41 3.02 12.72 0.75 0.80 177.22 0.97 11.71 11.71 10.96 22.67

Sri GVM Educational Society 2008-09 (Audi.) 75.26 0.00 75.26 0.00 75.26 1.38 76.64 73.05 0.00 3.59 39.21 35.62 1.10 0.02 0.49 110.42 2.82 1.83 1.83 8.07 9.90 2009-10 (Audi.) 85.68 0.00 85.68 0.00 85.68 24.53 110.21 77.39 0.01 32.82 43.83 11.01 3.98 0.29 0.41 135.72 3.98 2.59 2.59 8.50 11.09

26.1

COMMENTS ON OTHER BANKS CREDIT REPORT ON : SISTER CONCERNS M/s Ravindra Vidyaniketan Educational Society is enjoying following limits: Name of the Bank Facility 60 Loan Amount Present O/s as on

01.01.2011 State Bank of India Term Loan School Plus for construction of Building A/c. No. 30170855141 Vehicle Loan Cholamandalam Finance AP 21 TU 1508 Vehicle Loan Cholamandalam Finance AP 21 TU 1277 `.4.50 Lakhs `.2.43 Lakhs `.4.50 Lakhs `.2.43 Lakhs `.30.00 Lakhs `.20.59 Lakhs

27.

PRUDENTIAL EXPOSURE NORMS [inclusive of Banks exposure in the form of investments like shares, debentures, CP, etc.]: Within the prudential exposure norms.

28.

COMMENTS ON ASSESSMENT OF LIMITS

28.1 PROJECTED LEVEL OF SALES: The society estimates the receipts of Rs.898.08 Lakhs (including the other income of `.40.08 Lakhs) during the current fiscal i.e. 2010-11, which is at a growth rate of about 84% over that of the previous year. Branch has submitted the provisional balance sheet as of 30.09.2010 of the two colleges of the society, as per which the society had the receipts to the extent of `.313.40 Lakhs. The society is running two Engineering colleges under the name and style of G.Pullaiah College of Engineering and Technology since 2006-07 and Ravindra College of Engineering for Women since 1st July 2008. The estimates of the society are based on the total student strength for Engineering & MBA / MCA. Out of the total, 80% of Students comprises under Govt. seats and 20% in Management seats. Government fee is Rs.31,000/- per student and Management fees is Rs.92,000/- per student for Engg. Since the admission process for Engineering, MBA & MCA courses (first year) could not have been completed by September, 2010 and especially the fee payment thereof would be received subsequently and the fee payment for existing students (second, third and fourth year students of engineering and second year students of MBA / MCA) would also be received in due course, we may accept the estimated receipts of `.898.08 Lakhs.

28.2

INVENTORY & RECEIVABLE NORMS: Not Applicable 61

28.3 WORKING CAPITAL ASSESSMENT The society is at present enjoying the SOD (TD) limit of `.55.00 Lakhs, sanctioned by our office vide our Executive Summary No. RO/SARAL/128 dated 21.06.2010. Now, we propose to review the SOD (TD) limit at the existing level of `.55.00 Lakhs as per the Cash Budget Method of lending. As per the cash budget submitted by the branch, the deficit in cash is working out to a minimum of `.61.88 Lakhs. However, we propose renewal of the SOD (TD) limit at the existing level of `.55.00 Lakhs only as recommended by the branch. Cash Budget as submitted during the last sanction: (Rupees in Lakhs)

Particulars Receipts Opening Bal Fee Receipts TOTAL A Expenses JNTU Fees Salaries Electricity Charges Repairs & Maintenanc e Telephone Expenses Printing & Stationery Advertisem ent

Apr 10

May Jun10 10

Jul 10

Aug 10

Sep -10

Oct10

Nov10

Dec10

Jan11

Feb11

Mar11

0.93 0.00 0.93

0.00 0.00 0.00

0.00 30.00 30.00

0.00 45.00 45.00

0.00 148.0 0 148.0 0

0.00 140.0 0 140.0 0

0.00 65.00 65.00

0.00 40.00 40.00

0.00 60.00 60.00

0.00 90.00 90.00

0.00 20.00 20.00

0.00 25.00 25.00

0.00 15.00 1.15 0.55

0.00 15.00 1.18 0.55

0.00 15.00 1.20 0.55

0.00 15.00 1.19 0.65

0.00 16.00 1.17 0.65

0.00 16.00 1.19 0.65

0.00 16.00 1.12 0.65

0.00 18.00 1.15 0.70

0.00 18.00 1.20 0.70

22.35 18.00 1.31 0.78

0.00 18.00 1.16 0.79

0.00 18.00 1.18 0.65

0.21 0.40 0.00

0.21 0.41 0.00

0.21 0.39 0.00

0.21 0.34 0.00

0.21 0.36 2.50

0.21 0.29 0.00

0.21 0.37 2.50

0.21 0.42 2.50

0.21 0.21 0.00

0.21 0.18 0.00

0.21 0.50 0.00

0.23 0.96 0.00

62

Other Expenses Interest TL on

5.00 8.21 32.85 0.00 63.37 / 62.44 62.44

5.00 8.21 0.00 0.00 30.56 30.56 93.00

5.00 8.21 0.00 0.00 30.56 -0.56 93.56

5.00 8.21 0.00 0.00 30.60 14.40 79.16

5.00 8.21 55.00 50.00 139.1 0 8.90 70.26

5.00 8.21 31.17 70.00 132.7 2 7.28 62.98

5.00 8.21 32.28 0.00 66.34 -1.34 64.32

5.00 8.21 0.00 0.00 36.19 3.81 60.51

5.00 8.21 32.85 0.00 66.38 -6.38 66.89

5.00 8.21 0.00 28.00 84.04 5.96 60.93

2.50 8.21 0.00 0.00 31.37 11.37 72.30

2.50 8.21 0.00 0.00 31.73 -6.73 -79.03

Repayment of TL Increase in Assets TOTAL Surplus Deficit Cum. Surplus Deficit

Cash budget from April 2011 to March 2012:

(Rupees in Lakhs)

Particulars Receipts Opening Bal Fee Receipts TOTAL A Expenses JNTU Fees Salaries Electricity Charges Repairs &

Apr 11

May1 Jun1 11

Jul 11

Aug1 1

Sep11

Oct11

Nov11

Dec11

Jan12

Feb12

Mar12

0.00 0.50 0.50

0.00 0.50 0.50

0.00 0.50 0.50

0.00 100.0 0 100.0 0

0.00 90.00 90.00

0.00 50.00 50.00

0.00 40.00 40.00

0.00 40.00 40.00

0.00 40.00 40.00

0.00 90.00 90.00

0.00 60.00 60.00

0.00 50.00 50.00

0.00 16.00 1.15 1.19

0.00 16.00 1.70 1.22

0.00 16.00 0.80 1.29

0.00 18.00 1.35 1.31

0.00 18.00 1.22 1.42

7.00 18.00 1.25 1.68

63

0.00 18.00 1.33 1.77

0.00 18.00 1.38 1.85

0.00 18.00 1.27 1.95

48.00 18.00 1.30 2.85

0.00 18.00 1.58 2.50

0.00 18.00 1.67 2.97

Maintenanc e Functions & Celebrations Telephone Expenses Printing & Stationery Advertisem ent Other Expenses Interest TL on 2.00 0.25 0.42 0.50 6.50 3.51 8.01 0.00 39.53 / 39.03 118.0 6 0.00 0.23 0.40 0.00 7.00 3.51 8.01 0.00 38.07 37.57 155.6 3 0.00 0.24 0.44 1.00 5.00 3.51 8.01 0.00 36.29 35.79 191.4 2 3.00 0.30 0.41 2.50 7.00 3.51 8.01 0.00 45.39 54.61 136.8 1 1.50 0.31 0.39 3.00 8.00 3.51 8.01 50.00 45.36 44.64 92.17 0.00 0.33 0.44 1.50 6.00 3.51 8.01 70.00 47.72 2.28 89.89 5.00 0.35 0.48 1.00 5.00 3.51 8.01 0.00 44.45 -4.45 94.34 0.00 0.37 0.51 0.00 4.78 3.51 8.01 0.00 38.41 1.59 92.75 0.00 0.39 0.52 0.00 5.50 3.52 8.02 0.00 39.17 0.83 91.92 3.50 0.43 0.60 0.00 5.25 3.52 8.02 28.00 91.47 -1.47 93.39 0.00 0.44 0.71 0.00 4.00 3.52 8.02 0.00 38.77 21.23 72.16 0.00 0.36 0.68 0.50 4.00 3.52 8.02 0.00 39.72 10.28 -61.88

Repymnt of TL Increase in Assets TOTAL Surplus Deficit Cum. Surplus Deficit

Disbursements in the SOD (TD) accounts should be strictly as per the Drawing Power fixed based on the Cash budget of the society only. As per the above cash budget, the fee receipts are indicated month wise although the fee payment for professional courses is fixed annually. However, the payment of fee by the students from second year onwards may vary during different months. Hence, we may accept the fee receipts during the different months as envisaged by the society.

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The society has so far availed the following four Loans: Term Loan I TL I of `.2.31 Crore was sanctioned by Central Office Vide their Executive Summary No.CD:SZII:1001:07 dated 20.07.2007 for construction of buildings, Equipments / Computers, Library, Furniture etc. for setting up of G.Pullaiah College of Engineering and Technology. The loan was proposed to be repaid in five annual graduated installments with a moratorium of 12 months from the first disbursement. Accordingly, the repayment schedule as per the sanction is as under.

Annual Installment 1st Installment (August 2008) 2nd Installment 3rd Installment 4th Installment 5th Installment TOTAL

Amount (`. in Crore) 0.24 0.38 0.55 0.69 0.45 2.31

As per the terms of repayment, the society has so far paid the first three installments aggregating to `.1.17 Crore (being `.0.24 Crore for First Installment, `.0.38 Crore for Second Installment and `.0.55 Crore for Third Installment). Term Loan-II TL II of `.1.87 Crore was sanctioned by Central Office vide their Executive Summary No. MSME:SZII:574:08 dated 10.10.2008 for construction of additional buildings, Furniture & Fixtures, Computers, Laboratory equipments, Library etc. for setting up of MCA (Master of Computer Application) Course in G. Pullaiah College of Engineering and Technology. The loan was proposed to be repaid in 6 annual installments of Rs.31.17 Lakhs each commencing from September 2009 with a moratorium of 1 (one) year from First Disbursement. As per the terms of repayment, the society has so far paid the two installments of `.0.31 Crore each and there is no installment overdue in the loan account except interest overdue for January 2011. Term Loan III

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TL III of `.1.97 Crore was sanctioned by our office vide Executive Summary No. RO:CR:MNK:111 dated 24.03.2009 for acquiring Lab equipment, Computers, Furniture & Fixtures, Library Books etc. for the other college exclusively for women in the name of Ravindra College of Engineering for Women established by the Society. The loan was proposed to be repaid in 6 annual installments commencing from March 2010 with a moratorium of 12 months and interest to be paid as and when accrued. As per the terms of repayment the society has paid the first installment falling due on March 2010 and the second installment will fall due during March 2011.

Term Loan - IV TL IV of `.1.80 Crore was sanctioned by our office vide Executive Summary No. RO: SAL: KC: 35460: 09-10 dated 06.02.2010 for construction of own buildings (Previously was in leased premises belonging to the promoters of the society) for Ravindra College of Engineering for women with a project cost of `.2.80 Crore. The loan was proposed to be repaid in 7 yearly installments comprising 6 installments being `.27.00 Lakhs and last installments of `.18.00 Lakhs. The first installment shall commence from March 2011. However, the account is not fully disbursed so far. In all the above term loans interest to be serviced as and when charged. All the four term loans are showing the following overdue as per finacle. TL I TL II TL III TL IV : : : : `.1.32 Lakhs (Interest for January 2011) `.1.44 Lakhs (Interest for January 2011) `.1.90 Lakhs (Interest for January 2011) `.0.83 Lakhs (Interest for January 2011)

Branch to recover up to date interest overdue before disbursement of new T.L. Proposed Term Loan: Now, the society requests for another term loan (TL V) from our bank for purchase / installation of additional Furniture & Fixtures, Computers, Labs, Air conditions, Coolers and Library books for the existing two colleges being run by the society i.e. M/s. G. Pullaiah College of Engineering & Technology and M/s. Ravindra College for Engineering for Women, with an estimated cost of `.235.00 Lakhs, the details of which are as follows. Cost of the Project and Means of Finance:
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G. Pullaiah College of Engineering and Technology: Particulars 1. Cost of Furniture & Fixtures as per quotation of Sri Goutham Marketing Agencies 2. Cost of Computers as per quotation of R.K Solutions, Kurnool. 3. Cost of Labs as per the quotations 4. Cost of Air-Conditioners, Royal Air Conditioning & Refrigeration as per the quotations 5. Cost of Coolers, as per the quotation of Shekhani Refrigeration Company 6. Cost of Library Books as per the Quotations TOTAL 122.61 Amount (Rupees in Lakhs) 24.74 32.11 33.17* 13.80 2.08 16.71

Ravindra College of Engineering for Women: Particulars 1. Cost of Furniture & Fixtures as per quotation of Sri Goutham Marketing Agencies 2. Cost of Computers as per quotation of R.K Solutions, Kurnool. 3. Cost of Labs as per the quotations 4. Cost of Air-Conditioners, Royal Air Conditioning & Refrigeration as per the quotations 5. Cost of Coolers, as per the quotation of Shekhani Refrigeration Company 6. Cost of Library Books as per the Quotations TOTAL Amount (Rupees in Lakhs) 21.74 28.11 30.00* 20.00 2.08 11.16 113.09

* The quotations submitted by the branch for the lab equipments for M/s. Pullaiah College of Engg., is for `.25.89 Lakhs against the proposal for `.33.17 Lakhs and that of M/s. Ravindra College is for `.10.17 Lakhs against the proposal of `.30.00 Lakhs. Upon enquiry, branch vide their letter no. ADV/KUR/11-05 dated 08.01.2011 and the society vide their letter no. nil dated 05.01.2011 have informed that they propose to order the equipments equal to the
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quotations now and the balance amount of equipments during 2011-12, by meeting the cost from their own sources. The society vide above letter has requested to limit the loan component to the extent of the quotations submitted only. As such, the Cost of Project of G. Pullaiah College of Engineering would come to `.115.33 Lakhs and that of Ravindra College of Engineering for Women would be `.93.26 Lakhs, with the total cost of the project is as `.208.59 Lakhs.

The combined cost of project and Means of Finance is as follows: Cost of Project: Particulars 1. Cost of Furniture & Fixtures as per quotation of Sri Goutham Marketing Agencies 2. Cost of Computers as per quotation of R.K Solutions, Kurnool. 3. Cost of Labs as per the quotations 4. Cost of Air-Conditioners, Royal Air Conditioning & Refrigeration as per the quotations 5. Cost of Coolers, as per the quotation of Shekhani Refrigeration Company 6. Cost of Library Books as per the Quotations TOTAL Amount (Rupees in Lakhs) 46.48 60.22 36.06 33.80 4.16 27.87 208.59

Means of Finance: Particulars 1. Capital by the Society 2. Term Loan from the bank TOTAL Margin 28% 72% Amount (Rupees in Lakhs) 58.59 150.00 208.59

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The society has agreed to contribute the margin of `.60.00 Lakhs at 25% margin for the total project cost of `.235.70 Lakhs. The society has subsequently limited the total project cost to `.208.59 Lakhs and proposes to purchase the remaining lab equipments during the next fiscal i.e. 2011-12. As such, the proposed margin works out to 28%. Hence, we propose that the society to bring in the margin of `.58.59 Lakhs and limit the term loan amount to .150.00 Lakhs (rounded off), although the society is eligible for higher funding at 25% margin. The society proposes to bring in the required margin of `.58.59 Lakhs. As per the Audited Financial Statements as of 31.03.2010, the society has the retained profit to the extent of `.156.57 Lakhs and cash accruals of `.228.25 Lakhs. Moreover, the society also estimates the net profit of `.73.17 Lakhs and cash accruals of `.180.78 Lakhs during the current financial year. As such, the society may be able to meet the margin from its own cash accruals. However, if any short fall is noticed in meeting the margin, the society has to bring in additional funds either by way of capital or unsecured loans, which are to be retained in the system till the currency of our loan. Project at a Glance: Name of the Unit M/s. ABC Educational Society Units: G. Pullaiah College of Engineering & Technology Ravindra College of Engineering for Women Registered Office S.No. 311/C1, 312/A, 312/A, 312/A4, 312/A5, 312/C and 314/1 of sudireddypalli Village, Pasupula Panchayat Kurnool S.No. 311/C1, 312/A, 312/A, 312/A4, 312/A5, 312/C and 314/1 of sudireddypalli Village, Pasupula Panchayat Kurnool Providing Education in Engineering & Technology courses. Already available. Civil works are already completed and the society is running the above two colleges in the said premises.

Location of the project Line of Activity Power Civil Work Permission

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Land

Land was acquired by way of Gift deed from Mr. G Pullaiah and registered in favour of the society by Gift Deed no 18150/06 dated 30.12.2006 in an area of Ac 2.67 cents of Sy No 314/1.

G.Pullaiah & Associates executed a gift Deed dated on 30.12.06 and registered the same in favour of Sri Sai Krishna Educational Society vide registered sale deed no- 18151/06 whose extent is Ac 7.50 in survey No-312/A, 312/A3, 312/A4, 312/A5, 312/c, 311/C1

Total Land : 7.50 + 2.675 = 10.175 Acres Water

Effluents Manpower Requirements

The water required for the working people is sufficient from the municipal tap connection.
No effluents will be discharged The Management has already recruited Teaching & Non-Teaching Staff. However with elevation of students to next years additional Teaching & Non-Teaching staff shall be recruited as per requirement. Seats will be filled as per EAMCET Counseling & also through Management Quota. 100 ( Both skilled and unskilled)

Marketing Arrangements No. of persons employed Type of required Income Tax

Assistance Additional Term Loan (TL V) of `.150.00 Lakhs Director of Income tax (Exemptions), Hyderabad vide their proceedings No F.No DIT(E)/HYD/80G/94(12)/07-08 dated 2.05.2008 has approved the status u/s 80G(5) (vi) of the IT act, 1961 from 1.04.2007 to 31.03.2012.

Director of Income tax (Exemptions), Hyderabad vide their proceedings No F.No DIT(E)/HYD/12A/94(12)/07-08 dated 2.05.2008 has approved registration under form No 10A. The registration exempts Income u/s 12A (a) and provision of sections 11 and 12 of IT act, 1961.

Implementation Schedule proposed by the society: Particulars Date of Commencement 70 Expected Date of Completion

1. Ordering of Furniture & Fixtures 2. Ordering of Computers 3. Ordering of Lab Equipments 4. Ordering of Air-Conditioners 5. Ordering of Coolers 6. Ordering of Library Books

15.11.2010 15.11.2010 15.12.2010 15.11.2010 15.12.2010 15.11.2010

15.12.2010 15.12.2010 15.01.2011 15.12.2010 15.01.2011 15.12.2010

The schedule of purchase / installation of assets already elapsed and the society to place the orders. However, as per the above schedule, the installation may take one month. Debt Service Coverage Ratio: (Rupees in Lakhs)
Years 1. Retained Profit 2. Dep. added back 3. Int. on TL 4. Total surplus available 5. Repymnt of Prop. TL 6. Int. on TL 7. Total payment obligation DSCR Average DSCR 200708 (Audi.) 25.09 9.17 30.46 64.72 0.00 30.46 30.46 2.12 200809 (Audi.) 87.99 19.66 67.67 175.32 24.00 67.67 91.67 1.91 200910 (Audi.) 156.57 71.68 90.73 318.98 69.17 90.73 159.90 1.99 201011 (Esti.) 73.17 107.61 79.64 260.42 146.00 79.64 225.64 1.15 201112 (Proj.) 140.46 108.60 74.07 323.13 185.00 74.07 259.07 1.25 201213 (Proj.) 185.25 97.74 54.21 337.20 161.00 54.21 215.21 1.57 1.94 201314 (Proj.) 203.61 87.96 37.94 329.51 116.00 37.94 153.94 2.14 201415 (Proj.) 220.25 79.17 25.19 324.61 115.98 25.19 141.17 2.30 201516 (Proj.) 236.78 71.25 12.47 320.50 84.85 12.47 97.32 3.29 201617 (Proj.) 230.53 64.13 6.34 301.00 43.00 6.34 49.34 6.10 TOTAL 1559.70 716.97 478.72 2755.39 945.00 478.72 1423.72 1.94

Repayment Schedule: Branch has proposed the repayment at seven (7) yearly installments at `.25.00 Lakhs (calculated for the initial request of `.175.00 Lakhs) commencing from March 2012.
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However, we propose repayment of the new term loan in 24 (twenty four) quarterly installments of `.6.25 Lakhs starting from March June 2011 quarter since the society has already established the two colleges, which are running successfully with sufficient income / cash generation. The society also receives the fee / other receipts almost through out the year by way of fee from second year / third year / fourth year students of Engineering and Second year students of MBA / MCA. Moreover, the Term Loan III and Term Loan IV is also to be repaid in March every year, which may result in financial burden to the society in March / April, during the months of which the receipts would be very minimal.

CREDIT RATING a) Year Previous yr. (ABS 2008-09) Total score obtained Grade 58/77 (75.32%) CR 4 Current yr. (ABS 2009-10) 72 CR 4

b) Parameters Marks obtained Previous yr. Borrower rating Facility rating Risk Mitigators Business aspects Total Marks with grade 39/55 10/13 5/5 4/4 58/77 i.e. 75.32% Current yr. 45 11 3 4 72 (CR 4)

31.1 INDUSTRY OUTLOOK* -: Not Applicable

32. DEVIATIONS: NIL

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33. DELEGATED AUTHORITY: In terms of IC 8437 dated 16.09.2009 Loans extended to Educational Institutions will fall under MSME (Services). Hence, the proposal falls within the delegated authority of Deputy General Manager based on the exposure to the society on account of revised scheme of delegation of loaning powers as per IC No. 7495 dated 26.09.2006. 34. SUMMARY OF CHANGES IN SANCTION TERMS, IF ANY:

No. 34.1 34.2 34.3

Terms of Sanction Rate of Interest (fixed or floating) Primary security (give details) Collateral security (give details)

Stipulated earlier Linked to BPLR

Now recommended Linked to Base Rate

As per item no. 20 of page 12. As per item no. 20 of page 12. As per item no. 20 of page 11. As per item no. 20 of page 11. :

35.

RECOMMENDATIONS

The promoters are in this line of activity for a long period and have been running the institutions successfully. Moreover, they are one of the valued constituents of our Kurnool Branch. In view of the foregoing, satisfactory dealings of the company, long association with our bank, availability of sufficient security and recommendations of the branch, we recommend for sanction of new Term Loan of `.150.00 Lakhs to M/s. Sri Sai Krishna Educational Society, Kurnool Branch, subject to the following terms & conditions. (Rupees in Lakhs) Amount Nature of Limit NON-FUND BASED FUND BASED SOD (TD) Existing -55.00 Proposed -55.00 50% Base Rate + Open plots 4.50% p.a. Rajeshwarinagar, (Floating & Kurnool. under Union High Pride) at Margin Int./ Comm. Security

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TERM LOAN Term Loan I 169.00 113.88

45% on Building & 25% on Others 25% Lab Equipmen ts & others 35% on Building

Term Loan II

155.83

124.62

Base Rate + 4.50% (Union High Pride) Floating

Term Loan III

197.00

164.16

Hypothecation of entire Fixed Assets of the Society pertaining to their two colleges viz., M/s. G. Pullaiah College of Engg. & Technology and M/s Ravindra College of Engineering for Women.

Term Loan IV

180.00*

180.00*

Term Loan V

--

28% on equipment 150.00 s to be purchased

787.66 ----

TOTAL

756.83

* The TL IV is not fully disbursed so far.

35.2 TERMS AND CONDITIONS:

1. Branch to comply with the Credit Approval Grid observations. (Copy of the CAG observations enclosed). 2. All the existing terms & conditions of the credit facilities along with that of those applicable to such type of advances to be complied with. 3. Branch should get the facilities of the society are rated by approved external credit rating agencies and submit the copies thereof to our office. 4. BM to conduct thorough due diligence / inspection of the collateral properties in terms of IC 7948 dt. 28.03.2008 along with the unit and reports to be held on record. 5. Branch to ensure valid EM is created as per extant guidelines and registered with concerned SRO. 6. Branch to ensure that the society deals with us exclusively. 7. Branch to ensure that the society routes all the fee receipts through our bank only. 8. Branch to obtain a certificate from the empanelled advocate to the effect that he has verified the chain of title from the office of Sub - Registrar / Revenue authorities / Municipal authorities.
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9. Branch to ensure that all the statutory licenses / approvals from the concerned authorities to be obtained. 10. Branch to ensure that our finance is not diverted to sister concerns / other activities. 11. Branch to ensure valid security documents and enforceable EM on the properties to be obtained and got vetted by Banks Panel Advocate / Manager (Law) before release of limits. 12. Branch to obtain mutation certificate, Tax Receipts & latest ECs in all properties mortgaged to bank and hold it on record. 13. Our advance will be subject to bank's credit policy/RBI guidelines from time to time. 14. Branch to obtain satisfactory credit information report / account statements from the respective bankers / FIs in case of the loans availed by the society members / associate concerns from other banks / FI. 15. Processing charges / documentation charges at applicable rate to be recovered in terms of IC No.7918 dt. 29th Feb 2008 and IC No. 8055 dt. 28th June 2008 including for the overdue period if any. 16. Branch to be guided scrupulously by IC No. 8601 dated 26.03.10 in respect of the open plots offered as security to the existing SOD (TD) facilities. 17. All the terms and conditions of sanction to be conveyed to the borrower/ guarantors against their proper acknowledgement. 18. Stock and other securities should be adequately insured with comprehensive risk coverage and Bank clause in our favor. 19. Branch is advised to submit the review proposals well in advance to avoid slippages into EAS / SMA. 20. Notwithstanding anything contained in the documents executed/to be executed, the rate of interest stipulated will be subject to revision depending on the change in the Base Rate of the Bank or depending on the directives of RBI or the policy of the Bank from time to time. 21. The Bank will have the right to examine at all times, the books of accounts of the society and to have their units / work places inspected from time to time by its officer(s) and/or outside agencies/Chartered Accountants and the expenses to be incurred by the Bank in this regard will be borne by the borrower. 22. The Bank may, at its sole discretion, disclose such information to such institution(s) in connection with the credit facilities granted to the company if requested by them. 23. During the currency of the credit facilities, the borrower society will not, without Bank's prior approval in writing Effect any change in their capital structure; Formulate any scheme of amalgamation or reconstruction; Undertake any new project/schemes, implement any schemes of expansion or acquire fixed assets without obtaining the Bank's prior consent therefore, unless the expenditure on such expansion etc. is covered by the company's net cash accruals after providing for dividends, investments etc. or from long term funds received for financing such new projects or expansion and approved by the bank. Invest by way of share capital in or lend or advance funds to or place deposits with any other concern. Normal trade credit of security deposits in the usual course of business or advances to employees etc. are, however, not covered by this covenant; Enter into borrowing arrangements either secured or unsecured with any other Bank, Financial Institution, or company.
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 Undertake guarantee obligations on behalf of the society and Create any charge, lien or encumbrance over its undertaking or any part thereof in favour of any FI, bank, company, society or persons. Sell, assign, mortgage or otherwise dispose off any of the fixed assets charge to the Bank; Enter into any contractual obligation of a long term nature or affecting the company financially to a significant extent; Permit any transfer of controlling interest or make any drastic change in the management set up. 24. Branch to ensure that the entire income / fee receipts are routed through SOD (TD) account. 25. Branch officials to identify the property with boundaries referred in the document and display the bank board stating that the property is mortgaged in favour of Union Bank of India. 26. The society should maintain adequate books of accounts which should correctly reflect its financial position and scale of operations and should not radically change its accounting system without prior notice to the Bank. 27. The society should submit to the Bank such financial statements as may be required by the Bank from time to time, apart from the set of such statements to be furnished by the society to the Bank as on date of publication of the society's annual accounts. 28. The Society will keep the Bank informed of the happening of any event like to have substantial effect on their profit or business, if, for instance, the monthly production or sales are substantially less than what had been indicated to the Bank, the society will inform accordingly with explanations and the medical steps proposed to be taken. 29. The society will keep the Bank advised of any circumstances adversely affecting the financial position of their subsidiaries / group companies or companies in which it has invested, including any action taken by any creditor against the said companies legally or otherwise. 30. The Bank will have a first charge on the profits of the society, after provision for taxation, for repayment of installments under term loans granted / deferred payment guarantees executed by the Bank or other repayment obligations, if any, due from the society to the Bank. 31. The society will place with the Bank their banking business including foreign exchange, deposits and bill business pro-rata to our term loan and working capital limits. 32. The society will maintain their net working capital position above the levels furnished in their projections for working capital finance. In the event of any difference of opinion arising as to what constitute current assets and current liabilities, the Bank's decision will be final and binding on the society. 33. Inspection of securities to be carried out periodically. 34. Commitment charges to be levied as per rules in case of non-availment of limits. 35. Penal interest to be charged as per rules (please refer notes to IC No.7616 dated 27.02.2007) in respect of the following. Delayed submission of CMA (if applicable)/renewal data: for the period 1 month from due date. Non compliance of terms of sanction till such time the terms are complied with. Non-submission of Audited financials in time, penal interest to be charged from 15th November till the date of submission.
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36. Consent clause in documentation from borrower and guarantor regarding disclosure of credit information to CIBIL is to be included. 37. All the sanction stipulations should be conveyed to the Co. / guarantors in writing with due acknowledgement. 38. Branch must submit the confirmation of the compliance of the sanction stipulations within 15 days along with vetting certificate. 39. Any unsecured loans / deposits / advances brought in by the members and their friends and relatives will not be allowed to be repaid by the society without the Banks prior permission in writing. An undertaking from the party in this regard should be obtained. 40. A letter to be obtained stating that the loan/credit facilities have been utilised for the purpose for which they are sanctioned. 41. Branch to verify the reasonableness of quotation by making discreet enquiries and also credentials of suppliers of machineries for quality. 42. Branch to release the term loans along with the margin money directly to the suppliers of equipment. 43. The term loan should be repaid in 24 (twenty four) quarterly installments of `.6.25 Lakhs each starting from June 2011 onwards i.e. first installment to be paid at the end of June 2011. However, interest to be repaid separately as and when charged. 44. Obtain complete list of all documents/deeds/papers examined by Advocate and full particulars of the documents, which are registered, including the dates of execution, registration of the documents and particulars of entries made in the books/records of sub-registrar/registration authority with regard to such documents. 45. Prepayment penalty as per banks rules to be levied on pre - closure of any loan. 46. Branch to ensure to obtain the personal guarantee of all the members of the society and owners of the collateral properties. 47. Lien to be marked on all the margin deposits. 48. DBC to be obtained at periodic intervals and ensure that the documents are in force and valid. 49. Branch to obtain copy of lease agreement and letter of free access from the landlords. 50. Branch should obtain the satisfactory credit report in IBA format on the borrower society along with M/s. G. V. M. Educational Society & M/s. Ravindra Vidyaniketan Educational, before release of the new term loan. 51. Branch to recover the overdue interest in the existing term loan accounts along with the loan against the deposits / union rent account enjoyed by the society or its members and confirm to our office before release of the new term loan. 52. The account is subjected to CPA. We nominate Shri Surya Pawan, Sr. Manager (SME), Somajiguda Branch as CPAO.

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Recommended for Sanction

(A. HANMANTHA REDDY) SR. MANAGER (SARAL)

(P.S. DEEKSHITULU) CHIEF MANAGER (SARAL)

(P.N.PRABHU) A.G.M. (SARAL)

SANCTIONED / DECLINED

(ASHOK GUPTA) DEPUTY GENERAL MANAGER

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FINDINGS AND SUGGESTIONS

The MD of the Company, is having an experience of over 5 years in this line of activity and an existing customer of the Bank and the track record of her accounts is satisfactory. Collateral security is adequate to cover the limit. The promoters contribution works out to 37.78% as against 25% as per Banks norm, which indicates the commitment of the promoters towards the project. The projected financials are considered acceptable/ satisfactory. M/s STU & Co. Banks Panel Chartered Accountants, Hyderabad has certified that the project is technically feasible and economically viable. The pharma industry in India and more specifically in AP is growing at a high rate. Since the proposed loan is for a running unit with all manufacturing facilities, the project is expected to generate cash flows immediately. The project is with short term gestation period. The Company has got an opportunity to acquire existing Bulk Drug unit having requisite licenses, permissions with all manufacturing facility for Bulk Drugs.

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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 such advance / investment. Thus it extremely important for the lender bank to assess the risk associated with credit, thereby ensure the security for the funds deposited by the depositors. In UBI the credit appraisal is done by thorough study of the project which involves Following. 1) Evaluation of Management: A detailed study about the promoters is carried out in order to ensure promoters are experienced in the line of business and are capable to implement and run the project 2) Technical Feasibility: A detailed study about the technical aspects is done to determine the technical soundness of the project 3) Financial Viability: A detailed study relating to financial viability of the project is done; thereby ensuring that project will generate sufficient surplus to repay the loan installment and interest 4) Risk analysis: it determines the risk associated with the project this is done by performing a Sensitivity analysis and Credit Rating. With Sensitivity Analysis the projects capacity to service debts under worsened conditions is determined. Credit rating, provides rating for various parameters like management, financial, market and so, thereby determine the credit worthiness of the borrower 5) It is on the basis of the credit risk level, collateral securities to be given by the borrower are determined.

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GLOSSARY Acid test: A stern measure of a company's ability to pay its short term debts, in that stock is excluded from asset value. (Liquid assets/current liabilities) Also referred to as the Quick Ratio. Cost of goods sold (COGS): The direct costs attributable to the production of the goods sold by a company. The directly attributable costs of products or services sold (usually materials, labor, and direct production costs). COGS = net sale -gross profit. Cash flow statement: The statement showing the movement of cash in and out of a business from day-today direct trading and other non-trading or indirect effects, such as capital expenditure, tax and dividend payments. Cost of debt: The rate that has to be received from an investment in order to achieve the required rate of return from the creditors. Coverage ratios: A group of ratios that measures a firms ability to meet its recurring fixed charge obligations, such as interest on long term debt, lease payments, and/or proffered stock dividends Average collection period: This represents the no. of days worth credit sales that is locked in debtors. Current liabilities: Liabilities that is normally payable within a year and are not for a long term. Current ratio: A liquidity measures defined as current assets divided by current liabilities. Default risk: The uncertainty of expected returns from a security attributable to possible changes in the financial capacity of the security issuer to make future payments to the security owner. Treasury securities are considered to be default free. Default risk is also referred to as financial risk in the context of marketable securities management. Inventory turnover: The ratio of net sales to inventory. Letter of credit A letter from a bank mentioning that it has established a line of credit in favor of a certain party Letters of guarantee: letters of guarantee are concerned with providing safeguards to buyers that suppliers will meet their obligations or vice-versa, and are issued by the supplier's or customer's bank depending on which party seeks the guarantee.
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Net working capital: Net working capital is the difference between total current assets total current liabilities. Operating cycle: The operating cycle of a firm begins with the acquisition of raw materials and ends with the collection of receivables. Sensitivity analysis: A technique of risk analysis which studies the responsiveness of the criterion of merit like net present value or internal rate of return to variations in underlying factors like selling price, quantity sold, etc. Term loan: A loan which is generally repayable in more than one year and less than ten years. Turn over ratios: Turn over ratios, also referred to as activity ratios or asset management ratios, measure how efficiently the firm employs the assets. Working capital: There are two measures of working capital- gross working capital and net working capital. Gross working capital is the total of current assets. Net working capital is the difference between the total current assets and the total current liabilities.

BIBLIOGRAPHY WEBSITES: www.marketresearch.com www.Investopedia.com www.unionbankofindia.com www.rbi.org.in

BOOKS & PUBLICATIONS

Credit Appraisal, D.D. MUKHARJEE Union Bank manuals and circulars Credit management

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