A Study of The Credit Appraisal System at Indusind Bank, Business Banking Division, Bangalore

“A study of the Credit Appraisal System at IndusInd
Bank, Business Banking Division, Bangalore”
Summer Intern Project report submitted in partial fulfilment of the

requirements for the degree of
Master of Business Administration
By
Arshia Mitra
(1627739)
Under the guidance of
Kavita Mathad
Associate Professor
Institute of Management
Christ University, Bengaluru
Christ University
2017
“A study of the Credit Appraisal System at IndusInd
Bank, Business Banking Division, Bangalore”
Summer Intern Project report submitted in partial fulfilment of the

requirements for the degree of
Master of Business Administration
By
Arshia Mitra
(1627739)
Under the guidance of
Kavita Mathad
Associate Professor
Christ University, Bengaluru
Christ University
2017
Declaration
I hereby declare that the Summer Intern Project report entitled “A study of the Credit Appraisal
System at IndusInd Bank, Business Banking Division - Bangalore” has been undertaken by me for
the award of Master of Business Administration. I have completed this study under the guidance
of Prof. Kavita Mathad.
I also declare that this Summer Intern Project report has not been submitted for the award of any
Degree, Diploma, Associate ship, Fellowship or any other title, in Christ University or in any other
university.
Place: Bengaluru ___________________

Date: Arshia Mitra
(1627739)
Certificate
This is to certify that the Summer Intern Project report submitted by Arshia Mitra
on the title “A study of the Credit Appraisal System at IndusInd Bank, Business Banking Division,
Bangalore” is a record of summer intern project work done by him/ her during the academic year
2016-17 under my guidance and supervision in partial fulfilment of Master of Business
Administration.
Place: Bengaluru ____________________

Date: Kavita Mathad
Associate Professor
Christ University
Bengaluru
Acknowledgement
I am indebted to many people who helped me accomplish this Internship successfully.
First, I thank the Vice Chancellor Dr Fr Thomas C Mathew, Christ University for giving
me the opportunity to do my project.
I thank Dr. Suniti Phadke, Dean, Fr. Thomas T V, Director, Prof. Sudhindra S, Associate
Dean, Prof. Shrikanth Rao, Head of the Department and Prof. Krishna M C, Head-Finance,
Institute of Management, Christ University for their kind support.
I thank Prof Kavita Mathad for her support and guidance during the course of my
internship. I remember her with much gratitude for her patience and motivation, but for which I
could not have submitted this work.
I wish to express my sincere thanks to my corporate mentor, Mr. Ashim Kumar Roy,
Credit Analyst, IndusInd Bank, Business Banking Division, for giving me an opportunity to
work under his guidance and successfully complete my internship.
I thank my parents for their blessings and constant support, without which this internship
project would not have seen the light of day.
_____________________
<Arshia Mitra>
(1627739)
Placeholder for black and white photocopy of the certificate issued by the SIP
organisation
TABLE OF CONTENTS
Declaration I
Certificate II
Certificate from the Company III
Acknowledgements IV
Table of Contents V
Executive Summary VI
CHAPTER 1: INTRODUCTION
1.1 Introduction to Credit Appraisal
1.2 Definition
1.3 Reasons for selecting this project
CHAPTER 2: RESEARCH METHODOLOGY
2.1 Objectives of the study
2.2 Data Sources
CHAPTER 3: THE BANKING INDUSTRY
3.1 Banking Industry Overview
3.2 Global Banking Scenario
3.3 The Indian scenario explained
3.4 SME Background
3.5 Role of RBI: Tandon Committee
CHAPTER 4: INDUSIND BANK
4.1 Company History
4.2 Company Overview
4.3 Products and Services
CHAPTER 5: PROJECT DETAILS
5.1 Project Profile
5.2 Credit Appraisal Process
5.3 Credit Policy of IndusInd Bank
5.4 IndusInd Bank Products
5.5 Tools for Financial Analysis
- 5.5.1. Ratios
- 5.4.2 Days
5.6 Credit Scoring Models

5.7 Format for Assessing Profit & Loss A/C and Balance Sheet
CHAPTER 6: OBSERVATIONS AND ANALYSIS
6.1 ABC Case Study
CHAPTER 7: FINDINGS AND CONCLUSION
7.1 Findings
7.2 Conclusion
7.3 Learning Outcome
ANNEXURE
EXECUTIVE SUMMARY
The steel sector in the current financial year has been affected by events, internationally
and domestically. The Chinese depression, fall of crude oil prices, demonetization drive etc. have
resulted in a negative impact on the global economy. Locally, the Non-Performing Asset (NPA)
and bad loans crisis combined with the currency fluctuations are hitting the financial sector in
India. Non-performing assets have affected the entire banking scenario. The root cause of the
troubles faced by the banks is due to defaulting of loans by corporations and individuals. Thus the
need for credit appraisal arises. Analysis and assessment of the credit worthiness of a borrower is
carried out to check whether the borrower, be it a company or individual, has the economic
viability and feasibility to repay the loan on time.
The project studies the schedules involved in the assessment of a company or a business’
credit worthiness in IndusInd Bank. The introduction of the project outlines the banking industry
and IndusInd Bank in particular. The company overview explains the mission, strategy and goals
of the bank along with the various products offered by IndusInd Bank. This is followed by the
analysis of the process of credit appraisal. The process explains the initial meeting with the client,
understanding the requirements of the customer’s business, selecting the best credit product as per
the requirement of customer, assessment of eligibility for loan, preparation of credit proposal,
sanctioning of loan by the credit committee, undertaking documentation and disbursement of credit
to customer. The applicant is asked to submit the required documents which include financial
reports of the organization or the individual. The Business Banking Group analyses the audited
balance sheet of the organization and computes the ratios necessary for appraisal, with the help of
Microsoft Excel template/ spreadsheet. Further the appraiser/ analyst documents Business Model,
Background and Experience of the promoter/management, Banking conduct, credit bureau check,
perform a credit rating, collateral security being offered to the bank. A proposal is prepared with
the details and sent to the Credit Risk Team for further evaluation and approval.
The proposal is in accordance to the credit/ risk policy of the Bank, guidelines prescribed
by RBI and the information of a customer’s credibility is extracted from CIBIL. It discusses the
various facilities provided by IndusInd Bank to its customers, method of preparation of a loan
proposal, formalities and policies to be followed by the particular department of IndusInd Bank.
Chapter 1
INTRODUCTION
1.1 Introduction to Credit Appraisal
Bank credit is at 5.1% in the current financial year and one can compare and easily
disseminate the slowdown in growth. Banks are unable to cope up with the stressed and bad loans.
Defaults lead to low flow of money in the system. Recent reforms and regulations such as the
BASEL III norms have also put pressure on the system. The GOI along with RBI are constantly
bringing in reforms to help reduce the burden of bad debt. This can be attributed to the improper
loan sanctions without proper credit appraisal which has resulted in increasing defaults. To prevent
this, banks need to evaluate the borrower before sanctioning a loan, to study the credit worthiness
of the borrower. This is known as credit appraisal. Credit appraisal is done to ensure safety of the
funds of depositor and the bank.
A stable credit policy provides leverage to a banks’ lending operation risk. It includes
properly formulated credit policies and timely review of performance and post-allocation
monitoring of funds. Banks’ study the financial capacity and debt servicing capacity in tandem
with the evaluation of collaterals to provide for the respective risks. The credit appraisal process
is in accordance to the bank’s internal policy and RBI which provide for a standardized policy.
Credit appraisal includes market, managerial, technical and financial appraisal. Market appraisal
is the function of demand of the borrower’s products and the borrowers standing in the market as
per the supply capacities. It is the ability to convert the demand in the market to sales and revenue.
Managerial appraisal is a study of the management of a company which includes the intention
behind the requirement of credit, knowledge of the business and level of commitment of the
management. It studies if the goals and objectives are in synchronization with the functionality of
the business. Technical appraisal studies the industry, standardization procedures, technical know-
how, and utilization of available resources, to check the technical soundness of the project.
Financial appraisal is the most crucial aspect to assess the financial performance of the company
over the recent years. It checks for financial soundness of the business and the ability to pay back
the bank’s loan with interest.
IndusInd Bank has a department dedicated to the process of credit appraisal to reduce
uncertainties/ risk in the process of lending.
1.2 Reasons for selecting this project
Banking is one of the core topics of the finance industry. As a student of finance, possessing
a thorough understanding of the workings of a bank and its impact on the economy as is useful to
us. The baks form the base of the monetary. We get to understand the basis of all financial activity
along with the current problems it faces. Further we understand the credit appraisal process, credit
policy of the bank and also gain a better understanding of the role of RBI in creating reforms and
policies.
It also helps to build a solid foundation for the understanding of the following
specialization subjects covered in the third trimester of the MBA course of Institute of
Management, Christ University:
a) Financial Statement Analysis: Study of the ratios affecting different industries and
identification of significant changes in financials and their impact on the organization.
b) Management of Banks: The subject dealt directly with the understanding of banking and
their functions. It helps apply theoretical knowledge to practical understanding.
Chapter 2
RESEARCH
METHODOLOGY
2.1 Objectives of the Study
A. Primary Objective:
To study the overall credit appraisal process in a bank. This project focuses upon business
banking, the small medium enterprises sector.
B. Secondary objective:
 To study the various credit appraisal process adopted by the bank in providing loans and
services to SME’s
 To know on what criteria the banks appraise the loan
 To develop a broad understanding of the funding provided by the bank to SME
 To study the different products and services offered by IndusInd Bank to SME
 To study the process adopted by IndusInd Bank in funding SME
2.2 Data Sources

A. Primary Sources
The primary data were collected from the projects proposals and information gathered from
Credit Analysts.
B. Secondary Sources
The secondary data were collected from the following:
a) Bank Reports
b) Bank Credit Policies
c) Internal reports of the Banks.
d) Bank Norms
e) Loan Proposals
f) Internet
Chapter 3
THE BANKING
INDUSTRY
3.1 Banking Industry Overview
Banking is the business which involves accepting deposits from individuals and
corporations and lending operations to individuals and corporations for continuous flow of cash in
the economy. Banks regulate the flow of money in an economy. However, as time passes by, banks
diversify their functions so as to meet the demands of their customers and match up to their
competitors. They are authorized to accept deposits, lend, deal with interest functions, clear
cheques, provide functions of intermediaries in financial transactions and provide finance related
services to customers. The term bank is derived from an Italian word ‘banca’ or from a French
word ‘banque’ where both mean a bench or a money exchange table.
Banks are a fundamental component of the financial system, and are active players in
financial markets. They receive deposits from customers which constitute a part of the liabilities
in a bank balance sheet and extend these deposits as loans through the capital market which
constitutes as assets in the balance sheet. Government of nations have to regulate the workings of
banks as their activities influence the economy as a whole. They set up certain regulations and
guidelines for smooth functioning of the system which is monitored and regulated by the Central
Bank of a country.
3.2 Global Banking Scenario

The sector of banking is adopting modern practices. With competitors bringing in new
products, customized as per customer demands and requirements, there have been major changes
in the banking sector on a global front. The crisis in Asia, however, questions the risks involved
in the credit related business. The problems in China and the bad loans in India have raised a major
concern regarding the effectiveness of regulations in the banking industry. Though there is scope
for diversification in activities performed by banks, it also includes risk of volatility of earnings.
The opportunities however, are ample in this industry. According to ‘The Banker,’ Chinese
banks are leading in terms of profitability, giving competition to their US rival banks. This does
not indicate a better global market share. With an increase in profitability which is mostly short
term, banks need to focus more on wealth and value creation. The Russian currency value
depreciation has hit the European finance sector, bringing down their performance levels. Asian
banks have done reasonably well with South America and Africa in the lead. Europe is facing asset
quality problems.
3.3 Indian Banking Scenario
Under the governance of the Reserve Bank of India, commercial banks have been
categorized into five different groups according to their nature of operations and their ownership.
These are:
1. State bank of India and its associates.
2. Nationalized banks.
3. Regional rural banks.
4. Private sector banks.
5. Foreign banks.
There have been a lot of dramatic changes in the Indian banking sector. With the recent
budget update, the banks may enjoy a good position and an important role to play in the Indian
economy. In the beginning of financial year 2015, the ex-RBI governor Mr. Raghuram Rajan
clearly stated that all the banks should clearly identify bad loans as Non-Performing Assets (NPAs)
instead of concealing it and work towards cleaning up of the bank balance sheets by March 2017.
Due to this change in the dynamics, the banks had to report the NPAs in their books every
quarter which took its toll on the stock prices. A sense of relief was witnessed when the government
launched ‘Indradhanush’ scheme which covers several reforms such as linking the compensation
of bank’s top management to performance, creation of Bank Board Bureau (BBB), shifting the
focus from quantity to quality of business and infusion of fresh capital in public sector banks.
As per the Reserve Bank of India (RBI), India’s banking sector is sufficiently capitalised and well-
regulated. The financial and economic conditions in the country are far superior to any other
country in the world. Credit, market and liquidity risk studies suggest that Indian banks are
generally resilient and have withstood the global downturn well.
Indian banking industry has recently witnessed the roll out of innovative banking models like
payments and small finance banks. The central bank granted in-principle approval to 11 payments
banks and 10 small finance banks in FY 2015-16. RBI’s new measures may go a long way in
helping the restructuring of the domestic banking industry.
As per the Reserve Bank of India (RBI), India’s banking sector is sufficiently capitalised and well-
regulated. The financial and economic conditions in the country are far superior to any other
country in the world. Credit, market and liquidity risk studies suggest that Indian banks are
generally resilient and have withstood the global downturn well.
Indian banking industry has recently witnessed the roll out of innovative banking models like
payments and small finance banks. The central bank granted in-principle approval to 11 payments
banks and 10 small finance banks in FY 2015-16. RBI’s new measures may go a long way in
helping the restructuring of the domestic banking industry.
Healthy Growth of Banking Sector – Deposits
 During FY06–16, deposits grew at a CAGR of 11.47 per cent and reached 1.46 trillion in
FY16.
 Strong growth in savings amid rising disposable income levels are the major factors
influencing deposit growth.
 Deposits under Pradhan Mantri Jan Dhan Yojana (PMJDY) have also increased. As of
October 2016, US$ 6,755.5 million were deposited, while 249.8 million accounts were
opened.
Healthy Growth of Banking Sector - Credit
 Credit off-take has been surging ahead over the past decade, aided by strong economic
growth, rising disposable incomes, increasing consumerism and easier access to credit.
 In March FY16, total credit extended surged to US$ 1,016 billion.
 Demand has grown for both corporate and retail loans; particularly the services, real estate,
consumer durables and agriculture allied sectors have led the growth in credit.
The banking sector is at a clear advantage. The total asset size is expected to rise to USD 28.5
trillion by FY 25E. There is robust demand for banking services. Increase in working population
and growing disposable incomes will raise demand for banking and related services. Housing and
personal finance are expected to remain key demand drivers. Mobile, Internet banking and
extension of facilities at ATM stations will improve operational efficiency. Also rising fee incomes
are improving the revenue mix of banks. High net interest margins, along with low NPA levels,
ensure healthy business fundamentals. There is wide policy support in the form of private sector
participation and liquidity infusion. Healthy regulatory oversight and credible Monetary Policy by
RBI have lent strength and stability to the country’s banking sector.
Notable Trends in the Banking Industry Sector
 Improved risk management practices
Indian banks are increasingly focusing on adopting integrated approach to risk management. Banks
have already embraced the international banking supervision accord of Basel II.; interestingly,
according to RBI, majority of the banks already meet capital requirements of Basel III, which has
a deadline of 31 March 2019. Most of the banks have put in place the framework for asset-liability
match, credit & derivatives risk management.
 Diversification of Revenue Stream

Banks are laying emphasis on diversifying the source of revenue stream to protect themselves from
interest rate cycle and its impact on interest income. Focusing on increasing fee & fund based
income by launching plethora of new asset management, wealth management & treasury products.
 Technological Innovation
Indian banks, including public sector banks are aggressively improving their technology
infrastructure to enhance customer experience & gain competitive advantage. Internet and mobile
banking is gaining rapid foothold. Customer Relationship Management (CRM) and data
warehousing will drive the next wave of technology in banks. Indian banks are rapidly focusing
on SMAC (Social, Mobile, and Analytics & Cloud) techniques to reach new customers.
 Demonetization
RBI Deputy Governor said that since demonetization the Central Bank has collected over USD
185.81 billion in demonetized notes from various bank branches. The effects of demonetization
are also visible in the fact that bank credit plunged by 0.8 per cent from November 8 to November
25, as USD 9.85 billion were paid by defaulters. As per RBI, a total of USD 125.53 billion was
deposited in banks till November 27, 2016. As of March 2017, debit cards have radically replaced
credit cards as the preferred payment mode in India, after demonetization. As of October 2016,
debit cards garnered a share of 42 per cent of the total card spending, which increased to 60 per
cent, post demonetization.
 Focus towards Jan Dhan Yojana

Key objective of Pradhan Mantri Jan Dhan Yojana (PMJDY) is to increase the accessibility of
financial services such as bank accounts, insurance, pension, credit facilities, etc. mostly to the
low income groups. Under the Jan Dhan Yojana, as on April 5, 2017, 282.3 million new accounts
were opened & around USD9, 515.30 million were deposited with the banks under this scheme.
As on November 9, 2016, 194.4 million ‘Rupay’ debit cards were issued to users.
 Wide usability of RTGS and NEFT

Real Time Gross Settlement (RTGS) and National Electronic Funds Transfer (NEFT) are being
implemented by Indian banks for fund transaction. Securities Exchange Board of India (SEBI) has
included NEFT and RTGS payment system to the existing list of methods that a company can use
for payment of dividend or other cash benefits to their shareholders and investors.
 Know Your Customer

RBI mandated the Know Your Customer (KYC) Standards, wherein all banks are required to put
in place a comprehensive policy framework in order to avoid money laundering activities. The
KYC policy is now mandatory for opening an account or making any investment such as mutual
funds.
New Schemes by the Government
 Pradhan Mantri Suraksha Bima Yojana - This scheme is mainly for accidental death
insurance cover for up to Rs. 2 lakh. Premium: Rs. 12 per annum. Risk Coverage: For
accidental death and full disability - Rs. 2 lakh and for partial disability – Rs. 1 lakh.
 Pradhan Mantri Jeevan Jyoti Bima Yojana - This scheme aims to provide life insurance
cover. Premium: Rs. 330 per annum. It will be autodebited in one instalment. Risk
Coverage is Rs. 2 lakh in case of death for any reason. As of FY16, almost 29.8 million
Pradhan Mantri Jeevan Jyoti Bima Policies have been done in India.
 Atal Pension Yojana - Under the scheme subscribers would receive the fixed pension of
Rs. 1,000, 2,000, 3,000, 4,000 or 5,000 at the age of 60 years (depending on their
contributions). The Central Government will also co-contribute 50 per cent of the
subscriber's contribution or Rs. 1,000 per annum, whichever is lower, to each eligible
subscriber account, for a period of 5 years.
 Pradhan Mantri Jan Dhan Yojana - As on April 5, 2017, 282.3 million accounts were
opened in India. Under the scheme, each & every citizen will be enrolled in a bank for
opening a Zero balance account. Each person getting into this scheme will get a Rs. 30000
life cover with opening of the account. Overdraft limit under such accounts is Rs.5000.
3.4 SME Background
Small and Medium Enterprises (SME) sector has emerged as a highly vibrant and dynamic sector
of the Indian economy over the last five decades. SMEs not only play crucial role in providing
large employment opportunities at comparatively lower capital cost than large industries but also
help in industrialization of rural & backward areas, thereby, reducing regional imbalances,
assuring more equitable distribution of national income and wealth. SMEs are complementary to
large industries as ancillary units and this sector contributes enormously to the socio-economic
development of the country
SMEs also play a significant role in Nation’s development through its high contribution in
domestic production, significant export earnings, low investment requirements, operational
flexibility, location wise mobility, low intensive imports, capacities to develop appropriate
indigenous technology, import substitution, contribution towards defence production, technology–
oriented industries, competitiveness in domestic and export markets thereby generating new
entrepreneurs by providing knowledge, training and skill development .
Government of India was notified by its MSMED Act in 2006 to address policy issues affecting
SMEs as well as the coverage and investment ceiling of the sector. The Act seeks to facilitate the
development of these enterprises as also enhancing their competitiveness. It provides the first-ever
legal framework for recognition of the concept of "enterprise" which comprises both
manufacturing and service entities. It defines medium enterprises for the first time and seeks to
integrate the three tiers of these enterprises, namely, micro, small and medium. The Act also
provides for a statutory consultative mechanism at the national level with balanced representation
of all sections of stakeholders, particularly the three classes of enterprises; and with a wide range
of advisory functions.
Definition of MSMEs in India

(As Per Micro, Small & Medium Enterprises Development (MSMED) Act, 2006)
Manufacturing Enterprises – Investment in Plant & Machinery
Description INR USD($)
Micro Enterprises upto Rs. 25Lakh upto $ 62,500

above Rs. 25 Lakh & above $ 62,500 & upto $
Small Enterprises
upto Rs. 5 Crore 1.25 million
above Rs. 5 Crore & upto above $ 1.25 million &

Medium Enterprises
Rs. 10 Crore upto $ 2.5 million
Service Enterprises – Investment in Equipments
Description INR USD($)
Micro Enterprises upto Rs. 10 Lakh upto $ 25,000
above Rs. 10 Lakh & above $ 25,000 & upto $

Small Enterprises
upto Rs. 2 Crore 0.5 million
above Rs. 2 Crore & upto above $ 0.5 million & upto
Medium Enterprises
Rs. 5 Crore $ 1.5 million
The small and medium enterprises are the spine of economic development in any country and more
so in India with a huge population to be served. Small and Medium Enterprises (SMEs) in India
have seen exponential growth over the last decade.
There are approximately 50 million SMEs in India, exercising frugal management skills and using
local resources to create innovative products and services which cater to India’s growing needs.
These SMEs contribute more than 45 per cent of India’s industrial output, 40 per cent of the
country’s total exports and create 1.3 million jobs every year. SMEs demonstrate high demand for
finance, particularly, debt, to finance their growth. Most lenders prefer traditional-collateral based
lending. Formal sources cater to less than one fourth of the debt total SME financing.
Small and Medium Enterprises (SMEs) demonstrate high demand for finance, particularly debt,
but of their total financial requirement, over three fourth is either self-financed or comes from
informal sources. A report by International Finance Corporation (IFC) analyzed that the total
financing gap in the SME space is Rs. 2.93 trillion. It is this financing gap which formal financial
institutions can viably tap in the near term. With appropriate policy interventions and support to
the MSME sector, a considerable part of the currently excluded demand can be made financially
viable for the formal financial sector.
The objectives for the MSME Sector are:
Promoting competitiveness and productivity in the MSME space • Making the MSME Sector
innovative, improving technology and depth • Enabling environment for promotion and
development of MSMEs • Strong presence in exports • Improved managerial processes in MSMEs
Status and Key Challenges
MSME Sector has been consistently registering a higher growth rate than the overall growth of the
industrial sector. During the first four years of the Eleventh Plan, MSME Sector exhibited a growth
rate of 13 per cent on an average. There are some inherent challenges faced by the sector which
have a strong impact on its growth. These relate to (i) availability of credit and institutional finance
(ii) outdated technology and innovation, (iii) need for skill development and training, (iv)
inadequate industrial infrastructure, (v) marketing and procurement.
3.5 Role of RBI: Tandon Committee

In 1974, a study group was formed and it was led by Mr. P. L. Tandon. It was constituted
for the formation of rules for banks to supervise the use of bank credit for guaranteeing appropriate
end-utilization of credit funds availed by customers. The gathering presented its report in August
1975, which came to be prominently called as The Tandon Committee Report on Working Capital.
Its principle suggestions identified with the norms for stock/inventory and receivables, the way to
deal with credit facilities, subsequent follow-ups of funds and data framework. There were certain
recommendations given by the Tandon Committee.
Recommendations
The following are the recommendations by the Tandon committee:
a) To assess need based credit on a rational basis of the borrower as per their business plans.
b) Bank credit would be additional to the resources of the borrower and not to replace them.
The banks will not finance the whole of the borrower’s working capital needs.
c) Banks should monitor transactions to ensure ethical use of bank credit. They must impose
financial discipline on the borrower’s use of funds.
d) Working capital finance to be given to the borrowers as per industry-wise norms for
holding various current assets like:
Accounts receivables (in months): Sales
Raw materials (in months): Consumption
Stock in Process (in months): Cost of production
Finished goods (in months): Cost of Sales
e) Credit to be made available in different facilities provided by the bank to the borrowers
for example, cash credit, term loans, bills purchased or discounted, letter of credit,
overdraft, working capital credit facility, as per the nature of their requirement.
f) A regular submission of statements which give data regarding the operations of the
business. It includes reports of the financials of the business. It also includes data that is
historical in nature and future projections. This helps banks monitor the functions of the
company and use of the borrowed funds.
g) The committee does not intend to bring in rigidity or impair the normal working of the
banks. It seeks only to provide a structure of support to help regulate regulation functions.
Methods of Lending
a) First method of lending
The commitment of funds by the borrower is fixed at a minimum of 25% of the working
capital gap from the long-term funds. To reduce the dependence of borrowers on bank borrowings
by generating more cash for the purpose, it would be crucial to raise the contribution from 25% of
working capital gap to a relatively higher level. The rest of the 75% of the working capital gap has
to be financed by the bank.
b) Second method of lending
To guarantee that the borrowers upgrade their commitments to working capital and to
enhance the present proportion, it is important to apply the second technique of lending as
prescribed by the Tandon board which would give a current proportion of 1.33:1. The borrower
has to provide a minimum of 25% of current assets. The total liabilities which include bank finance
would not exceed 75% of gross current assets. The borrowers may not be in a position to work
under the second method of lending; the excess should be separated and regarded as a working
capital term advance which ought to be made repayable in installments. For repayment, a higher
rate of interest should be charged. The group suggests the additional interest could be fixed at 2%
per annum over the applicable rate on the cash credit limits. This should be made mandatory for
all borrowers having average working capital limits of INR10 lakhs and above.
c) Third method of lending
The permissible bank finance here is calculated in the same manner like the second method
but after deduction of four current assets from gross current assets. The borrower’s contribution
will be to the extent of the main current assets, and at least 25% of the remaining current assets.
This helps strengthen the current ratio. It provides the large multiplier of bank finance. The core
portion of current assets is assumed to be the level which varies during operations of a business.
This provides cushion against a sudden shortage of materials or extension of the time of delivery.
This level is equivalent to fixed assets and is thus recommended to be financed by long-term
sources.
Chapter 4
INDUSIND BANK
4.1 History of IndusInd Bank
Indusind Bank incorporated in April 1994 derives its name from the Indus Valley civilisation. The
bank was the vision of Srichand P Hinduja, a Non–Resident Indian businessman and head of the
Hinduja Group.
A decade after its incorporation, June 2004, the bank was merged with Ashok Leyland Finance,
which is among the largest leasing finance and hire purchase companies in IndusInd Bank has
emerged as one of the fastest–growing banks in the banking sector in India. Currently it has a
network 180 branches along with 183 ATMs.
IndusInd Bank, which began in 1994, boats of 573 branches, and 1055 ATMs spread across 392
locations of the country. They also have representative offices in London and Dubai, catering to
every need of the customer.
It is the first Indian bank to receive ISO 9001:2000 certification for its corporate office and its
entire network of branches.
The bank has entered into a strategic alliance with Religare Securities for offering a value–added
3–in–1 savings accounts–linked package to customers –– comprising a savings bank account, a
depository account, and an Internet trading account.
Products and Services
In personal banking it offers a wide range of products and services like deposits, loans,
investments, insurance, forex services, demat services, online services and wealth management
services.
In NRI banking it offers money transfer, investment products such as international deposits, mutual
funds, online share trading, etc. The bank also offers property solutions and insurance loans.
4.2 Company Overview

Vision
IndusInd Bank (we) will be:
 A relevant business and banking partner to our clients
 Customer Responsive, striving at all times to collaborate with clients in providing
solutions for their banking needs
 A forerunner in the market place in terms of profitability, productivity and efficiency
 Engaged with all our stakeholders and will deliver sustainable and compliant returns
Mission
“We will consistently add value to all our stakeholders and emerge as the ‘best-in-class’ in the
chosen parameters amongst the comity of banks, by doubling our profits, clients and branches
within the next three years.”
IndusInd Bank stands tall today as one of the reputed banking brands in the country. The bank has
been continuously investing in various advertising & marketing programs to enhance the brand
image & recall. In an endeavor to emerge as best-in-class brand, IndusInd Bank has made
'Responsive Innovation' as a central theme of its brand building program. The Bank has combined
responsiveness with innovation to launch a wide range of banking products and services which are
unique, convenient and very relevant to Indian consumer.
In the recent past, the Bank has launched a host of innovative services like My Account My
Number, Choice Money ATMs, Check-on-Cheque, Cash-on-Mobile, Direct Connect, Quick
Redeem Service and 365 Days Banking.
4.3 Products and Services

Business Banking
IndusInd Bank offers products specific to business banking in the SME Sector. These
products are divided into two categories, according to the loan requirements of the customer. These
two categories are Fund Based and Non-Fund Based products:
 Fund Based lending facility involves a physical outflow of funds. The products include:
a) Cash Credit: It is a short term loan which companies avail for working capital
requirements.
b) Over Draft: It is a current account facility where a customer can avail funds over
the specified limit for a certain rate of interest applicable to the amount of funds.
c) Term Loan: It is a loan for a longer period with a set rate of interest, fixed or
floating, which is paid periodically.
d) Bill Discounting: The bill of exchange is an instrument in writing containing an
unconditional order, signed by the maker, directing a certain person to pay a certain
sum of money only to, or to the order of, a certain person, or to the bearer of that
instrument.
e) Pre/Post shipment facility: pre-shipment finance is essentially working capital
finance extended to an exporter in anticipation of his exporting goods. The basic
purpose is to enable exporters to procure raw materials, processing, manufacturing,
pack, transport and warehouse the goods meant for export. Post shipment finance
refers to the finance provided to borrowers after the goods have been shipped. The
purpose of extending this form is to primarily enhance the exporters’ capability to
offer credit and gain competitive advantage in global trade markets.
 Non Fund Based lending facility does not involve a physical outflow of funds. These
maybe in the form of paperwork. The funds remain intact with the bank. The products
include:
a) Bank Guarantee: It is a guarantee given by a bank on behalf of the debtor, for the
repayment of debt.
b) Letter of Credit: Letter of credit is useful for financing international for trade
security purposes.
Other facilities include Forwards/Derivatives and Buyer’s Credit.
Chapter 5
PROJECT DETAILS
5.1 Project Profile
Credit appraisal process is where a bank ascertains the credit worthiness of a borrower. The
bank takes into the account, the borrower’s financial strength and debt servicing capacity while
approving credit. The procedure includes various steps. It acquires the credit information through
various documents and evaluates the potential borrowers. It helps determine the risk the bank is
likely to face on extending the loan. Despite the loan being backed by collaterals, banks also charge
interest along with principal repayment. An extensive evaluation includes observation of the
financial conditions and the ability of the customer to repay the loan in future.
Credit Appraisal Process under Business Banking Group of IndusInd Bank for the SME
sector is carried out for companies who are not huge in the market and do not have a huge turnover.
They require credit facilities to provide for their expenses, expansion etc. SME is an important
sector as their contribution to the economy and the GDP is extremely high and they represent
majority of the players in the market. They face problems like marketability, technology
upgradation, fund shortage etc. They are unable to expand due to lack of funds and difficulty in
procurement of loans. Volatile market conditions, economic upheavals and demand-supply also
affect the business activities.
The 5’C’s of Credit essential for the purpose of lending are:

a) Character: Character is an assessment of intent behind availing a credit facility. The need
and requirement of a loan along with the CIBIL ratings help determine the character of a
borrower.
b) Capital: It is a study of the money invested in a business by the owner’s to determine short
and long term working of a business. It elaborates upon long and short term plans like
working capital requirements and expansion and diversification plans. The credit limit is
set as per the capital employed in a business.
c) Capacity: It refers to the ability to repay debt. This includes cash flows, transaction history,
historical performance and future projections of a business.
d) Collateral: It is a primary security pledged to a bank. This can be liquidated in case of
default. This helps banks to recover the loan amount in case of default.
e) Condition: The conditions include a study at the macro and micro level of the nature of
business. Macro level includes global, domestic and industry analysis while micro level
includes competitor study, demand and supply of the business.
5.2 Credit Appraisal Process of IndusInd Bank
1) Lead generation – channel salesperson interacts with the customer to understand their
requirements
2) Branch informs BBG on the opportunity and discusses exceptional factors
3) BBG RM visits the customers to understand their requirements and provides customers
with list of documents required for due diligence.
4) The BBG plus the branch channel coordinate with customers to get the docs which once
collected are submitted to credit analyst for preparing sanction proposal.
5) The case is then logged in for appraisal which is done by the credit risk team who evaluate
the case based on pre-determined credit score models and raise observations on key risk
areas.
6) Once observations are reverted back by BBG, risk mitigation is provided on the
observations.
7) On satisfaction of the above, the proposal is sent to the credit committee for approval and
sanction.
8) Post sanction, the business teams undertakes documentation and shares the sanction letter.
9) Credit Admin. Dept. undertakes documentation and shares the sanction letter.
10) The documents are verified and the loan amount is disbursed to the customer.
11) End use verification and monitoring, client servicing etc. is done by the BBG RM.
The process is explained as under:
Step 1: Collection of documents

Relationship Managers (RMs) meet the clients in person to collect information and
documents regarding the credit requirements. Documents collected include financial statements,
bank statement and entity proof: Memorandum of Association and Article of Association, tax/VAT
registration documents, necessary licenses as per the nature of business, title and property deeds.
These documents help prove the legality of the business. The RM then extracts any existing loan
from other banks’ sanction letters. The documents along with the application form is collected by
the RM and submitted to the Business Banking Group at IndusInd Bank.
Step 2: Financial analysis
The business banking team studies the documents collected by the RM. The analysis
includes a study of the industry, due diligence of the promoters, sustainability of the business,
business model and terms and conditions of the existing bank sanction letter. Ratios for financial
analysis are extracted to examine the performance of the business. Ratings from CIBIL and market
reputation are extracted to check for any defaults in the past. Once the business requirements are
assessed, a suitable proposal is sketched up by the credit analyst and sent to the credit risk team.
Step 3: Assessment of limits
The credit risk team examines the proposal sent in by the business banking team and
assesses the limits for the proposal. It may include a product or a set of products suitable for the
business. This demands for an assessment of working capital needs and long term expansion needs
for the business. The most common product is a term loan. It may be short or long term as per the
working capital and capital expenditure requirements of the business. It is for a fixed period of
time unlike Cash Credit and overdraft which is “money on demand” Other products include Letter
of Credit, Buyer’s Guarantee, and other products. Limits are determined as per the working capital
gap analysis and a product customised for the business needs is drawn upon. A section of risk
analysis is created which checks the level of risk in a proposal and its compliance with the RBI
guidelines for credit policies.
Any discrepancies in data and key risk areas are identified and sent as a query to the Business
Banking team for clarification. Once all the data is received and validated, the Credit Risk team
forwards the proposal to the Credit Committee for approval and sanction.
Step 4: Sanctioning authority

The sanctioning authority includes regional, zonal and corporate head as per the amount of the
loan. Committees on all levels are established to check the final proposal for discrepancies and the
need for modifications.
Step 5: Communication to the customer

The sanction letter, once received, is communicated to the customer. The process of loan
disbursement takes place after the customer remits the processing fee and complies with the terms
and conditions as proposed by the bank. The loan is then disbursed to the customer.
Step 6: Follow up
The step includes constant monitoring of transactions and the utilisation of funds. Any
deviations from the usual are to be accounted for by the borrower. The step also involves annual
renewal or termination of loan at the end of the specified time period. It may also include
reassessment of limits if required by the business.
5.3 IndusInd Bank Products

1) SMALL BUSINESS BANKING LOAN
This product caters to working capital, trade related bank financing and short term/long term
requirements of the small business banking customers of the bank. The credit facility granted
under this product would be secured in nature and would be under sole banking arrangement. The
target segment is the small and mid-sized companies/firms, having existing banking relationship
or new to the bank, engaged in import/export, or domestic businesses that have short term working
capital finance requirements subject to aggregate credit exposure of INR 200 lacs for both funded
and non-funded limits.
The customer is shortlisted on the basis of some primary filters “go-no go criteria”.
a) Limit Size – the facility is not less than Rs.25 lacs and not more than Rs.200 lacs.
Maximum exposure per borrower not to exceed Rs.200 lacs
b) Negative Collateral – the Security should not fall in the negative collateral category
c) Approved Locations – the customer’s principal place of business as well as collateral
offered to be in the approved location
d) Borrower Score – the borrower score (as per the scoring model) should be >=40. The
borrower score shall be calculated as per audited financial statements or Auditor certified
provisional financials whichever is latest.
e) Default History – the borrowing entity, promoters or group concern should not have been
reported as Sub-standard/ ‘Willful Defaulter’ as per the CIBIL report/RBI willful
defaulter’s list/Red Flagged Account (RFA) as per CRILIC. The account should not be
restructured account and classified as SMA-II.
The credit facility offered would be in the form of working capital limits and term loan facilities.
They can be broadly categorized into the following 3 packages:
Ex-Im Package Domestic Package Treasury Package
Pre shipment packing credit Cash Credit Forward cover
Post shipment credit Bill discounting Plain Vanilla options
Buyers credit Cash Management services IRS and any other derivative
facility to hedge the credit
facility sanctioned in foreign
currency
Letter of credit Term Loan/WCTL/FCTL
Bank guarantee/SBLC etc.
Collateral Coverage
The recoverable value (DSV) of the collateral is as under:
Collateral DSV
Residential property 80% of CMV
Commercial property 70%
Industrial/Quasi industrial property 60%
Landed property (with boundary) 60%
SBLC/BG 95%
SBLC 90%
Fixed Deposit (in INR) 100% of principal value
LIC 75% of surrender value
NSC/KVP/IVP 80%
Equity shares/MF 50%
MF (Debt) 75%
Limit Assessment
Assessment of working capital facility
The total working capital limits of the client would be assessed as per Turnover method given
below:
The customer will be allowed working capital facility up to 20% of projected turnover as computed
below:
a) Where the turnover is growing in last 2 years, the projected turnover would be considered
as the lower of following two:
- Projected turnover given by the customer
- 130% of the last year turnover as per audited/provisional financials
b) In all other cases, the projected turnover would be considered as lowest of following:
- Projected turnover given by the customer
- Estimated projected turnover (last year turnover*CAGR of past 2 years)
- 130% of the last year turnover as per audited/provisional financials
If there is a decline in the turnover for any 2 years or in current year, ZCA can take a call on such
cases.
Assessment for various facilities
Pre shipment Finance Limit
a) Exports sales less margin @ 20%
b) Inventory Holding Days (Raw material
+ WIP + Finished goods)
c) Creditors payable days
d) Operating cycle in days B-C
e) Pre-shipment/EPC limits [A/365]*D
Post shipment finance limit

Export Sales 100
Export realization days 60 days
Turnover (365/60) 6
Assessed Limit 100/6=16.67
Tenure of PC and PS should correlate with operating cycle and export realization days
respectively.
LC limit requirements
Raw material purchases under LC Rs. 100
LC usance period 60 days
Lead time 30 days
Total LC period 90 days
LC limit 100/365*90=24.65
BG limit assessment
It is purely a function of the customer’s needs.
Term Loan assessment

Term loan facility would be assessed on the estimated cost of capital expenditure to be done by
the company. 20% promoter’s margin is to be maintained on overall cost of capex.
The term loan eligibility will be calculated based on the following formula:
Expected Monthly Income = (past 2 year average EBITDA*Imputed Factor)/12
Less: Expected monthly interest obligations on Working Capital Facilities
(CC/OD/PCFC/WCDL)
Less: Expected monthly EMI of all existing and new term loans (other than proposed loan)
Loan eligible = balance amount would be the maximum EMI available for proposed loan hence
eligible loan amount would be discounted present value of the future EMIs during the tenure of
the loan at the applicable rate of interest.
Imputed factor = 1.75 times if there are no deviations on Leverage and Gearing. In all other cases
it would be 1.25 times.
2) BUSINESS BANKING LOAN

This product caters to working capital and trade related bank financing requirements of the
Business Banking clients of the bank. The products will be short term and long term in nature and
will be completely secured. They can broadly be classified into the following three packages:
Ex-Im package Domestic Package Treasury Package

Pre shipment packing credit Cash credit Forward Cover
Post shipment credit Overdraft
Buyers credit (upto 180 days) CMS
Letter of Credit Bill discounting
Term Loan – eligibility to be
calculated as per separate
Bank Guarantee PDD for Term Loans
The target segment is the existing Business Banking entities of small and mid-sized companies
having export/import, or domestic businesses that have short term working capital finance
requirements or prospective clients with similar profiles such that the maximum exposure stands
limited to Rs. 500 lacs.
The lead is generated by Business Banking RM’s or other RM’s or other RM’s of liabilities/trade
verticals. The eligibility and scoring is checked for the client as per the defined client eligibility
and elimination criteria. Excel based scoring tool is used to get the scorecard output. Subsequent
negotiation with client on facility structure and related aspects will be anchored jointly by the RM
and the regional relationship manager. The RM/credit analyst at the branch will forward the
completed Credit Application Form and process note to the Regional/Zonal/Corporate Office
Credit Committee along with the relevant supporting documents, as per the delegation of power
for sanction.
Relationship Initiation and ownership resides with the Business Banking RM. Credit
administration is handled by the CAD team. The account processing, maintenance and loan
disbursement is done by Credit Administration Group; however the Customer ID/account opening
is handled by Operations team as per the existing process only. The account health monitoring is
carried out as per defined formats and frequencies by RM along with risk, credit analyst and CAD.
Eligibility Criteria, Scorecard and Limit Assessment

Eligibility
The following entry level criteria needs to be complied with before login:-
Particulars Minimum Entry Ratios
Gearing <= 4.00
Leverage <= 6.00
Current Ratio >= 1.00
ICOR >= 1.25
Once the client is found to be eligible, the elimination scorecard will be applied. Based on the
score the client would be categorized into three categories viz.
Category 1 – Application will be processed further and category 1 collateral norm will be applied.
Category 2 – Application will be processed further and category 2 collateral norms will be applied.
Category 3 – Application form will be declined owing to the low score.
Parameter Total Weightage Minimum absolute score in
all category before login
Transaction Risk 20% 6 (30%)
Business Risk 20% 6 (30%)
Management Risk 20% 6 (30%)
Financial Risk 40% 20 (50%)
Minimum Overall Score – 40
Minimum marks to be scored for proceeding is 40% in aggregate and minimum 30% in each
segment individually i.e. Transaction History, Business Risk, Management Risk and minimum
50% in Financial Risk. The minimum acceptable score under each category will be:
Category 1 – Score above 70
Category 2 – Score between 40 and 70
Category 3 – Score below 40 (eliminated)
Category Score Grade
1 91 and above BB1
81 to 90 BB2
71 to 80 BB3
2 61 to 70 BB4
51 to 60 BB5
41 to 50 BB6
3 21 to 40 BB7
0 to 20 BB8
Limit Assessment
Maximum fund based facility (working capital) exposure that can be taken will be the lower of
the two viz.
1. 20% of the projected turnover
2. 75% of the projected working capital gap
However basis the facts and justification for the case MPBF can be considered.
Non fund based facility exposure to be need based on the projected business volumes. CMS limit
exposure to be need based on the projected local plus upcountry Cheque collections. Foreign
Exchange/Derivative limits as per projected underlying exposure.
Aggregate Exposure (Funded and Non-Funded) above Rs.500 lacs will be considered on the basis
of regular assessment CBG – SME model, instead of template lending.
The scoring model for Business Banking Loans is attached in the Annexure.
Assessment for various facilities

Example for working out Export Packing Credit need
Pre shipment Finance limit
Raw Material =100
+stores & spares =10
+work in progress =25
+finished goods =25
+advance paid to supplier =10
-creditors for raw material =50
= amount eligible for EPC =120
Less: Margin defined for the client @10% =12
Less: Advance collected from the buyer
= EPC limit extended =108
Post Shipment finance limit

Export Sales =100
Average Credit Period =60 days
Turnover (360/60) =6
Assessed Limit =100/6 = 16.67
LC Limit requirements
Value of raw materials to be consumed =100
Value of raw material to be bought on credit =80
Time for LC advising + shipment time + credit period =60 days
Turnover =360/60 = 6
LC Limit =80/6 = 13.3
BG limit assessment
It is purely a function of the client’s needs.
Collateral and Margin Requirement
Category 1 Category 2
Security Coverage  Acceptable current assets  Acceptable current assets
>=100% of limit >=100% of limit
 Additional real estate  Real estate collateral cover
Collateral Cover >= 75% >=100% (DSV) of limit as per
(DSV) of limit as per collateral type
collateral type  Life Insurance/Liquid
 Life Insurance/Liquid Securities cover to replace
Securities cover to replace Real estate collateral cover as
Real estate collateral cover per extant LAS guidelines
as per extant LAS guidelines  SBLC cover from acceptable
 SBLC cover from acceptable banks to replace the Real
banks to replace the real estate cover.
estate cover.
Owner’s margin Fund based facilities = 25% Fund based facilities = 25%
Non fund facilities = 15% Non fund facilities = 20%
Real Estate  Residential/Commercial  Residential/Commercial
Collateral Types properties/land properties properties/land properties
with boundary wall. with boundary wall.
 Industrial land and Building  Industrial land and Building –
– only is such cases where only is such cases where the
the actual user of Industrial actual user of Industrial Land
Land is our borrowing entity. is our borrowing entity.
Charge Seniority Exclusive for IndusInd Bank Exclusive for IndusInd Bank
Collateral As per Distress Sale Value specified As per Distress Sale Value specified
Valuation against each security mentioned against each security mentioned
below (common for all clients, below (common for all clients,
irrespective of score): irrespective of score):
Collateral Security Particulars DSV
Residential Property 80% of CMV
Commercial Property 70% of CMV
Industrial/Quasi Industrial Property 60% of CMV
Landed Property (with boundary) 60% of CMV
SBLC/BG (in INR) 95%
SBLC (in FX) 90%
Fixed Deposit (in INR) 90%
LIC 75% of surrender value
NSC/KVP/IVP 80%
Equity Shares/MF (equity) 50%
MF (debt) 75%
3) SECURED EMI PRODUCT PROGRAM GUIDELINES

These are Secured Term Loans for a specific sum of money repayable over a pre-determined
period of time. These loans are extended to businesses (Manufacturers, Traders and the Service
Industry) with proven Business vintage, Stability and financial strength. These loans shall be
extended for business purposes including expansion and long-term working capital needs. These
loans present a unique window of opportunity for generation of incremental revenue given the
present demand for credit by the SME segment with limited access to organised finance. The cases
are assessed with special emphasis on business vintage, net worth, stability, past track record,
detailed financial analysis based on turnover, profitability and cash flow analysis. Further, as the
reliability of financial statements is low, imputed profit margins shall be used for calculating
income and repayment ability instead of relying solely on declared income.
5.4 Documents required for Processing of the case

a. Last 3 Years Audited Financials. This should include the Audit report, P&L, B/S,
Notes to accounts, all annexure including Debtor/Creditor list, Form 3CD & 3CB
with annexures.
b. Company Vat Certificate, and Director Pan card with address proof..
c. Pan Copy, Address Proof and IT returns of all guarantor’s with computation and
complete annexure (with CPC acknowledgement).
d. VAT return from APRIL 2016- MAR 2017
e. Sales Figures Month wise from APRIL 2017(Tally Printout)
f. Sanction Letter along with Repayment track record of all Term Loan availed, If
any.
g. Orders in hand.
h. Brief Profile on Back Ground of Company, Promoters, Products, Operational
Activity etc.
i. One set of property documents (Sale deed, Mother deed, Encumbrance certificate,
Khata Certificate and Extract & Tax Paid Receipt).
j. Top 5 customers and Top 5 Suppliers.
Average Reference
Name of % of Total credit Person/number
Customer Relationship vintage Sales period
Average Reference
Name of % of Total credit Person/number
Customer Relationship vintage Purchase period
5.5 Tools for Financial Analysis

Credit involves financial statement analysis. This encompasses the study of financial
statements of a company. Trend analysis and proportion analysis is undertaken. Trend analysis
involves turnover and cost analysis, liquidity analysis, asset profile etc. Proportion analysis
requires the study of ratios and days involved in financial analysis of the borrower.
5.5.1. Ratios
The following ratios hold importance during credit appraisal:
a) Current ratio: measures a company’s ability to repay current liabilities during a business
cycle. Ideal current ratio is 2:1; however, banks like to maintain a minimum margin of 25%
of current assets from long term sources. Ideal ratio for banks is 1.33:1.
Current Ratio = Current Assets/Current Liabilities
b) Quick Ratio: It is the same as current ratio but it does not include current assets which are
not as easy to liquidate, like inventory. Ideal ratio is 1.5:1.
Quick Ratio = (Cash and cash equivalents + short-term investments + Current
receivables)/ Current Liabilities
c) Debt to Equity: portrays the extent to which the operations of the company are financed
through debt, rather than equity. It shows the claim of creditors over the assets of a
company. A lower ratio is good for a company.
Debt to Equity = Total Liabilities/ Total shareholders’ equity
d) Total Outside’s Liabilities/ Total Net Worth: It is a measure of a company’s financial
leverage. The outsider’s liabilities in accordance are set against the total net worth of a
business.
e) Interest Service Coverage Ratio: It helps assess the ability of a company to pay the interest
on the given debt.
ISCR= EBITDA/Interest Expense
f) Debt Service Coverage Ratio: It helps calculate the ratio of cash available to service debt.
It includes servicing of interest, principal and lease payments. A higher ratio is favourable.
DSCR= Net operating income/Debt Services
Where,
NOI= Net Income + Amortisation and Depreciation + Interest Expenses + Other non-
cash items.
Debt Services= principal repayment + Interest Payment + Lease payments
5.5.2 Days
a) Inventory Turnover days:
Inventory Turnover days= Cost of Goods Sold/ Average Inventory
b) Debtor’s Turnover days:
Debtors Turnover days= Credit Sales/Average Receivables
c) Creditor’s Turnover days:
Creditor’s Turnover days= Credit Purchases/Average Accounts Payable
d) Working Capital Cycle:
Working Capital Cycle= (Average Working Capital x 365)/Annual Sales Revenue
5.6 Format for Assessing Profit and Loss A/C & Balance Sheet
FOR Business Banking
0
(Rs. In
Input Sheet lacs)
PLEASE INPUT FINANCIALS IN COLOURED CELLS
Assessment of working capital requirements
Form II Part A- Operating Profit & Loss account
Months for compute (annualisation) 12
Last year of audited results
-2 -1 0 1 2
Estima Projection
Audited Audited Audited tes s
Year ended (Date/ Month/Year)
Actual duration of Accounting Period
(months) 12 12 12 12 12
INCOME
Gross Sales :
Manufacturing:
- Domestic
- Export
Trading
- Domestic
- Export
Sub Total (Gross Sales) 0.00 0.00 0.00 0.00 0.00
Less Excise Duty & Sales Tax

(Manufacturing)
Less Duty & Sales Tax (Trading)
Net Sales 0.00 0.00 0.00 0.00 0.00
Export Incentives
Duty Drawback
Commission / Brokerage received
Other Operating Income

Growth In Sales- CAGR 0
Total Operating Income 0.00 0.00 0.00 0.00 0.00
Profit on sale of assets
Interest from investments
Forex gains on capital items
Non-op. income from subsidiaries/
associates
Tax Refund
Other Non Operating Income
Profit on sale investments
Other Financial Income
Total non-operating Income 0.00 0.00 0.00 0.00 0.00
TOTAL INCOME 0.00 0.00 0.00 0.00 0.00
EXPENDITURE
Raw materials consumed - Imported
Opening Stock 0.00 0.00 0.00 0.00 0.00
Add: Purchases
Less: Closing Stock
Sub Total (Raw materials consumed -
Imported) 0.00 0.00 0.00 0.00 0.00
Raw materials consumed - Indigenous

Opening Stock 0.00 0.00 0.00 0.00 0.00
Add: Purchases
Less: Closing Stock
Sub Total (Raw materials consumed -
Indigenous) 0.00 0.00 0.00 0.00 0.00
Power and fuel

Direct labour and wages
Consumable stores
Repairs & maintenance
Packaging expenses
Other manufacturing expenses
Sub Total 0.00 0.00 0.00 0.00 0.00

Add: Op. Stock of WIP 0.00 0.00 0.00 0.00
Less: Cl. Stock of WIP
Cost of Production 0.00 0.00 0.00 0.00 0.00
Opening Stock (Trading Activity) 0.00 0.00 0.00 0.00

Add: Purchases (Trading Activity)
Less: Cl. Stock (Trading Activity)
Sub Total (Trading Activity) 0.00 0.00 0.00 0.00 0.00
Opening F.G. (Manufacturing) 0.00 0.00 0.00 0.00
Closing F.G. (Manufacturing)
Cost of Goods Sold 0.00 0.00 0.00 0.00 0.00
Personnel Cost
Gen. & Administration Exp
Selling exp.
Other Expenses
Depreciation/ Amortisation
Operating Provision
Cost of Sales 0.00 0.00 0.00 0.00 0.00
Interest
Non Operating Expenses
Loss on sales of investments
Loss on sale of assets
Prem. Expenses w/off
Other Non Operating Expenses
Other financial expenses
Non-op. Losses from subsidiaries/
associates
Sub-total : Total Non-operating
expenses 0.00 0.00 0.00 0.00 0.00
Total Expenses 0.00 0.00 0.00 0.00 0.00
Profit Before tax 0.00 0.00 0.00 0.00 0.00
Prior Year Adjustments (+/-)

Cash Adjustments (+/-)
Non Cash Adjustments (+/-)
Extraordinary Expenses
Extraordinary Income
Provision for taxation

----- Provision for Current Tax
----- Provision for Fringe Benefit
Tax
----- Provision for Deferred Tax
Minority Interest
Net Profit After tax 0.00 0.00 0.00 0.00 0.00
Cash Profits 0.00 0.00 0.00 0.00 0.00
Adjusted PAT for the year 0.00 0.00 0.00 0.00 0.00
(excluding Prior year items)
Appropriation of Profits:
Dividend:
Equity Capital
Preference Sh. Capital
Dividend tax
Transfer to/ (from) General Res.
Other appropriations
Partners' withdrawal
Net Profit after appropriations 0.00 0.00 0.00 0.00 0.00
Balance brought forward from previous
year 0.00 0.00 0.00 0.00
Balance in P& L Account 0.00 0.00 0.00 0.00 0.00
BALANCE SHEET
LIABILITIES:
Equity Share Capital (only for
companies)
Share Capital (Paid-up)
Share Application (finalised for allotment)
Preference share capital (> 12 years)
Sub Total (Share Capital) 0.00 0.00 0.00 0.00 0.00
Reserves & Surplus:

Partners capital / Proprietor's capital
Balance in P&L Account 0.00 0.00 0.00 0.00 0.00
General Reserve
Revaluation Reserve
Share Premium
Capital subsidy
Share Warrant
Debenture Redemption Reserve
Bond Redemption Reserve
Capital Reserve
Others
Sub-total (R&S) 0.00 0.00 0.00 0.00 0.00
Minority Interest
Term Liabilities:
Secured:
Interest bearing Secured Debt
Debentures (due beyond a year)
Foreign Currency Convertible Bonds
External Commercial Borrowings
All Local Currency Term loans (Due
beyond a year)
All Foreign Currency Term loans (Due
beyond a year)
Other secured liabilities
Total Interest bearing secured Debt 0.00 0.00 0.00 0.00 0.00
Non- Interest bearing Secured Debt

Project/ Capital creditors
Long term trade advances
Other secured liabilities
Total Non-Interest bearing secured Debt 0.00 0.00 0.00 0.00 0.00
Total Secured Loans 0.00 0.00 0.00 0.00 0.00
Unsecured: Interest bearing Unsecured
Debt
Preference share capital
All Local Currency Term loans (Due
beyond a year)
All Foreign Currency Term loans (Due
beyond a year)
Subordinated unsecured debt
----- ---- Loans from Promoters/Partners
---- ----- Due to group/associates
companies
Un- Subordinated unsecured debt
companies
Public Fixed Deposits
Other unsecured liabilities
Total Interest bearing Unsecured Debt 0.00 0.00 0.00 0.00 0.00
Unsecured:
Non-Interest Bearing unsecured loans

Subordinated unsecured debt
companies
Un- Subordinated unsecured debt
companies
Other unsecured liabilities
Provisions (including operating
provisions)
Total Non-Interest bearing unsecured
debt 0.00 0.00 0.00 0.00 0.00
Deferred Tax Liability
Current Liabilities:
Creditors for purchases

- Under L/C
- Others
- Group Companies
Creditors for expenses
Loans & advances (interest bearing)
- Others
- Group Companies
- Promoters/Partners
Loans & advances (non interest bearing)
- Others
- Group Companies
- Promoters/Partners
Statutory liabilities due within one year
Provisions
- Tax
- Dividend
-Others
Share Application money (allotment not
finalised)
Bank Borrowings - From our Bank
Bank Borrowings - Supplier's Bills
Discounted from our Bank
Bank Borrowings - From other Banks
Bank Borrowings - Supplier's Bills
Discounted from other Banks
Commercial Paper
Other short term borrowings (non Interest
bearing)
Other short term borrowings (interest
bearing)
All LT Liabilities due within one year (non
interest bearing)
All LT Liabilities due within one year
(interest bearing)
Related Progress (WIP) payment
Other Current Liabilities (interest bearing)
Other Current Liabilities (non-interest
bearing)
Sub Total (Current Liabilities) 0.00 0.00 0.00 0.00 0.00
TOTAL LIABILITIES 0.00 0.00 0.00 0.00 0.00

-2 -1 0 1 2
Estima Projection
Audited Audited Audited tes s
ASSETS
Fixed Assets:
Leasehold land
Freehold land
Buildings
Plant & Machinery
Ships & Aircrafts
Furniture & Fixtures
Vehicles
Other Fixed assets
Gross Block 0.00 0.00 0.00 0.00 0.00
Less: Accumlated Depreciation
Net Block 0.00 0.00 0.00 0.00 0.00
Capital Work in progress
Investments and Non- Current assets :

Investment in Subsidiaries (above 50%
and non consolidated)
------- Investment
------- Loans & Advances (long
term)
------- Debtors over 6 months
Investment in Associates (20% to 50%)
------- Investment
term)
Investment in Associates <20%
------- Investment
term)
Other Financial Investments
Loans to Promoters/ Partners
Debtors over 6 months (other than Group)
Deferred Receiveable (not due within 1
year)
Margin Money with Banks
Other loans and advances (non current in
nature)
Other Non Current Assets
Total investments and non current
assets 0.00 0.00 0.00 0.00 0.00
Deferred Tax Asset
Current Assets :
Inventory
Raw Materials - Imported 0.00 0.00 0.00 0.00 0.00
Raw Materials - Indigenous 0.00 0.00 0.00 0.00 0.00
Work in process 0.00 0.00 0.00 0.00 0.00
Finished Goods (incl Traded Goods) 0.00 0.00 0.00 0.00 0.00
Packing Materials/Stores & Spares
Others
Sub total (Inventory) 0.00 0.00 0.00 0.00 0.00
Debtors < 6 mths.

- Export
- Domestic
- Group Companies
Cash & Bank Balances
Loans & Advances:
Deposits
Advance payment of tax
Advances to suppliers
Other loans & advances (current in nature)
Deferred receivable (due within 1 yr.)
Loans & Advances to group concerns
Loans to Promoters/ Partners
Sub total (Loans and Advances) 0.00 0.00 0.00 0.00 0.00
Margin money with banks
Sub total 0.00 0.00 0.00 0.00 0.00
Other Current Assets
Marketable Securities
Total Current Assets 0.00 0.00 0.00 0.00 0.00
Intangible Assets:
Goodwill
Patents & trademarks
Any other intangible
Gross Intangibles 0.00 0.00 0.00 0.00 0.00
Less : Accumulated Amoritisation
Net Intangibles 0.00 0.00 0.00 0.00 0.00
Miscellaneous & Preliminary Exp. Not

w/off:
Accumulated Losses
Preliminary expenses
Miscellaneous expenditure
Other deferred revenue expenses
Sub total 0.00 0.00 0.00 0.00 0.00
TOTAL ASSETS 0.00 0.00 0.00 0.00 0.00
DIFFERENCE IN B/S 0.00 0.00 0.00 0.00 0.00

(If there is any difference present in the above row, the software should throw a
message and also should not permit closure of the input sheet)
If there is any project under implementation, then the input sheet and output sheet will have to be
separately filled-in for (a) Project only and (b) The Company as a whole including Project as well
as existing businesses.
Other Details
Repayment of Long term Loans
ADDITIONAL INFORMATION
Contingent liabilities
Bills discounted - Under LC
Bills discounted - Others
Arrears of depreciation
Guarantees issued (relating to business)
Guarantees issued (for group companies)
Disputed Liabilities
Unhedged Forex Exposure (MTM Losses)
All other contingent liabilities
Gross Capital Expenditure (investment

made in Gross Fixed assets during the
year)
Number of employees
Total Interest bearing debt 0.00 0.00 0.00 0.00 0.00
Capitalised Interest
Annual Operating Lease
Information regarding sales volume
Licensed Capacity (in units)

Installed Capacity (in units)
Utilised Capacity (in units)
Manufacturing: -2 -1 0 1 2
- Local
- Export
Trading:
- Local
- Export
Total 0.00 0.00 0.00 0.00 0.00
YTD Performance Rs. in lacs

Correspo
nding
YTD YTD Net
(present (Previous Change
Particulars year) year) %
Sales N/A
PBIT N/A
TNW N/A
5.7 Credit Scoring Models

Various credit scoring models are used for the different products offered by IndusInd Bank.
1) Small Business Banking Loans – caters to small and mid-sized companies/firms, having
existing banking relationship or new to the bank, engaged in import/export, or domestic
businesses that have short term working capital finance requirements subject to aggregate
credit exposure of INR 200 lacs for both funded and non-funded limits. The template of
the scoring model is attached in the annexure.
2) Business Banking Loans – caters to small and mid-sized companies having export/import,
or domestic businesses that have short term working capital finance requirements or
prospective clients with similar profiles such that the maximum exposure stands limited to
Rs. 500 lacs. The template of the scoring model is attached in the annexure.
3) Where the turnover exceeds 25 crore, the bank makes use of RAM rating software. RAM
is internal rating software designed to assist a bank or financial institution in complying
with the requirements under the internal ratings-based approach of the Basel II Accord.
RAM facilitates credit risk appraisal of a borrower through a judicious mix of objective
and subjective methodologies and acts as a comprehensive database for all borrower-
specific information. RAM is the largest deployed internal risk rating solution in India.
The most common models used are:
- Business Banking Model: All the entities (including service entities) having turnover
less than or equal to Rs. 25 crores.
- Trader Banking Model: Trading Entities with turnover between Rs. 25 crores and
Rs.200 crores.
- SME Banking Model: Manufacturing Entities with turnover between Rs. 25 crores and
Rs. 200 crores.
- Service Provider Model
The templates of the scoring model are attached in the annexure.
Chapter 6
OBSERVATIONS
AND ANALYSIS
6.1 Case Study of ABC Ltd.:
History of applicant: Private Limited Company

Name of the Company: ABC Ltd.
Nature of work: Managing rice mills
Previous loan: Taken over from Corporation Bank.
Existing loan: IndusInd Bank
Purpose of Credit: Expansion of business and customer base
Type: Annual Renewal cum Enhancement
Primary Security: Hypothecation of current assets and book debts
Collateral Security: Commercial Building
Business Highlights
ABC Company was established in the year 2007 and was converted to private limited company
in the year 2009. Their business is to manage rice mills in and around Hubli. The directors are
from a business community. The promoters of the company have more than 20 years of
experience in this industry and its’ supporting activities and products. The partners are
financially sound and possess the appropriate skills for managing the unit. Relationships with
both the customers and the suppliers are maintained.
Financials
Year ending : 31st March 2014 2015 2016 2017 2018
(Rs. In Crore) (Audited) (Audited) (Audited) (Estimated) (Projected)
Number of months 12 12 12 12 12
Net Sales 32.19 36.65 39.86 42.14 49.53
PBDIT 1.82 2.75 2.63 5.46 6.13
PBDIT Margin (%) 5.65% 7.50% 6.60% 12.96% 12.38%
Interest cost (including
interest
to related parties) 0.95 1.14 1.21 1.62 1.73
Depreciation + Prel. Exp. 0.12 0.14 0.27 0.37 0.29
w/o
Operating Profit after
interest
and depreciation 0.75 1.47 1.15 3.47 4.11
Net Non- operating income 0 0 0 0 0
PAT 0.54 1.04 0.93 2.21 3.01
PAT Margin (%) 1.68% 2.84% 2.33% 5.24% 6.08%
Cash Profits Pre Dividend 0.63 1.12 1.17 2.59 3.23
Adj. Cash Profits (Related
party Exp.) 2.05 2.84 2.56 4.09 4.68
Gross Fixed Assets 0.56 0.59 0.89 1.14 0.73
Net fixed assets 0.56 0.59 0.89 1.14 0.73
Paid up Equity Capital 0.5 0.5 0.5 0.5 0.5
Tangible Net worth (TNW) 2.76 3.79 4.78 8.12 11.16
Adjusted TNW (ATNW) 6.49 8.26 7.91 11.69 13.56
Long term Debt (A) 0.01 0 0 0 0
Short term debt (STD)
(other
than regular WC) (B) 0 0 0 0 0
Working Capital Bank
Finance
(C) 1.8 4.09 3.39 7.71 11.79
Total Debt (other than quasi
Equity) (A+B+C) 1.81 4.09 3.39 7.71 11.79
Total Outside liabilities 9.69 12.23 16.45 15.02 19.64
(TOL)
TOL/TNW 3.51 3.23 3.44 1.85 1.76
Total Debt/TNW 0.66 1.08 0.71 0.95 1.06
Total Debt/ATNW 0.28 0.50 0.43 0.66 0.87
TOL/ ATNW 1.49 1.48 2.08 1.28 1.45
Contingent liability 0 0 0 0 0
Current Assets 15.43 17.29 22.97 24.76 29.16
Current Liabilities 9.86 12.53 16.14 15.09 19.46
Current Ratio 1.56 1.38 1.42 1.64 1.50
DSCR 3.09 5.47 2.71 2.69 3.09
Interest Coverage ratio 1.89 2.53 2.46 3.21 3.62
Total Debt/ PBDIT 0.99 1.49 1.29 1.41 1.92
Total Debt/ Adj. Cash 0.88 1.44 1.32 1.89 2.52
Profit
Average Payment Period
(Days) 80 75 103 56 43
Average Collection Period
(Days) 117 90 82 91 89
Average Holding Period
(Days) 91 97 149 121 115
Financial Highlights
The company has achieved net sales of Rs.39.86 Cr for FY16. The revenue of the company has
achieved a decent growth rate.
Their share in the market is improving on a yearly basis, as seen and verified on the basis of
VAT returns filed by ABC Pvt. Ltd.
Profitability is shown to be increasing at a steady pace, which can be attributed to increased
market share and increase in the respective revenues over the years.
However, as seen in the financials above, inventory holding period and the average collection
period are proving to be major concerns for the company as they are higher than the industry
norms.
Credit Appraisal as per Rating Schedule

BUSINESS RISK Weightage 35%
Criteria Weightage Score Description
Past financial
indicators -
Growth in Sales
(Y-o-Y) 20%
8 If increased over 25%
6 Between 15% to 24.99%
4 Between 5% to 14.99%
1 Less than 1%
0 Negative
Past financial
indicators -
Growth in PAT
(Y-o-Y) 15%
6 Between 15% to 24.99%
1 Less than 1%
0 Negative
Past financial
indicators -
Growth in TNW
(Y-o-Y) 20%
6 Between 15% to 19.99%
3 Between 10% to 14.99%
0 Less than 5%
Buyer Risk 15%
Sales are on cash basis or no single
buyer accounts for more than 10% of
the total sales and switchover risks
for a buyer are high/ seller has holdup
8 power. Seller is a monopoly supplier
No single buyers account for more
than 25% of the total turnover and
buyers will have significant
6 switchover risks
If any one of the customer accounts
for 25% to 50% of the turnover
turnover and if customers can switch
4 suppliers without significant cost
If any one of the customer accounts
2 for 50% to 75% of the turnover
Dependency on 1 or 2 buyers/ single
buyer accounts for more than 75% of
the turnover. History of disputes/
cancellation of orders by major
1 buyers.
Product Risk 15%
Sole selling agent with exclusive
territory/ trading in niche products/
8 established brand of large corporate/
No single Product constitute sales of
25% of the total turnover
Sale agent but not sole in the area/

Single product constitute 25% to 50%
6 of the total turnover
Single product constitute sales of
3 50% to 75% of the total turnover
Single product constitute sales of
1 more than 75% of the total turnover
Working capital
management 15%
FINANCIAL
RISK Weightage 30%
Criteria Weightage
Net Profit Margin 25%
Current Ratio 15%
Interest bearing
Debt/ EBIDTA 20%
Total means/
Total Assets 25%
Interest coverage 15%
MANAGEMENT
RISK (25%) Weightage 25% Score
Criteria Weightage
Years in same
business 25%
8 More than 10 years
6 Between 7 to 10 years
1 Less than 1 year/ Newly established
Payment
information 25%
The information available reflects
positive payment (including payment
of statutory dues) behavior. No
8 payment delays in last 2 years
The information available reflects
6 positive payment (including payment
of statutory dues) behavior with very
minor payment delays in last 2 years
Though the information available do
not reflects a very high positive
payment (including payment of
statutory dues) behavior. However,
there are few instances of delays with
3 none being significant
0 Significant instances of delay
Banking
relationship 15%
Relationship with the bank for more
8 than 10 years
Relationship with the bank between
6 6-10 years
Relationship with the bank between
3 2-5 years
0 Less than 2 years
Management
Commitment and
resilience 15%
Promoters Networth is over 150% of
8 the total banking facilities
Promoters Networth is between 100%
6 to 150% of the total banking facilities
Promoters Networth is between 50% to 100% of the
total banking
4 facilities
Promoters Networth is below 50% of
2 the total banking facilities
Group Profile 10%
Group companies/ Parent company
have provided their Corporate
8 guarantee/ Letter of comfort
Group companies/ Parent company
have substantial means to support the
6 borrower in the event of distress
Group companies/ Parent company,
though the financial position is tight,
can raise funds to support the
3 borrower
No group support is evident or part of
0 weak group
Information
Quality 10%
Information on financials, stock
statement etc submitted is adequate
and appropriate. Submitted on or
8 before the due date
and appropriate. Submitted within 30
6 days after the due date
and appropriate. Submitted beyond
3 30 days of the due date
Poor financials etc and unreasonably
0 delayed submission
Chapter 7
FINDINGS AND
CONCLUSION
7.1 Findings
The Bank considers the following risks of the credit appraisal process like Financial Risk,
Operational Risk, Industry Risk and Market Reputation. IndusInd Bank follows a very strict
procedure of Credit Appraisal. The project explains and portrays the relationship between credit
and risk and emphasizes on the need for appraisal of credit. Before the sanction of a loan to any
customer, the case is examined thoroughly and steps are taken to ensure that the data gathered
about the customer is genuine. Meetings between the Relationship Manager and the customer show
that IndusInd Bank strives to not only maintain a healthy and sustainable relationship with its
clients, but also work on increasing its potential client base.
IndusInd Bank does not sanction a loan if the borrower does not pledge collateral. Financial
performance of companies in the past, along with the projections, is given most importance in case
of the approval of loan. Deviations upto 2 from the regular maybe permitted at the discretion of
the manager; over and above two deviations, the proposal is rejected. Measurement of risks is done
through internal rating models of the bank and through RAM provided by CRISIL. Post the
analysis of the product guidelines and rating scales, we can concur that the loan is sanctioned on
the basis on genuine and thorough analysis of the information provided and on investigation by
the bank.
7.2 Conclusion
The credit appraisal process carried out at IndusInd Bank is sound and bank has good
parameters to appraise the project. In IndusInd Bank the credit appraisal is done by the study
involves the evaluation of management, technical feasibility, financial viability, risk analysis and
credit rating. Some of the important conclusions are based on opinions generated by existing banks
and on interactions with customers, suppliers and employees of IndusInd Bank.
After the analysis of the case study, the point is further reiterated that a loan is sanctioned
only on the basis of thorough study of the borrowers’ financials and the subsequent assessment of
financial, managerial, business and technical/transaction risk. Only if the go/no-go criteria and the
product guidelines etc. are satisfied, then only shall the loan be approved and the sanction letter
generated.
7.3 Learning Outcome
Over and above the findings generated through the tenure of this project, my further learning’s
include:
a) A generic understanding of the banking industry and its operations, subject to the SME
sector.
b) An overview of the products offered by IndusInd Bank and the procedures followed by the
bank. An understanding of the different forms of SME credit products offered by IndusInd
Bank.
c) The credit appraisal process and its importance and why banks need to undertake this
diligently.
d) An overview of the documents required IndusInd Bank for sanctioning the loans.
e) Developed an understanding of the various rating models for different classes of customers.
f) Impact of RBI regulations on the banking sector.
g) Application of ratios calculated for financial analysis.
h) IndusInd Bank, Business Banking Group, has maintained Low NPA due to their strict
adherence to the rating scales and product guidelines. Also they maintain a minimum
collateral requirement of 80% which further solidifies their position.
i) Case study analysis helped in developing a more practical understanding of the project and
to study each case on varying criteria.
Chapter 8
ANNEXURE
8.1 Template for Small Business Banking Loan
Scoring Model for Small Business Banking Loan
Name:
Constitution
Line of Activity
Industry Code
1 Managerial/Promoter Experience in this line of business Allocated

Score
>15 years 5
5 to 15 years 4
3 to 5 years 1
<3 years 1
2 Succession Plan Allocated

Score
Promoters legal descendent(s) is/are also Partner/Director in the 5
business
Promoters legal descendent(s) is/are involved in business only in 4
executive capacity
Promoters legal descendent(s) is/are adult but not involved in 2
business (borrowing equity) in any way
Promoters don’t have any legal descendant 0
3 Collateral Type Allocated

Score
Residential (Self Occupied) with >70% DSV coverage or Cash 5
Collateralized
Only industrial property/vacant land as collateral 2
Others 3
4 Collateral Coverage On DSV basis Allocated

Score
More than 200% 5
101%-200% 3
80% - 100% 2
<80% 1
5 Cheque Bouncing (Inward Cheque bounce due to Allocated
insufficient funds, History - 6 months, non EMI) Score
NIL 5
Upto 10 4
More than 10 upto max 2% of cheque issued 2
more than 2% of the cheque issued 1
6 Credit Summations (credit summations (6 months) Allocated

annualized as %age of yearly sales turnover excluding Score
contra entries of cheque returns etc.)
Credit summations between 90-100% of turnover 10
Credit summations between 70-89% of turnover 5
Credit summations <70% 2
7 Account (OD/TL/LAP/BL) irregularity/over limit in last 6 Allocated

months Score
Irregular upto 7 days in a month 10
Irregular between 8-30 days in maximum of 2 months out of 6 5
months
Irregular for 30+ days twice or more/irregular for 60+ days once 0
or more
Others 3
8 (Capital+Net Reserve) and USL ratio (as per the last audited Allocated
financial) Score
USL less than 2 times of capital 4
USL more than 5 times of capital 0
USL two to five times of capital 3
9 Topline/Sales Trend (lower of past 2 years) Allocated

Score
>25% growth 5
0-25% growth 3
Negative Growth 0
10 ATNW Trend (Lower of past 2 years) Allocated

Score
>20% growth 4
5-20% growth 3
<5% growth 2
(-) growth 0
11 EBITDA level (last Audited) Allocated

Score
>20% 4
10-20% 3
0-10% 2
Negative 0
12 Gearing (Times) Allocated

Score
<2 4
2 to 4 3
>4 0
13 Current Ratio Allocated

Score
>=1.33 4
between 1.00 to 1.33 3
<1.00 0
Management Score (Max

10)
Collateral Score (Max 10)
Account Conduct Score
(Max 25)
Financial Score (Max 25)

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“A study of the Credit Appraisal System at IndusInd

Bank, Business Banking Division, Bangalore”

Summer Intern Project report submitted in partial fulfilment of the

Under the guidance of

Summer Intern Project report submitted in partial fulfilment of the

Under the guidance of

Place: Bengaluru ___________________

Place: Bengaluru ____________________

I am indebted to many people who helped me accomplish this Internship successfully.

5.6 Credit Scoring Models

2.2 Data Sources

3.2 Global Banking Scenario

 Diversification of Revenue Stream

 Focus towards Jan Dhan Yojana

 Wide usability of RTGS and NEFT

 Know Your Customer

Definition of MSMEs in India

Manufacturing Enterprises – Investment in Plant & Machinery

Description INR USD($)

Micro Enterprises upto Rs. 25Lakh upto $ 62,500

above Rs. 5 Crore & upto above $ 1.25 million &

Service Enterprises – Investment in Equipments

Description INR USD($)

Micro Enterprises upto Rs. 10 Lakh upto $ 25,000

above Rs. 10 Lakh & above $ 25,000 & upto $

3.5 Role of RBI: Tandon Committee

4.2 Company Overview

4.3 Products and Services

The 5’C’s of Credit essential for the purpose of lending are:

5.2 Credit Appraisal Process of IndusInd Bank

The process is explained as under:

Step 1: Collection of documents

Step 4: Sanctioning authority

Step 5: Communication to the customer

5.3 IndusInd Bank Products

Post shipment finance limit

Term Loan assessment

2) BUSINESS BANKING LOAN

Ex-Im package Domestic Package Treasury Package

Eligibility Criteria, Scorecard and Limit Assessment

Assessment for various facilities

Post Shipment finance limit

Collateral and Margin Requirement

3) SECURED EMI PRODUCT PROGRAM GUIDELINES

5.4 Documents required for Processing of the case

5.5 Tools for Financial Analysis

Less Excise Duty & Sales Tax

Other Operating Income

Raw materials consumed - Indigenous

Power and fuel

Sub Total 0.00 0.00 0.00 0.00 0.00

Opening Stock (Trading Activity) 0.00 0.00 0.00 0.00

Prior Year Adjustments (+/-)

Provision for taxation

Reserves & Surplus:

Sub-total (R&S) 0.00 0.00 0.00 0.00 0.00

Non- Interest bearing Secured Debt

Foreign Currency Convertible Bonds

Deferred Tax Liability

Creditors for purchases

TOTAL LIABILITIES 0.00 0.00 0.00 0.00 0.00

Capital Work in progress

Investments and Non- Current assets :