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LOANS & ADVANCES .

TYPES OF CREDIT FACILITIES:


TERM LOANS: DEMAND LOANS: OVERDRAFTS: CASH CREDIT: BILL FINANCE: PECKING CREDIT: POST-SHIPMENT CREDIT: NON FUNDBASE LIMITS: LETTER OF CREDIT: BANK GUARANTEE:
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ASSESMENT OF TERM LO AN
Assessment of Earning Potential & generation of Cash Surplus. Earning subject to all expenses, taxes & various provisions should be adequate to service interest & installment on TL. Appraisal involves analytical assessment as following: i. Purpose; Cost of Project & how it is to be tied up. ii. Future trend of production & capacity utilization. iii. Estimated Sales volume; Earning; cost; expenses profitability. iv. Projected Cash flow statement covering loan period. The following four essential fundamentals should be analyzed. A. Technical feasibility; B. Economic viability; C. Financial Viability; D. Managerial Competence.

Appraisal of Term Loan.


Technical Feasibility: Govt. clearance & license where require. Technical specification of Plant & Machineries & suppliers credentials. Where applicable, geological report for the land at the site. Justification for selection of specific plant. other alternative plants used in the industry. Technology used for the manufacturing process. Other infrastructure facilities. Supply of consistent & durable Power supply and its cost. In case of irregular power supply, alternate power arrangement & Transformer station etc. Quality & consistent availability of Raw Material. Availability of Skilled & semi skilled labor force. Serviceability and maintenance of Plant & Machinery. Production Capacity of the plant and demand of the products. Affluent treatment details where applicable.
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Appraisal of Term Loan.


Economic Viability:
The earning capacity of the project depends on

projected sales volume and Break Even sales. 1. Demand & supply position of the product and its substitutes(Local &/or Imports) in the market. Level of competition in the market. 2. Selling price visa-a-vis prices of competing products (local as well as imported) 3.Qulity of product as against competing products. (Both local & imported) 4.Location;Macroeconomic & Geo -political situation

Appraisal of Term Loan.


Financial Viability: Cost of Project & means of finance are realistic. Provision to meet contingencies & Cost escalation beside inflation is incorporated in the project cost. Whether project can run with profitable operation; The period to reach break even point. Capability of the project to generate adequate surpluses for servicing the debt; interest and the capital. Future growth plans & prospect. Whether sources of finance are realistic & adequate! Whether estimated cost of production covers all items of expenditures. Whether the assumptions for the basis of profitability projections are realistic.

Appraisal of Term Loan.


Managerial Competence :
Financial standing & resourcefulness of promoters. How to measure quality and talent of management! Past track record; Professional Education and the level of exposure. P a s t P e r f o r m a n c e a n d r e l e v a n t s u c c e s s s t o r y. The quality & level of key personnel and Senior E x e c u t i v e s i n t h e c o m p a n y. The management Structure in the organisation with delegation of powers and its relevance with the nature of business.

Other associate concerns & their peformance.


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Appraisal of Term Loan.


M e a n s o f F i n a n c e : Promoters Capital +T L + W C. Stage wise implementation program: Stage wise progressive disbursement of finance on work completion & funds deployment certificates from Architect & C A respectively. Moratorium period : Break-even Point: = Fixed Cost * Sales.. (Sales Volume in Rs.) (Sales) - (Variable Cost) For Sales Volume in Unit: B E= T o t a l F i x e d C o s t . (Sales price per Unit) (Variable Cost unit) Fixed Cost is which does not change over particular level of volume/Turn Over. Variable Cost change in direct proportion to volume/Turn Over.

Cash flow statement : gives the information of periodical cash accruals and periodical use of fund to decide repayment period. Ratios: Debt-Service Coverage ratio; Debt-Equity ratio; TNW to outside liability ratio; Profit-sales ratio; Sales-Tangible Asset ratio Output-Investment ratio; Current Ratio.

PROJECT APPRAISAL.
In credit management, the efficient appraisal of project is

fundamentally very significant to control future NPA in the bank. Its advisable to apply SWOT analysis in any project appraisal. Industry Risk: Govt. regulations & policies; available infrastructure; facilities; industry rating; technological up gradation; availability of spares & inputs. Product obsolescence , location/site etc. Business Risk: Operating efficiency, competition, demand/supply scenario; labor cost; basic input cost; surplus available marketing , consumers psychology and market survey report. Management Risk: background; integrity; market standing of promoters; management structure; competency of key personals; Delegation of power & decentralized structure; HR policy etc. Financial Risk: Financial standing/strength of promoters; Reference of existing bankers; reliability & reasonableness of the project; & means of funding; reliability of information on financial data; operational & financial ratios; qualifying remarks by auditors etc. 8

PROJECT APPRAISAL
Sensitivity Analysis:
Future projections are based on assumptions on certain critical variables like, sales & sales price, cost & cost price per unit, product-mix in case of multi product project; plant capacity utilisation etc. All assumed values are assigned to arrive at profitability projections. Assumptions are dynamic with passage of time hence sensitivity analysis is useful tool for averaging out for the financial risk contingent upon such assumed values. Each variable is altered both on optimistic as well as pessimistic approach with 5 % to 10% variations and tested the tensile strength of the projected balance sheet. Normally, the profitability of the project with cash flow return should sustain the bearings of such variations to justify the viability of project.
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