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SVKMs Narsee Monjee

Mukesh Patel School of Technology


Management & Engineering, NMIMS

EXECUTIVE SUMMARY REPORT


ON
CREDIT RISK ANALYSIS

BY
HARSH CHAITANYA (I008)
MBA TECH- IT
IndusInd Bank

Mukesh Patel School of Technology, Management and Engineering

EXECUTIVE SUMMARY REPORT


ON
CREDIT RISK ANALYSIS

BY
HARSH CHAITANYA (I008)
MBA TECH- IT

A report submitted in partial


fulfillment of the requirements of 5
years Integrated MBA (Tech)
Program of Mukesh Patel School
of Technology, Management & Engineering, NMIMS.

Mukesh Patel School of Technology, Management and Engineering

The twenty-week programme internship has helped to gain experience of


corporate culture as well as what it means to talk to client and know what
their requirement is, how can the requirement be fulfilled and what is
feasible to be provided. The entire project was completed in three phases
namely:
1. Knowing the basics of every aspect of the system:
This section is usually called as learning phase. As an intern, the
only task during this phase was to gain knowledge of the unknown
and improve the known. The following concepts were focused on
because these were the core determinants in a credit proposal:
i)
Financial Reporting and Analysis
a. Understanding Balance sheets
b. Understanding income statements
c. Cash flow analysis
d. Ratio analysis and limitations
e. Current Assets
f. Other current assets.
g. Deferred tax assets
h. Current Liabilities
i. Non-Current Asset
ii)
Capital Budgeting
a. NPV
b. IRR
iii) Cost of Capital
a. Weighted Average cost of capital
b. Cost of equity
c. Cost of debt
d. Cost of preferential equity
e. Marginal cost of capital
iv) Leverage
v)
Credit Risk
vi) External Rating and Internal Rating agencies
2. Creating Credit proposals
This was the actual work phase where as an intern, jobs on live
projects were allocated. Relationship Managers pursue business
and then the team make a credit note called credit proposal using
the past financials and projections of the financials of the company
combined with multiple factors like administrations, industry
Mukesh Patel School of Technology, Management and Engineering

factors etc. finally come up with the creditworthiness of the client


and whether or not the client will not default the loan.
The following are the major criteria:
a) Management risk: This part focuses on the management of the
client company. It takes in consideration all the different
directors, their past experience with the work industry, their past
work within the company and their qualifications. This research
is done so as to check for any recent changes in the directors
and hence assess the risk associated with the management of the
company.
b) Financial risk: Financial risk the risk that the company might
default. This is more of a quantitative research about the
company past and present financial performance and predictions
about the future performance. The above read theory is used in
this section wherein companys business needs to be understood
before doing various analysis like ratio analysis, credit rating
etc. Results of this section is later loaded to internal credit rating
system as well which assigns a credit rating of the company
according to which maximum amount of exposure for a client is
decided.
c) Business Risk: Business risk or the Industry risk is done after
company analysis is done because a company is affected by
both internal and external factors. For knowing how the external
parameters are going to affect or are affecting the company,
industry analysis is done. This involves reading RBI policies for
NBFCs, the recent policies that mitigates risk for Mutual fund,
the recent industry growth rate etc.
d) Structure risk: Usually handled by the Syndication team of the
organisation, this is the risk in the terms and condition of the
loan, the credit structure, the ways loans can default etc are
taken care in this section. It states how the client will be getting
loan, repaying policies and risks due to the who structuring of
the loans.
e) Annexures: Snapshots of internal credit rating system and term
sheet for the loan. This section also contains some information
which is important enough to mention doesnt require

Mukesh Patel School of Technology, Management and Engineering

immediate attention like the surplus assets, existing borrowing


etc of the client.
Once this credit proposal is completed, it is passed to credit team and
zonal heads for further approval and sanction of the loan.
After sanction, the client has to go through KYC process of the bank. The
bank has different KYC requirements for companies from different
industry. Overall, the KYC of company, directors and authorized
signatories are required with a copy of Memorandum of Association,
Articles of Association, Board resolution passing the decision of loan,
Beneficial ownership of the company and Certificate of incorporation. If
the company is a tax resident of a country other than India, a FATCA
form is also required. These are the basic documents, other than these,
credit product specific or the industry specific or case specific documents
are required like NOC from existing lenders of the client, IREDA letter in
energy companies etc.
Learnings
Over the period of 20 weeks, other than learning the practical use of the
theoretical knowledge taught in college, and corporate culture of the
organisations, the major learning would be taking responsibility for ones
work. College always has a safety net wherein a mistake could be
corrected which was not possible here. Mistakes can be permanent here
and one had to take responsibility for it, and learn from it. An attitude to
constantly learn is required to survive in any organisation without which
one is resistant to a change. This experience also shows how college is
different from what we aspire to become and how to bridge these gaps.

Mukesh Patel School of Technology, Management and Engineering