BNK 601: Credit Evaluation and Analysis

BNK 601 Credit Evaluation and Analysis Course curriculum and Session Plan Academic Year: 2013

MBA (Finance and Banking),

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BNK 601: Credit Evaluation and Analysis

Course!in! c'arge Contact (n)or%ation* Course (nstructor(s)* () any Course +rere,uisites (i) ay) Evaluation -c'e%e

Pro$% S&erna' Bod&an(ala S&erna'%!od&an(ala)niituniversity%in Pro$% *ano&ar Sin#&

Kno(led#e a!out !an+in# ,roducts" $inance and accountin# Class Partici,ationPro/ect 0 1ndustry analysis re,ort and assessment o$ t&e (or+in# ca,ital cycle o$ ,articular industry Pro/ect 0 Credit 3e,ort4Note 56iva720.8 10 . 20 . 90 .

+edagogic tools

Case studies" ,o(er ,oint ,resentations" :iscussion" *s7E;cel" :ata!ases7 Ca,italine" C*1E" etc" use o$ internet" :iscussion on various annual re,orts

- 18 <&e students =uali$y $or class ,artici,ation com,onent (&en t&eir attendance is more t&an >0.% Any attendance !elo( s&all dis=uali$y t&em $or t&is com,onent o$ evaluation%

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BNK 601: Credit Evaluation and Analysis

Course :escri,tion <&is course (ill ,rovide a com,re&ensive $rame(or+ $or underta+in# cor,orate credit analysis" demonstrate an understandin# o$ t&e relations&i, !et(een $inancial and non7 $inancial $actors in t&e credit analysis ,rocess" identi$y and evaluate +ey $inancial ,er$ormance indicators" de$ine li=uidity and s&o( &o( it can !e measured% <&e course (ill involve analy'in# !ot& =uantitative and =ualitative as,ects o$ various economic" !usiness and $inancial $actors t&at a$$ect cor,orate credit =uality% <&e course (ill also !rie$ly deal (it& de!t servicin# a!ility" de$ault and recovery% ?earnin# utcomes

@,on com,letin# t&is course t&e students (ill !e a!le to: @nderstand t&e $rame(or+ o$ credit analysis Analy'e &ealt& o$ t&e com,any !ased on its !usiness ris+ and $inancial statements !y usin# various ratios" trends" li=uidity" #earin# and ot&er =ualitative $actors Assessment o$ t&e (or+in# ca,ital re=uirements and limits o$ t&e com,any usin# C*A $ormat and ot&er met&ods Arite a detailed credit re,ort usin# 1C1C1 !an+ credit a,,raisal re,ort $ormat Session Plan Sessi on No% 172 Su!7 sessi on 1 :at e <o,ics ?earnin# utcome s Peda#o# y Pre readin#s4 Case Study

As ,er

1ntroduction to @ndersta Credit analysis" nd t&e conce,t o$

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Presentat ion"

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BNK 601: Credit Evaluation and Analysis

t&e tim e ta!l e 2 77B77

levera#e

credit 1nstructio a,,raisal n and ,rocess class discussio n 777B777

overvie( o$ credit a,,raisal ,rocess" im,ortance o$ credit analysis" event o$ de$ault Cualitative analysis o$ a cor,orate !usiness ris+7 @ndersta nd t&e macro economi c D*acro scenario economic $actors t&at a$$ectin# im,act !usiness" t&e Eovernment !usiness ,olicy measures7 intervention and re#ulation" Soverei#n ris+" analy'in# t&e leadin# economic indicators

#!6

77B77

Presentat ion" discussio n and e;cel model

Plannin# commissi on re,ort7 Five year ,lan" 3B1 re,orts

.!/

77B77

1ndustry Analysis Frame(o 777B777 r+ to understa nd t&e

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<e;t 7 FCCA

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BNK 601: Credit Evaluation and Analysis

industry ris+s and ,ros,ect s 6 77B77 Business Analysis7 analy'in# +ey revenue drivers and !usiness strate#y" SA < analysis $or t&e com,any in select industry" (ners&i, and *ana#ement strate#y and ,er$ormance" o(ners&i, su,,ort" demand7su,,ly outloo+ Cor,orate Fundin# strate#ies:7 Aor+in# ca,ital cycle and assessment o$ cas& conversion cycle o$ various industries Fund !ased credits 7 S&ort7 term vs% ?on#7 term $unds
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Gel,s in 777B777 identi$yin # t&e !usiness ris+ and stren#t&s o$ t&e com,any under covera#e

<e;t7 FCCA

0!11

0,2

77B77

CCC

777B777

Case on calculatin # CCC o$ a com,any%

@ndersta nd Ban+in# ,roducts

1nstructio 777B777 n" :iscussio n

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BNK 601: Credit Evaluation and Analysis

related to Aor+in# Ca,ital !orro(in #s 10 77B77 Non7$und credits !ased 777B777 777B777 77B77

11

77B77

Classi$ication o$ current assets and current lia!ilities $or calculation o$ !an+ $inance 7Focus on 3evised Sc&edule 61 and C*A related c&an#es Assessment o$ AC limits usin# *a;imum Permissi!le Ban+ Finance *et&od and carve outs

@ndersta 777B777 nd &o( items o$ ,ro$it and loss account and Balance s&eet are classi$ied Kno(led #e a!out t&e assessm ent o$ limits 777B777

3evised Sc&edule d 61 and te;t !y :%:% *u+&er/e e

1",1 #

77B77

<andon and C&ore committe e recomme ndations" Case and e;cel !ased assi#nme nt

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BNK 601: Credit Evaluation and Analysis

1.

Cas& !ud#et 777B777 met&od and <urnover met&od o$ assessin# limits

777B777

Case study" E;cel !ased assi#nme nt 3B1 Circulars

1/,1 6

3B17 *aster Kno(led Circular 0 ?oans #e o$ and Advances ,rovision s re#ardin # 3B1 *aster Circulars 77B77 3B1 Circular on ECB and Euarantees and Co7acce,tances Pre,arin# Credit *onitorin# data $ormat alon# (it& ,ro/ections 777B777

777B777

10

777B777

777B777

12! "/

12! "#

77B77

E;cel !ased e;ercise to develo, 7 Financial @ndersta C*A Statement $ormat Analysis 0 nd 32 Key credit ,aramet $or ratio ers used various analysis !y 17!an+ com,ani 5levera#e es ratios" covera#e ratios" li=uidity" cas& conversion

A!ility to ,re,are C*A

Annual re,orts" 3atio Analysis c&a,ter $rom :%:% *u+&er/e e" <B17 c&a,ter 2" Ban+Hs 32 ,aramete rs

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BNK 601: Credit Evaluation and Analysis

".! "/

77B77

cycle" ,ro$ita!ility ratios" asset turnover ratios 7 <rend analysis 7 Peer com,arison ?i=uidity Analysis 7 Study o$ a!ility to re,ay de!t7 :e$ine li=uidity" sources o$ $unds 0 internal vs% e;ternal" committed !an+ lines :ecom,ose cas& $lo( statement 0 ,eratin# cas& $lo(s" investin# cas& $lo(s and $inancin# cas& $lo(s Conce,t o$ Free Cas& $lo( and its synonym EB1<:A 0 FCF" ca,ital s,endin# $le;i!ility" ,arental su,,ort" dividend ,olicy

A!ility to E;cel" ,re,are 1nstructio and n discern t&e cas& $lo( #enerati n# a!ility o$ t&e com,any

3e$er to concerne d c&a,ter $rom :%:% *u+&er/e e

"6

:e!t Pre,arati Amorti'ation on o$ ,ro$ile4sc&edule cas& $lo( 0 :e!t

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E;ercise on Cas&7 $lo(

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BNK 601: Credit Evaluation and Analysis

re,ayment 0 statemen Bullet vs% ts as ,er Amorti'in# AS73 as maturity (ell as 7 *atc&in# li=uidity to usin# 1C1C1 de!t $ormat re,ayment sc&edule and inter,ret and $orecast t&e cas& $lo(s "0! "1 77B77 Credit Note 7 17Ban+ $ormat o$ Credit Note 7 Anne;ure 7 :ocumentatio n @ndersta nd t&e 17 !an+ Note (ritin# $ormat and develo, s+ills o$ lo#ical re,ort (ritin#

statemen t I de!t maturity sc&edule

17!an+ Credit credit note note $ormat" 1nstructio n" class discussio n

#0

Post sanction @ndersta monitorin# nd ,ost ,rocess sanction ,rocess

Study o$ TB1-chapter di$$erent 15 $orms" Presentat ion

$e3t Book(s)
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BNK 601: Credit Evaluation and Analysis

1% Go( to Borro( $rom !an+s and $inancial institutions !y <%3% 3amamurt&y 5B&arat ?a( Gouse Pvt% ltd87<B1 2% Credit a,,raisal" ris+ analysis and decision ma+in# 0 an inte#rated a,,roac& to on and o$$ !alance s&eet lendin# !y :% :% *u+&er/ee 56t& revised edition7Sno( (&ite ,u!lication87<B2 3% Fundamental o$ Cor,orate Credit Analysis !y Blaise Ean#uin and Jo&n Bilardello 5Standard and ,oorHs87<B3 4e)erence Books 15 6o7 to Borro7 )ro% Banking and Financial institutions81.t' edition (Na9'i :u9lication) "5 Bankers; <ending $ec'ni,ues!"nd edition 9y C N 4ouse #5 =orking ca:ital %anage%ent > strategies and tec'ni,ues 9y 6ris'ikes B'attac'arya .5 <earning %odule )ro% (C(C( 9ank on =orking Ca:ital /5 Additional reading %aterial to 9e :rovided on certain to:ics 4u9rics 3u!rics $or ,ro/ect evaluation
Sr% no% 1% 2% Parameters Follo( t&e 17Ban+ conventions Financial *odel E;,lanation 3e$er to t&e 1C1C1 Ban+s credit note (ritin# rules i%e% $ollo( t&e #uidelines $or $ont" s,acin#" ali#nment etc 7 @se C*A data $ormat" Forecast s&ould !e !ased on lo#ical assum,tions a$ter t&orou#& sector study and com,any +no(led#e 7 :ata accuracy 7 Avoid any calculation errors" ,ut reasona!le c&ec+s in t&e model 7 Clearly e;,lain all assum,tions in t&e

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BNK 601: Credit Evaluation and Analysis

3%

Credit Note

model as B3emar+sK 7 @se t&e !an+Hs credit note $ormat version #iven to you in t&e class% :onHt use t&e ori#inal $ormat (it& !an+Hs lo#o 7 Start (ritin# t&e re,ort only a$ter ,ro,er researc& and analysis &as !een done and a$ter &avin# $irm vie( a!out t&e ,ro,osal 7 Arite meanin#$ul ar#uments clearly and concisely 7 r#ani'e t&e in$ormation in a lo#ical (ay 5lo#ic and structure 7 lo#ical ,ro#ression o$ t&e idea8 7 Gi#&li#&t +ey issues 0 1ndustry ris+s" !usiness ris+" mana#ement ris+" $inancial ris+" structure ris+% Also &ave an o,inion a!out t&e miti#ants and t&eir e$$icacy 7 Sources o$ in$ormation s&ould !e ,ro,erly cited% Pla#iarism (ill not !e tolerated 7Avoid $actual errors 7 Num!ers e;,lained in t&e re,ort s&ould matc& (it& t&e Fin ta!le and model 7 No s,ellin#" $ormattin# or #rammatical errors% :o not construct very len#t&y and con$usin# sentences% 7 Assess t&e ,ro,osal and recommend (it& ,ro,er reasonin#

+lagiaris% Ae are committed to u,&oldin# standards o$ academic inte#rity and &onesty% Pla#iarism in any $orm is unacce,ta!le and (ill !e treated seriously Make u: +olicy <&ere (onHt !e any ma+e7u, $or any assessment com,onent missed !y t&e student unless it &as !een missed due to any medical emer#ency or any tra#ic event connected (it& immediate $amily mem!er5s8% 1deally" t&e student s&ould re=uest
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BNK 601: Credit Evaluation and Analysis

t&e Course7in7c&ar#e t&rou#& email !e$ore t&e assessment com,onent is &eld !ut in case t&is is not ,ossi!le" t&e re=uest s&ould !e sent (it&in 29 &ours o$ t&e assessment com,onent !ein# &eld% 1n addition" t&e student (ould !e re=uired to su!mit all su,,ortin# documents suc& as medical re,orts" ,rescri,tions" recei,ts etc as+ed $or !y t&e Course7in7c&ar#e% 1n case o$ sur,rise =ui''es and ,ro/ects t&ere is no ,rovision $or ma+e7u,% <&e #rant o$ ma+e7u, (ill !e com,letely at t&e discretion o$ t&e Course7in7 c&ar#e and &is4&er decision (ill !e $inal and canLt !e c&allen#ed% Consultation 6ours <&e students can meet t&e Course7in7c&ar#e on maters related to t&e course !ein# tau#&t on all days &e is availa!le on cam,us a$ter ta+in# ,rior a,,ointment t&rou#& email% 1nstead o$ ,ersonal meetin#s" t&ey can also re=uest res,onses only t&rou#& emails% P&one calls s&ould !e avoided e;ce,t in cases o$ emer#ency% Course7in7c&ar#e (ill try to res,ond to t&e !est o$ &is a!ility% ?rading +olicy A com,osite score (ill !e ,re,ared a$ter consolidatin# t&e mar+s o!tained in all assessment com,onents and t&e com,osite score (ill !e converted to letter #rades" vi'% A" B" C" : and E as ,er university ,olicy% <&e #radin# system $ollo(ed is 3elative Eradin# and normally it is centered around t&e mean%

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