XXXXXXXX ERP IMPLEMENTATION

PROJECT

Loan and Bond Department

AS-IS Document
Sep, 2011. Release No. 1.0
Loan and Bond Department Release No 1.0

Notice

This is a controlled document. Unauthorized access, copying,

replication or usage for a purpose other than for which it is intended,
are prohibited.

All trademarks that appear in the document have been used for
identification purposes only and belong to their respective companies.

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Loan and Bond Department Release No 1.0

Document Details
Notice No.:

CustomerProject: XXXXXXXX SAP ERP Implementation

Document Details

Name Version Description

No.

Loan and Bond Department 0.01 Initial Document

Loan and Bond Department 0.02 After first review and corrections

Loan and Bond Department 1.0 After incorporation of Final Review

comment - Final Document

Revision Details

Action Taken Previous New Revision Description

(Addition/Deletion/Modification) Page No. Page
No.

Change Register serial numbers covered:

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Loan and Bond Department Release No 1.0

The documents or revised pages are subject to document control.

Please keep them up-to-date using the release notices from the distributor of the document.

These are confidential documents. Unauthorized access or copying is prohibited.

Approved by: Date:

Authorised by: Date:

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Loan and Bond Department Release No 1.0

Contents

1. Business Requirement...............................................................................................................................7
XXXXXXXX........................................................................................................................................................7
Regulatory / Other Bodies.............................................................................................................................7
2. Introduction...................................................................................................................................................8
Business Process Summary.........................................................................................................................8
Assumptions.....................................................................................................................................................9
Reference Documents....................................................................................................................................9
3. AS IS Analysis............................................................................................................................................10
3.1 Process Description...............................................................................................................................10
3.1.1 Loans......................................................................................................................................................10
Journal Entries for the Loan and Bond....................................................................................................14
3.1.2 State Government loan.......................................................................................................................15
3.1.3 Bonds.....................................................................................................................................................15
3.1.4 MIS requirements.................................................................................................................................15

The total number of pages in this document, including the front and back cover pages, is 18.

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Loan and Bond Department Release No 1.0

List of Abbreviations

Abbreviation/Acronym Expansion

XXXXXXXX Yyyyyyyy.

DHQ Distribution Head Quarter

A/C Account

GL General Ledger

MIS Management Information System

UAAL Unfunded Actuarially Accrued Liabilities

OPEB Other Post Employment Benefits

PFC Power Finance Corporation

REC Rural Electrification Corporation

PNB Punjab National Bank

UBI United Bank of India

IOB Indian Overseas Bank

FDR Fixed Deposit Receipts

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Loan and Bond Department Release No 1.0

1. Business Requirement
XXXXXXXX

Ref. Requirement Complexity

1 Manage Loan and Bond accounts Medium

2 MIS High

Regulatory / Other Bodies

Ref. Requirement Regulatory /

Other Body

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Loan and Bond Department Release No 1.0

2. Introduction
Business Process Summary

Process Name

Loan and Bond Department

Process Overview

Loan and Bond Department include the following sub processes :

 Loans

 State Government Loans

 Bonds

 MIS

Purpose of the Process

The purpose of this document is to understand the process and transactions carried out in the
Loan and Bond Department.

Assumptions

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Loan and Bond Department Release No 1.0

Ref. Assumption Details Validated By

This document covers the processes of Budgetary Control from

SAP FI/CO scope.

This As-Is document has been prepared by understanding the policies and processes of XXXXXXXX
from the discussions held between ZZZZ and XXXXXXXX. Photocopies of Reports presently generated
in XXXXXXXX are attached with this document in Annexure to . Other than those formats and
reports submitted no other formats and reports are received by ZZZZ from XXXXXXXX.

Reference Documents

Document Ref. Document Name Version Owner

1 As per discussion between ZZZZ

FICO team and

2 MIS report on Status of Loan

(Secured & Unsecured) during

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Loan and Bond Department Release No 1.0

3. AS IS Analysis
3.1 Process Description
There are mainly three borrowing process in XXXXXXXX, they are short term loan, Cash Credit,
Loan Term Loans and Bonds issued. We would discuss each of these in details in the following
sections. The Cash Credit part is covered under Treasury Operations document.

3.1.1 Loans
Long Term Loans and Bond is administered by the Loans and Bond department , the Corporate
Treasury coordinates the payment and disbursements for various works and purchases under
various projects like Rural Electrification Projects and CSPD as per advice of the Loan and Bonds
department.

Mainly there are 2 types of loan liabilities in XXXXXXXX, Long term Loans and Short Term Loans in
respect of the tenure of the Loan and also classified into Secured and Unsecured Loans following
the nature of the Loans.

Long Term loans having tenure between 10 to 15 years and are procured from Financial Institution
like PFC and REC and nationalized Banks like PNB. Movable Assets and in certain cases Plant
and Machinery and stores are hypothecated as security against Long Term loans. There are also
some unsecured Long term loans. Long Term Loans are utilized for Project specific requirement for
which the loan was originally sanctioned.

Interest and Principal Repayment is done on Quarterly basis for loans taken from REC and PFC
while for PNB payment is done on monthly basis. The payment is made through RTGS to the lender
Financial Institution by the Treasury Department against Bills generated for this purpose by the Loan
and Bonds department. For PNB the payment is arranged through Direct Debits from respective
Current A/C at the end of each month/1st day of next month.

The first Loan installment is drawn in advance & rest is on basis of Claiming & reimbursement.

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Loan and Bond Department Release No 1.0

The following flow shows the process of Claim & reimbursement of Loan:

Initiate Claim by the Loan User Verification of the Claim Form by

Department in the prescribed format Loan & Bond section
received from the Lender Institute

Submission of the Claim Form by

the Loan & Bond section to Lender
Institution

Drawing of Loan – credited to Bank

account
Long term Loans for projects are subject to hypothecation of future & current asset.

Short Term Loans and Cash Credit has tenure of less than a year and procured from mainly
nationalized banks like UCO Bank, UBI, PNB and IOB. The short term loans carry a Lien on FDR s
as security and in few cases there are short term loans form PFC which is unsecured. These types
of loans are mainly for meeting Working Capital requirements. Before sanctioning of Short Term
Loan a statement for projection of debt liability is required to prepared in comparison to profit
financials.

Short term Loans for projects are subject to hypothecation of current asset.

Interest is paid on monthly basis and Principal Repayment is mainly done once at the end of the
Tenure in case of Short Term Loan and on the available funds for Cash Credit facilities.

Separate Register is maintained for PFC & REC against Secured & Unsecured Loan.

Interest Calculation – Interest calculation is dependent on the lender Financial Institution.

Interest on Long Term Loans:

Long Term Loans both secured and unsecured are taken from Financial Institutions (PFC & REC) and
PNB for various capital works. ZZZZ takes Long Term Loans mainly from 2 Financial Institutions.

a) Power Finance Corporation Ltd

b) Rural Electrification Corporation Ltd.

The Interest Calculation on these Loans has a peculiar feature, where different rate of interest is
applicable to a single loan scheme based on each withdrawal. Hence a single loan scheme may have
different Interest rate on different outstanding amount. The Interest is paid in different months for each
loan withdrawal. There is also reset option of the interest rates within 3yrs or 5 yrs depending in the
Loan Term.

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Loan and Bond Department Release No 1.0

There is a difference in payment process of interest and repayment of principle for both the
Corporations which is discussed as follows:

a) Power Finance Corporation Ltd (PFC): For PFC both Principle and Interest is paid together.
For every drawl a portion of principle amount is paid at the beginning of each quarter, the
interest is calculated on the balance amount by the Simple Interest formula for the number of
days in that particular quarter.
For e.g. A loan (say X) of 100 is taken from PFC. 1 st drawl was of Rs 20 at 10% interest rate and
2nd of 50 at 20% interest rate. If XXXXXXXX decides to pay Rs.10 of the Principle amount in the
next quarter of 1st drawl and Rs 20 principle amount of 2 nd drawl in the 1st quarter then the
calculations will be as follows for interest and principle repayment.

Sl. Scheme Drawl Outstanding Interest Repayment Balance No. Interest

No No. No. Balance Rate Of
p.a. Days

1 X 1 20 10% 10 10 92 0.50

2 X 2 50 20% 20 30 92 2.52

Formula used for Sl 1- 20*(92/365)*10% = 0.50 (Considering 2 decimal places)

Formula used for Sl 2- 50*(92/365)*20% = 2.52 (Considering 2 decimal places)

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Loan and Bond Department Release No 1.0

b) Rural Electrification Corporation Ltd (REC): For REC Principle and Interest are both paid on
different dates in the same quarter. The date of repayment of principle amount is fixed for each
policy. Hence for every outstanding amount of loan the interest is calculated twice, 1 st time
keeping the total amount due for that quarter till the time principle re-payment is done and 2 nd
time for the rest of the days and for the balance amount post repayment of the principle amount
in that quarter. The number of installments in which the repayment of principle is done is fixed in
this case.
For e.g. A loan (say X) of 1000 is taken from REC. 1 st withdrawal was of Rs 200 at 10% interest
rate and 2nd of 700 at 20% interest rate. As per policy principle should be paid in 10 installments
for both drawl and the date of each principle repayment is 15th of the 1st month of each quarter.
For 1st Drawl repayment amount on 15th June 2011 = Rs 20
For 2nd Drawl repayment amount on 15th June 2011 = Rs 70

Sl. Schem Draw Outstan ROI Repa Balance No. of No. Of Interest Interest
No e No. l No. ding ymen after Days Days post Before After
Balanc t repayme before repayment repayment repayme
e nt repayment nt

1 X 1 200 10 20 180 15 77 .82 3.79

2 X 2 700 20 70 630 15 77 5.75 26.58

Formula used for drawl 1 for interest before repayment: 200*(15/365)*10% = .82

Formula used for drawl 1 for interest after repayment: 180*(77/365)*10% = 3.79

Formula used for drawl 2 for interest before repayment: 700*(15/365)*20% = 5.75

Formula used for drawl 2 for interest after repayment: 630*(77/365)*20% = 26.58

Interest on Short Term Loans:

Short term loans are those loans which are taken for a period of less than a year. Interest of short term
loans are calculated on monthly basis considering the days between the date of disbursement of loan
or 1st day of the month to the end of the month. The principle amount of such loans is paid at the end of
the loan tenure. Pre-payment of principle is done in if required.

Hence for a loan of Rs.1000 which was disbursed on 15 th of June and taken for 5 months at the rate of
10% the interest calculation will be as follows

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Loan and Bond Department Release No 1.0

Sl. Month Principle ROI No of Interest

No Days

1 June 1000 10% 16 4.38

2 July 1000 10% 31 8.49

Report on Interest accrued but not due on loan is prepared in a regular interval. Interest on Loan is
capitalized as per AS16.

Creation of Charge on Hypothecation of Assets for Secured Loan & Bond–

 Formalities Followed from the Office of Company Secretary, XXXXXXXX :

 Application in Prescribed Forms (Form 8 or, Form 10 as applicable) along with copy of
Sanction Letter, Agreement and Hypothecation Deed as executed with Lender Institutions.

 Payment of Requisite Fees

 Collection of Charge Creation Certificate Issued from Registrar of Companies (ROC)

 Maintenance of Charge Register

 Verification with Search Report issued from the Office of ROC

Accounting Entries for the following Loan and Bond transactions are accounted according to
the Accounts Manual of XXXXXXXX
 Drawing of Loan

 Repayment of Loan Secured & Unsecured)

 Loan Repayment (Secured & Unsecured) – Liability Provision and Billing

 Interest Repayment (Secured & Unsecured) – Liability Provision and Billing

 Interest on RECL & PFC( Secured & Unsecured) Billing

 Interest Provision (Secured & Unsecured) at quarter/ year end

 Govt Guarantee Charges - Liability Provisions

 Drawing & repayment of Short term Loan

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Loan and Bond Department Release No 1.0

 Interest on Pension Bond

3.1.2 State Government loan

Purulia pumping storage project (PPSP) is sponsored by Government of India (GOI). The project cost
of is funded as a loan assistance from the Japan Bank for International Cooperation and also the
Consultancy for the project is done by Japanese companies. On completion of project and submission
of bill, Asset is created against the liability posted in local currency. Bill is received in Japanese Yen
which is converted to INR in the exchange rate applicable on the Invoice posting date. But tracking is
done for foreign exchange gain loss which is adjusted in the year end. Payment is made to JBIC in Yen
by Government of India.

The process flow is as follows:

Invoice received by WBSEDCL from JBIC

on completion of a project.

Asset created against the liability posted for

JBIC

Bill is sent to State Government Power cell

by WBSEDCL

Bill is forwarded from State govt. to

Government of India for payment to JBIC.

Payments is made to JBIC in Japanese Yen

Intimation is sent to the State Govt.

authority about the payment made
converting the payment amount in Indian
rupees (INR).

The actual amount paid in INR is converted

into a loan by State Govt and the information
is forwarded to WBSEDCL

The balance of the liability account is

The loan is accounted to set off the Liability transferred to profit & loss through foreign
made against JBIC by WBSEDCL exchange gain & loss.

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Loan and Bond Department Release No 1.0

Normally State Government Loans have a moratorium of Five years . During the period there
is no Principal amount payment but interest amount is paid as per the schedule .

3.1.3 Bonds
Bonds in XXXXXXXX are all Running Bonds. There are 3 types of Bonds issued by
XXXXXXXX

a) Pension Bonds

b) LICI Bonds

c) Market Bonds

Pension Bonds are Unsecured Bonds. These are debt instruments issued by XXXXXXXX to
fund all or a portion of the Unfunded Actuarially Accrued Liabilities (UAAL) for pension and/or
Other Post Employment Benefits OPEB. Interest is paid on these bonds on monthly basis.
Principal repayment has not been started for these types of bonds.

LICI Bonds are also Unsecured Bond. For LICI Bonds both Principle and Interest amount is
paid regularly. Interest is paid at on Quarterly basis at the end of June, September , December
and March.

Capital Market Bonds are secured Bonds with Hypothecation against Fixed Assets. For all
Capital Market bonds floated by XXXXXXXX interest servicing is done on semiannual basis,
and principle amount is repaid at maturity. These normally have maturity period of 15 years at
present.

The Journal entries for Bond servicing are accounted as per the Accounts manual of
XXXXXXXX

Bond issue is governed by SEBI Rules & Companies Act in accordance with the agreement
with stock exchange & Trustees of the Bond.

SEBI RULES.docx

3.1.4 MIS requirements

Several reports are prepared by Loan & Bond Department for different sections and
departments. The following table depicts the summary of the different reports:

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Loan and Bond Department Release No 1.0

Report prepared for

Sl. the following Section /
No. Particulars Dept. Frequency
Projection of Payment of Principal for Long Term Loan for next
1 Corporate Compilation Quarterly
12 months, beyond next 12 months and Total Debt.
Statement showing interest accrued & due during the year,
2 interest actually paid out of such dues during the year, interest Budget Annually
outstanding up to the end of the financial year
Month wise projected payment liability (Calendar) during the
3 financial year Treasury Monthly
Statement showing repayment of Principal and Calculation of Requirement
4 Interest for a particular Loan Corporate Finance wise
Details of Drawl, Sanction amount and balance left for Drawl Requirement
5 out of Sanctioned amount. Corporate Finance wise
Statement showing opening provision, Actual paid, Closing
6 Corporate Compilation Annually
provision, Closing Balance & and Rebate i.r.o. Interest
Status of Loan both secured and unsecured separately for a
7 particular period. Corporate Compilation Monthly
8 Details about Short Term Loan month wise. PTR Monthly
Requirement
PFCL Loan details
9 Corporate Finance wise
Requirement
RECL Loan details
10 Corporate Finance wise
11 Guarantee Commission Sheet State Govt. Annually
12 Trial Balance Code wise Treasury Monthly
Statement showing Guarantees given by State Govt. and the
13 State Govt. (Finance) Annually
amount outstanding as on a particular date
14 Statement showing Govt. Guarantee Charges on LICI Bond State Govt. (Finance) Annually
"BREAK-UP OF THE OUTSTANDING DEBT AS ON 31ST
JANUARY 2011 WITH INTEREST RATES AND YEARWISE
15 Requirement
DEBT REPAYMENT SCHEDULE" - INFORMATION AS Credit Rating Agency
(1) wise
SOUGHT FOR BY M/S ICRA LIMITED FOR THE PURPOSE
OF CREDIT RATING OF XXXXXXXX
"BREAK-UP OF THE OUTSTANDING DEBT AS ON 31ST
JANUARY 2011 WITH INTEREST RATES AND YEARWISE
15 Requirement
DEBT REPAYMENT SCHEDULE" - INFORMATION AS Credit Rating Agency
(2) wise
SOUGHT FOR BY M/S ICRA LIMITED FOR THE PURPOSE
OF CREDIT RATING OF XXXXXXXX
16 Statement showing Capitalisation of Interest Corporate Compilation Annually
The details and structure of the reports is provided in the attached excel sheet.

Reports_Loans and
Bond.xls

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