SME FINANCING AT PUNJAB NATIONAL BANK AND COMPARITIVE RATIO ANALYSIS OF PNB WITH SBI

Summer Training Report submitted for the partial Fulfillment Of The requirement for Master of Business Administration

Submitted by: Ranjana singla L-2010-BS-25 MBA PAU

ACKNOWLEDGEMENT
I avail this opportunity to acknowledge the academic interaction, exchange of views and participation of all those who directly or indirectly contributed towards the completion of this project. I wish to express my heartfelt thanks to my project guide Sr. manager Mr. Raman Khetarpal for his continuous guidance, helpful criticism and supervision through course of this project.

ABSTRACT
The project is on SME financing at PNB and comparative ratio analysis of PNB and SBI. SMEs are the backbone of a Country. Presently SME share in GDP is around 17% which is expected to go up by 22% in 2012. It accounts for 95% of industrial unit and its share in manufacturing is almost 40%-42%. The importance of SME sector is well-recognized world over owing to its significant contribution in achieving various socio-economic objectives, such as employment generation, contribution to national output and exports, fostering new entrepreneurship and to provide depth to the industrial base of the economy. India has a vibrant SME sector that plays an important role in sustaining economic growth, increasing trade, generating employment and creating new entrepreneurship in India. Because of such high importance SME financing becomes a critical component for the growth of an economy, so it is very important to study the process of SME financing, how the SME gets credit from the banks, which are the important components needs to be taken care while sanctioning the loans to SMEs Credit appraisal is an important activity carried out by the credit department of the bank to determine whether to accept or reject the proposal for finance. In this project we also studied about the comparative ratio analysis of PNB and SBI to compare both banks on various aspects and to study the reasons for same. This project starts with overview of overall banking industry and Punjab National bank and proceeds with introduction to SME and financing of SME and after that a case study for understanding the financing of SME by PNB is given. Companys name in case study is imaginary as it was banks policy not to disclose partys name. After that project provides the comparative ratio analysis of PNB and SBI in which various ratios are studied to know and compare the performance in various aspects

TABLE OF CONTENTS

S.NO. Chapter 1 1.1 a) b) c) Chapter 2 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 Chapter 3 3.1 3.2 3.3 3.4 3.5 Chapter 4 Chapter 5 5.1 5.2 5.3 Chapter 6 6.1 6.2 6.3 6.4 Chapter 7 Chapter 8

Particulars - Introduction of Banking Indian banking sector Definition of banking and bank Structure of banking industry Major banking operations Punjab national bank History Vision and mission SWOT analysis Product service profile Financial performance Shareholding pattern Organisation structure Delivery channels in PNB Subsidiaries and joint ventures Introduction to SME Brief history SMEs in India Performance & contribution of SMEs Broad categorisation of products NO. of SMEs 2006-10 Research methodology( design, objective & limitations) Financing of SMEs Meaning & approaches to SME financing Sources of finance Problems faced by SME in financing SME financing by PNB Types of finance by PNB Rate of interest Credit proposal Process followed by PNB for financing Credit rating Case study

Page no. 5-6 5 5 5 6 7-13 7 7 8 8 9 10 11 12 13 14-16 14 14 15 16 16 17-18 19-20 19 19 20 21-34 21-30 31 32 33-34 35-36 37-64 65-75 65-66 67-75 76

Chapter 9 Comparative ratio analysis of PNB with SBI 9.1 P&L & balance sheet of PNB 9.2 Ratios with graphs Suggestions and recommendations

CHAPTER 1
1.1) INDIAN BANKING SECTOR

INTRODUCTION OF BANKING

Banking- is the business of providing financial services to consumers. The basic services a bank provides are saving account, Time deposit, Loans that consumers can use to purchase goods and services and basic cash management services such as foreign currency exchange. Definition of a bank: is any financial institution that receives, collects, transfers, pays exchanges, lends or safeguards money for its consumers. Section 5(b) of the BR Act defines banking as, 'accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdraw able, by cheque, draft, and order or otherwise. This definition points to the three primary activities of a commercial bank which distinguish it from the other financial institutions. These are: (i) maintaining deposit accounts including current accounts, (ii) issue and pay cheques, and (iii) collect cheques for the bank's customers

STRUCTURE OF BANKING INDUSTRY

Scheduled

Banks

Scheduled Commercial Banks Foreig n Banks Publi c Sect or Region al Rural Banks Privat e Secto r Old Private Sector New Private Sector

Scheduled Co-operative Banks Urban Cooperativ e Banks State Cooperativ e Banks

Nationaliz ed Banks

SBI & its subsidiar ies

Major Banking Operations

Balancing Profitability with Liquidity Management Banks are commercial concerns which provide various financial services to customers in return for payments in one form or another, such as interest, discount fees, commission and so on. Their objective is to make profits. However, what distinguishes them from other business concerns is the degree to which they have to balance the principle of profit maximization with certain other principles. Banks in general have to pay much more attention in balancing the profitability with liquidity. Therefore, they have to devote considerable attention to liquidity management. Banks deal in other peoples money, a substantial part of which is repayable on demand. That is why, for banks unlike other business concerns liquidity management is as important as profitability management.

Management of Reserves Banks are expected to hold voluntarily a part of their deposits in the form of ready cash which is known as cash reserves and the ratio of cash reserves to deposits is known as Cash Reserve Ratio (CRR). The Central Bank in every country is empowered to prescribe the reserve ratio that all banks must maintain. The Central Bank also undertakes as the lender of last resort, to supply reserves to banks in times of genuine difficulties. Since the banks are required to maintain a fraction of their deposit liabilities as reserves, the modern banking system is also known as the fractional reserve banking.

Creation of Credit Unlike other financial institutions, banks are not merely financial intermediaries but they can create as well as transfer money. Banks are set to create deposits or credit or money or it can be said that every loan given by bank creates a deposit. This has given rose to the concept of deposit multiplier or credit multiplier. The importance of this is that banks add to the money supply in the economy and hence, banks become responsible in a major way for changes in the economic activities.
7

Chapter 2- PUNJAB NATIONAL BANK

2.1) HISTORY Punjab National Bank (PNB) is one of the 500 largest banks in the world, and enjoys a rich history and heritage. PNB was the first Indian bank to be started solely with Indian capital. Established in 1895 at Lahore, and nationalized in 1969, it has worked assiduously to build the banking sector in rural and urban India. It has presence in remote areas of the country, cutting across cultural and linguistic boundaries. PNBs principal activities are to provide treasury and banking operations. The activities include accepting deposits, lending loans and to provide other financial related services. The banking operations provides short and long term loans to agricultural, small scale industries and other priority sectors. Branches 4869 ATMs 1855 Customer Base 60 Million

2.2) VISION AND MISSION Vision "To be a Leading Global Bank with Pan India footprints and become a household brand in the IndoGangetic Plains providing entire range of financial products and services under one roof" To evolve and position the bank as a world class, progressive institution providing comprehensive financial and related services. Integrating frontiers of technology and servicing various segments o society especially weaker section. Committed to excellence in serving the public and also excelling in corporate values.

Mission "Banking for the unbanked" To provide excellent professional services and improve its position as a leader in financial and related services.

Build and maintain teams of motivated workforce with high work ethos. Use latest technology aimed at customer and act as an effective catalyst for socio economic developed.
8

2.3) SWOT ANALYSIS SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favourable and unfavourable to achieve that objective. Strength Wide network, the bank has more than 5189 branches across India. Large customer base, PNB has a customer base of around 60 million and a business worth Rs. 5, 00,000crore in India. Fast adaptability to technology, PNB has introduced CBS in regional rural banks, RTGS, NEFT, Enterprise Data Warehouse, Real Application Cluster (RAC), Internet banking etc. Brand Image, the bank has a glorious history of 117 Years.

Weakness Mass separation in the Next decade, in the next couple of years, approximately 60 % of GMs and DGMs, 50% of middle management and 30 to 35 % of all state owned bank employees will retire. Slow decision making due to large hierarchy. Gaps in leadership skills. Limited effectiveness of Training System, the existing training system imparts knowledge and are not equipped to bridge the wide skill realignment gap.

Opportunities There is potential in domestic expansion (Unbanked Areas) as well as Overseas. Potential areas identified are rural markets, infrastructure financing, retail and SME. UID program to cover 600 million Indians in the next few years will be trigger for a high growth phase in retail credit. Mobile banking along with UID programme and RBI guidelines for allowing No Profit organizations as business correspondents can become a transformational model for financial inclusion. Though SME account for over 10% of GDP yet only 4-5 % of SME receive credit from banks. With improving risk profiles their credit opportunities are attractive

Threats Stiff competition from SBI and other private banks and financial institution. Ageing workforce and avalanche of retirements due to senior levels.
9

Likely shift in philosophy of banking in India through new regulatory intervention of RBI in the areas of holding companies, foreign banks, new banking licenses and infrastructure financing.

2.4) Products, Service Profile Bank offers a large no. of services to customers. Broad categorisation of services is as below: Personal banking Social banking MSME Agricultural banking Corporate banking International banking/ NRI Financial services NEW IT BASED PRODUCTS/SERVICES: Bank has been launching new products/services with special focus on various customer segments. During the year bank introduced various products/services such as World travel card as a prepaid card in 3 currency denominations for person intending to travel abroad Prepaid gift card (PNB Uphaar) Kisan credit card- enabled for ATM Value added services at ATMs VAT collection through internet banking channel Inward remittances with Western Money Union and Money Gram

2.5) FINANCIAL PERFORMANCE PNB continues to maintain its frontline position in the Indian Banking Industry. The impressive operational and financial performance has been brought about by the banks focus on customer based business with thrust on SME, agriculture, asset liability management and efficiency in core operations. The financial performance of the bank can be seen in the table below Table 1 Parameters Operating Profit Net Profit Deposits Advances March 2007 3617 1540 139860 96597 March 2008 4006 2049 166457 119502 March 2009 5744 3091 209760 154703 March 2010 6918 3905 233,109 170201 March 2011 9056 4433 312899 242107

10

2.6) SHARE HOLDING PATTERN:

S hareH oldingPattern(% )

19.33% Governm ent 9.89% 5.20% 4.50% 3.08% 58% Banks/Financial Institutions Mutual Funds & UTI Non-Institutions Insurance Company FII's

11

2.7) Organisation structure The bank has its corporate office at New Delhi. The delegation of power is decentralized up to the branch level for quick decision making. The top-down approach at PNB can be classified as follows:-

Organizational Structure at PNB CMD Chief Managing Director ED Executive Director GM General Manager AGM Assistant General Manager DGM Deputy General Manager
12

2.8) Delivery Channels in PNB:

2.9) SUBSIDIARIES AND JOINT VENTURES OF PNB AND DOMESTIC SUBSIDIARIES. 1. PNB GILTS LTD.

2. PNB HOUSING FINANCE LTD.

13

3. PNB INVESTMENT SERVICES LTD

4. PNB PRINCIPAL INSURANCE BROKING Pvt. Ltd.

5. PRINCIPAL PNB LIFE INSURANCE Co. Ltd. Domestic Joint Ventures: The Bank has the following Joint Ventures: 1. 2. 3. 4. Principal PNB Asset Management Company Pvt. Ltd Principal Trustee Company Pvt. Ltd Assets Care Enterprises Ltd. India Factoring & Finance Solutions Pvt. Ltd.

2.10) ABOUT CREDIT DIVISION (CD) Credit administration division looks after the proposal for all types of credit which fall within the powers of GM HO/ED/CMD/BOARD. A Credit proposal goes through different levels of verifications to ensure internal controls and other practices to ensure that exceptions to policies, procedure and limits are reported in a timely manner to the appropriate level of management for action. The bank has introduced committee system in credit sanction process where in every loan proposal falling within vested power is discussed in credit sanction committee. Such committees have been formed both at head office and Circle office levels. The CD is assisted by the Risk Management Department (RMD), Technical cell and the Industry desk for risk analysis and technical feasibility of credit proposals.

14

CHAPTER 3 INTRODUCTION OF SMALL AND MEDIUM ENTERPRISES

3.1) BRIEF HISTORY Small and medium enterprises (also SMEs, small and medium businesses, SMBs, and variations thereof) are companies whose investment in P&M or turnover falls below certain limits. The abbreviation SME occurs commonly in the European Union and in international organizations, such as the World Bank, the United Nations and the WTO. The term small and medium-sized businesses or SMBs is predominantly used in the USA. EU Member States traditionally have their own definition of what constitutes an SME, for example the traditional definition in Germany had a limit of 250 employees, while, for example, in Belgium it could have been 100. But now the EU has started to standardize the concept. Its current definition categorizes companies with fewer than 50 employees as "small", and those with fewer than 250 as "medium. By contrast, in the United States, when small business is defined by the number of employees, it often refers to those with fewer than 100 employees, while medium-sized business often refers to those with fewer than 500 employees. In most economies, smaller enterprises are much greater in number. In many sectors, SMEs are also responsible for driving innovation and competition. Globally SMEs account for 99% of business numbers and 40% to 50% of GDP. In South Africa the term SMME, for Small, Medium and Micro Enterprises, is used. Elsewhere in Africa, MSME is used, for Micro, Small and Medium Enterprises. Size thresholds vary from country to country.
15

3.2) SME IN INDIA According to MSME act 2006, MSME can be defined as follows:

Classification Micro enterprises Small enterprises Medium enterprises

Manufacturing sector Units engaged in industrial activity with original investment in plant and machinery upto Rs. 25 lacs Units engaged in industrial activity with original investment in plant and machinery up to Rs. 5 crore Units engaged in industrial activity with original investment in plant and machinery up to Rs. 10crore

Services sector Units engaged in industrial activity with original investment in plant and machinery upto Rs.10 lacs Units engaged in industrial activity with original investment in plant and machinery up to Rs. 2 crore Units engaged in industrial activity with original investment in plant and machinery up to Rs. 5 crore

3.3) Performance and contribution of SMEs

Constitute 90% of total enterprises

Employees 59.7 million persons

45% of manufacturing output SME out ooooutput Contributes to 40% of total exports

MSME report 2010-11

16

3.4) Based on products, SMEs in India can be broadly classified into the following groups Food products
Chemicals and chemical products

Hosiery and garments Electrical machinery and parts Paper products and Printing Cotton textiles Nonmetallic mineral products Rubber and plastic products
Machinery and parts excluding electrical goods

Others

3.5) Increase in no. of SMEs from 2006 to 2010

MSME annual report 2010-11

17

CHAPTER - 8 CASE STUDY

SANCTIONING AUTHORITY The proposal falls under the powers of GM due to group exposure of Rs.390.00 lacs and takeover of account from State Bank of India.

1. Name of the Borrower: XYZ Co. BO Circle Office

Whether fresh/renewal/ enhancement Asset Classification on_31.3.2011 Credit Risk Rating by Bank Present

: Branch Ldh : Ludhiana

Sanction of fresh term loan of Rs.90 lac and enhancement in FBWC limit from Rs.45 lac to 150 lac as Standard Rating Date of Score Rating BB- 07.06. 51.83 2011 % 05.05. 62.00 2011 % ABS 31.3 .201 0 31.3 .200 9 Reasons for degradation CHANGE OF MODULE NA

Previous

Whether Agriculture/Retail/ SME/Large a) Whether Sensitive Sector Real Estate/Capital Market b) Applicable Risk weight Consortium/Multiple Banking Lead Bank PNBs Share % Date of Receipt of Proposal at BO/CO/HO Date of last sanction and authority

SME NO

100% NA NA 100% 05.05. 2011

05.05.2010 Branch Manager

Rs. In lacs
18

GIST OF THE PROPOSAL

A. Sanction of Working Capital Limits Existing FB NFB 45.00 Nil Proposed 150.00 75.00

B. For Term Loan Purpose Cost of Project Total Debt Promoters contribution Proposed TL (our share) DER(Quasi Equity) Repayment Period Door to door tenor Installation of Machinery Rs.120.48 lacs Rs.90.00 lacs Rs.30.48 lacs 100% 0.69:1(31.03.11) 84 months w.e.f. Oct.11 5/11 to 9/18

C. Approval of ROI/ Service charges as under:19

Facili ty

Existing

Proposed

Applicable rate

Income Earned Last Year Current year upto 2010-11 Non Intt . Intt. 1.9 2 NA NA NA NA 0.1 0 NA NA NA NA NA NonIntt.

CC Rate of interest

BR+4.00 %

BR+4.50%

BR+4.50%

In t

N A PC TL Processing CC Fee Upfront Fee Lead Bank Fee Commissi on on NFB Document charges Both Rs.200 per lac Rs.200 per lac Rs. 200 per lac TL NA NA Rs.225 per lac NA NA BR+4.50% +.50TP Rs.225 per lac NA BR+4.50% +.50% Rs.225 per lac N A N A

1.25% OF Loan 1.25% of Loan N amount amount A

0.0 9

D. Approval of other Issues, if any : NIL

PART I
20

2.

Borrowers Profile

a. Group Name b. Address of Regd. Office b. Works/Factory c. Constitution d. Date of incorporation/ Establishment e. Dealing with PNB since f. Industry/Sector g. Business Activity (Product)/ Installed Capacity.

NA JKL Ludhiana 315, Focal point phase 4 ludhiana Sole proprietorship 1990

1992 Hosiery Manufacturing of shawls, lohis etc. NA

3.

Sole-Proprietor: Sh. XYZ

a) If any of them, in the list of We confirm that none of the liable party ever Caution Advices circulated by the Bank appears in such category &it has been verified from from time to time/RBI's/Wilful defaulters' CIBIL database. list/Caution List of ECGC/CIBIL Database: b) If any one of them connected in the past with any NPA/OTS/Compromise/unscrupulous defaulters c) If any of them, related Directors/Senior Officers of PNB: We confirm that none of them is connected in the past with any NMA/OTS/compromise unscrupulous defaulters.

to NO

d) Management Change since last NO sanction, if any

e) Share Holding Pattern as on: NA

21

4. A Facilities Recommended: (Rs. in lakh) Nature Fund Based CC(H) WCDL FOBP/FOUBP/FABC Others Fund Based Ceiling Non Fund Based ILC/FLC ILG FLG Non Fund Based Ceiling Term Loan TOTAL COMMITMENT NIL NIL NIL NIL NIL 45.00 75.00 NIL NIL NIL 90.00 240.00 (SECURED FIXED ASSETS) (WITH IN TERM LOAN) 45.00 150.00 45.00 150.00 Existing Proposed Secured/Unsecured alongwith the basis thereof (As per RBIs guidelines) (SECURED CURRENT ASSETS)

Proposed group exposure: Name concern of Detail of credit facilities FB XYZ Textiles ABC Total 150.00 150.00 300.00 NFB TERM LOAN 90.00 90.00 TOTAL 240.00 150.00 390.00

22

4. B Our Commitment and Maximum Permissible Exposure Norms

Existing Proposed

%age of Banks Capital Funds as Exposure Norms in on 31.03.11 Rs. 30887.68 crore %age (not more than 12%) 0.00777% 0.01262% Within permissible norms

Company Group

45.00 90.00

240.00 390.00

4. C Short Term Loans sanctioned by PNB in last 12 months, if any: NA

4. D

Details of facilities provided outside consortium, if any: NA

5.A Facilities from PNB Subsidiaries/Exposure Equity/Debentures/Derivatives/Foreign Exchange etc.: NA

by

way

of

investment

in

5. B Term Loans from other Banks/Financial Institutions/Other Institutions - (including Lease, ICDs, Corporate Loans, Debentures etc.) (Rs. in Lacs) Name of the Bank/FI Facility Sanctioned CAR LAON Balance O/s As on 31.03.2011 2.99 NIL NA Overdue, if any Rate of Interest

HDFC

Branch has confirmed that above loan is running regular.

5. C Credit Rating by agencies {CRISIL/ICRA/CARE etc.} with purpose of such rating: No such rating has been got conducted by the party from any such agency.

5D. Details of Working Capital Limits from the Consortium/Multiple Banking: A

6. Details of Group /Allied/Associate firms and the facilities sanctioned to them along with conduct of these accounts with our Bank/ other Banks and comments on adverse indicators, if any: M/S ABC has been proposed as an allied concern of the party due to commonality of management
23

Name of Activit the y company

Financi al last three years in lacs 31.03.2 009 31.03.2 010 31.03.2 011

Dealing bank

Facilities nature & amount

M/S ABC

Manuf Period acturin g of shawls

Pnb bazar Ludhian a

CC(H) Limit of Rs.45.00 lacs

Capital 12.05 PBT Sales NWC CR DER 3.57 244.82 19.15 5.08 1.49

11.77 3.92 250.16 22.04 6.27 1.82

25.24 1.95 500.39 38.25 1.56 0.99

Overall financials are satisfactory. During 2010-2011, profits declined despite 100%increase in sales due to rising prices of yarn. BM confirms that past conduct of account is satisfactory. No inspection irregularity is outstanding as per latest inspection report of the office .Enhancement proposal of this concern is being put up separately.

24

7. A (i) Financial Position of the Company (Rs. in lakh) 31.3.09 Audited I. II. III. IV. V. VI. VII. VIII. IX. X. XI. Gross Sales - Domestic - Export % growth Other Income (job work) Operating Profit/Loss Profit before tax Profit after tax Cash profit/ (Loss) Paid up capital Reserves and Surplus excluding revaluation reserves XII. XIII. XIV. XV. Misc. expenditure not written off Accumulated losses Deferred Tax Liability/Asset a) Tangible Net Worth b) Investment in allied concerns and amount of cross holdings c) Net owned funds (a b) 15.51 18.74 27.56 18.55 2.99 2.99 2.99 5.42 15.51 19.90% 22.96 4.14 4.14 4.14 7.26 18.74 38.15% 25.72 5.74 5.74 5.74 9.77 27.56 195.17 176.62 31.3.10 Audited 234.02 211.06 31.3.11 Audited 332.31 297.59

31.3.09 Audited XVI. XVII. XVIII. Unsecured Loans Total Borrowings Secured 27.42 27.42 -

31.3.10 Audited 44.49 44.49 4.88

31.3.11 Audited 65.54 89.66 27.11

25

XIX. XX. XXI. XXII. XXIII. XXIV. XXV. XXVI. XXVII. XXVIII. XXIX. XXX. XXXI. XXXII. XXXIII.

Unsecured Investments Total Assets Out of which net fixed assets Net Working Capital Current Ratio Debt Equity Ratio Operating Profit/Sales TOL/TNW Long Term Sources Long Term Uses Surplus/ Deficit Short Term Sources Short Term Uses Surplus/ Deficit

27.42 8.24 48.61 17.04 17.62 4.10 1.77 1.54 2.13 42.93 25.31 17.62 5.68 23.3 17.62

39.61 8.24 70.57 27.2 27.76 4.78 2.37 1.77 2.77 63.23 35.47 27.76 7.35 35.10 27.76

62.55 8.24 127.64 32.1 52.73 2.55 2.38 1.77 3.61 93.10 40.32 52.78 33.95 86.67 52.78

7A (ii) Key Financials upto last quarter: NA (As per published Un-audited Results in case of listed companies) 7B Capital Market Perception: NA

7. C Comments on Financial Indicators (only major variation/trends to be explained)

Capital/Long term funds: Capital is showing increasing trend during the last three years. It has increased from Rs.15.51 lacs as on 31.03.09 to Rs.18.74 lacs as on 31.03.10 by plough back of profits which can be considered as satisfactory. During 2010-11, Party has inducted fresh capital thereby it has increased to Rs.27.56 lacs as per provisional balance sheet as at 31.03.11. Similarly other long term funds in the shape of unsecured loans have increased from Rs.27.42 lacs as on 31.03.08 to Rs.39.61 lacs as on 31.03.10 and then to Rs.62.55 lacs as per provisional balance sheet as on 31.03.11. Overall long term funds
26

increased from Rs.42.93 lacs as on 31.03.08 to Rs.93.10 lacs as on 31.03.11 which reveals adequate stake of the promoters in to the business. Sales/ Job Work: Business performance of the party reflected by gross sales remained satisfactory. It has increased from Rs.195.17 lacs as on 31.03.08 to Rs.234.02 lacs as on 31.03.10 showing growth of 19.90%. During 2010-11, Sales further increased to Rs.323.31 lacs registering growth of 38.12 lacs which can be considered as satisfactory. In addition to the manufacturing activities, party is also engaged in job work by utilizing their idle capacity to increase their profitability. Party has earned job work charges of Rs.18.55 lacs during 2008-09 which increased to Rs.22.96 lacs during 2009-10 and then further to Rs.25.72 lacs during 2010-11 which can also be considered as satisfactory. Net Profits/Cash Profits: In line with sales, net profits are also showing increasing trend. It has increased from Rs.2.99 lacs as on 31.03.09 to Rs.4.14 lacs as on 31.03.10 and further to Rs.5.74 lacs as per provisional balance sheet as at 31.03.11. Similar is the position of cash profits which have increased from Rs.5.42 lacs to Rs.9.77 lacs during the same period. Liquidity Position/NWC: Liquidity position reflected by current ratio always remained well above the normal bench mark of 1.33:1 as per the last three accounting periods. As regards NWC, party is having NWC of Rs.52.73 lacs as per provisional balance sheet as at 31.03.11 which short by Rs.15.25 lacs for the credit facilities requested by the party. Matter has been discussed with the party and they have agreed to raise fresh long term funds in the shape of capital and unsecured loans before release of term loan. A stipulation to this effect may be imposed in the sanction. Solvency Position: Due to increasing volume of unsecured loans which are in the names of family members, DER has increased to 2.38 as on 31.03.11, however considering the same as quasi equity as it is a proprietorship concern; DER arrived at with in permissible level which reveals adequate stake of the promoters in the business. Overall financial position can be considered as satisfactory. 7. D Details of investment in Shares, Debentures, Units or diversion of funds outside the business etc. (Along with comments in case of increase): As per financial statement party has invested Rs.8.24 lacs for an industrial plot. No other investment has been made as per balance sheet as at 31.03.2011. 7. E 7. F Details of Liabilities not accounted for/Contingent liabilities: NIL as per ABS as at 31 march 2010. Status/details of adverse comments/ Qualification by Auditors of the borrowing unit: No adverse comments are given by the auditors as per ABS as at 31 march 2010. 7. G Position of assessment of concern/partners/proprietor income tax/sales tax/wealth tax of the borrowing

Sole proprietor of the firm has filed income tax as well VAT return upto the financial year 31 march 2010 as per the copy of the tax rate submitted.
27

7. H

Information on litigation initiated by other banks/FIs against the borrower as per latest Audited Balance Sheet, if any: No litigation is pending against the liable parties in any shape.

7. I

overall likely impact of (7.B to 7.F) on the financial position of the borrowing unit: No likely adverse impact upon the financial position of the bank.

8. A.

SECURITY Primary
i)

For working capital limits: hypothecation of all kinds of stocks i.e. yarns, shawls, lohis, strolls etc. in the shape of raw material , stock in progress, finished goods related to manufacturing activities of the party and bookdebts arising out of genuine transaction not older than 90 days. For Term Loan: HH of machinery to be finance by the bank valuing Rs. 120 lacs as per cost of project.

ii)

B.

Collateral (Information in respect of mortgage of IP to be given only in the following format: i) Hypothecation/ Mortgage of Block Assets Immovable Properties (Rs. in lacs) Security Area Ownership Value Description in Sq Last Market Realisable M or sanction Value value Sq Ft Focal point (549 0 sq. yds.) NA 423.59 338.87 Basis for valuation Date Whether existing/ fresh Fresh

Valuation report of banks approved valuer Valuation report of banks approved valuer Valuation report of banks approved

12.03.1 1

Xyz

150 sq. yds.

23.48

28.31

23.48

23.04.1 0

Existing

250 sq. yds.

39.56

47.76

39.56

23.04.1 0

Existing

28

100+ 100+ 100= 300 sq. yds. 38.25 sq. yds Total

48.99

60.53

48.99

Valuation report of banks approved valuer

23.04.1 0

Existing

18.00

20.00

18.00

Incumbents 04.06.1 certificate 1 vide L&A 12/07

Existing

468.90

580.19

468.90

iii)

First/Second/Third charge/Pari-passu charge: NA

iv)

Personal /Corporate Guarantee (Rs. in lakh)

Name of Guaranto r SH/SMT.

Relationship with borrower

Net Worth

Immovable property Prev. As at . NA NA NA Present As at . 242.26 242.26 48.31 NA NA Prev.

Date of confidential report

Prev. As at .

Present As at . 254.87 254.87 62.32

Present

P N R

Son Son Wife

NA NA NA

03.05.2011 O3.05.2011 03.05.2011

21.02.200 7

iv.

Comments on changes, if any: NA

i.

Status of creation of charge: NA

29

8. C

Security Margin (Fixed Asset Coverage Ratio for term loans) Existing Proposed FACR NA NA NA Book Value 120.00 225.00 345.00 FACR on completion 1.33 2.50 3.83 project

Nature Primary Collateral Total

Book value NA NA NA

9.

Position of Account as on 25.05.2011 (Rs. in ___lacs__) Nature CC(H) Limit 45.00 VS 63.00 DP 45.00 Balance 33.79 Irregularity NIL

10. A) Conduct of the Account including details of terms & conditions not complied with: That the conduct of the accounts of the party has remained satisfactory with our bank. That all the terms & conditions of previous sanction complied with. That no unauthorized accommodation has been allowed to the party during the review period. That security is comprehensively ensured against all risks under agreed bank clause. That party is regular in submission of monthly stock statements & financial information as & when required. That no irregularity has been observed at the time of physical verification of the securities. That equitable mortgage of IPs has been validity created & is enforceable at law. That financial have been verified from account books of the party. 10. B) Value of the Account (Rs. in ___lacs____) Period 20102011 Nature of Limit CC(H) Amount 45.00 Interest/Commission Earned 1.09 Yield (%) 4.27

Yield percentage is low due to judicious availment of the by the party.

10. B ii) Deposits including Escrow/TRA account with details: NA

30

10.C Review of the Account and Summary of serious irregularities pointed out by Banks Inspectors, Concurrent Auditors, Credit Audit & Review Division (CA&RD), RBI Inspectors, Statutory Auditors, observations of Stock Audit Report, Comment on Preventive Monitoring Score Trends, (and status of rectification of these irregularities)

10. D

Review of account:

01/04/2010 to 31/03/2011 (Rs. In lacs)

Nature

Limit

Availment MAX. MIN Cr.

Summatio n Cr. 291.82 Dr. 319.74

Sales

CC (H)

45.00

45.02

297.59

During 2010 to 2011, credit summation is Rs. 291.82 lacs against sale of Rs. 297.59 lacs. Considering the opening and closing balances of debtors it indicates that party routine entire sale proceeds through CC account. 10. E details of irregularities if any: BM confirms that no inspection irregularity is outstanding as per latest inspection report of the office

10. F Sr. Pre- requisites/ Compliances No. 1. Compliance of last sanctioned terms Our comments & compliances/ confirmations Yes, BM confirms compliance of all terms & conditions of sanction. Yes, BM confirm that security documents are valid and enforceable at law. Yes, BM confirm that proper charge on securities have been created.

2. 3. 4.

Security documents are valid/duly vetted/enforceable Proper charge on securities created

Confirm that company/directors are BM confirm that firm/ proprietor are not under not under bank/RBI/ECGC/ CIBIL bank/RBI/ECGC/CIBIL defaulter/caution list issued defaulters/caution list from time to time. Confirm that payment of statutory BM confirm that party is compliant in payment of liabilities is not in arrears statutory dues & statutory dues are not in arrears.
31

5.

6.

Confirm that no litigation against/by BM confirm that no litigation by/against the party is the company is pending pending as per ABS as at 31.03.09 & 31-03-10 (Provisional). Corporate governance practices are BM confirm that Corporate governance practices are being followed as per Auditors report being followed as per Auditors report. Confirm that no deviations are made BM confirm that no deviations are being made from from usual norms/policy guidelines usual norms/policy guidelines Confirm that Exposure is within BM confirm that no deviations have been made from banks internal ceilings/RBI prudential usual norms/policy guidelines during period under norms review. Confirm that signature of CA of the BM confirm that signature of CA fixed on financial party has been verified as per Bank statements of the party has been verified as correct in norms. terms of banks guidelines. Confirm that vetting of loan documents has been done as per Bank norms. Confirm that Stock Audit is done as per Bank norms with subsequent amendments. Compliance of Bank guidelines. NA

7. 8. 9.

10.

11.

NA

12.

Yes, BM confirm compliance of bank guidelines .

13.

PART II 11 A. Brief History XYZ is a sole-proprietorship concern established in 1990 and dealing with us since 1992. Firm is engaged in manufacturing of various kinds of shawls, lohis, strolls etc. sole-proprietor Sh. XYZ is well experienced in his line of activity as he is in the line for the last 30 years. Though the proprietor is 71 years old yet he is fit to handle the affairs of the business. Besides this he is also assisted by his two sons who also competent enough to manage the affairs as they are also managing another firm ABC in same line of activity and due to commonality of management, BM have considered both concerns as allied concerns. Firm is functioning from a business premises owned by the sole-proprietor himself and his wife. It is an industrial building measuring 400 sq. yds. having adequate covered area for smooth functioning of existing as well as proposed activities. Both concerns are functioning from separate premises. Business performance of the party remained satisfactory during the last three years, so the proprietor has proposed expansion programme of the unit by installation of some new machinery at the new business premises measuring 5490 sq. yds situated at focal point owned by the sons of the proprietor. Keeping in view of infrastructure available with the firm and managerial resources, no problem appears to be envisaged in handling the affairs of the business.

32

B (i) Industry Rating as per RMD: Industry rating for readymade garments in neutral as per banks current classification B (ii) Detailed Industry Scenario and Comments on management, production and marketing as well as Borrowers' diversification, expansion, modernisation programme : Ludhiana is famous for hosiery industry not only at national level but at international level also. There are large number of units at small and medium scale engaged in manufacturing of hosiery goods and catering to the different segments/ income groups of the society. Domestic readymade garments sector is expected to grow at a growth of 13% over the next two years. Indian consumer is now adapting to the spend now pay later regime. This is mainly driven by increasing penetration of credit cards, consumer finance and personal loans on one hand and the Mall culture on the other. Further with the increasing penetration of brands, the consumption pattern is gradually shifting from tailor made garments to readymade garments due to increased availability of the latter in various designs, colour, sizes and patterns. Demand for premium clothing and branded garments is expected to grow at a much faster pace of 25-30 per cent, driven by increasing urbanization and greater preference for branded products due to higher disposable incomes. The industry scenario in the domestic market as well as in the international market is quite encouraging and the industry is going to expand at a much faster rate in future, however it is subject to any slowdown/recession in the economy due to domestic or international factors. 12. Present Proposal: present proposal is for: (Rs.in lacs) GIST OF THE PROPOSAL A. Sanction of Working Capital Limits Existing FB NFB 45.00 Nil Proposed 150.00 75.00

33

B. For Term Loan Purpose Cost of Project Total Debt Promoters contribution Proposed TL (our share) DER(Quasi Equity) Repayment Period Door to door tenor Installation of Machinery Rs.120.48 lacs Rs.90.00 lacs Rs.30.48 lacs 100% 0.69:1(31.03.11) 84 months w.e.f. Oct.11 5/11 to 9/18

C. Approval of ROI/ Service charges as under:Facility Existing Proposed Applicable rate

Income Earned Last Year Current year upto__________ NonIntt.

CC Rate interest of

BR+4.00% BR+4.50%

BR+4.50%

Int

Non- Intt. Intt. 1.92 NA NA 0.09 NA

NA
PC TL NA NA NA NA

NA NA

NA NA

BR+4.50%+.50TP BR+4.50%+.50% NA NA Rs.225 per lac

Processing Fee Upfront Fee Lead Bank Fee Commission on NFB Document charges

CC TL

Rs.225 per Rs.225 per lac lac NA

1.25% OF Loan 1.25% of Loan NA NA amount amount

NA

Both

Rs.200 per Rs.200 per lac lac

Rs. 200 per lac

0.09

34

D. Approval of other Issues, if any : NIL

a) Justification for working capital sanction: 31.03.2009 Actuals Gross sales %age growth Job work Net sales 195.17 18.55 176.62 31.03.2010 Actuals 234.02 19.90% 22.96 211.06 31.03.2011 Actuals 323.31 38.12% 25.72 297.59 31.03.2012 Projected 800.00 147.44% 800.00 31.03.2012 Accepted 800.00 147.44% 800.00

Business performance of the party reflected by gross sales remained satisfactory. It has increased from Rs.195.17 lacs as on 31.03.08 to Rs.234.02 lacs as on 31.03.10 showing growth of 19.90%. During 2010-11, Sales further increased to Rs.323.31 lacs registering growth of 38.12 lacs which can be considered as satisfactory. In addition to the manufacturing activities, party is also engaged in job work by utilizing their idle capacity to increase their profitability. Party has earned job work charges of Rs.18.55 lacs during 200809 which increased to Rs.22.96 lacs during 2009-10 and then further to Rs.25.72 lacs during 2010-11 which can also be considered as satisfactory. In the current financial year, party has projected sales of Rs.800.00 lacs. They are quite hopeful to achieve the same as additions in the machinery have been proposed in the year due to which they will be able to achieve higher sales. Hence we have accepted the same for assessment of PBF. Since working capital requirements of the party is less then Rs.500 lacs and turnover is also less then Rs.2500 lacs, PBF of the party has been computed in terms of Nayak Committees recommendations as per details hereunder ; (Rs. In lacs) 1. 2. 3. 4. The sales accepted for 2011-12 25% of projections ie Gross Working requirements 800.00 200.00

Minimum required margin being 5% of projected 40.00 turnover NWC available with the company as at 31.03.11 52.73-Margin for TL Rs.30.48 lacs 22.25

5. 6. 7.

PBF (2) (3) PBF requested by the party PBF considered (Lower of 5,or 6)

160.00 150.00 150.00

35

On accepted turnover of Rs.800.00 lacs for the current financial year 2011-12, party is entitled to avail bank finance to the tune of Rs.150.00 lacs subject to available NWC of Rs.40.00 lacs, In the instant case party has NWC of Rs.22.25 lacs which is short by Rs.15.25 lacs for the FBWC limits requested by the party b) Justification for Non Fund based limits:

Out of the total machinery of Rs.120.48 lacs, machinery valuing Rs.94.00 lacs is being imported from China. Party has already remitted Rs.20.00 lacs approx. as advance to the suppliers at China and for the remaining amount of Rs.75.00 lacs, party has requested for issuance of specific FLC on sight basis which shall be adjusted out of proceeds of term loan. It has been informed that machinery is ready with supplier at China and they will be supplying the machinery immediately after issue of FLC. Therefore, keeping in view of genuine requirement of the party, we recommend for sanction of specific FLC (DP) of Rs.75.00 lacs. c) Justification for term loan/DPG (i) Purpose Nos. 1 1 1 1 1 16 22 8 6 8 2 Supplier G H I J K L M N O Q S T Cost 450000.00 700000.00 245000.00 195000.00 600000.00 564000.00 775500.00 2444000.00 1692000.00 3290000.00 592200.00 500000.00 12047700.00

Name of Machine Sectional Warping machine Electrical Panels 125KVA servo stabilizer 200 KVA Transformer 125KVA D G set Chinese Loom Accessories Centre Tuck Devise Rapier Loom sets Jacquard Rapier Loom set Electronic Jacquard Machine Jacquard Rapier Loom 360cm Freight Cartage Installation Total

Major machinery is being imported from China. Other complimentary machinery and Gen. Set along with electric panels are being purchased from locals suppliers. To import the above said machinery, party has also obtained Importer/Exporter license No. 123456 dated 29.12.10 from the Ministry of commerce and Industry. ii) A. Appraising agency: no outside agency has been engaged for credit appraisal of this project. B. Whether vetted by any Technical Officer/ Other Official of Bank (Name and designation to be furnished): proposal has not been verified by any technical officer of the bank. Bank have already no. of such concerns
36

at the branch using such type of machinery, so BM have experience in financing such type of machinery.

iii) Summary of cost of project and means of finance: (Rs. In lacs) COST OF PROJECT Land Building Machinery Other Fixed Assets Securities & Investments Margin on Working Capital TOTAL MEANS OF FINANCE Capital Unsecured Loans Term Loan Car loan TOTAL 27.56 62.55 2.99 93.10 8.00 15.00 90.00 113.00 35.56 77.55 90.00 2.99 206.10 EXISTING Owned 8.35 12.81 10.94 8.27 52.73 93.10 PROPOSED Owned 120.48 -7.48 113.00 TOTAL Owned 8.35 133.29 10.94 8.27 45.25 206.10

Considering the unsecured loan as quasi equity, DER works out as 1.89:1 which can be considered satisfactory. iv) Sources of Promoters Contribution and the time schedule as to when the funds will be brought: As per provisional balance sheet as at 31.03.2011 , party has net working capital of Rs. 52.73 lacs from the internal accruals, which short by Rs. 15.25 lacs for the credit facility requested by the party. However as per total means of finance, party has projected fresh long term funds of Rs.23.00 lacs to meet the margin requirement. Party is financially sound and has informed that they will arrange the requisite funds before release of the enhanced working capital limits.

v) Status of tie-up of loans: to part finance the project, Party has approached us for sanction of term loan of Rs.90.00 lacs and the same is being considered. vi) Brief explanation for each major individual item of cost of Project with present status along with
37

comments on the reasonableness/competitiveness Party has proposed its expansion programme on a land and building measuring 5490 sq. yds. Owned by the guarantors P, N, R. Earlier party is functioning from a industrial building measuring 400 sq. yds owned by the proprietor and his wife. Building has been constructed from own sources by the party and for installation of machinery they have approached us for sanction of term loan. Party has informed that about half portion of this factory premises i.e. 2798 sq. yds. shall be used by the captioned concern and while the other half portion i.e. 2692 sq. yds. shall be used by allied concern M/s PQR. Available covered area with the party is approx. 9000 sq. ft. which is adequate for the proposed activities of the party. Proper demarcation between both allied concerns shall be ensured at our level. Machinery: Following machinery has already been installed at the unit: Power Looms Dobbi Winder Raising Machine Tana Machine Gen. Set 62KVA 4 2 1 1 26

Fully Automatic Dyeing Unit at Focal Point Ludhiana. Now the party has proposed its expansion programme and proposed to install machinery mentioned above. Machinery is very much compatible for such type of units. Power Connection: Power connection of 38 KW has already been installed at the existing unit of the party and a power connection of 83.41KW is installed at Dyeing unit of the party. Now at the new premises, party has applied for power connection of 89.941KW which is adequate for smooth running of proposed machinery. Raw material &Labour: Ludhiana being an industrial city especially for hosiery where all types of skilled and unskilled labour is available in abundance. Basic raw material in such types of units is woollen yarns which is also available locally.

vii) Comments on all major technical aspects like locational advantage, Technology/ manufacturing process, power, man power, utilities, transportation, etc. : Unit is ideally located at hosiery activity. A proposed factory premise is also located at such a place where hosiery industry has expanded at large. All the requisite basic amenities like water, drainage and transportation is available at proposed site also.

viii) Summary of profitability, Break-Even, DSCR and IRR with comments thereon including Assumptions underlying profitability projections: Profitability projections indicates increasing trend in the business performance of the party in next 7 years. After completion of the project, sales have been projected at a level of Rs.800.00 lacs in the current financial
38

year 2011-12 against the existing level of Rs.323.00 lacs during 2010-11. Marginal increase has been projected in 2012-13 and onward years, however profitability is showing increasing trend due to decreasing cost of interest on bank term loans and interest on unsecured loans.

Calculation of Break Even Point:

Particulars Sales Variable Expenses Raw Material Wages Electricity Consumable stores Repair & Maintenance Administrative Exp. 90% Intt. on CC Limit Total (B) Variable Expenses (A)

2011-12

Amount (In.lacs) 800.00

696.00 9.00 14.00 6.00 2.00 6.00 18.00 751.00 49.00

Contribution (A)-(B) Fixed Expenses Depreciation Administrative Exp. 10% Repair & Maintenance 10% Intt. bank term loan Total Break Even Point Cash Break Even Point 22.47 0.70 0.21 10.22

33.60 68.83% 22.80%

Break Even Point is little bit on higher side due to higher amount of depreciation; however cash breakeven point at 22.80% is quite satisfactory.

39

Calculation of Average DSCR

Particulars Net Profits Depreciation Intt. on TL Total (A)

2012 9.06 22.47 10.22 41.75 12.86 10.22 23.08 1.81

2013 13.30 19.14 8.68 41.12 12.86 8.68 21.54 1.91

2014 17.73 16.31 7.14 41.18 12.86 7.14 20.00 2.06

2015 20.49 13.90 5.59 39.98 12.86 5.59 18.45 2.17 2.19

2016 24.68 11.84 4.05 40.57 12.86 4.05 16.91 2.40

2017 27.00 10.06 2.51 39.57 12.86 2.51 15.37 2.57

2018 29.16 8.55 0.96 38.67 12.86 0.96 13.82 2.80

TL repay. Intt. on TL Total DSCR Average DSCR (B)

Average debt service ratio of 2.19 on the basis of seven years repayment schedule can be considered as satisfactory. Hence repayment schedule has been proposed for 84 months w.e.f December 2011 after allowing 4 months gestation period.

40

ix) Detailed Sensitivity Analysis: In case sale price declined by 10%. PARTICULAR No. Of working days Year 1 300 Year 2 300 Year 3 300 Year 4 300 Year 5 300 Year 6 300 90000 9000 81000 78300 1013 1575 675 350 1006 82919 1350 150 1800 251 3551 86470 (5470) 1006 (4464) Year 7 300 90000 9000 81000 78300 1013 1575 675 350 855 82768 1350 150 1800 96 3396 86164 (5164) 855 (4309)

SALES 80000 82000 85000 85000 90000 LESS 10% 8000 8200 8500 8500 9000 Adjusted Sales(1) 72000 73800 76500 76500 81000 COST OF PRODUCTION COST OF MATERIAL 69600 71340 73950 73950 78300 WAGES 900 923 956 956 1013 ELECTRICITY 1400 1435 1488 1488 1575 CONSUMABLE STORE 600 615 638 638 675 REPAIR AND MAINT. 210 250 300 300 350 DEPRICIATION 2247 1914 1631 1390 1184 TOTAL (2) 74957 76477 78963 78722 83097 ADM EXPENSES 700 1000 1150 1150 1350 INT. ON U/ LOANS 500 250 150 150 150 INT. ON BANK LIMIT 1800 1800 1800 1800 1800 INT ON BANK MTL 1022 868 714 559 405 TOTALS (3) 4022 3918 3814 3659 3705 (2+3)-------------(4) 78979 80395 82777 82381 86802 Net Profit(1-4) (6979) (6595) (6277) (5881) (5802) Add Depreciation(5) 2247 1914 1631 1390 1184 CASH Profit(5+6) (4732) (4681) (4646) (4491) (4618) So sensitivity analysis is not applicable here as its margin to sales is very less. x) Status of various statutory approvals and clearances

It is an existing profit earning unit, established in 1990 and dealing with us since 1992. Requisite statutory approvals and clearances have already been obtained by party like SSI registration , power connection , NOC from pollution control board for dyeing unit , importer/exporter code no. etc. For the proposed unit, party has already applied for new power connection of 89.941 KW for which issuance of demand notice is awaited. xi) Present physical & financial status of project, if any PHYSICAL STATUS: Party has constructed factory building from own sources. Orders for machinery have already been placed. Machinery is ready with supplier. It will be purchased and installed within 2 months time after release of term loan. FINANCIAL STATUS: As per the provisional balance sheet as at 31.03.11 Party has NWC of Rs52.73 lacs which short by Rs 15.25 lacs for credit facilities requested by party. However as per total means of finance, party has projected fresh long term funds of Rs 23.00 lacs to meet margin requirements. Party is financially sound and has informed that they will arrange the requisite funds before release of enhanced working capital limits. A stipulation to this effect is also being imposed in sanction.
41

xii) Implementation schedule Activity Placement of order Arrival & machinery instalment Starting Date Since done of July 2011 Aug. 2011 July 2011 Completion Date

Start of commercial production

xiii) Proposed repayment schedule Scheduled date of Completion of Project Commercial Operations Date (COD Implementation period (in months) Moratorium (in months) July 2011 Aug 2011 One Four

Repayment period in months/quarters/ Half Monthly year No. of instalment Starting Date End Date (Last instalment) Door to door tenor 84 12/11 11/18 5/11-11/18

42

13) Pricing

Facility Existing

Proposed

Applicable rate

Income Earned Last Year Current year upto 2010-11 NonIntt.

CC Rate interest of

BR+4.00% BR+4.50%

BR+4.50%

Int

Non- Intt. Intt. 1.9 2 NA NA 0.1 0 NA

NA PC TL NA NA NA NA NA NA

NA NA

BR+4.50%+.50TP BR+4.50%+.50% NA NA Rs.225 per lac

Processing Fee

CC

Rs.225 per Rs.225 per lac lac NA

Upfront Fee TL Lead Bank Fee Commission on NFB Document charges Both

1.25% OF Loan 1.25% of Loan NA NA amount amount

NA

Rs.200 per Rs.200 per lac lac

Rs. 200 per lac

0.0 9

a) Justification credit risk rating of the party has been worked out as , BB- with score of 51.83% as

per ABS as at 31.3.2010 . Accordingly ROI has been applied as applicable to BB-risk rated accounts. b) ROI/other charges stipulated by other participating banks, if applicable: NA 14. Other Issues: NIL
43

15. Strengths & Weakness with mitigants, if any

STRENGTHS: It is an existing profit unit. Financial position of party is satisfactory. Business performance of party also remained satisfactory. Sole proprietor has long association with our bank. The past conduct of account is satisfactory. The product of unit is acceptable in market and the company has sufficient orders in hand Sole proprietor is well experienced in his line of activity

WEAKNESSES: The activity of party is seasonal in nature and it largely depends upon the winter season. Adverse government policy if any, may also affect the volume of business of party. Party to face competition from other such type of manufacturers. MITIGANTS: Experienced proprietor is in this business for decades and has desired acumen to counter the business ups and down swing for their advantage. The product of party is cost effective and caters to needs of all type of society. No problem appears to be envisaged in managing the affairs of business. 16. Recommendations: On the basis of forgoing we recommend for sanction of following credit facilities in favour of the captioned party on the terms and conditions appearing at annexure I enclosed. Fresh term loan for machinery: Rs 90.00 lacs
FLC (DP) for import of machinery: Rs 75.00 FBWC limits: Rs 150 lacs (existing Rs 45.00 lacs)

Date (SME-HUB)

Sr. Manager
44

Post sanction follows up: 1. 2. 3. 4. 5. 6. 7. 8. 9. To ensure that Branch Manager has not misused his authority while sanctioning the loan. Proper margin is maintained in terms of owners own contribution. Interest was fixed by branch manager as per Head office guidelines. To check whether the security has been sufficient or not as per the requirements. CIBIL report is drawn before sanction. To confirm that the borrower is not covered under any NPA or Defaulters list. Risk rating and PNB score is calculated for the particular borrower. If amount of loan is above Rs. 10 lac then legal compliance certificate should be obtained. Rating may be done at shorter intervals if there are some adverse features. Financial information of the borrower:QIS ( Quarterly information system) Above Rs 1 crore QMS 1 ( Quarterly monitoring system QMS -2 PMS ( Preventive monitoring system) QMS 1 + QMS -2 = PMS Above Rs. 1 crore 1 or 2 Rank is acceptable Sales, debtors for 3 months ( projected) Sales, debtors for 3 months ( actual) Profit and loss, balance sheet for 6 months( actual) Rank provided on the basis of QMS-1 and QMS-2

45

46

CHAPTER 9 COMPARITIVE RATIO ANALYSIS OF PNB WITH SBI

Income statement

47

FY2006 1) Interest earned (a)+(b)+(c)+ (d) a) Interest/discount on advances/bills b) Income on investments c) Interest on balances with Reserve Bank of India and other inter-bank funds d) Others 2) Other income 3)Total Income(1+2) 4) Interest expended 1) INTERST ON DEPOSITS 2)INTERST ON RBI(INTERBANK BORROWINGS) 3)OTHERS 5)Operating expenses (e)+(f) e) Employee cost f) Other operating expenses 6)TOTAL EXPENDITURE (4)+(5) (exc. Prov. n contingencies) 7)OPERATING PROFIT (3)(6) (Profit before prov. and contingencies) 8)Provisions (other than tax) and contingencies 9)Exceptional item 10) Profit/ (loss) from ordinary act. Before tax (7)(8)+(9) 11) Tax expense NET PROFIT/(LOSS) FOR THE PERIOD (10)(11) Paid-up eq. capital Reserves excluding revaluation reserve Analytical ratio i) Percentage of shares held by Government of India ii) Capital adequacy ratio iii) Earnings per share (EPS) 9584.15 5341.46 4030.34 176.38 35.97 1231.16 10815.31 4917.39 4611.79 64.41 241.19 3023.15 2114.97 908.18 7940.54 2874.77 839.94

FY2007 11537.48 7643.92 3589.58 256.44 47.54 1042.3 12579.78 6022.91 5617.47 62.41 343.03 3326.23 2352.45 973.78 9349.14 3230.64 1061.51

FY2008 14265.02 10439.06 3611.32 150.33 64.31 1997.56 16262.58 8730.86 8265.15 59.07 406.64 3525.48 2461.54 1063.94 12256.34 4006.24 710.33

FY2009 19326.16 14637.78 4409.95 202.32 76.11 2919.69 22245.85 12295.3 11564.32 119.5 611.48 4206.2 2924.38 1281.82 16501.5 5744.35 977.43

FY2010 21466.91 16701.3 4576.74 149.21 39.66 3412.49 24879.4 12944.02 11965.62 54.12 924.27 4761.92 3121.14 1640.78 17705.94 7173.46 1421.5 152.82 5904.78 1999.43 3905.35 315.3 15915.63

FY2011 26986.48 21104.55 5637.55 84.2 160.18 3612.58 30599.1 15179.14 13795.38 257.64 1126.12 6364.22 4461.1 1903.12 21543.36 9055.7 2491.99

2034.83 595.52 1439.31 315.3 8758.68

2169.13 629.05 1540.08 315.3 9826.31

3295.91 1247.15 2048.76 315.3 10467.34

4766.92 1676.04 3090.88 315.3 12824.59

6563.71 2130.22 4433.49 316.81 19720.99

57.8 11.95 45.65

57.8 12.29 48.84

57.8 12.96 64.98

57.8 12.59 98.03

57.8 12.97 123.86

58 1176.00% 140.6

Balance sheet
FY200 FY20 FY20 FY20 FY20 FY2011
48

6 Capital and Liabilities Capital Reserves and surplus Revaluation Reserves Deposits Borrowings (includes preference shares and subordinated debt) Deferred Tax liability Other liabilities and provisions Total Capital and Liabilities Assets Cash and balances with Reserve Bank of India Balances with banks and money at call and short notice Investments Advances Fixed assets Deferred Tax Asset Other assets Total Assets
Net worth (incl. rev. res.)

07 315.3 9826. 3 293.8 5 1398 60 5643. 7 6483. 7 1624 22

08 315.3 1046 7 1535. 7 1664 57 1161 1 8633. 4 1990 20

09 315.3 1282 5 1513. 7 2097 61 1246 0

10 315.3 15915 .6 1491. 99 24933 0 19262 .4 316.81 19720.98 1470.76 312898.7 31589.7

315.3 8758.6 8 302.39 11968 4.9 8599.8 7 30.4 7575.8 3 14526 7.4

1004 10317 5 .7 2469 29663 19 3

12328.26 378325.3

24791. 7

1237 2 3273. 5

1525 8 3572. 6 5399 2 1195 02 2315. 5 228.3 2 4152. 5 1990 20

1705 8 4354. 9

18327 .6 5145. 99

23776.9 5914.31 95162.35 242106.7 3,105.60 373.03 7886.39 378325.3

21508.55

41055. 32 74627. 36 1030.2 2 3762.7 9 14526 7.4

4519 0 9659 7 1009. 8 90.09 3890. 7 1624 22

9376.37

10435 .5

12318 .3

14653 .6

6338 77724 5 .5 1547 18660 03 1 2397. 2513. 1 47 284.5 397.1 6 7 4735. 5922. 6 9 2469 29663 19 3
17722. 92

49

RATIO ANALYSIS
Meaning of Ratio: A ratio is one figure express in terms of another figure. It is a mathematical yard stick that measures the relationship two figures, which are related to each other and mutually interdependent. Ratio is express by dividing one figure by the other related figure. Thus a ratio is an expression relating one number to another.

Meaning of Ratio Analysis: Ratio analysis is the method or process by which the relationship of items or group of items in the financial statement is computed, determined and presented. Ratio analysis is an attempt to derive quantitative measure or guides concerning the financial health and profitability of business enterprises. Ratio analysis can provide valuable information about a company's financial health. A financial ratio measures a company's performance in a specific area. There are various ratios at disposal but some of them can be used to analyze the performance or according to objective. Some of ratios are presented below to compare PNB with SBI.

Importance of ratio analyses

1) It helps in evaluating the firms performance

2) It helps in inter-firm comparison

3) It simplifies financial statement

4) It helps in determining the financial position of the concern

5) It is helpful in budgeting and forecasting

50

(1) Current ratio= current assets/current liabilities

PNB SBI

Mar06 3.77 1.16

Mar07 3.01 1.73

Current Mar08 2.66 1.6

Ratio Mar09 2.60 1.87

Mar10 2.85 1.54

Mar11 3.05 1.76

Comments: current ratio industry is accordingly we graph above both PNB and and up to the which shows position of both banks is satisfactory

Benchmark of for banking 1.33:1 so can interpret from that current ratio of SBI is satisfactory prescribed standard that liquidity

(2) Return on equity= net profit after tax/ net worth (capital+ reserves)

PNB SBI

Mar06 16.41 17.04

Return on Equity (ROE) MarMarMarMar07 08 09 10 15.55 18.01 22.92 24.12 15.41 16.75 17.05 14.8

Mar11 22.60 12.62

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Comments: As we can analyse from graph above ROE of both banks i: e PNB and SBI is going almost equal up to FY 07-08. But for next 3 financial years return on equity for PNB is better than of SBI. The main reasons for same are increase in operating expenses and overhead expenses and higher NPAs than PNB which leads to decrease in return and consequently decrease in ROE. But for FY 2010-2011 ROE for both banks is decreasing in spite of high net interest income due to increase in provisioning of NPAs which was more for SBI than for PNB.

(3) Return on assets= Net profit after tax/ advances

PNB SBI

Mar06 1.06 0.92

Return on Assets (ROA) MarMarMarMar07 08 09 10 1.00 1.13 1.39 1.44 0.86 1.04 1.08 0.91

Mar11 1.31 0.72

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Comments: ROA for both banks i:e SBI and PNB are on increasing trend up to FY 07-08 but for next 2 FY ROA of PNB is more than of SBI because NPA of SBI is more than PNB and ROA is mainly effected by NPA if NPA increases ROA decreases and vice versa. For FY 2010-11 NPA for both banks is increasing so ROA is decreasing.

(4) EBIT (earnings before interest and tax)= EBIT/total income

Mar06 64.28 62.69 Mar07 65.12 66.67 EBIT Margin MarMar08 09 73.95 76.70 72.49 74.58 Mar10 75.76 70.43 Mar11 71.06 64.6

PNB SBI

Comments: EBIT is same for PNB and SBI up to FY 2008-2009 and is on increasing trend. But for next two financial years EBIT for both banks is going down because of increase in operating expenses and provisions regarding employee compensation, pension and wage revision and increasing NPA.

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(5) Net interest margin= net interest income/ interest earning asset

PNB SBI

Mar06 3.77 3.4

Net Interest Margin (NIM) MarMarMarMar07 08 09 10 3.85 3.58 3.52 3.57 3.31 3.07 2.93 2.66

Mar11 3.96 3.32

Comments: -

As we can interpret from the graph that NIM is higher than SBI in all the years from 2006-2011 because of difference between the interest rates. As PLR charged by SBI was less as compared to PLR charged by PNB. And moreover SBI finances more to oil companies at lower rates in order provide benefits to these loss making companies. In FY 2010-11 NIM is on increasing side for both PNB as well as SBI because of introduction of base rate in July 2010. For FY 2010-11 NIM of SBI is less than PNB as base charged by PNB was 10% and base rate for SBI was 9.25%

(6) Casa (current account saving account) =casa/total deposits

CASA MarMar08 09 42.99 38.83 46.96 41.64

PNB SBI

Mar06 48.99 47.55

Mar07 46.16 48.48

Mar10 40.85 47.26

Mar11 38.46 49.42 54

Comments: As we can interpret from graph above that CASA ratio of SBI is higher than that of PNB in all years as
for PNB CASA is growing year by year but increase in term deposits is more than increase in CASA which leads to fall in CASA ratio of PNB. CASA ratio for both banks decreased in FY 2008-09 as term deposit rates were high and people invested more in fixed deposits than in CASA. For FY 2010-11 CASA for SBI is increasing but for PNB it is declining as bank had to resort to bulk deposits to fund healthy loan growth.

YEAR pnb sbi

Mar-06 16723. 77 67995. 65

Mar-07 16465. 71 81997. 97

Current Deposits Mar-08 Mar-09 17791. 18813. 15 9 98133. 11075 53 3.6 Saving Deposits Mar-08 Mar-09 53769. 62646. 71 01 15422 19822 9.3 4.3

Mar-10 23717. 19 12257 9.4

Mar-11 26838. 59 131195 .3

year PNB SBI

Mar-06 41908. 21 11272 3.9

Mar-07 48088. 62 12913 6.5

Mar-10 78133. 81 25746 0.3

Mar-11 93487. 42 330326 .1

Mar-06 PNB SBI

Mar-07

Total Deposits Mar08 Mar-09

Mar-10

Mar-11

11968 5
38004 6.1

13986 0
43552 1.1

1664 57
53740 4

20976 1
74207 3.1

24933 0
80411 6.2

31289 9
933932 .8

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(7) NPA (non performing assets) %= NPA/total advances*100

PNB SBI

Mar06 602.2 9 4911. 41

Net Non-Performing Assets MarMarMar07 08 09 Mar-10 1110. 1106. 291.4 1034.3 58 75 9 6 5257. 7424. 9677. 10870. 72 33 42 17

Mar11 2082. 64 12346 .9

PNB SBI

Net Mar06 0.81 1.88

Non-Performing Assets (NPA) (%) MarMarMarMar07 08 09 10 1.15 0.93 0.19 0.55 1.56 1.78 1.78 1.72

Mar11 0.86 1.63

Comments: As we can see from graph above NPA of SBI is higher than PNB for all years as SBIs addition to NPA were more than reduction and recoveries which leads to higher NPA ratio. But in case of PNB whose NPA ratio is less than SBI reductions and recoveries are more than additions to NPA so comparitiveely less npa ratio.
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(8) Cost to income = operating cost/ operating income(interest income +other incomeinterest expended)
Cost to Income 2008 2009 46.81 42.27 49.03 46.62

PNB SBI

2006 51.26 58.7

2007 50.73 54.18

2010 39.90 52.59

2011 41.27 47.6

Comments: Cost to income ratio of both banks is declining up to FY 2009-10 which is an indicator of efficiency as less is cost to income ratio more is profitability of bank. Cost to income ratio is high for SBI than for PNB as NIM and operating expenses of SBI are more as compared to PNB. For FY 2009-2010 NIM of SBI is declining and operating expenses are increasing so cost to income rises.

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Suggestions:
1) Efforts should be done by bank to increase casa of bank in order to increase profitability as if CASA is increased it will substantially reduce cost of funds 2) NPAs should be controlled as it also affects the growth of bank as major factor for growth and income of a bank is advances and if advances are going NPA it will affect the profitability of bank in long run so efforts should be made to control NPAs 3) Operating expenses should be controlled which are rising year on year in bank 4) For more profitability on SME financing NPV of amount to be received after sometime should be calculated to know about exact value of amount they are going to receive after repayment. 5)Branch expansion should be done by PNB in order to compete with SBI because all other growth factors are same only if they increase their branches because after analysis I can interpret that this is only reason why SBI ahead of PNB

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