Case Studies

Assessment of Working Capital /Cash Credit Facility/Term

Loan

M/S Quality Crafts Store

M/S Quality Crafts Store Proprietor Mr. Shah Alam Mateen 256-D 1st floor, Green Towers,
established in the year 2002, is engaged in retail business of Kashmiri shawls particularly
trading of Pashmina and woolen shawls and allied items. The party has been in connection
with and dealing with the J&K Bank Lajpat Nagar branch since year 2006 with satisfactory
dealings and good conduct. The turnover of account is encouraging. The party has established
good trade connections and is involved in related trade. No negative complaints has been
registered or found against the party ever since the opening of account with the bank branch.
The amount is frequently routed through the account and the performance of account is good.

Borrower’s Information

Name of Applicant Borrower : Mr. Shah Alam Mateen

Address of the Head/Regd. Office : 256-D 1st floor, Green Towers
Constitution : Individual
Date of Establishment : Year 2002
Period since dealing with branch : Year 2006
Net worth as on 31.10.2007 : Rs. 9.00 lacs

General Information of the Proposal

Existing Banking Arrangements : Sole Banking

Proposed Banking Arrangements : Sole Banking
Sanction Comes Under Powers of : Branch Head
Activity : Trading of Pashmina, woolen
shawls etc.
Sector : Trading
Present Facilities by the Applicant : Nil
Facility Requested by the Applicant : Cash Credit
Purpose of Borrowing : For Expansion of Existing Business
Amount Requested : Rs. 5.00 Lacs.

Securities Proposed for the Facility

Primary Security
Hypothecation of stocks and Book Debts

Collateral Security
Third Party Guarantee of two persons:
1. Mr. Azam Ahmad S/o Mr. Naseeruddin Ahamad
 2. Mr Shoeb Tak S/o Mr. Younis Tak

Both the guarantors are dealing with the J&K Bank Branches. As reported Both are availing
cash credit facility with their respective branches and with a satisfactory performance.

Financials of the Firm (Amt. in Rs. Lacs)

Particulars 31/03/2007 31/03/2008

Projected
Sales 6.12 19.00
Purchases 4.12 17.53
% of Sales Growth 325.00
Net Profit 1.42 2.23

Liabilities

Share Capital 2.64 3.30

Total Term Liabilities 2.64 3.30

Current Liabilities

Working Capital 0.00 8.00

Sundry Creditors 0.38 1.20
Expenses Payable 0.23 0.65
 Borrowings 0.00 0.00
Other liabilities 0.00 0.00

Total Current Liabilities 0.61 9.85

Tolal Liabilities 3.25 13.15

Assets

Investments 0.00 0.00

Fixed Assets 0.24 0.72
Total Fixed Assets 0.24 0.72

Current Assets

Stocks 1.24 8.50

Sundry Debtors 0.52 3.16
Cash in hand/Bank Balance 1.25 0.77
Loans/Advances 0.00 0.00

Total Current Assets 3.01 12.43

Total Assets 3.25 13.15

Financial Indicators
Particulars 31/03/2007 31/03/2008
Net Working Capital (In Rs. Lacs) 2.40 2.58
Current Ratio 4.93 1.26
Stocking Velocity ( Days) 108 175
Debtors Velocity (Days) 31 60
Creditors Velocity (Days) 33 25

Apart from the above financials of the party, the account statement reveals the following
transactions of the party with the Bank Branch (Amt. in Rs. Lacs) :

Debit Summation Credit Summation

From 01/04/2006 to 31/03/2007 (1 year) 6.52 6.50
From 01/04/2007 to 31/10/2007 (7 months) 11.62 11.10

Comments and Observations:

Financial Indicators has been calculated as follows:

a) Net Working Capital: Total Current Assets less Total Current Liabilities.
b) Current Ratio: Total Current Assets divided by Total Current Liablities.
c) Stocking Velocity: Stock for the year divided by Cost of Goods Sold or Credit
Purchase during the year multiplied by 360 days.
d) Debtors Velocity: Average Receivables or Debtors for the year divided by Credit
Sales during the year multiplied by 360 days.
e) Creditors Velocity: Average Payables or Creditors for the year divided by Credit
Purchase during the year multiplied by 360 days.
Other Comments and observations:
f) The party has projected to achieve a sales target of Rs. 19.00 Lacs over previous year
achievement of Rs. 6.12 Lacs. The projected sales target seems to be achievable
owing to the fact that up to 31/10/2007 (7 months) the party has a sales turnover of
Rs. 11.62 lacs through the account.
g) Stock Velocity reveals the part of sales always invested in stock during the year or in
other words it refers to the period of sales sans obstacles out of the current stock in
case the production halts due to strike or other reason.
The stocking period of 175 days is on higher side hence its been accepted at 90 days
level.
h) Debtors Velocity reveals the duration within the debtors are expected to be realized.
The projected debtors’ period seems reasonable hence accepted for assessment as
projected.
i) Creditors Velocity reveals the duration within the creditors are expected to be paid.
Lesser the days better is the position of the firm. The projected creditors velocity is at
a lower level, keeping the kind of stocks in trade into consideration, the velocity has
been accepted at 50 days level.

Assessment of MPBF (Amt. in Rs. Lacs)

 Particulars Amount
Accepted Sales 19.00
Accepted Purchase 17.53

Current Assets
Stock (17.53*19÷360) 90 days 4.38
Debtors (19*60÷360 60 days 3.16
Cash in hand 0.54
Loans & advances 0.00
Total Current Assets (a) 8.08

Current Liabilities
Creditors (17.53*50÷360) 50 days 2.50
Other liabilities 0.00
Total Current liabilities (b) 2.50

Working Capital Gap (a-b) 5.58

Margin (as projected by the party) 2.58
MPBF 3.00

Recommendations of Bank Branch

In view of above, it is proposed, if agreed, to allow Cash Credit Facility of Rs. 3 Lacs
(Rupees three lacs only) in favor of M/S Quality Crafts Store Prop. Mr. Shah Alam Mateen
for a period of one year subject to renewal after review against securities as discussed.

Rate of Interest : PLR presently 13 % with monthly rests or any other rate
This may be prescribed by the Bank from time to time.

Margin : 40% on Stocks

50% on Book-Debts (excluding book debts older than
6 months).
 .

M/S A.M. CLASSIC

M/S A.M. Classic Proprietor Mr. Saleem Siddique E-115 Cannought Circle New Delhi,
established in the year 1997, is engaged in wholesale and retail trading of shawls,dress
material and artificial jewelries. The party has been in connection with and dealing with the
J&K Bank Lajpat Nagar brannch with satisfactory dealings and good conduct. The turnover
of account is encouraging. The party has established good trade connections and is involved
in related trade. No negative complaints has been registered or found against the party ever
since the opening of account with the bank branch. The amount is frequently routed through
the account and the performance of account is good. The party was maintaining current
account with J&K Bank Lajpat Nagar Branch and was accommodated by way of cash credit
facility of Rs. 5.50 lacs in December 2005 against collateral security of 3rd party guarantee of
two persons. The said C/C limit was renewed on 31/01/2007.

Borrower’s Information
Name of Applicant Borrower
Address of the Head/Regd. Office
Constitution
Date of Establishment
General Information of the Proposal
Existing Banking Arrangements
Proposed Banking Arrangements
Sanction Comes Under Powers of
Activity
Sector
Present Facilities by the Applicant
Facility Requested by the Applicant
Purpose of Borrowing
Amount Requested
Securities Proposed for the Facility
Primary Security
Hypothecation of stocks and Book Debts
Collateral Security
Third Party Guarantee of two persons:
1 Existing : 3rd Party Guarantee of two persons
2 Offered : Mortgage of flat at F-87, First Floor, Connought Circle,
New Delhi
: Mr. Saleem Siddique
: E-115 Cannought Circle New Delhi
: Sole Proprietorship
: Year 1997
: Sole Banking Arrangements
: Sole Banking Arrangements
: Zonal Office Delhi
: Trading
: Handicrafts
: C/C facility of Rs. 5.50 lacs against
Collateral security of 3rd party
Guarantee of two persons.
: Cash Credit under bank’s scheme of
Mortgage loan for Trade & Service
Sector
: For Expansion of Existing Business
: Rs. 35.00 Lacs.
The security offered as mortgage comprises of residential flat at F-87, Connought Circle,
New Delhi standing in the name of Mr. Saleem Siddique S/o Mr. Shahid Siddique (Proprietor
of the Firm). As per the valuation report of P. Kumar, the market value of the said flat is Rs.
54.00 lacs and the realizable value (Forced Sale Value) is less by 15% of the cost. It is to be
mentioned that the against said flat, the party is presently availing Home Loan Facility from
IDBI Bank and the party will adjust the said loan in full and final prior to availing the fresh
facility from the Branch. The papers regarding clearance of title deeds in respect of flat to be
offered as mortgage have been forwarded to Bank’s approved lawyer/Legal Department
Zonal Office New Delhi for Legal Opinion.

Financials of the Firm (Amt. in Rs. Lacs)

31/03/200 31/03/200 31/03/200

Particulars 6 7 8

Sales 64.08 127.00 163.46

Purchases 60.32 115.40 151.48
% of Sales Growth 98.19 28.71
Net Profit 3.55 4.41 5.57

Liabilities

Share Capital 4.20 7.85 12.77

Car Loan- IDBI Bank 0.00 2.42 1.55
Home Loan- IDBI Bank 14.53 12.01 0.00
Unsecured Loans 0.00 6.00 6.00
Total Term Liabilities 18.73 28.28 20.32

Current Liabilities

Working Capital 0.00 0.00 39.51

Sundry Creditors 31.13 10.78 12.39
Expenses Payable 1.08 0.68 0.96
Sales Tax Payable 0.00 0.72 1.25
Other liabilities 0.00 0.00 0.00

Total Current Liabilities 32.21 12.18 54.11

Total Liabilities 50.94 40.46 74.43
 Assets

Investments 0.00 0.52 0.84

Fixed Assets 16.96 19.31 17.87
Total Fixed Assets 16.96 19.83 18.71

Current Assets

Stocks 5.15 11.43 27.15

Sundry Debtors 22.43 3.46 28.52
Cash in hand/Bank Balance 6.20 5.74 0.05
Loans/Advances 0.00 0.00 0.00
Others 0.20 0.00 0.00

Total Current Assets 33.98 20.63 55.72

Total Assets 50.94 40.46 74.43

Financial Indicators

31/03/200
Particulars 6 31/03/2007 31/03/2008
Net Working Capital (In Rs. Lacs) 1.77 8.45 1.61
Current Ratio 1.05 1.69 1.03
Stocking Velocity ( Days) 31 36 65
Debtors Velocity (Days) 126 10 63
Creditors Velocity (Days) 186 34 29

Apart from the above financials of the party, the account statement reveals the following
transactions of the party with the Bank Branch (Amt. in Rs. Lacs):

Months Debit Summation Credit Summation

April-2006 11.94 20.91
May-2006 7.67 1.50
June-2006 2.62 0.36
July-2006 2.99 0.00
August-206 6.52 6.53
September-2006 3.49 0.00
 October-2006 3.40 4.69
November-2006 6.32 3.55
December-2006 12.58 13.04
January-2007 18.45 18.97
February-2007 14.87 32.41
March-2007 15.27 7.84
Total 106.12 109.80

Comments and Observations:

Financial Indicators has been calculated as follows:

a) Net Working Capital: Total Current Assets less Total Current Liabilities.
b) Current Ratio: Total Current Assets divided by Total Current Liablities.
c) Stocking Velocity: Stock for the year divided by Cost of Goods Sold or Credit
Purchase during the year multiplied by 360 days.
d) Debtors Velocity: Average Receivables or Debtors for the year divided by Credit
Sales during the year multiplied by 360 days.
e) Creditors Velocity: Average Payables or Creditors for the year divided by Credit
Purchase during the year multiplied by 360 days.

Other Comments and observations:

f) The party has achieved sales target of Rs. 127.00 lacs during the financial year 2006-
2007, out of which Rs. 109.80 lacs has been routed through the C/C account thorough
the Bank Branch. It is about 86% of sales that have been routed through the account.
g) The conduct of account has remained satisfactory.
h) The firm is running on profitable lines and capital of the firm is showing continuous
increasing trend.
i) The firm is availing Car Loan Facility from IDBI Bank and is regularly depositing
installments in the said account.
j) The proprietor of the firm is also availing Home Loan facility again from IDBI Bank
and the party intends to adjust the same.
 Assessment Of Working Capital : (Under Mortgage Loan
Scheme)

Particulars Amount (in lacs)

Sales achieved during the year 2006-2007 127.00
Projected Sales for the year 2007-2008 163.46
Accepted Sales 158.75
(Maximum 125% of the achieved turnover)
Permissible Limit 31.75 A
(20% of the accepted sales)
Market Value of property as per valuation report 54.00
Forced Value (85% of market value) 45.90
Permissible Limit 34.43 B
(75% of the forced Sale Value)
Maximum Permissible Limit 31.75
(Lower of A or B)
Limit Recommended by the branch 32.00
Recommendations of the Bank

In view of above, it is recommended to sanction Cash Credit Facility of Rs. 32.00 Lacs
(Rupees Thirty Two Lacs only) in favor of M/S A.M. Classic proprietor Mr. Saleem Siddique
under Bank’s scheme “Mortgage Loan for Trade and Service Sector” against before said
securities for a period of one year subject to renewal after review.

Rate of Interest : As per CAD guidelines

Validity : One year

Other Conditions
1. Prior to release of facility, the party shall have to adjust C/C facility of Rs. 5.50 lacs
sanctioned under Normal Cash Credit Scheme of Bank.
2. Prior to release of facility, party to adjust Home loan facility with IDBI Bank in full
and final
 M/S Healthy Heart Hospital

M/S Healthy Heart Hospital (Popularly known as 3H) South Extension New Delhi is headed
by eminent cardiologist of the country Dr. Nasir. Dr. Nasir is the recipient of various
prestigious awards and has a rich expertise in treating heart ailments. The hospital run with
the specialization of treating heart ailments with all kinds of modern equipment and
infrastructure. There are four stake holders of the hospital one being Dr. Nasir himself, apart
from him, out of three stacke holders, two are doctors by profession and both are the
daughters of Dr. Nasir. The fourth partner Mrs. Zainab Kareem is teacher by profession and
is part of the family. All the three partner have 2% stake each in the Hospital rest is lying
with Dr. Nasir.
Dr. Nasir presently enjoying the facilities of Car Loan, and Housing Loan and he has
requested for sanction of mortgage loan of Rs. 100.00 lacs. The conduct of all the loan
accounts of Dr. Nasir is satisfactory.

Borrower’s Information

Name of Applicant Borrower : Healthy Heart Hospital (3H)

Address of the Head/Regd. Office : South Extension, New Delhi.
Constitution : Partnership
Date of Incorporation : Year 1995
Period since dealing with branch : Year 2002
Net worth : Rs.600.00 lacs. Approx.
General Information of the Proposal
Existing Banking Arrangements
Proposed Banking Arrangements
Sanction Comes Under Powers of
Activity
Sector
Present Facilities by the Applicant
Facility Requested by the Applicant :
Purpose of Borrowing
Amount Requested
: 1. Working Capital Limit of Rs. 25.00 Lacs.
Presently Adhoc Facility of Rs. 25.00 lacs
over and above the Regular limit of Rs.
25.00 Lac.
2. Term Loan Facility of Rs. 396.00 Lac with
Outstanding Balance of Rs. 50.41 Lac as on
Date.
3 Term Loan facility of Rs. 15.00 lac for
Purchase of Machinery with O/S Balance
Of Rs. 3.99 lacs as on date of proposal.
4 Term Loan facility of Rs. 9.00 Lac with O/S
Balance of Rs. 7.13 lacs
: Enhancement in working capital limit of Rs.
25.00 lacs to Rs. 100.00 Lacs as Cash Credit
Limit under “Mortgage Loan under Trade
And Service sector”.
: Zonal Office
: Running Hospital with specialization in
Treating heart ailments.
: Professionals
: Detailed above at the head Existing Banking
Arrangements
Cash Credit limit under “Mortgage Loan
Under Trade and Service Sector”.
: For Expansion and growth of Business
: Rs. 100.00 Lacs.
Securities Existing/Proposed for the Facility
Primary
Hypothecation of stocks of medicine, machinery and receivables/Book debts.

Collateral
The property is commercial in nature and is one of the reputed hospitals of metropolis. The
property secured is none other than Healthy Heart Hospital itself. The full description of
property is :
Plot No-1 South Extension New Delhi with four storied building and basement. The property
has been valued to the tune of Rs. 889.58 Lacs as per recent valuation report prepared by Mr.
P Kumar, registered valuer on approved panel of the Bank. In view of the fact that real estate
has witnessed enormous price escalation particularly in preceding years and the present
property is enjoying placement at prime location the assessed value seems reasonable.

Apart from above mentioned securities there is also personal guarantee of partners.

Details of Credit Facilities Enjoyed By Dr. Nasir Partner M/S Healthy Heart Hospitals
(3H):

Serial Nature of Credit Limit Balance Security

No. Facility O/S
1. Car Loan 2.26 1.70 Hypothecation of Car
2. Housing Loan 15.00 9.90 Mortgage of Flat Purchased for
Rs. 56.33 Lacs
3. Housing Loan 102.00 60.00 Mortgage of House valued Rs.
154.00 Lacs

Financials of the Firm (Amt. in Rs. Lacs)

Particulars 31/03/2006 31/03/2007 31/03/2008
Audited Provisional Projected
Income 335.38 339.16 424.55
Net Profit 12.36 10.31 25.68
% of growth in sales

Liabilities

Share Capital 50.96 66.21 91.64

Term Loan-J&K Bank 84.57 54.21 38.21
Term Loan-Other Banks 39.15 41.19 32.24
Unsecured Loans 76.41 70.43 73.18
Total Term Liabilities 251.09 232.04 235.27

Current Liabilities

Working Capital 20.82 15.89 18.39

Sundry Creditors 73.88 70.30 84.37
Expenses Payable
Other liabilities 17.06 16.51 16.21

Total Current Liabilities 111.76 102.70 118.97

Total Liabilities 362.85 334.74 354.24

Assets

Fixed Assets 346.53 321.88 297.26

Total Fixed Assets 346.53 321.88 297.26

Current Assets

Receivables 5.40 3.48 3.20

Cash in hand/Bank Balance 4.39 3.29 3.35
Loans/Advances 6.53 9.39 6.10
Others 44.33

Total Current Assets 16.32 16.16 56.98

Total Assets 362.85 338.04 354.24

Financial Indicators

Particulars 31/03/2006 31/03/2007 31/03/2008

Tangible Net worth (In Rs. Lacs) 251.09 232.04 235.27
 Current Ratio 0.14 0.15 0.48

Comments and Observations:

a) The Hospital income has shown marginal increase over previous years income (from
335.38 lacs to 339.16). However projected income (Rs. 424.55 Lacs) seems
achievable owing to proposed expansion program.
b) The current ratio has remained below bench mark, however keeping into account the
nature of engagement present level seems justified..

Assessment Of Working Capital : (Under Mortgage Loan

Scheme)

Particulars Amount (in lacs)

Provisional business income during the year 2006- 339.16
2007
Projected business income for the year 2007-2008 424.55
Accepted Income/Turnover 423.95
(Maximum 125% of the achieved turnover)
Permissible Limit 84.79 A
(20% of the accepted Income/Turnover)
Realizable Value of the property 889.58
Forced Value 889.58
Permissible Limit 667.19 B
(75% of the forced Sale Value)
Maximum Permissible Limit 84.79
(Lower of A or B)
Loan requested by applicant 100.00
Limit Recommended by the branch 100.00
Recommendations of Bank Branch

Keeping into consideration the reputation, satisfactory dealings and value of the property the
requested enhancement of present limit from Rs. 25.00 Lacs (Rs, Twenty Lacs) to Rs. 100.00
Lacs (Rs. One Crore only) is proposed in favour of the party under “Banks Mortgage Loan
Scheme For Trade and Service.
In view of past satisfactory working results and excellent track record supported by sufficient
collateral security, the sanction of Rs. 100.00 Lacs as cash credit facility is recommended for
sanction in favor of Healthy Heart Hospitals (3H). The facility allowed is for the period of
one year subject of renewal after review of performance. However present limit of Rs.25.00
lacs which the party enjoys will be withdrawn simultaneously with the release of proposed
facility. Apart from this all other terms and conditions coming under the purview of mortgage
loan scheme for trade and services will apply.