Credit Delivery

Types of Credit

Fund Based facility

Term Loan- for creation of fixed assets Cash Credit/Working Capital -based on DP Bill Purchase Post sale-operating cycle

Non Fund Based facility Bank Guarantee -contract to perform or discharge a liability of a third person Letter of Credit -assuring payment to seller of goods/services
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Credit Delivery
Term Loans

Green Field Projects

Brown Field Projects

Green Field Projects- Projected

Knowledge of the Person in the Field

Project Report
Promoter Details Promoter Experience

Techno Economic Viability

Project Report Type/nature of business

Raw Material source/distribution source

Target Market/Arrangements SWOT Analysis
4

Term Loan

Implementation schedule Project cost break up Means of finance Investment items Sanction Terms and Conditions Pre disbursement conditions
Promoter contribution Unsecured loans if any Subsidy if any Term Loan - First Disbursement
5

Term Loan
Cont Compliance during Disbursement
End use verification/ Inspection Review of project implementation Asset creation Further disbursement

Project completion
End use verification/ Inspection Project completion certificate Trial run/ commercial operation
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Term Loan
Cont Any Non Fund based facility as sub limit to Term Loan LC for Import of machinery if any BG or LC to Suppliers/ EPC Contractors

What is Working Capital ?

Funds required to acquire current assets to enable business/industry to operate at the expected levels

What are Working Capital Sources?

Own funds Bank borrowings Sundry Creditors

Advances from customers

Deposits due in a year Other current liabilities

FACTORS INFLUENCING WORKING CAPITAL REQUIREMENT

Nature of business service/trade/manufacturing. Seasonality of operations peak/non peak Production Policy Constant/seasonal Market conditions- competition/credit terms Conditions of supply of RM/stores/spares etc. Quantum of production/Turnover(level of activity) Operating Cycle Current Assets to be maintained

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DATA TO BE OBTAINED

Application. Financial Statements of Previous years Estimates/ Projections (with quantitative details)

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Working Capital Finance

A) Fund Based
Inventory finance and Bill Finance ( Post Sales Finance).

B) Non Fund Based

Letter of Credit (LC) Bank Guarantee.

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Assessment Methods- Fund Based

Operating Cycle Method
Service Sector Traders Manufacturing Activity.

Drawing Power Method. Turnover Method.

Assessment Methods
MPBF method (II method of lending) for limits of Rs 5.00 crores and above Cash Budget method

(Reason: Based on procurement and cash inflow)

Seasonal Industries (Sugar/ Rice

Mills/Textiles/Tea/Tobacco/Fertilizers) Contractors & Real Estate Developers Educational Institutions

Operating Cycle Method

Working capital requirement Operating expenses --------------------------------------No. of operating cycles in a year

Operating Cycle MethodLength of operating Cycle

a. Procurement of Raw Material
b. Conversion / Process time c. Average time of holding of FG d. Average Collection Period e.Operating Cycle (a+b+c+d) f. Operating Cycle in a year (365days/e)

30 days
15 days 15 days 30 days 90 days 4 cycle

Operating Cycle Method

B. Total Operating Expenses Rs 60.00 lakh per annum
C. Total Turnover per Annum Rs 70.00 lakh D. Working Capital Requirement = Total Operating Expenses (B)/ No. of operating Cycle (f as said earlier Rs 15 lakh

Drawing Power Method (for units with small limits)

Particulars Paid stocks (RM-Creditors) Stock value (in lacs) 4 Margin 25% DP(in lacs) 3

Semi Finished goods

50%

Finished goods

25%

Book debts

50%

Total

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10

Turnover Method
(originally suggested by Nayak Committee for SSI units) A B C D E F Sales Turnover 25% of sales Turnover 5% of Sales Turnover projected as margin Actual NWC existing as per Last Financial Statement BC BD

100

25 5 4 20 21

G H

MPBF (E or F whichever is less) Additional margin to be brought in (C-D)

20 1

MPBF Method
Tandons II method of lending)
A B Current Assets Current Liab. other than Bank Borrowings 1000 400

C
D E F G H

Working Capital gap (A-B)

Minimum Stipulated NWC (25% of CA excluding export receivables) Actual/projected NWC PBF (C D) PBF (C E) MPBF (F or G whichever is less)

600
250 200 350 400 350

Important Aspects of MPBF method

Production/Sales estimates Profitability estimates Inventory/receivables norms Build up of Net Working Capital

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Justifications of the Performance Projection

(Inventory/Receivable Norms Comparison) Intra firm Comparison Comparison of estimates with previous years Actuals. For New Units Comparison of estimates with similar units in the area of operation. Higher projections shall be justified.

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Cash Budget
Statement showing forecast of cash receipts, cash payments and net cash balance over a period of time

Months-> Cash Receipts

Cash Payments

1 2 3 4 5 6 7 8 9 10 11 12

Surplus/deficit
Cash credit OB Cash credit - CB
Peak deficit is financed and drawings regulated by monthly budgets
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Cash Budget
Advantages: Suitable for seasonal industries, contractors, software exporters etc. Limitations: Will not reflect changes in various current assets and liabilities. Will not give a clue whether a company is earning profit or not. Funds flow statement is required to detect any diversion of funds

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Working Capital Finance

New Unit/Existing unit / Running business Type of facility (Fresh Sanction or Takeover or enhancement) Pre disbursement conditions Working capital cycle Estimate/ Projections of CFY Stock statement, availability of DP Insurance of stocks Unit inspection If export Credit Type of export credit viz. EPC/ PSC
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Bill Finance -Post Sales Finance

(For Genuine Trade & Manufacturing Transactions)
A.

DP Bills : Bills of Exchange accompanied with: i. Invoice and ii. Documents of title of the Goods - LRS/RRS DA Bills : Bill of Exchange accompanied with Invoice /LRS / RRS Maximum Tenor 180 days CUBD : Bill of Exchange / Promissory Notes( for Good Networth Clients) - Eligibility Carved out of MPBF Export Bills : FBP/FUBD - Security Export Documents drawn against confirmed orders / LCs.

A.

A.

B.

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Non Fund Based Limits

Letter of credit ILC/FLC Usance/Sight Bank Guarantee Performance Financial Bid Bonds/Security Deposits/ Mobilisation advance/retention money Deferred Payment Guarantee

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Thank You

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