PROJECT REPORT ON RETAIL BANKING AND SMEs LENDING AT ING VYSYA BANK

A Project report submitted to Jagan Institute of Management Studies Rohini, Delhi in fulfillment of the summer internship

Guided by Dr. Navneet Joshi

Submitted by Nipun Kesari

JAGAN INSTITUTE OF MANAGEMENT STUDIES INDUSTRIAL AREA SEC-5 ROHINI, DELHI - 85

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CERTIFICATE

This is to certify that the project work done on RETAIL BANKING AND SMEs LENDING AT ING VYSYA BANK is an original work carried out by Mr. NIPUN KESARI under my supervision and guidance. The project report is submitted towards the partial fulfillment of two year, full time post graduate diploma in management.

This work has not been submitted anywhere else for any other degree/diploma. The work was carried out from 02-05-2011 to 30-06-2011 in ING VYASA BANK.

Dr. Navneet Joshi (Faculty Guide)

Nipun Kesari Roll no.-FC10149

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ACKNOWLEDGEMENT
At the outset, I wish to express my sincere thanks to almighty for showering his blessing on me to develop this project.

I express my sincere thanks to MR. ASEEM ANAND, BRANCH HEAD for giving permission to carry out this study in his esteemed organization.

I would take this opportunity to express my sincere-most gratitude to Mr. Sumit Khari, Area Head- Business Banking, New Delhi for giving me this opportunity to complete my internship in his esteemed organization and his kind support. I also thank him for his help and valuable guidance and supervision

I am extremely thankful to MR DEEPAK GUPTA, RM, Punjabi Bagh Branch, New Delhi for his expert guidance, cooperation and help. With great sense of gratitude, I also thank him for his constant encouragement without which it would not have been possible for me to accomplish the project successfully.

I am deeply indebted to the Dr. J K Goyal, Director and Dr. Madan Mohan, Dean, JAGAN INSTITUTE OF MANAGEMENT STUDIES for enabling me to do this project.

I express my gratitude towards my college mentors Dr. Navneet Joshi and Mr. Arnab Ghosh for their help and guidance in making my report.

Nipun Kesari FC10149

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DECLARATION
I hereby declare that this project report titled RETAIL BANKING AND SME LENDING AT ING VYSYA BANK submitted by me to Jagan Institute is a bonafide work undertaken by me and it is not submitted to any other University or Institute for the award of any Degree / Diploma / Certificate or published any time before.
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NIPUN KESARI (FC10149)

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CONTENT
S.No. 1. 2. 3. 4. 5. 6. 7. 8. A B C 9. A B Content CERTIFICATE ACKNOWLEDGEMENT DECLARATION ABOUT ING VYSYA BANK OBJECTIVE OF THE STUDY RESEARCH METHODOLOGY RETAIL BANKING BACKGROUND MICRO, SMALL AND MEDIUM ENTERPRISES CODE OF BANKS COMMITMENT TO MICRO, SMALL AND MEDIUM ENTERPRISES BUSINESS LOAN SME LENDING AT ING VYSYA BANK CREDIT APPRAISAL PROCESS I CASE DETAILS 31-37 38 39-57 58-69 69 70 71 Page Number 3 4 5 7-11 12 13 14-23 24 25-30 30

II RECOMMENDATION C 10. RESULT AND DISCUSSION BIBLIOGRAPHY

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INTRODUCTION

Contents: 1. Introduction 2. Objective 3. Research Methodology Research Design Nature of Data Methods Data Collection Research Tools

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INTRODUCTION ABOUT ING VYSYA BANK

ING Vysya Bank Ltd., is an entity formed with the coming together of erstwhile, Vysya Bank Ltd, a premier bank in the Indian Private Sector and a global financial powerhouse, ING of Dutch origin, during Oct 2002. The origin of the erstwhile Vysya Bank was pretty humble. It was in the year 1930 that a team of visionaries came together to form a bank that would extend a helping hand to those who weren't privileged enough to enjoy banking services. It's been a long journey since then and the Bank has grown in size and stature to encompass every area of present-day banking activity and has carved a distinct identity of being India's Premier Private Sector Bank. In 1980, the Bank completed fifty years of service to the nation and post 1985, the Bank made rapid strides to reach the coveted position of being the number one private sector bank. In 1990, the bank completed its Diamond Jubilee year. At the Diamond Jubilee Celebrations, the then Finance Minister Prof. Madhu Dandavate, had termed the performance of the bank Stupendous. The 75th anniversary, the Platinum Jubilee of the bank was celebrated during 2005.

The long journey of seventy-five years has had several milestones 1930 1948 1985 1987 1988 1990 1992 1993 8|Page Set up in Bangalore Scheduled Bank Largest Private Sector Bank The Vysya Bank Leasing Ltd. Commenced Pioneered the concept of Co branding of Credit Cards Promoted Vysya Bank Housing Finance Ltd. Deposits cross Rs.1000 crores Number of Branches crossed 300

Signs Strategic Alliance with BBL., Belgium. Two National Awards by 1996 Gem & Jewellery Export Promotion Council for excellent performance in Export Promotion Cash Management Services, & commissioning of VSAT. Golden Peacock 1998 Award - for the best HR Practices by Institute of Directors. Rated as Best Domestic Bank in India by Global Finance (International Financial Journal June 1998) 2000 2001 State -of the -art Date Centre at ITPL, Bangalore.

RBI clears setting up of ING Vysya Life Insurance Company ING-Vysya commenced life insurance business. The Bank launched a range of products & services like the Vys Vyapar Plus, the range of loan schemes for traders, ATM services, Smartserv, personal

2002

assistant service, Save & Secure, an account that provides accident hospitalization and insurance cover, Sambandh, the International Debit Card and the mi-b@nk net banking service.

2002 2002

ING takes over the Management of the Bank from October 7th , 2002 RBI clears the new name of the Bank as ING Vysya Bank Ltd, vide their letter of 17.12.02 Introduced customer friendly products like Orange Savings, Orange Current and Protected Home Loans Introduced Protected Home Loans - a housing loan product Introduced Solo - My Own Account for youth and Customer Service Line Phone Banking Service Bank has networked all the branches to facilitate AAA transactions i.e. Anywhere, Anytime & Anyhow Banking

2003 2004 2005

2006

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In terms of pure numbers, the performance over the decades can better be appreciated from the following table: Rs. in millions Year 1940 1950 1960 1970 1980 1990 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Networth 0.001 1.40 1.60 3.00 11.50 162.10 5900.00 6527.00 6863.24 7067.90 7473.20 7094.00 10196.70 11101.90 14260.00 15940.00 2223.00 Deposits 0.400 5.30 20.10 91.50 1414.30 8509.40 74240.00 81411.10 80680.00 91870.00 Advances 0.400 3.80 13.50 62.80 813.70 4584.80 39380.00 43163.10 44180.00 56120.00 Profits 0.001 0.09 0.13 0.74 1.13 50.35 443.10 371.90 687.50 863.50 590.01 Outlets 4 16 19 39 228 319 481 484 483 456 523

104780.00 69367.30 125693.10 90805.90 133352.50 102315.20 154185.70 119761.70 204980.00 146500.00 248900.00 167510.00 258650.00 185070.00

(381.80) 536 90.6 889.0 562 626

1569.00 677 1888.00 857 2422.00 866*

*Outlets comprises of 468 branches, 13 ECs, 28 Satellite Offices and 357 ATMs as of March 31st 2010. Additionally the bank also has Internet Banking, Mobile Banking and Customer Service Line for Phone Banking Service.

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The origin of ING Group On the other hand, ING group originated in 1990 from the merger between Nationale Nederlanden NV the largest Dutch Insurance Company and NMB Post Bank Groep NV. Combining roots and ambitions, the newly formed company called Internationale Nederlanden Group. Market circles soon abbreviated the name to I-NG. The company followed suit by changing the statutory name to ING Group N.V.

Profile ING has gained recognition for its integrated approach of banking, insurance and asset management. Furthermore, the company differentiates itself from other financial service providers by successfully establishing life insurance companies in countries with emerging economies, such as Korea, Taiwan, Hungary, Poland, Mexico and Chile. Another specialisation is ING Direct, an Internet and direct marketing concept with which ING is rapidly winning retail market share in mature markets. Finally, ING distinguishes itself internationally as a provider of employee benefits, i.e. arrangements of nonwage benefits, such as pension plans for companies and their employees.

Mission ING`s mission is to be a leading, global, client-focused, innovative and low-cost provider of financial services through the distribution channels of the clients preference in markets where ING can create value.

The new identity The immediate benefit to the bank, ING Vysya Bank, has been the pride of having become a Member of the global financial giant ING. As at the end of the year December 2010, ING's total assets exceeded Rs. 87290 billion, with an underlying net profit of Rs. 272510 million, employed around 105000 people, serves over 85 million customers, across 40 countries. This global identity coupled with the backup of a financial power house and the status of being the first Indian International Bank, would also help to enhance productivity, profitability, to result in improved performance of the bank, for the benefit of all the stake holders. 11 | P a g e

OBJECTIVES OF THE STUDY

To know about the procedure to apply for loan Conditions on which bank finance the different projects of SMEs 1. Studying the ratios of the company to know the financial position of the company. 2. To know the borrowings of the company as well as the liquidity position of the company. 3. To study the current assets and current liabilities so as to know the position of firm. Different types of conditions to approve the loan. To know how SMEs disburse their loan amount.

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RESEARCH METHODOLOGY:

Research design:
The descriptive form of research method is adopted for study. The major purpose of descriptive research is description of state of affairs of the institution as it exists at present. The nature and characteristics of the Advances and Loans have been described in this study.

Nature of data
The data required for the study has been collected from secondary source .The relevant information were taken from annual reports, journals and internet.

Methods of data collection:

This study is based on the SME financing and Loan appraisal. Hence the information related to, profitability of firm ,financial data of firm and turnover were very much required for attaining the objectives of the present study.

Tools applied:
To have a meaningful analysis and interpretation of various data collected, the following tools were made for this study. Annual report of the applicant Financial Statements Analysis

Credit Rating Technique (Credit Rating and Information Services of India Ltd. (CRISIL) Interest Rate Calculation

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RETAIL BANKING

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RETAIL BANKING
Retail banking refers to banking in which banking institutions execute transactions directly with consumers, rather than corporations or other banks. Services offered include: savings and transactional accounts, mortgages, personal loans, debit cards, credit cards, and so forth. The Retail Banking environment today is changing fast. The changing customer demographics demands to create a differentiated application based on scalable technology, improved service and banking convenience. Higher penetration of technology and increase in global literacy levels has set up the expectations of the customer higher than never before. Increasing use of modern technology has further enhanced reach and accessibility.

SCOPE FOR RETAIL BANKING IN INDIA

All round increase in economic activity. Increase in the purchasing power. The rural areas have the large purchase power at their disposal and this is an opportunity to market retail banking. India has 200 million households and 400 million middleclass population more than 90% of the savings come from the house hold sector. Falling to interest rates have resulted in a shift. Tax benefits are available for example in case of housing loans the borrower can avail tax benefits for the loan repayment and the interest charged for the loan.

ADVANTAGES AND DISADVANTAGES OF RETAIL BANKING ADVANTAGES

Retail deposits are stable and constitute core deposits. They are interest insensitive and less bargaining for additional interest. They constitute low cost funds for the banks. Effective customer relationship management with the retail customers built a strong customer base.

Retail banking increases the subsidiary business of the banks. Retail banking results in better yield and improved bottom line for a bank. Retail segment is a good avenue for funds deployment. Helps economic revival of the nation through increased production activity. Improves lifestyle and fulfils aspirations of the people through affordable credit. Retail banking involves minimum marketing efforts in a demand-driven economy.

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DISADVANTAGES
Designing own and new financial products is very costly and time consuming for the bank. Customers now-a-days prefer net banking to branch banking. The banks that are slow in introducing technology-based products, are finding it difficult to retain the customers who wish to opt for net banking. .Customers are attracted towards other financial products like mutual funds etc. Though banks are investing heavily in technology, they are not able to exploit the same to the full extent. A major disadvantage is monitoring and follow up of huge volume of loan accounts inducing banks to spend heavily in human resource department. Long term loans like housing loan due to its long repayment term in the absence of proper follow-up, can become NPAs. The volume of amount borrowed by a single customer is very low as compared to wholesale banking. This does not allow banks to to exploit the advantage of earning huge profits from single customer as in case of wholesale banking.

RETAIL BANKING AT ING VYSYA BANK

ING Vysya life insurance The company offers entire range of life insurance plans to meet all the financial needs of an individual- protection, saving and investment. ING with ICICI LOMBARD understand the needs of an individual provide ALL SAFE INSURANCE to relieve people of the insecurities that their personal loan responsibility is causing them.

ING Vysya Mutual Fund It aims to provide practical and secure investment opportunity to retail investors. Operating in 15 cities. And Rs.2800 crores plus fund house.

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BUSINESS ACTIVITIES CARRIED OUT BY ING VYSYA The various products offered by ING Vysya bank are 1) 2) 3) 4) ACCOUNTS AND DEPOSITS Current accounts Saving accounts Term Deposit

CURRENT ACCOUNT The various sub-products in current account which ING Vysya gives are ORANGE CURRENT ACCOUNT: In today's fast-paced world, your business regularly requires you to receive and send funds to various cities in the country. ING Orange Current Account gives you the power of inter-city banking with a single account and access to more than 200 cities.
All you need is to maintain an average balance of Rs. 1,00,000/- per quarter. When the QAB is less than 1 lakh there is a service charge of Rs. 4000/- per quarter. Besides, free facilities become chargeable as per schedule of service charges. Charges indicated exclude applicable Service Tax

ADVANTAGE CURRENT ACCOUNT: In today's fast-paced world, your business regularly requires you to receive and send funds to various cities in the country. ING Advantage Current Account gives you the power of inter-city banking with a single account and access to more than 300 cities. All you need is to maintain an average balance of Rs. 50,000/-per quarter. When the QAB is less than 50,000 there is a service charge of Rs. 1500 per quarter. Besides, free facilities become chargeable as per schedule of service charges. Charges indicated exclude applicable Service Tax.

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 GENERAL CURRENT ACCOUNTS: With ING Vysya general current account you can access your account anytime, anywhere. Withdraw and deposit cash, issue and encash cheques, make balance enquires and ask for mini statements anytime, anywhere.
All you need is to maintain an average balance of Rs. 10000/- per quarter. (Non-maintenance of this balance entails a nominal charge of Rs. 750/- per quarter). Charges indicated exclude applicable service tax.

COMFORT CURRENT ACCOUNT: ING's Comfort Current Account lets you save as much as Rs. 60,000 p.a. for remittance up to Rs. 25 lakhs All you need is to maintain an average balance of Rs. 25,000/-per quarter. (Nonmaintenance of which entails a charge as per the following) When the QAB is less than 25,000 there is a service charge of Rs. 1000 plus applicable service taxes, per quarter. Besides, free facilities become chargeable as per schedule of service charges. Charges indicated exclude applicable Service Tax.

SAVING ACCOUNTS
The Savings accounts are primarily meant to inculcate a sense of saving for the future and take care of individuals day to day banking requirements. These accounts are meant to help individual customers protect their money. The Savings Accounts also help individuals to handle their financial transactions through a systematic banking channel. This increases the safety as customers need not carry physical cash with them. The various products in saving accounts are

ORANGE SAVING ACCOUNT ADVANTAGE SALARY ACCOUNT ZING ACCOUNT ZWIPE ACCOUNT GENERAL SAVING ACCOUNT SARAL ACCOUNT

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1) TERM DEPOSITS The various term deposits are FIXED DEPOSITS: If you believe in the long term investments and wish to earn long term interest on your deposits, then invest in ING fixed deposits. With ING your money will not only be secured but will earn a good interest. CUMULATIVE DEPOSITS: With ING cumulative deposits you can invest small amounts of money that ends up large saving on maturity. TAX ADVANTAGE DEPOSITS: TAD is eligible for tax exemption under section 80C of the income tax act 1981. The deposit is in the form of fixed deposit or reinvestment form of 5 year duration. The rate of interest will be according to the 5 year interest rate which will be declared by RBI from time to time. AKSHAYA DEPOSITS: your deposit with interest will be reinvested every quarter to earn a higher yield.

2) LOANS
HOME LOAN HOME EQUITY LOAN NRI LOAN

3) NRI SERVICES
RUPEE SAVING ACCOUNT RUPEE CURRENT ACCOUNT RUPEE FIXED DEPOSITS ACCOUNTS FOR RETURNING INDIANS FOREIGN CURRENCY DEPOSITS MI REMIT

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4) CARDS
DEBIT CARDS CREDIT CARDS REMMITANCE CARD

OPERATIONS
1) RTGS REAL TIME GROSS SETTLEMENT
RTGS can be defined as the continuous (real-time) settlement of funds transfers individually on an order by order basis. 'Real Time' means the processing of instructions at the time they are received rather than at some later time. 'Gross Settlement' means the settlement of funds transfer instructions occurs individually (on an instruction by instruction basis). Considering that the funds settlement takes place in the books of the Reserve Bank of India, the payments are final and irrevocable. The RTGS system is primarily meant for large value transactions. The minimum amount to be remitted through RTGS is 2 lakhs. There is no upper ceiling for RTGS transactions. Under normal circumstances the beneficiary branches are expected to receive the funds in real time as soon as funds are transferred by the remitting bank. The beneficiary bank has to credit the beneficiary's account within two hours of receiving the funds transfer message. The remitting bank receives a message from the Reserve Bank that money has been credited to the receiving bank. Based on this the remitting bank can advise the remitting customer that money has been delivered to the receiving bank. If the money cannot be credited for any reason, the receiving bank would have to return the money to the remitting bank within 2 hours. Once the money is received back by the remitting bank, the original debit entry in the customer's account is reversed. With a view to rationalize the service charges levied by banks for offering various electronic products, a broad framework has been mandated as under: a) Inward transactions Free, no charge to be levied b) Outward transactions 2 lakh to 5 lakh - not exceeding Rs. 25 per transaction. Above 5 lakh not exceeding Rs. 50 per transaction.

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2) NEFT NATIONAL ELECTRONIC FUNDS TRANSFER

NEFT is a nation-wide system that facilitates individuals, firms and corporates to electronically transfer funds from any bank branch to any individual, firm or corporate having an account with any other bank branch in the country. Individuals, firms or corporates maintaining accounts with a bank branch can transfer funds using NEFT. Even such individuals, firms or corporates who do not have a bank account (walk-in customers) can also deposit cash at the NEFT-enabled branch with instructions to transfer funds using NEFT. There is no limit either minimum or maximum on the amount of funds that could be transferred using NEFT. Reserve Bank of India has waived the processing or service charges for member banks till March 31, 2011. Accordingly, member banks participating in NEFT need not pay any processing or service charges to Reserve Bank of India. Further, processing or service charges to be levied by the member banks from their customers have also been rationalised by Reserve Bank of India as under : a) Inward transactions at destination bank branches (for credit to beneficiary accounts) Free, no charges to be levied from beneficiaries b) Outward transactions at originating bank branches (charges for the remitter) For transactions up to Rs 1 lakh not exceeding Rs 5 (+ Service Tax) For transactions above Rs 1 lakh and up to Rs 2 lakhs not exceeding Rs 15 (+ Service Tax) For transactions above Rs 2 lakhs not exceeding Rs 25 (+ Service Tax) NEFT can be used to transfer funds from or to NRE and NRO accounts in the country. This, however, is subject to the adherence of the provisions of the Foreign Exchange Management Act, 2000 (FEMA). The remitter can track the NEFT transaction through the originating bank branch. It is possible for the originating bank branch to keep track and be aware of the status of the NEFT transaction at all times.

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CHEQUE CLEARING
Clearing is a process by which banks exchange instruments. Funds are transferred from the drawer of the cheque to the payee. At ING, it is done thrice everyday at 10:00 AM, 12:00 PM and 4:00 PM. Maximum duration for local cheques 3 days Maximum duration for outstation cheques 4 days

CLEARING PROCESS Things to do at the desk Accept

PO slips with all details filled Cheque

Ensure All details are filled up properly in the slip The amount on the cheque includes the charges Cheque is signed by customer

Process
Receive the pay in slip. Check all the entries. Mark stamp on the receipt portion of the slip. Give the receipt to the customer. Pass the entry in the system. Check if the cheques are local or outstation. Local NCR Region or Cheques on which payable at par is written on the cheque even if the region is outside the NCR Region.

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 Outstation Outside NCR Region and payable at par is not written on the cheque. Mark stamp on every cheque. Count the total number of cheques. Make separate envelopes for local and outstation cheques. Write To RCC and number of cheques on the envelopes. Get the envelopes signed by the officer in the bank. Handover the envelopes to the delivery person who collects the cheques from various branches of ING and deliver them to RCC.

RCC RCC is the place in Karol Bagh, New Delhi where all cheques from all the branches of ING VYSYA BANK are receieved and further distributed according to the addresses on the respective cheques.

Return/Bouncing of cheques where Instant Credit was given and cheques sent for local/outstation clearing :
If a cheque sent for collection for which immediate credit was provided by the Bank is returned unpaid, the value of the cheque will be immediately debited to the account where the credit was given. The customers will also be advised immediately about the bouncing of cheques.

On receipt of information about the return / non-payment of cheques sent for collection, the customers will be immediately notified about the same and the appropriate charges as per the schedule of charges, as applicable, will be recovered from the customers account, under advice to the customers.

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BACKGROUND

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Micro, Small and Medium Enterprises

Micro, small and medium enterprises (MSME) sector has been recognised as an engine of growth all over the world. The sector is characterised by low investment requirement, operational flexibility, location wise mobility, and import substitution. In India, the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 is the first single comprehensive legislation covering all the three segments. In accordance with the Act, these enterprises are classified in two:- (i) manufacturing enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the Industries (Development and regulation) Act, 1951. These are defined in terms of investment in plant and machinery; (ii) service enterprises engaged in providing or rendering of services and are defined in terms of investment in equipment. Both categories of enterprises have been further classified into micro, small, medium and large enterprises based on their investment in plant and machinery (for manufacturing enterprises) or on equipments (in case of enterprises providing or rendering services). The present ceiling on investment to be classified as micro, small or medium enterprises is as under: Manufacturing Sector Enterprises Investment in plant & machinery

Micro Enterprises

Does not exceed twenty five lakh rupees

Small Enterprises

More than twenty five lakh rupees but does not exceed five crore rupees

Medium Enterprises

More than five crore rupees but does not exceed ten crore rupees

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Service Sector

Enterprises

Investment in equipments

Micro Enterprises

Does not exceed ten lakh rupees

Small Enterprises

More than ten lakh rupees but does not exceed two crore rupees

Medium Enterprises

More than two crore rupees but does not exceed five core rupees

Profile of Indian MSME Sector

S.No.

Particular

Value

Number of micro and small enterprises

140 Lakhs

Employment

600 Lakhs

Share in GDP

8-9%

Share in manufacturing output

45%

Share in exports

40%

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Small and Medium Enterprises (SMEs) sector in India is definitely growing at an exceptional rate. Still, there are some important things that need to be focused upon so that best out of these enterprises can be obtained. Here is a brief analysis of the Indian SME sector.

Some Figures of Interest

The Indian SME market is worth $5 billion. There are around 14 million SME units in India that produce more than 8,000 products. Nearly 90 percent of the Indian industrial units belong to the sector of small and medium enterprises.

The SMEs contribute 40 percent to the overall industrial output of the country. The sector accounts for about 39% of the manufacturing output and around 40% of the total export of the country. The major advantage of the sector is its employment potential at low capital cost.

As per available statistics, this sector employs an estimated 60 million persons and the labour intensity in the MSE sector is estimated to be almost 4 times higher than the large enterprises.

It is source of innovative products. This sector creates 1.3 million jobs per annum. Finally, these enterprises are estimated to grow at the rate of 20 percent per year for upcoming years. In recent years the MSE sector has consistently registered higher growth rate compared to the overall industrial sector.

Main Reasons for SME Growth

Foreign and local fund providers are taking huge interest in the small and medium enterprises of India.

Banking sector has also shown a keen interest in lending credit to these enterprises. Many recent mergers have taken place in the sector. The sector has significantly contributed towards the domestic production as well as the export earnings.

Low investment is required to start and maintain these enterprises.

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The sector has contributed impressively towards job creation and increase in individual incomes.

Technological growth is also a factor for growth of SME's in India as there are several trade portals and business directories available online with huge database of buyers, sellers, manufacturers who are basically back bone of SME's.

The SMEs are dominant players in some of Indias major export sectors namely Textiles and Garments, Leather products, Sports goods, Gems and jewellery, Handicrafts among others. They also contribute substantially in industrial goods segments in sectors such as electrical, engineering, rubber and plastics.

Opportunities for SMEs in INDIA With their inherent strength and resilience SMEs can weather adverse situations like global financial crisis and economic slowdown, as they are not dependent on public money. Many overseas companies are approaching Indian SME to out source their manufacturing activities. In service sector too, many are setting up BPO and KPO in India, which are a real boon for the Indian SME sector. Unless and until the SMEs equip themselves with the latest technologies, processes and machinery, they will not be in a position to meet the stringent quality standards set out by the buyers. Even if they are exploring new markets, the products and services have to be suitably modified to meet the market requirements with innovative designs and features. It is an excellent opportunity for the Indian SMEs to convert the present global melt down condition to their advantage by catering to the needs of the markets, which are already reeling under the recession.

Challenges Ahead Even after recording an impressive growth in the recent years, the small and medium enterprises of India face many challenges:

Infrastructure needs to be developed for setting up the SMEs in the rural sector of the country. Transportation, electricity and communication are the main parts of the infrastructure required.

Technology need to be evolved so that quality products are manufactured by the sector.

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Lack of information about the inputs, including raw material, machinery and skills, is one critical challenge in front of the owners of these enterprises.

High level of research and development is required.

Administrative framework for MSMEs The Government has been encouraging and supporting the SME sector through policies for infrastructural support, technology up gradation, preferential access to credit, reservation of products for exclusive manufacture in the sector, preferential purchase policy, etc. It has been offering packages of schemes and incentives through its specialized institutions in the form of assistance in obtaining finance; help in marketing; technical guidance; training and technology up gradation, etc. Government of India has set up a new governing body for promotion and development of Micro, Medium and Small Scale Enterprises via MSME Development Act, which came into force from 2nd October 2006. The President under Notification dated 9th May 2007 amended the Government of India (Allocation of Business) Rules, 1961 by which, Ministry of Agro and Rural Industries (Krishi Evam Gramin Udyog Mantralaya) and Ministry of Small Scale Industries (Laghu Udyog Mantralaya) have been merged into a single Ministry, namely, Ministry of Micro, Small and Medium Enterprises. The Ministry of Micro, Small and Medium Enterprises (MSME) is the administrative Ministry in the Government of India for all matters relating to Micro, Small and Medium Enterprises. It designs and implements policies and programmes through its field organizations and attached offices for promotion and growth of MSME sector. The Office of the Development Commissioner (MSME) is an attached office of the Ministry of MSME, and is the apex body to advise, coordinate and formulate policies and programmes for the development and promotion of the MSME Sector. The office also maintains liaison with Central Ministries and other Central/State Government agencies/organizations financial institutions. In view of the Government of Indias ambitious target of average GDP growth rate of 9% during the 11th Five Year Plan, SMEs are playing a vital role in achieving this target. It is imperative for the government to address the major issues plaguing the sector and take further inclusive growth oriented policy initiatives to boost the sector. This includes measures addressing

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concerns of credit, fiscal support, cluster-based development, infrastructure, technology, and marketing among others. As mentioned earlier, SMEs constitute 40% of Indias merchandise exports and in order to increase Indias export share to the global trade, SMEs are expected to enlarge their scope manifold.

Code of Bank's Commitment to Micro and Small Enterprises

This is a voluntary Code, which sets minimum standards of banking practices for banks to follow when they are dealing with Micro and Small Enterprises (MSEs ) as defined in the Micro Small and Medium Enterprises Development (MSMED) Act, 2006. It provides protection to MSEs and explains how banks are expected to deal with them for their day to -day operations and in times of financial difficulty. The Code does not replace or supersede regulatory or supervisory instructions issued by the Reserve Bank of India (RBI) and we will comply with such instructions /directions issued by the RBI from time to time. The provisions of the Code may set higher standards than what is indicated in the regulatory or supervisory instructions and such higher standards will prevail, as the Code represents best practices agreed by IVBL as their commitment to MSMEs. Objectives of the Code The Code has been developed to a. Give a positive thrust to the MSE sector by providing easy access to efficient banking services. b. Promote good and fair banking practices by setting minimum standards in dealing with MSEs. c. Increase transparency so that they can have a better understanding of what they can reasonably expect of the services. d. Improve IVBL understanding of MSEs business through effective communication. e. Encourage market forces, through competition, to achieve higher operating standards. f. Promote a fair and cordial relationship between MSEs and IVBL and also ensure timely and quick response to MSEs banking needs. g. Foster confidence in the banking system.

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BUSINESS LOAN
Assets of banks consist mainly of loans to businesses and consumers and their liabilities comprise of various forms of deposits from consumers. Their main source of income is from what is called as the interest rate spread, which is the difference between the lending rate (rate at which banks earn) and the deposit rate (rate at which banks pay). Banks generally do not lend 100% of their deposits. They are statutorily required to maintain a certain portion of the deposits as cash and another portion in the form of liquid and safe assets (generally Government securities), which yield a lower rate of return. These requirements, known as the Cash Reserve Ratio (CRR ratio) and Statutory Liquidity Ratio (SLR ratio) in India, are stipulated by the Reserve Bank of India and banks need to adhere to them.

Bank gives loan to companies to meet their working capital requirement or as guarantee. Working Capital refers to that part of the firms capital, which is required for financing short term or current assets such as cash marketable securities, debtors and inventories. Funds thus, invested in current assets keep revolving fast and are constantly converted into cash and this cash flow out again in exchange for other current assets. Working Capital is also known as revolving or circulating capital or short-term capital.

FACTORS DETERMINING WORKING CAPITAL

_ Nature of the Industry _ Cash requirements _ Production Cycle _ Inflation or Price level changes _ Manufacturing time _ Attitude towards Risk _ Terms of Purchase and Sales _ Business Turnover _ Current Assets requirements _ Cash reserves _ Change in Technology 31 | P a g e

_ Demand of Industry _ Nature of the Business _ Credit control _ Profit planning and control _ Volume of Sales _Firms finance and dividend policy _ Inventory Turnover _ Business Cycle _ Repayment ability _ Operation efficiency

SOURCES OF WORKING CAPITAL Sources of working capital are: _ Owned fund (Equity, Reserves, etc.) _ Bank borrowings(Cash Credit, Packing Credit, B/D, L/C) Sources of additional working capital include the following: _ Existing cash reserves _ Profits _ Payables (credit from suppliers) _ New equity or loans from shareholders _ Bank overdrafts or lines of credit Long-term loans To help companies in meeting their requirements, banks provide fund based and non fund based loans to the companies depending upon the requirement. Fund Based Fund based facilities are such facilities extended by banks which involve outgo of funds from the bank when the customer avails the facilities. Cash credit/Overdraft facility Cash credit/overdraft is a form of credit facility in which a borrower is sanctioned a pre arranged limit with the freedom to borrow as much money as he requires. In case of flow of credit to the account, he can withdraw afresh subject to the limit sanctioned. As such, the limit works as a revolving line of credit. Bank charges interest on the outstanding balances.

An overdraft allows the individual to continue withdrawing money even if the account has no funds in it. Basically the bank allows people to borrow a set amount of money. As security is always taken from the client against overdraft limit, it is a secured limit and thus it is also called Secured Overdraft facility (SOD). Cash Credit (CC) is same as Overdraft facility, Only difference between cash credit and over draft is that in cash credit both stock and debt are considered while in overdraft facility only debt is considered. Thus, client has to send monthly stock statements and list of debtors to the bank from with monthly drawing power is calculated.

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Bill Discounting Bill discounting is a major activity with some of the smaller Banks. In case of discounting of a bill, a bank buys the bill (i.e. Bill of Exchange or Promissory Note) before it is due and credits the value of the bill after discount charges to the customers account. The transaction is practically an advance against the security of the bill and the discount represents the interest on the advance from the date of purchase of the bill until it is due for payment. Only usance bills are discounted.

Under this particular type of lending, Bank takes the bill drawn by borrower on his(borrower's) customer and pay him or her immediately deducting some amount as discount/commission. The Bank then presents the Bill to the borrower's customer on the due date of the Bill and collects the total amount. If the bill is delayed, the borrower or his customer pays the Bank a pre-determined interest depending upon the terms of transaction.

Term Loan

Term Loan are the counter parts of Fixed Deposits in the Bank. Banks lend money in this mode when the repayment is sought to be made in fixed, pre-determined installments. This type of loan is normally given to the borrowers for acquiring long term assets i.e. assets which will benefit the borrower over a long period (exceeding at least one year). Purchases of plant and machinery, constructing building for factory, setting up new projects fall in this category. Financing for purchase of automobiles, consumer durables, real estate and creation of infra structure also falls in this category.

33 | P a g e

Pre shipment Credit Pre-shipment Credit is offered to an exporter by way of packing credit to enable him to finance purchase/import of raw materials, processing and packing of the goods meant for exports. Import can be on DA (Payment against acceptance) or DP (payment against receipt of document) basis. DP means documents against payment (a sight payment) . In this case the documents are sent to the buyers bank who holds the documents until payment is receieved by that bank. Once payment is received, the bank releases the documents to the buyer. DA means documents against acceptance. This is NOT a banker's acceptance and it is NOT a deferred payment undertaking by the bank. In this case, the documents are sent to the buyers bank who releases only the draft to be accepted by the buyer. Once the draft is accepted with a stated maturity date and returned to the buyers bank, the bank will release the documents to the buyer. The buyer has the obligation to make payment at maturity, but if they do not pay, the bank will NOT make payment to the seller.

Post shipment Credit Post-shipment Credit is offered to an exporter to finance export sales receivables after the date of shipment of goods till the date of realisation of export proceeds. Like pre shipment, payment for post shipment can also be on DA or DP basis.

Non-Fund based Non-fund based facilities are such facilities extended by banks which do not involve outgo of funds from the bank when the customer avails the facilities but may at a later date crystallise into financial liability if the customer fails to honour the commitment made by availing these facilities.

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Letter of credit A Letter of Credit (LC) is a letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase.

LC are of two types- usance and sight. The main difference between the two is that in Sight LC where the purchaser is not provided any credit period while in Usance LC credit period is provided by the seller to make payment for the goods. Thus in Sight LC the bank send the LC first and then the goods arrive whose papers remain with the bank till the time the buyer make payment to the bank and signs these papers. On the sellers side, the LC will be payable only once the goods are under the possession of bank and on buyers side goods can be received only after the payment is done to the bank. In case of Usance LC, goods are first dispatched and then the client is given a credit period in which he has to make the payment to the seller. If the client does not make payment in the given credit period, bank send the LC to the seller.

LC can be used for buying material from its own country or from foreign country. If the goods are bought from its own country, in our case from India, it is called Inland Letter of Credit (ILC). If the goods are bought from a foreign country i.e. imported, it is called Foreign Letter of Credit (FLC).

Bank Guarantee Bank Guarantee (BG) is a guarantee from a lending institution ensuring that the liabilities of a debtor will be met. In other words, if the debtor fails to settle a debt, the bank will cover it.

A bank guarantee and a letter of credit are similar in many ways but they're two different things. Letters of credit ensure that a transaction proceeds as planned, while bank guarantees reduce the loss if the transaction doesn't go as planned. A letter of credit is an obligation taken on by a bank to make a payment once certain criteria are met. Once 35 | P a g e

these terms are completed and confirmed, the bank will transfer the funds. This ensures the payment will be made as long as the services are performed. A bank guarantee, like a line of credit, guarantees a sum of money to a beneficiary. Unlike a line of credit, the sum is only paid if the opposing party does not fulfil the stipulated obligations under the contract. This can be used to essentially insure a buyer or seller from loss or damage due to non performance by the other party in a contract.

LEF (Loan Equivalent Factor) For commercial loans, when granting a revolving line of credit, a bank usually provides a credit limit. A borrower obtains an immediate loan amount and the future availability of the total loan amount. Accordingly, the corresponding exposure for the bank has two parts: the outstanding balance (NB) and the current commitment (NE). The outstanding balance refers to the amount drawn by the obligor, while the current commitment includes drawn and undrawn portions that the bank has promised to lend to the borrower at his or her request. The probability of drawing the undrawn portion in the next 12 months is defined as the loan equivalency factor (LEF) off balance sheet. Since a probability always has values from 0 to 1, LEF is constrained into a range of 0 to 1.

Buyers Credit Raw Material A Raw Material Guarantee (an import credit guarantee) may be issued as security for a loan granted to a foreign borrower in connection with a long-term contract with an Indian buyer concerning import of raw materials (for example, concentrates for the basic metals industry).

While giving loans bank does the analysis of various parameters to check the risk associated with the repayment of loan. One of the major parameter is financial analysis where key ratios are analysed. In general the levels and risk associated with these key ratios are:

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Particulars

Formula

Low Risk

Medium Risk 1.20-1.40

High Risk <1.20

Current Ratio

Current Assets Current Liability

>1.40

TOL/TNW

Total Outstanding Liabilities Total Net Worth

<2.00

2.00-3.50

<3.50

Interest Coverage

EBITDA Interest & other finance charge

>3.50

2.00-3.50

<2.00

PAT/Sales % Inventory (N o. Of days)

(PAT/Sales)*100 Ending Inventory Cost of Goods Sold / 365

>10.00 <60

4.00-10.00 60-90

<4.00 >90

Debtors (No. of days)

Average Gross Receivables Annual Net Sales / 365

<45

45-90

>90

Debt-Equity Ratio

Total Debt Total Equity

<1.25

1.25-1.75

>1.75

DSCR ( For TL)

EBITDA Interest+Current maturities in long term debt

>2.00

1.25-2.00

<1.25

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SME LENDING AT ING VYSYA BANK

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CREDIT APPRAISAL PROCESS AT ING VYSYA BANK

1) 2) 3) 4) 5) Login of the credit file. To watch out that weather the case is doable or not. Preparation of the note. Appraisal by the risk department. Sanction letter.

STEP FIRST: LOGIN OF THE CREDIT FILE In this very first step, the marketing team of the bank gets the cases on the basis of their references and the data in their hand . After that the marketing team will hand over the case to the credit department along with the necessary documents for further process of the case. Following is the list of necessary documents required to log in a case. 1. Duly filled application form. 2. Audited financials of last three years. 3. Provisional financials of last year (if audited is not available) 4. Bank statement of last six months( through which bank A/c the firm does the maximum banking) 5. ITR (Income Tax Return) of Promoter/ Property owner. 6. Vintage proof. 7. Sanction letter of prevailing limit (if any). 8. CIBIL FORM Once all the documents are completed for log in .The case is shown in MIS as a log in by credit department.

STEP TWO: DECISION OF GO-NO-GO CRITERIA BY THE CREDIT DEPARTMENT Once all the login documents are completed the process of checking of do ability (GO/NO GO) is done. In this very step the dedupe checkup is to be done. In this dedupe checkup we do a check out whether there is any overdue or default on the borrower side or not. Once the dedupe checkup is clear the credit team prepare the finspred (software for analyzing the financials) for the case with the help of the audited financials .And also check out the track 39 | P a g e

record in the bank statement of client .We can check the track record with the help of the following things. 1. 2. 3. 4. 5. 6. 7. Counts of credit transactions Total amount of credit transactions (%of the ratio to turnover) Counts of debit transactions Total amount of debit transactions (%to the ratio of expenditure) Number of INWARD cheque returns Number of OUTWARD cheque returns Timely payment of EMIs and Interest.

After preparing the finspread on the basis of certain ratios and track record of bank statement the credit team decides that the case is doable or not. Following are the some of the main parts or ratios on which the bank gives more emphases while to judge that the case is doable or not. 1. LEVERAGE of the company must have the leverage of 6 according to the bank norms (i.e. TOL/TNW total outstanding liability, tangible net worth) 2. CURRENT RATIO of the company 3. MPBF (Maximum Permissible Bank Finance) 4. DSCR (debt security coverage ratio) in case of term loan 5. Profitability ratio (like gross profit margin, EBIDTA rate, PAT margin) 6. THIRD STEP: NOTE PREPARATION Once the case is to be approved as doable a set query is send to the marketing team for further movement of case or we can say for the preparation of note In the note the credit team summarizes up all the details of the borrower. NOTE WRITING INCLUDES THE FOLLOWING 1. Business background 2. Process of business. 3. Comment on financial statement of the company 4. Future plan of the company and comments on the projection. 5. Bank statement analysis 6. Promoters background 7. Market reference of the client 8. Industry scenario 9. Detailed terms & condition of the sanction including: 10. Type of limit to be sanctioned (fund based CC / OD/ TL/ PC/ WCDL etc & non fund based - LC/BG/For ex limit etc.) 11. Amount of Limit to be sanctions

40 | P a g e

12. Rate of interest (for fund based facility) and rate of commission (for non fund based facility) and processing fee 13. Detail of security (primary and collateral) 14. Detail of Personal guarantee. 15. Other terms & conditions as required. 16. And other information specific to case to case. Once the note is prepared the case is sent to the centralized risk management department (CRMD).the risk department is totally independent from credit department the credit department sent the prepared note to risk department to examine the proposal.

STEP FOUR: APPRAISAL BY THE RISK DEPARTMENT In this step the risk department scrutinizes the whole proposal and they bring out the observations, and send a list of query to the credit department. As and when credit department will get a list of query raised by the risk department they replies on the same with help of the marketing department start working on them to solve out the quires along with the help of marketing department. After solving all the observation the case s uploaded for sanction to the appropriate authority as per the delegation of power by the bank.

STEP FIVE: SANCTION After the uploading of the case, the case is presenting by the credit department along with marking department to the appropriate author for the sanction of the case. During the presentation of the case various observation are raised by the appropriate sanction author and on the basic of discussion, the authority decide to approve / reject or withdrawn for modification. If case is withdrawn for modification for the adding of some information or document. The credit department along with mark modifies the proposal as required by authority and again uploads the same and discuss with the authority to get it approved or rejected. Once the case got sanctioned minutes are generated. On the basis of minutes the CAL (Credit Agreement Letter) are prepared and issued to customer.

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CREDIT APPRAISAL PROCESS AT ING VYSYA BANK

The credit appraisal process at ING Vysya bank is considered very thorough and conservative the bank undertakes the above steps to complete the credit appraisal process.

1. Meet the client: The bank has appointed various Relationship managers( RM) and executives who find the clients with credit requirements for their business, if the RM are satisfied with the client and its expectation with the bank the case goes to the regional office for a complete check and evaluation. 2. Take KYC Documents& Application form: The RM after the first course of interaction with the client asks for the various document required to appraise the project. KYC documents as mentioned in the policy guidelines are Know your customer (KYC) the customer can be best known with his financials and other vintage proofs mentioned in the requirement list. 3. Initial Dedupe Check: This is better known as initial de-duplication checks in this the bank checks the credit reporting of the client whether he holds any over-dues etc. The bank also checks the client in RBI defaulter list. 4. Check the Banking: The first thing the bank checks is the banking of the existing limit account if any, the bank tries to check the existing performance of client with the other banks, and in case more number of inward returns due to in-sufficiency of funds. Then this is also a deviation and if there is over utilization of the limit on all the days then this calls for accountability by the client. 5. Audited financial test: The bank under takes a complete check of financials as mentioned in the requirements, these audited financials are put in finspread software of the bank and then projections are made on the basis of financials and then various profitability ratios are analyzed and the financial soundness of the company is analyzed. The financial viability of the company is checked on various parameters as mentioned. 6. Deviation check: The bank after checking the financial soundness of the company goes for the verification of the deviation check of policy compliance, if any in case of major deviations the case is presented in front of the zonal credit committee, their decision stands the final verdict on the approval f the case. 7. Internal Verification: The bank through its various sources makes a complete thorough investigation of the handling of business of the clients, this enables the bank to make sure that the client is not forging with the financials of the company. 8. Approval by ZCC: If the credit limit is below Rs5oo lakhs then the approval is sought by Zonal head of the business banking and if the amount exceeds the above stated

42 | P a g e

amount then the case is first discussed by ZCC and is then presented on ECC(electronic credit committee) depending upon the policy compliance failed by the client. 9. Decision on disbursal of loan: When the case is presented to risk department it analyses the variety of risk involved in the sanctioning of loan if it crosses the parameters then the possibility of disbursal of loan declines then the ZCC makes its final approval on the limits required by the client and the limit deserved by the client, the bank makes it final way to the approval of the loans. 10. Discussion between client &Bank on approval: The banks proposes its terms and conditions to the client and the amount of loan that is approved to the client at what rate of interest and what proportion of collateral is kept by the bank, when the client agrees on all these terms then only the case reaches the sanctioning stage.

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Whole of my internship can be divided into three stages. At stage one I worked on drawing power. This helped me to understand the significance of drawing power and method of its calculation. At stage two I did OPERATIONS. This stage is a very important part of banking as through this track banks real customer orientation is seen by doing fast and accurate work. Stage three of my internship is credit appraisal. All these stages are described below in detail:

Drawing Power Drawing Power tells us the monthly requirement of client having Cash Credit facility. For this stock statements are analyzed and checked to see whether the given creditors and debtors are in accordance with the details given by clients to the bank. The method used to calculate DP is: 1. We take monthly information of stock, Creditors and debtors from the client

2. We find the eligible debtors from the information given. This is found by calculating the number of debtors less than certain days, specified by the bank during approval of loan.

3. Then we find the DP on Debt by the formula: eligible Debt x (1- margin on debt)
4. Similarly we find value of paid stock by subtracting creditors from total stock. Once paid stock is found, we find DP on stock by the formula: Paid stock x (1-margin on stock)

5. Then we find total DP required by adding DP on stock and DP on Debt.

6. Then we subtract this total DP by the outstanding facility enjoyed by the client from other bank. This gives us net DP If the net DP is less than the limit given by us then the Available DP is equal to net DP, otherwise Available DP is equal to the credit limit given by IVBL.

44 | P a g e

Case (in lakhs) 300 Days 500 Days 300 Days 75 4 200 Days 60 153.68 253.506 -99.826 25% -74.87 249.48 90 Days 400 557.01 787.12 -230.11 25% -172.58 222.19 90 Days 1200 7 200 174.1 46.36 127.74 25% 5926.5 2303.67 3622.9 25% 2717.1 8 504.00 3234.5 4 1612 90 Days 90 Days 2699.8 8 1612 35% 25% 2024.9 1 1047.8 0 22.19 40% 13.31 249.48 25% 187.11 259.85 33.71 226.14 25% 169.61 257.8 90 9 Days 7 190.51 35% 123.83 1052.7 1071.48 -18.74 25% -14.06 1382.8 90 1155.5 35% 5 751.12 2258 2714 -456 25% -342 3249 90 2617 25% 1962.7 3 1620. 900 75 737.0 350. 7 00 293.4 0 4 112.2 0.00 4 159.2 7 4742. 250 09 0 1551. 400 80 0.00 424.91 241.19 183.72 25% 137.79 462.12 180 461.78 25% 346.34 484.1 0.00 484.1 3 720.7 5 387.0 7 293.4 4 112.2 4 159.2 7 2242. 09 1151. 80 154.08 0.00 154.08 25% 115.56 518.21 90 468.37 35% 304.44 420 0.00 O/s 420 s Stock n% Stock Dedt upto Debt Debt DP al n%

Limit

Stock

Creditor Paid

Margi DP on Total Valid Valid Margi

DP on Total Tot Net DP DP Availabl e 300.00

45 | P a g e
0

1.

2.

484.13

3.

300.00

4.

75.00

5.

200.00

6.

60.00

7.

0.00

8.

1200.0

9.

600.00

Credit Appraisal

What is the difference between fresh sanction and enhanced limits. For this we first make CAM, Credit Appraisal Memo. The purpose of this memo can be:

1. Fresh Proposal The proposal of the company which has approached the bank for the first time, i.e. which does not have any previous relationship with the bank.

2. Enhancement When a company is already enjoying one or more of the FB or NFB facilities from the bank and wants to increase the limit for the same then enhancement proposal is made.

3. Adhov Sometimes for a certain period the given limit is not sufficient for the company to meet its requirements. In such case Adhov limit, over and above the average sanction limit, is provided to the client. Adhov is provided for maximum 90 days.

4. Review If the client is new or the performance of the company as per projected is doubtful then a mid review date is decided while approving fresh/enhancement proposal. Is such case mostly the client asks for more limit as predicted by bank to fullfill its requirement. So post sanction conditions are put to the proposal, for example company has to maintain a turnover of 12 million and its TOL/TNW should not be more than 6. To monitor whether these conditions are meet review proposals are made before the end mid review month. The facility limit will remain same after sanction of review proposal only if all the condition are fulfilled.

5. Renewal If the client wants to keep the facility limit same as existing limit, renewal proposal is made before the end of existing facility.

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CAM include following informations:

I. Borrowers Background This include details about line of activity and end product of client, business process of the factory, promoters background, information about promoters share in the company and their experience, infrastructure details of the company i.e. name and address of factories/offices/godowns of the clients and information about the FB and NFB loan facilities enjoyed by the client from different banks.

II. Credit Base It includes future expansion plans of the firm, in case there is any major change in business process. Details regarding major customers and suppliers of the company, their contribution percentage, their contact person with contact number. Details about contact person of suppliers and customers are required to cross check the details about the company and their business.

III. Relationship/Business Rationale This includes details about relationship experience if the client is already having relationship with the bank. Business rationale include the estimates of the earning that the bank will get after the proposal is passed in the form of processing fee and gross interest.

IV. Financial Analysis of Client This includes the financial summary of the client for current year, audited details of previous year and projections for next year. In this financial summary some ratios are also included, they are TOL/TNW, inventory turnover, debtors turnover, creditors turnover and NP margin. This financial summary is used to analyse various parameters about the company and reason behind any major change in the company. The parameters that are analysed are turnover, profitability, leverage and liquidity of the company.

V. Risk Appraisal - Once the proposal comes we analyse the profile of the company to calculate the risk involved in giving the asked facility to it. The risk appraisal is done based on following risks:

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1. Business Risk and outlook - It covers Market Dynamics, Competitive Positioning, Supply Chain Management, Technological Development/ Obsolescence Risks, Dependence on Single Supplier, Dependence on single Buyer and Products are dependent on a Single industry. 2. Management Risk - It covers Management capabilities, Dependence on few individuals, Presence of professionals and succession plan. 3. Performance Risk - It covers Technical know-how, Raw material souring/availability, Product delivery capabilities and Competition comparatives - cost, product features. 4. Structure Risk - It covers Product Structure, Document structure and Process Structure. 5. Industry Sector Concentration - It concentrates over exposure to a Particular industry by the Bank. 6. Country Risk - It covers convertibility, bans/sanctions on the country, Currency Risk. 7. Environment Risk - It covers the risks arising out of dealing with hazardous materials, disposal of waste/effluent, Activities/Location dealing with social/environment issues. 8. Regulatory Risk - It covers compliance with statutory/Regulatory requirements, legal requirement and lending regulations. 9. ING Vysya Banks Reputation Risk - It covers Moral and Ethical issues and Social/Governance Issues. 10. Specific Purpose of Asset Collateral - It cover the risks arising out of assets put to specific usage and tailor made assets and the problems in disposal in case of need. 11. Financial Risks - It covers Operating Efficiency, Financial Stability and Cash Flows. 12. Transaction Risk - It covers Documentation Risk, Covers/Collateral Valuation Risk and Interest Rate Risk. 13. Any other Risk

VI. Take Out It covers both primary and secondary takeouts. It is the hypothecation and collateral securities kept by the company with the bank which can be taken by the bank in case of default.

VII. SWOT It includes the strength, weakness, opportunities and threat of the company.

VIII. Policy Deviation Deviation from credit policy is also checked for the clients. There are three parameters across which deviation is analysed and observed. They are deviation in credit policy financial parameters, deviation in policy other parameters and verification of defaulter list. (a) Deviation in Credit Policy Financial Parameters: The limits for the financial parameters

are decided by IVBL, across which deviation is to be calculated. Under this explanation /

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justification for considering the request despite deviation has to be mentioned along with the time frame within which the deviation has to be corrected and brought within the threshold level has to be mentioned. The parameters and its limits are:

Parameter

Median

Threshold

Actual as of last audited Remarks* B/s dated 31-03-XX

Minimum EBITDA/Net Sales Minimum Interest & Coverage other

0.03

0.02

Ratio 1.75 finance

1.50

(EBITDA/Interest charges) Minimum Current

Ratio

(Current 1.15

1.00
3.00

Assets/Current Liabilities) Maximum Debt Equity (Total interest 2.00 bearing Debt/TNW) Maximum TOL/TNW
3.50 4.50 1.25

Minimum DSCR (EBITDA/interest plus 1.40 current maturities in long term Debt)

*Here justification for considering with deviation is given. If the minimum value is above median then it is accepted, if its between median and threshold then also the deviation is considered but if the minimum value is less than threshold then the parameter fails.

(b) Deviation in Other Credit Policy Parameters: It includes exposure norms in unit and industry/sector, tenor norms for exposure & rating, regulatory restrictions, takeover norms, FEMA/FERA requirements and Sec 19(2) of Firm act. All these are supposed to be compiled with the proposal and if not compiled then time lines has to mentioned within which compliance will be done. This is important as it states various norms to be followed by the firm across which deviations are checked to insure that in future company would not be facing any legal issues related to these norms. This information also helps to understand the firm better and thus if any change occurs in future the bank would be in a better position to examine the risk associated with it and problems that bank could face in future.

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(c) Verification of Defaulters List: We also check for the promoters in the default lists and take out their cibil to check the credibility of the promoters. These defaulter lists are RBI Defaulters list, Wilful defaulters list, RBI Caution list, ECGC and Special Approval list. CIBIL Database is also checked.

IX. Highlights of credit investigation done It contains the summary of credit investigation report. CIR includes: - Observations made on statement of account of the client - Personal enquiries made with banks/financial institutions - Market opinion with customer of the client, creditors of the clients and independent sources. - Details about visit to factory/office - Information through any other source - Conclusion to credit investigation.

X. Compliance with statutory requirements

It includes confirmation that all IT/ST/ PF/ESI payments

have been made and there are no overdue and that all statutory approvals have been taken for conducting the business/ manufacturing activity

XI. Summary of conduct of the account It is done in case enhancement/review/renewal. It includes very short summary of Account performance and covered in detail in Account relationship and monitoring sheet. Summary of account performance include earning of bank from this relationship and detail about utilization of working capital limit. Utilization of working capital is found from MIS system of IVBL.

XII. Cover/Collaterals and covenants It includes details about primary cover, collaterals and net worth of the guarantees. This is done to insure that in case of default in repayment of facility, cover and collaterals provided by the firm to the bank are sufficient to overcome losses.

XIII. Risk rating/Risk-reward/Profitability Bank earns profit from the facilities given in the form of the gross interest and income through commission.

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Business Risk Status Parameter

customer.

51 | P a g e Clients Growth (1) well Excellent stablished and Industry/Business growing very fast, i.e. >20% (2) Strong growing fast, i.e. >10% annually (3) Good growing modest, i.e. >5% (4) Satisfactory growth (5) change/ price Adequate fluctuations are frequent (6) Marginal swings/ Hazardous (7) Industry in long term decline/ Unfavourable Vulnerable
bank, IVBR ( ING Vysya Base Rate), is the minimum interest rate that can be enjoyed by the Interest rate is decided at the time of approval of facilities. This interest rate varies from client to client depending on their credit rating and previous relationship with bank. Base Rate of the

Successful track record for more than Industry

25 years

annually Good track record for more than 15 Industry well eastablished and

years

Good track record for more than 10 Industry well established and

years

annually Good track record or more than 5 years Mature industry but with modest

Acceptable track record for more than Regulatory

3 years

Established for more than 3 years, Industry subject to wide cyclical

viability not yet proven/ stablished

Borrower is a start up venture

Financial Suppliers Customers Competitive Position

52 | P a g e term established suppliers. relationship with well Long term relationship with well Monopoly in Local Market established Customers. place. in place. comprtition customers. Dependant suppliers. business. suppliers. on one/ two share (>20% market share) large Client is one of the seeral large player with >10% market share Supplier- Less than 5% market share Buyer relationship is unimportant. to the Borrower is unimportant to the Losing suppliers. Supplier relationship is unstable. market share or facing cut throat competition Insignificant player compared to competition relationship is unimportant. is unimportant customers.

Current Ratio Long

Liquidity

Risk

> 2.0

Current Ratio Long term contract with customers is in Long term contract with suppliers is Local market leader. Weak

> 1.5

Current Ratio Borrower is very important to the Borrower is very important to the Client has significant market

> 1.33

Current Ratio Dependant on one/ two large customers.

> 1.20

Current Ratio Commodity business. Seller-Customer Commodity

> 1.0

Current Ratio Borrower

<1.0

Current Ratio Customer relationship is unstable.

<0.75

Management Risk DSCR Family History Integrity Leverage PBDIT/Sales Sales Growth

53 | P a g e Standing/ integrity. DSCR 3.0 integrant. DSCR 2.5 for DSCR 2.0 of DSCR 25% > PBDIT > Annual average TOL/TNW growth > 20% < 0.5 average TOL/TNW growth > 10% 20% > PBDIT > Annual 15% < 1.0 average TOL/TNW growth > 5% < 1.5 > PBDIT > No growth but TOL/TNW 10% DSCR 1.25 very stable sales > PBDIT > Sales 5% fluctuating > PBDIT < Sales 1.0 5% < PBDIT or evidence available 1.0 Negative < 2.0 widely TOL/TNW < 2.5 show TOL/TNW declining trend No sales history > 2.5 TOL/TNW > 4.0 Highly respectable. > PBDIT > Annual respected Members family. Prominent member operate integrity but, not yet tested community. No adverse report. 1.5 No No adverse reports. family. reports available.

Most prominent and respected Unquestionable

family with long history.

Highly respected closely knit Unquestionable

family with varied business and Highly respectable.

regarded Well inters. family with a long Generally cultural

history.

independentaly. established Well

Generally favourable reports.

Well

established

adverse reports.

Family history is short. First Not well known in market. No DSCR

generation. No adverse reports.

Known familt fueds. New rich Integrity suspect but no proof DSCR

with potential connections.

54 | P a g e Competence Management Management Commitment Financial Standing is Highly enlightened. competent, enterprising the only business. Most competent in business community. Enormous wealth. Insignificant debt. Strong liquidity. and Free assets > 200% gross liabilities. Good liquidity. Free assets > 100% liabilities. Satisfactory liquidity. knowledgeable. in finance/ administration. Fair liquidity. thinking. a minority activity. Average competence level. susceptible. Free assets negligible. Still has some capacity to borrow clean. Poor fund raising capacity in case of need. is

This

Unwavering commitment.

Strong commitment. This business is Highly

the main contributor.

Good commitment. This is one of Above Average competence.

the few main businesses.

This is one of the several activities. Good business sense, but perhaps weak Free assets > 50% gross Liabilities.

Commitment is adequate.

Level of commitment changing from Average competence. Lacks strategic Free assets available but liquidity is

year to year.

This

Commitment is unclear.

Management lacks commitment to Unproven competence.

this business.

55 | P a g e Succession Internal Controls management. Succession Employee Quality internal qualified member of family. issue. control All key position held by well Professional no employees at all level. step-in. with sound knowledge. succession plan. controls lacks motivation. employees, but One man show. His legal heir may be able to takeover. exist but Loyal and honest employees but No difficulty anticipant in succession. questionable loyalty. experienced. have will ensure continuity. little Succession may pose a problem if owner dies. competence and/or authority.

Excellent

system with frequent testing.

Good internal controls. Have Highly qualified and motivated Successor is already identified and ready to

stood the test of time.

Good internal control systems. Motivated and loyal employees Owner/s have well defined and practical

No major lapses so far.

Internal

largely untested.

Not formal internal controls. Motivated

Owners supervison strong.

Not formal internal controls. Employees are new and/or not One man show. But professional managers

Owners supervision average.

Minor lapses noticed due to Employees

the lack of internal controls.

extensions sought. Attitude to compliance is lax or New A few payments delayed upto

Frequent overdue but settled.

occasionally

record.

or

All major/ critical conditions are All payments are made on time.

record of payment. repayment Complies with all conditions and Good

Most payments are delayed for Chronic defaulter in compliance.

prepays

amount due. Excellent track

Repayment Record

Mostly settled within 30 days.

30 days or new relationships.

Occasionally prepays.

always

few days

Compliance Record

conditions can not be complied with. delayed for a

Strong commitment to compliance in Borrower

when Payments

The Commission earned by the bank depends on the type of proposal/facility. IVBL charges 0.5% on the renewal of the existing limit. While if it is a case of enhancement of limit or fresh proposal, 1% is charged on the limit provided.

Credit Risk Rating is an important part of Credit Appraisal as it determines the risk associated with the bank and thus profitability of the bank. To do credit risk rating we first calculate the credit risk which is further divided into three heads Business Risk, Financial Risk and Management Risk.

While calculating cumulative risk of the firm, we give marks to the firm on the basis of various parameters under each head and find risk in respective head. Once individual risks are found, we

56 | P a g e

Unsatisfactory compliance records.

letter and spirit.

complied with.

prior

approval

relationship.

covenants.

Seeks

more than 30 days.

are

do weighted summation to find the overall score of the firm based on which Credit Risk Rating is given to the firm.

Credit Risk rating varies from CRR1 to CRR7. The parameters are rated based on following condition:

After giving score to each parameter, risk rating is calculated for business risk, Financial risk and management risk. It is a average of all sub parameter under a particular group. The final score of the firm is the cumulative summation of all twenty parameters. On the basis of this cumulative score overall Credit Risk Rating of the firm is done as follows:

Total Score 1 2 3 4 5 6 7

Credit Risk Rating 20 to 29 30 to 49 50 to 69 70 to 89 90 to 109 110 to 129 130 to 140

Remark Excellent Strong Good Satisfactory Adequate Marginal Vulnerable

Credit Risk Rating of a firm is always done based on the details of latest available audited Balance Sheet and Profit & Loss statements.

XIV. Conclusion/Recommendation On the basis of analysis of above discussed parameters, it is decided by the author of the report whether it is beneficial for the bank to sanctioned the concerned facility limit to the client.

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CASE DETAILS ABC INDIA PVT. LTD

Application No. Borrower Name Banking arrangement Line of activity Constitution Sub-section for PSA Type of Exposure Approval Authority Limits valid till No of Policy deviations Credit Risk Rating Control Information 10/06/10 Application date ABC India Pvt. Ltd. Sole Standard Asset Classification Manufacturing of No Priority Sector Auto Dies Private Limited New customer Banking with IVBL company since Manufacturing Service Enterprise Micro Small Renewal Review Enhancement Fresh Ad hoc Others ZCC NA Last approval on 30.06.11 Mid review date (if any) None 1 NA Grmeoup N

Particulars

Remark
(Financial Information per last audited
accounts as on 31-Mar-10)

Industry/Business Status Clients History-Growth in

Industry well established more than 10 years

Turnover & Profitability Competitive Position

One of the several large players

Suppliers Customers

Depend on 2-3 large Borrower is very important to its clients suppliers

Liquidity Leverage [TOL/TNW]

0.74 2.04

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Sales Growth PBDIT/Sales DSCR Integrity Family Standing/History Financial Standing Management Competence Management Commitment Succession Employee Quality Internal Controls Repayment Record Compliance Record Business Risk Score Financial Risk Score Management Risk Score Total CRR EXPOSURE TO BORROWER AND CRR

Sales widely fluctuating >5% 3 Generally respected for integrity but not yet tested Well established family Good Liquidity Very competent Strong commitment. owner have well established succession plan Motivated employees good internal controls, no lapse so far New Relationship New Relationship

4.0 4.6 3.2 75 4

Exposure to Borrower/ Group and CRR Existing Borrower Exposure CRR Nil Group Nil Borrower 900.0 4 Proposed Group 900.0 4

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PURPOSE OF APPLICATION: i. Credit facilities recommended

Sl No

Nature of facility1

Existi ng Limit

1.

TERM LOAN

O/S as O/D Proposed limit3 2 if on any By Br/ By RM RO 500.0 500.0

TermsRoI, margin, tenor, usance period, commission details, etc) Existing Proposed 4.25 % below IVRR i.e.11.50%p.a. (Currently IVRR is at 15.75%) Margin: 25% Repayable in 60 monthly installments of Rs. 8.33lacs along with interest, starting from Jan 2011 onwards 4.25 % below IVRR i.e.11.50%p.a. (Currently IVRR is at 15.75%) Margin: 25% 0N STOCK AND BOOK DEBTS Commission: 1.2%p.a., Cash Margin: 20%, Tenor max 36 Months

2.

CC

200.0

200.0

3.

Bank Guarantee

200.0

200.0

Total

900.0

900.0

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FINANCIAL ANALYSIS OF CLIENT Particulars Previous Year Previous Actual (2007) Year Actual (2008) 1,994.45 913.85 166.39 225.93 78.68 76.99 117.64 136.43 6.64 3.98 -36.58 8.53 873.45 881.98 0.00 0.00 last year Provisional Projected audited (2010) (2011) (2009) 1,664.89 279.09 90.90 147.86 4.93 35.41 923.57 0.00 1,530.98 349.88 65.65 153.67 0.00 130.56 1,087.96 0.00 2,194.00 592.00 95.00 250.00 74.10 172.90 1,260.86 0.00

1) Sales 2) PBDIT 3) Interest 4) Depreciation 5) Taxes 6) PAT 7) Capital 8) Unsecured Loans 9) Loans from Other/Our Banks a) Term Loans

558.46

453.75 650.00

495.24 650.00

1,026.85 450.00

1,487.76 600.00

b) OD/CC 10) Current Lia. 11) Non Current Liabilities 12) Fixed Assets 13) Current Assets a) Stocks b) Debtors c) Cash & Bank Bal. In current a/cs 14) Non CA 15) Current Ratio 17) TOL/TNW (without USL) (With USL) 18) Inventory Turnover 19) Debtors Turnover 20) Creditors Turnover 21) NP margin 22) EBIDTA Margin 61 | P a g e

653.43

1,465.11 557.78 1,667.78 1,102.61 524.95 497.93 51.56 125.96 0.75 2.32 2.32 130 91 34 -1.8
9.1%

1,804.32 451.76 1,630.68 1,446.62 873.76 410.95 51.97 60.77 0.80 2.56 2.56 1163 164 120 0.9
24.7%

1,387.34 493.25 1,595.96 1,043.20 441.90 327.05 133.16 165.78 0.75 2.04 2.04 167 72 171 2.13
16.8%

1,262.16 1,012.76 2,084.03 1,203.33 896.74 99.08 139.73 74.94 0.95 2.09 2.09 432 24 194 8.53
23.1%

1,481.00 1,387.76 2,508.83 1,549.84 974.00 225.00 110.00 70.46 1.05 2.28 2.28 305 37 110 7.88
27.0%

23) Gross Profit 24) Debt Equity 25) DSCR

26% 1.39 2.32

70% 1.25 2.91

42% 1.24 3.00

50% 1.36 5.23

47% 1.66 5.43

Turnover: The Turnover of the company has shown fluctuating trend in past few years. It was at Rs. 1994.45 lacs in FY07, which decreased by 54% to Rs. 913.85 lacs in FY08. Then in FY09 the turnover has increased by 82% to Rs. 1664.90 lacs. The increase in turnover of the company is increased due to complete makeover of the work culture at the shop floor by adopting top to bottom and bottom to top managerial systems. The company has worked on 209 small and big dies /fixtures/DBO tools as compared to 191 small and big dies /fixtures/DBO tools during last year. The reason for decline in sales during 2007-08 was mainly due to increase in inventory as at March 31, 2008 as compared to inventory as at March 31, 2007 which could not be billed even though the Dies were ready. The delay in billing is sometimes due to request received from the customer also, if there is delay in launch of new model or new variant of the vehicle at their end. The major jump in turnover during 2006-07 was due to complete outsourcing of dies from Thailand and Pune for some orders received from customers, however, due to quality problems in those outsourced dies, this practice was totally discontinued in subsequent years. The additional work required to be done in house on those outsourced dies caused the loss incurred during 2006-07. Similarly, the decline in sales during 2009-10 was also due to increase in inventory as at March 31, 2010 as compared to inventory as at March 31, 2009 which could not be billed even though the Dies were ready. In provisional year 2010 the same has been decreased marginally by 8% to Rs. 1530.98 lacs due to the tough economic condition Further the same has been projected at Rs. 2194.0 lacs for FY11 and at Rs. 3500.0 lacs for FY12. As stated above, the company is into manufacturing of sheet metal dies, from 2012 onwards the company will be producing proto dies, welding jigs, stamping compone NTS.

62 | P a g e

Sales bifurcation for sales of dies and sales of proto, jigs and welding fixtures: Particular 2011 Sales of Dies 2194.0 Sales of proto, jigs and welding fixtures Total 2194.0 2012 2300.0 1200.0 3500.0 2013 2415.0 1500.0 3915.0 2014 2550.0 1875.0 4425.0 2015 2800.0 2062.50 4862.50

Last 12 Months quarterly sales for FY10 is as follows: Month

Ist quarter

Sales in Rs Lacs 445.0 550.0 310.0 226.0 1531.0

2 quarter 3rd quarter 4th quarter Total

Profitability:

nd

EBIDTA margins of the company also following the fluctuating trend. It was at 25% in FY08, which decreased to 17% in FY09 due to fluctuation in COGS and sales and admin expense. In provisional year 2010 EBIDTA margins increased to 23% due to decrease in COGS from 57% to 49%. In order to reduce cost of productions the company has obtained 700 KVA electricity connections from Dakshin Haryana Bijli Vitran Nigam Ltd. The company has been able to save rupees 10.54 lacs during first four month of current year. Further the same has been projected at 26% for FY11 and at 23% for FY12.

Net profit is increasing year on year, it was at 0.9% in FY08, which increased to 2.15 in FY09 Variation in Profit after tax from year to year is due to varied mark ups given by the different customers on the orders received. The dies manufactured for different customers are also different from each other as the complexity of each die varies. Further till 2008-09 any change in price of diesel had affected the profitability as the plant was being run on self generated power through generators. Moreover, the varied percentage in annual salary review also causes variation in Profit. It is submitted that during 2009-10, the profitability has increased mainly due 63 | P a g e

to two reasons. Firstly, the company got an electricity connection of 700 KVA from Haryana Government because of which the electricity and fuel cost has gone down from Rs. 80.21 lacs to Rs. 48.20 lacs as appearing in schedule of Manufacturing Expenses. Secondly, during 2009-10, Rs. 200 lacs out of total credit facilities from Mizuho Corporate Bank were converted from Working Capital Demand Loan to Cash Credit. This has enabled the company to save interest, as during major part of the year, the cash credit facility was not fully utilized. The finance cost had gone down from Rs. 90.90 lacs to Rs. 65.65 lacs during 2009-10. Further interest cost is projected at Rs. 95.0 lacs for FY11 as almost 3 months gone in this financial years and the disbursement will also take another 1-2 months and will be in phases, hence we took the interest at Rs. 95.0 lacs in FY11 and further proposed at Rs. 130.0 lacs for FY12.

Further the same has been projected at 7.3% for FY11 and further on projected around 7.5%.

Leverage: TNW of the company comprises of share capital, reserve and surplus. TOL of the company comprises of sundry creditors, working capital bank finance and short-term loan from banks and financial institutions. The TOL/TNW of the company is at comfortable level in all the years. It was at 2.04 for FY09

and at 2.09 for FY10. Further the same has been projected at same levels for next years.

Liquidity: Current assets of the company comprises of inventory, debtors and cash & bank balance. Current liabilities of the company comprises of sundry creditors and working capital bank finance and other term liabilities.

The current ratio of the company is on lower side. It was at 0.58 in FY09 and at 0.98 in FY10 and the same has been projected at 1.05 for FY11.

As explained earlier that the reason of carrying high value of inventory is some times due to delay in accepting the dies by customers, which are ready for billing. Further, when the company 64 | P a g e

is executing orders worth about Rs. 20-25 lacs, then inventory of semi finished dies at different stages of completion is bound to add to high value of inventory. None of the inventory is waste inventory. Stock Debtor creditor position of last 3 months is as follows MONTH Jan 2010 Feb 2010 Stock 632.53 768.96 Debtors 431.95 353.52 Creditors 656.92 773.55

2.

RISK APPRAISAL

i.

Business Risk and Future Outlook The business risk is mainly from competitors there are lots 7-8 players in the segment. But the advantage the Nagata has is that Group has a vast experience in the field of almost three decade and has the technical competency and good relationship with its customers. Further it enjoys a good reputation in market with proven track of providing desired quality and quantity. ii. Management Risk Both Japanese and Indian directors have good competence and required know how to manage the company. iii. Performance Risk The company has requisite technical knowhow acquired over a period of time and has the required knowledge required to manufacture the dies one of the key success ingredient in the industry. Structure Risk The customer shall be mainly offered with cash credit, term Loan, Bank Guarantee, It does not entail any structural risk

iv.

v. Industry Sector Concentration

There is no major exposure on the same sector in North India.

vi. Country Risk The company is dealing with customers in local market and as such doesnt entail any 65 | P a g e

country risk. Parent company is in Japan, which is a very stable country vii. Environmental Risk The company is into manufacturing of sheet metal dies and as such doesnt entail any environmental risk. viii. Regulatory Risk The company complies with all significant statutory and regulatory requirements and no risk is associated with the same. ix. ING Vysya Banks Reputation Risk There are no risks associated with the moral or ethical issues. No risk is envisaged with the lending. x. Specific Purpose of Asset Collateral We are taking Prime Industrial property in Manesar used for manufacturing purpose thus no risk is associated with the same. xi. Financial Risk The customer has been into the same business for 10 years and has developed his clientele over years and has been getting repeated orders from the same customers. Further, the business has been increasing year on year and now the company has built a reputation amongst its customers. xii. Transaction Risk Documentation risk: All documentation as advised shall be carried on and no documentation risk is envisaged. Covers/Collateral valuation Risk: empanelled valuer shall value The collateral and thus no risk is envisaged with regard to the same. Interest Rate Risk: The rate of interest is a floating rate linked with IVRR and thus shall be taken care of. xiii. Any Other Risk The business does not entail any other risks.

3.

TAKE OUT Primary: - Companies all past and future current assets. Secondary: - Industrial property in Manesar

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4.

SWOT

Strength: The strength of company is Good knowledge and experience in the field. Established existing loyal customer base developed with relationship of several decades. Strong backing of parent company in Japan. Presently all car manufacturers are frequently launching new models or are modifying the existing ones, therefore, the requirement of new dies is increasing. Weakness: Dependency on auto industry. Opportunity: Auto industry has shown good growth in India. Further the prototype designing is also picking up. Threat: Major threat in the segment is competition as there are many players in the segment and the retention of customer is a tough ask. But keeping in mind the experience of the company and relationship it has with customer it has been able to retain its share and grow steadily.

5.

POLICY DEVIATION:

There is only 1 policy deviation in the proposal: Current Ratio: It was at 0.75 in FY09, which improved to 0.95 in FY10 and further projected at 1.02 for FY11. 6. HIGHLIGHTS OF CREDIT INVESTIGATION CONDUCTED:

The market references of the company are good. 7. COMPLIANCE WITH STATUTORY REQUIREMENTS

67 | P a g e

As per the last audited financial statements, all IT/ST/ PF/ESI payments have been made and there are no overdue and that all statutory approvals have been taken for conducting the business/ manufacturing activity. 8. SUMMARY OF THE CONDUCT OF ACCOUNT We have verified the bank statements of the company for last 6 months and have found the conduct of the account to be good.

9.

COVER / COLLATERALS AND COVENANTS

i. Primary Pari passu charge on the entire current assets of the company.
First charge on fixed assets created by the proposed term loan

ii. Collaterals Land Present Proposed Nil Building Machinery Nil Nil Others Nil Total Nil Cover % Nil 144%

Rs.1300.0lakhs

iii. NW of Guarantors - Personal / Corporate guarantees: Promoters Present Proposed Nil Other persons Nil Corporate / Group concerns Nil Nil Total

iv. Specific covenants if any: Equitable mortgage on the property shall be created prior to disbursement. However, the valuation and title search shall be done prior to disbursement. Permission to maintain one current account with any other banker for payment of taxes, statutory dues and petty cash expenses to be granted. Pari passu letters is to exchange with existing bankers within 30 days of disbursement Comfort letter for limits being extended to be obtained from parent company 68 | P a g e

10. RISK RATING/RISK-REWARD/PROFITABILITY

a. Risk Rating Risk rating As of 31.03.09 CRR4 Previous rating NA

b. Rewards / Profitability Gross Interest Revenue projected last year Actual last year Revenue projected current 9000000 year Actual Current year YTD Other benefits including FTP from deposits Commission Other charges Total

200000

500000

9700000

11. SUMMARY OF ASSESSMENT: The company is having good goodwill in market and in customers as well as the company has shown good performance Inspite of turbulent market. The promoter Directors of the company has the ability to manage the business and same has been depicted by the growth of the business, thus with the increase in the business, its working capital requirements is also increasing. Further with the growing market and order position the expansion is also justified.

12. CONCLUSION/RECOMMENDATION In view of the submissions above, the proposed limits are recommended.

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RESULT & DISCUSSION

This project helped me to understand credit management. My mentors provided me enough opportunities to get real time experiences of different stages of credit management. I worked in detail on monitoring and credit appraisal. I also learn what is drawing power, its significance and how to decide the drawing power of the clients. I worked extensively on Credit Appraisal. Through credit appraisal I learned the procedure to make credit appraisal memo and details about the documents required to do the same. This gave me the opportunity to know the guidelines set up by ING Vysya for making CAM. I got to know the verification methods for cross checking information that is given by the client. Through Financial Analysis under CAM, I have done the practical implementation of the financial knowledge given to me at my college, JIMS. I also got the opportunity to do a unit visit with Mr. SUMIT KHARI and ASEEM ANAND to visit the factory of new client. This visit was made before preparing credit appraisal memo for the client. This visit helped me to understand the importance of unit visits, what all things has to enquired to check the authenticity of the information given by client and what all documents are required for credit appraisal.

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BIBLIOGRAPHY

Books :
R.P. Rustagi, Financial Management I M Pandey, Financial Management

Journals : Annual Reports of ABC INDIA PRIVATE LIMITED. ING circulars.

WEBSITES: http://www.wikipedia.com http://www.investorwords.com http://www.ing.in http://www.economictimes.indiatimes.com http://www.investopedia.com

Newspapers : The Economic Times Mint

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