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ADVANCES MANAGEMENT

INDIAN OVERSEAS BANK

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INDIAN BANKING INDUSTRY

BANK REFORMS
1991
NATIONALIZATION
1969-1991

EARLY PHASE
1786-1969

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INDIAN OVERSEAS BANK

 FOUNDED ON FEBRUARY 10, 1937

 1st BANK TO ESTABLISH


OPERATIONS OVERSEAS

 1st PSB TO START MOBILE BANKING

 ‘AA’ RATING BY CRISIL IN 2000

 RANKED AS BEST PUBLIC


SECTOR BANK IN 2007

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LOANS AND ADVANCES

The ideal advance is one that is granted to a ‘reliable’


customer for a legal purpose where he has enough
experience for efficient utilization of the amount and
repays the amount within a given time frame as per the
agreement

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PROCEDURE FOR SANCTION

LENDER
• comes up with a (BANK) • verifies the
loan proposal proposal
• collateral • verifies the • either approves
security purpose of loan (final sanction)
• financial details • assess the or rejects
credibility of
BORROWER
borrower REGIONAL
OFFICE

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FINANCIAL ANALYSIS

• PROFITABILITY
ASSESSMENT • STABILITY
OF: • SOLVENCY
• LIQUIDITY

• BALANCE SHEET
VERIFICATION • INCOME STATEMENTS
• INCOME TAX RETURNS
OF:

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CASE ANALYSIS: XYZ INFOTECH
The borrower is into business since 1992, his
existing branch of NIIT is working successfully.
NIIT has offered him for opening a new unit
at Kharagpur and he has paid more than Rs
10,00,000 as advance for starting the same. The
borrower is one of the very old and regular
client of the bank and needs another Rs.
20,00,000 as loan from the bank to start this
new set up

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XYZ INFOTECH
• March, 07 -- 7.01
• March, 08 – 7.57 In Rs, Lacs
TNW • March, 09 – 11.87
• March, 10 -- 16.77

• March, 07 -- 0.26
• March, 08 -- 21
• March, 09 -- 30
NET SALES • March, 10 -- 40

• March, 07 -- 0.56
• March, 08 -- 1.63
• March, 09 -- 2.69
NWC • March, 10 -- 4.83

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XYZ INFOTECH
DER: TOTAL DEBT
Details of Ratios TOTAL EQUITY
3
2.5 DSCR: N. OPERATING Inc.
T. DEBT SERVICE
2
1.5  CR: CURRENT ASSETS
CURRENT LIABILITIES
1
0.5
0
MARCH, 07 MARCH, 08 MARCH, 09 MARCH, 10
DE 2.83 2.7 1.39 1.78
DSCR 1.4 1.53 1.91 2.12
CR 1.55 1.59 1.42 1.56

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XYZ INFOTECH
MULTIPLE DISCRIMINANT ANALYSIS: Z SCORE

Z= 0.012X1 + 0.014X2 + 0.033X3 + 0.006X4 + 0.010X5 where


Z = discriminant function score of the firm
X1= net working capital/total assets (%)
X2= retained earnings/total assets (%)
X3= EBIT/total assets (%)
X4= market value of total equity/book value of debt (%)
X5= sales/total assets (times)

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XYZ INFOTECH
Z SCORE
3
2.73
2.5

2 2.12

1.5

1 1.08

0.5

0
2008 2009 2010

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XYZ INFOTECH
ASSESSMENT OF MPBF FOR CC A/c
IN Rs. LACS

• March, 07 -- 0.56
NWC • March, 08 -- 1.63
• March, 09 -- 2.69
• March, 10 -- 4.83

NWC CONSIDERED AS 3.00


MPBF = 25% of Sales – 5% as margin or 25% of Sales - NWC
(whichever is lower)

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XYZ INFOTECH
COLLATERAL/ TERM LOAN
GUARANTEE

MARGIN MONEY

CREDIT RATING

TERMS & REPAYMENT


SCHEDULE

DOCUMENTATION & FIANL


SANCTION

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FURTHER PROCEDURE
STANDARD
ACCOUNT

FOLLOW UP
&
MONITORING
NON • SUBSTANDARD ASSET

PERFOMING DOUBTFUL ASSET
ASSET • LOSS ASSET

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TREATMENT OF N PA

BANK UPGRADATION
PROCEEDINGS OF ACCOUNT
• LEGAL NOTICE • RENEWAL
• SARFESI ACT • RECOVERY
2002 • RESTRUCTURING
• FILING OF SUIT
• WRITE OFF

* SARFESI: SECURITISATION AND RECONSTRUCTION OF


FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY
INTEREST ACT
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PREVENTIVE MEASURES

IMPACT EXTERNAL INTERNAL


MEASURES MEASURES

• DRAIN ON • RELEASE OF • DECLARATION


PROFIT DEFAULTER’s OF SMA
• EFFECT ON LIST • RISK
CAPITAL • FORMATION ASSESSMENT
ADEQUACY OF CIBIL • FOLLOW UP

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RECOMMENDATIONS

 THOROUGH STUDY OF CASE IN PRELIMINARY


PHASE

 ESTIMATION OF BANKRUPTCY APPLYING Z SCORE

FOLLOW UP SINCE DECLARATION OF SMA

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THANK YOU

Presented By
Soniya Sinha

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