Credit facility in Bank

7/30/2019 Credit facility in Bank

1/45

Summer Internship Project

Project Report

On

A Study of Credit facilities at Mid-corporate

Branch of Central bank of India

(Submitted towards part fulfillment of the requirements for the award of the Post Graduate

in Management 2012-2014)

Submitted by:

Abhas Agarwal

211181

FMG 21C

Under the Guidance of:

Mr. H.S. Brar

Asst. General Manager

Mid-corporate Branch,

Central bank of India, Lucknow

&

Dr. Anita Tripathy Lal

Internal Project Guide

FORE School Of Management


2/45

2

CERTIFICATE

This is to certify that Mr. Abhas Agarwal, Roll No.- 211181 has completed his summer

internship at Central Bank of India, Lucknow and has submitted this project on-

Understanding and analyzing the flow of credit facilities to the Mid-Corporate Enterprises

by the banking sector in India with special reference to Central Bank of India, under my

supervision.

.

Dr. Anita Tripathy LalFaculty GuideFORE School of Management

Date:

Place:


3/45

3


4/45

4

ACKNOWLEDGEMENT

This particular project report would have been incomplete without the acknowledgement of

some people associated with it. I am grateful to Mr. H.S. Brar, Assistant General Manager,

Mid-Corporate Branch Central Bank of India, Lucknow, Ms. Nikita Agarwal, Manager,

Central Bank of India, Lucknow, Dr. Anita Tripathy Lal for guiding me throughout my

project.

These people have been a constant source of inspiration throughout my work. I would also

thank the employees at Central Bank who helped me by giving constant feedbacks and

sharing their expertise and ideas which actually made my work easier.

With Best Regards,

Abhas Agarwal


5/45

5

Table of Contents

S.No. Description Page No.

1. Cover Page 1

2. Certificate from Institute 2

3. Certificate from Company 3

4. Acknowledgement 4

5. Table of Contents 5-7

6. List of Table 8

7. Executive Summary 9

8. Chapter 1: Introduction

1.1 Significance of the study

1.2 Purpose of the study

1.3 Objective of the study

10

11

11

9. Chapter 2: Literature Review

2.1 About Credit Analysis

2.2 About Organisation

13

17

10. Chapter 3: Methodology

3.1 Universe of the study

3.2 Locale of the study

3.3 Sample size

3.4 Data Collection

21

21

22

22


6/45

6

3.5 Data Analysis

3.6 Field Experience

23

24

11. Chapter 4: Detailed Analysis

4.1 Case- M/s Medics International Life

Sciences Ltd.

4.2 Balance Sheet

4.3 Security Coverage

4.4 About Promoters

25

26

29

30

12. Chapter 5: Detailed Analysis Contd.

5.1 Background of the Company

5.2 Cost and Means of finance of the project

5.3 Repayment of loan

31

33

34

13. Chapter 6: Detailed Analysis Contd.

6.1 Business Risk

6.2 SWOT Analysis

36

38

14 Chapter 7: Detailed Analysis Contd.

7.1 Breakup of Revenue

7.2 Net profit

7.3 Debt-Equity and Current Ratio

41

41

42

15. Chapter 8: Conclusion

8.1 Major Findings of the study

8.2 Suggestions

43

43


7/45

7

8.3 Limitations of the study

8.4 Further scope of the study

44

44

16. Bibliography 45


8/45

8

List of Table

S.No. Description Page No.

1. Year and Banking Activity from 1921-1962 18

2. Year and Banking Activity from 1976-1994 19

3. Gist of Proposal 26

4. Balance Sheet 27-29

5. Security Coverage 29

6. About Promoters 30

7. Cost of Project 33

8. Means of Finance 33

9. Term Loan-I 34

10. Term Loan-II 34

11. Term Loan-III 35

12. Business Risk 36

13. Breakup of Revenue 41

14. Net Profit 41

15. Debt-Equity & Current Ratio 42


9/45

9

Executive Summary

This report provides an analysis and evaluation of credit facilities given by banks to Mid-

Corporate Enterprises with respect to Healthcare Sector.

The data was collected majorly by annual report of the company and by detailed proposed

report for the project. The method of analysis includes examining CIBIL report, checking

feasibility of the project, finalizing the rate of interest, drawing the detailed repayment

structure and constantly monitoring them over time.

Results of the data analyzed show that CIBIL report and other qualitative data were as per

requirement; also ratios like DSCR, Current ratio have improved with significant pace with

respect to time.

The report finds that the prospects of the project in its current position are positive.

Industry has great potential and is expected to grow rapidly because of increasing

population.

Recommendations Include that many parameter like Rate of inflation, Cost of labor etc are

subjected to vary as per change in macro economic conditions, thus they are to

administered accordingly, also, qualitative data may not be interpreted same by all, thus

tools to quantify them should be developed.

Limitation of the report is that due to lack of time for study, Risk grading model could not

be used for analyzing risk, however concrete ratio analysis is done as prescribed by SEBI.


10/45

10

Chapter 1: Introduction

Credit analysis is the method by which one calculates the creditworthiness of a business

or organization. It is the evaluation of the ability of a company to honour it financial

obligations. The audited financial statements of a large company might be analyzed when

it issues or has issued bonds. or, a bank may analyze the financial statements of a small

business before making or renewing a commercial loan.

Credit analysis involves a wide variety of financial analysis techniques, including ratio and

trend analysis as well as the creation of projections and a detailed analysis of cash flows.

Credit analysis also includes an examination of collateral and other sources of repayment

as well as credit history and management ability. Analysts attempt to predict the probability

that a borrower will default on its debts, and also the severity of losses in the event of

default.

1.1 Significance of the study

In todays world, analyzing risk in any investment is an important and most challenging

step. As per many experts easy credit policy of United States of America was one of the

significant reasons for the global recession of 2008. It was an ignorance of State Bank of

Indias officials on Kingfisher Airlines Finance that led to a default of more than 1600


11/45

11

crores. In news, we listen very frequently about such financial mishaps occurring by one

company or another.

To further prevent such mishaps, SEBI has issued strict guidelines to banks and other

profitable financial institutions to strictly examine the financials of the new borrower. With

the span of time, many techniques for checking creditworthiness of company have evolved

and many are under improvement. Thus, this is area has a bright scope in near future.

As per todays trend, Ratio analysis of financials, CIBIL report score and various risk

grading model are the techniques majorly used by banks. In Central Bank of India, Ratio

analysis and CIBIL report score are the ways officials judge the creditworthiness.

Researcher has worked in the same direction in this report.

1.2 Purpose of the study

Central Bank of India offers credit facilities to many Corporate, Mid-corporate, Small and

Medium Enterprises. The researcher wanted to study the credit policies for Mid-corporate

Enterprises as they are emerging markets of tomorrow and have great potential in them.

Also, as Tier-II and Tier-III cities are developing with a fast pace, and studies in this

segment is scarce. Thus, researcher chose Mid-corporate Enterprise in Lucknow region.

At Central Bank of India, Hazratganj, Lucknow, many sectors were funded with credit

namely Tyre industry, Public Transport, Healthcare etc. Since studies in healthcare sector

is few, and this sector is tomorrows need, so researcher chose to work for healthcare

sector in Mid-corporate Branch of Central Bank, Lucknow.


12/45

12

1.3 Objective of the study

Following are the objectives of the study:-

To understand the assessment of creditworthiness in Mid-Corporate Enterprise at

Central bank of India, Lucknow.

To examine the process of CIBIL Report being submitted.

To examine the feasibility of the project to be carried out by Mid-Corporate

Enterprise.

To finalize the interest rate of the credit to be sanctioned by Mid-Corporate

Enterprise.

To develop the detailed repayment structure.

To propose various monitoring parameters for the credit throughout the credit

period.


13/45

13

Chapter 2: Literature Review

2.1 About Credit Analysis

Credit analysis is the method by which one calculates the creditworthiness of a business

or organization. In other words, it is the evaluation of the ability of a company to honor it

financial obligations. The audited financial statements of a large company might be

analyzed when it issues or has issued bonds. Or, a bank may analyze the financial

statements of a small business before making or renewing a commercial loan. The term

refers to either case, whether the business is large or small.

Credit analysis involves a wide variety of financial analysis techniques, including ratio and

trend analysis as well as the creation of projections and a detailed analysis of cash flows.

Credit analysis also includes an examination of collateral and other sources of repayment

as well as credit history and management ability. Analysts attempt to predict the probability

that a borrower will default on its debts, and also the severity of losses in the event of

default. Credit spreads--the difference in interest rates between theoretically "risk-free"

investments such as U.S. treasuries or LIBOR and investments that carry some risk of

default--reflect credit analysis by financial market participants.

Before approving a commercial loan, a bank will look at all of these factors with the

primary emphasis being the cash flow of the borrower. A typical measurement of


14/45

14

repayment ability is the debt service coverage ratio. A credit analyst at a bank will measure

the cash generated by a business (before interest expense and excluding depreciation and

any other non-cash or extraordinary expenses). The debt service coverage ratio divides

this cash flow amount by the debt service (both principal and interest payments on all

loans) that will be required to be met. Commercial Bankers like to see debt service

coverage of at least 120 percent. In other words, the debt service coverage ratio should be

1.2 or higher to show that an extra cushion exists and that the business can afford its debt

requirements.

Typical education credentials often require a bachelor degree in business, statistics, and

psychology (to include an emphasis in accounting, finance or economics). Commercial

Bankers also undergo intense credit training provided by their Bank or a third-party

company.

Significant resources and sophisticated programs are used to analyze and manage risk.

Some companies run a credit risk department whose job is to assess the financial health

of their customers, and extend credit (or not) accordingly. They may use in house

programs to advise on avoiding, reducing and transferring risk. They also use third party

provided intelligence. Companies like Standard & Poor's, Moody's, Fitch Ratings, and Dun

and Bradstreet provide such information for a fee.

Most lenders employ their own models (credit scorecards) to rank potential and existing

customers according to risk, and then apply appropriate strategies. With products such as

unsecured personal loans or mortgages, lenders charge a higher price for higher risk

customers and vice versa. With revolving products such as credit cards and overdrafts,


15/45

15

risk is controlled through the setting of credit limits. Some products also require security,

most commonly in the form of property.

Credit scoring models also form part of the framework used by banks or lending

institutions grant credit to clients. For corporate and commercial borrowers, these models

generally have qualitative and quantitative sections outlining various aspects of the risk

including, but not limited to, operating experience, management expertise, asset quality,

and leverage and liquidity ratios, respectively. Once this information has been fully

reviewed by credit officers and credit committees, the lender provides the funds subject to

the terms and conditions presented within the contract.

Machiko Nissanke, Ernest Aryeetey in their book: Financial Integratio n and

Developmentexplained about the loan administration and risk reduction by formal

lenders(i.e. banks), Credit Analysis Standards, Increase Project equity requirements, Loan

screening of banks and assessing creditworthiness during screening. Banks consider

return on project as an important indicator for appraising the projects.

A research was conducted by Mr. V.M.V.Subba Rao, B.Com., FCA, DISA(ICA), MICA on

Monitor ing o f Advanc es -- A New Look. The researcher gave two views on the

commencement of monitoring process-(i)Narrow view- the monitoring starts only after the

advance is disbursed, (ii)Broad view- at the time of conducting credit investigation of the

borrower and continue in all other stages of credit cycle.

Mritunjay Kumar Pandey conducted a study on Financial Performance Ap prasial of

TISCO, the paper of which was published in Accounting World, September 2008, The


16/45

16

ICFAI University Press. The Objectives of the study was to check the profitability and

efficiency of the firm in the near future, to give brief summery about the ratios which affect

the organizations financial structure and to point out the relationship between ratios and

reasons behind it.

Eleanor Charles in his paper App rais ing the Role of the Appraiser Published:

September 3, 1995, talked about the centralized function of the appraiser to grant the loan

and virtually every loan applicant will have to rely on an appraisal to set a value on the

property against which the loan is to be made.

Following are some of the other studies made on credit analysis:-

Uwe Wehrspohn (2005) Credit Risk Evaluation: Modeling - Analysis -

Management,Center for Risk & Evaluation , Vol. 33 , pp 345-356, June 14, 2005

Christian Roland(2006) Banking Sector Liberalization in India Indian Institute of

Capital Markets 9th Capital Markets Conference Paper, January 25, 2006.

Arnoud W. A. Boot, Anjan V. Thakor (2007) Corporate Finance, Financial

Intermediation and Banking: An Overview, CORPORATE FINANCE, FINANCIAL

INTERMEDIATION AND BANKING: AN OVERVIEW, Amsterdam Center for Law &

Economics Working Paper No. 2007-07 , Oct. 23,2007.

Gary B. Gorton (2009) Securitized Banking and the Run on Repo National Bureau

of Economic Research (NBER), Research Paper Series No.G01, G1, G12, G18,

G21.

Abhijit V. Banerjee (2002) Contracting Constraints, Credit Markets and Economic

Development, MIT Dept. of Economics Working Paper No. 02-17 , April 25, 2002


17/45

17

Agarwala, R.G., Banking Finance A Leading Monthly of Banking & Finance

Published by Sashi Publications, Vol. XXII No.1 January, 2008,ISSN-0971-4498

Alan D. Morrison (2001) BankingSector Liberalization in India Oxford Financial

Research Centre Working Paper No.2001-FE-01.

Simona Mihai Yiannaki (2008) Bank Risk Regulation and the Credit Crunch,

Journal of elibraryno. G 34, June 17, 2008,

Simone Westerfield , Hans-Dieter Zimmermann (2008) Credit Risk Measurement

underBasel II: An Overview and Implementation Issues for Developing Countries

Swiss Institute of Banking and Finance, Vol.45, pp 347-76

Wolf Wagner(2004) The Liquidity of Bank Assets and Banking Stability December

2004

Uwe Wehrspohn (2005) Credit Risk Evaluation: Modeling - Analysis -

Management, Center for Risk & Evaluation , Vol. 33 , pp 345-356, June 14, 2005

2.2 About Organisation

Central Bank of India a government-owned bank, is one of the oldest and largest

commercial banks in India. It is based in Mumbai. The bank has 4100 branches and 270

extension counters across 27 Indian states and three Union Territories. At present, Central

Bank of India has one overseas office, which is a joint venture with Bank of India, Bank of

Baroda, and the Zambian government.

It was established on 21 December 1911 by Sir Sorabji Pochkhanawala with Sir

Pherozesha Mehta as Chairman, and claims to have been the first commercial Indian bank

completely owned and managed by Indians. In 1923, it acquired the Tata Industrial Bank


18/45

18

in the wake of the failure of the Alliance Bank of Shimla. In 1969, the Indian Government

nationalized the bank on 19 July, together with 13 others.

During the past 99 years of history the Bank has weathered many storms and faced many

challenges. The Bank could successfully transform every threat into business opportunity

and excelled over its peers in the Banking industry.

A number of innovative and unique banking activities have been launched by Central Bank

of India and a brief mention of some of its pioneering services are as under:

Year Description

1921 Introduction to the Home Savings Safe Deposit Scheme to build saving/thrift habits

in all sections of the society.

1924 An Exclusive Ladies Department to cater to the Bank's women clientele.

1926 Safe Deposit Locker facility and Rupee Travellers' Cheques.

1929 Setting up of the Executor and Trustee Department.

1932 Deposit Insurance Benefit Scheme.

1962 Recurring Deposit Scheme.

Subsequently, even after the nationalisation of the Bank in the year 1969, Central Bank

continued to introduce a number of innovative banking services as under:


19/45

19

Year Description

1976 The Merchant Banking Cell was established.

1980 Central Card, the credit card of the Bank was introduced.

1986 'Platinum Jubilee Money Back Deposit Scheme' was launched.

1989 The housing subsidiary Cent Bank Home Finance Ltd. was started with its

headquarters at Bhopal in Madhya Pradesh.

1994 Quick Cheque Collection Service (QCC) & Express Service was set up to enable

speedy collection of outstation cheques.

Further in line with the guidelines from Reserve Bank of India as also the Government of

India, Central Bank has been playing an increasingly active role in promoting the key

thrust areas of agriculture, small scale industries as also medium and large industries. The

Bank also introduced a number of Self Employment Schemes to promote employment

among the educated youth.

Among the Public Sector Banks, Central Bank of India can be truly described as an All

India Bank, due to distribution of its large network in 27 out of 29 States as also in 3 out of

7 Union Territories in India. Central Bank of India holds a very prominent place among the

Public Sector Banks on account of its network of 4214 branches and 26

extension counters along with satelite branches at various centres throughout the length

and breadth of the country.

Customers' confidence in Central Bank of India's wide ranging services can very well be

judged from the list of major corporate clients such as ICICI, IDBI, UTI, LIC, HDFC as also

almost all major corporate houses in the country.


20/45

20

Vision

To emerge as a strong, vibrant and pro-active Bank/Financial Super Market and to

positively contribute to the emerging needs of the economy through consistent

harmonization of human, financial and technological resources and effective risk control

systems.

Mission

To transform the customer banking experience into a fruitful and enjoyable one.

To leverage technology for efficient and effective delivery of all banking services.

To have bouquet of product and services tailor-made to meet customers aspirations.

The pan-India spread of branches across all the state of the country will be utilized to

further the socio economic objective of the Government of India with emphasis on

Financial Inclusion.


21/45

21

Chapter 3: Methodology

Methodology is description of the process, rules, methods employed in a study. Research

refers to a search for knowledge. One can also define research as a scientific and

systematic search for pertinent information on a specific topic. In fact, research is an art of

scientific investigation. This chapter deals with universe of the study, locale of the study,

method of data collection, tools used for data collection, types of sampling used, sample

sized used for study and analysis of the study.

3.1 Universe of the study

The universe of the study consists of all the financial proposals coming in the Banking

sector for credit approvals.

3.2 Locale of the study

The locale of the study has been narrowed down to the Regional Office, Lucknow and

Branch office Hazratganj, Lucknow of Central Bank of India. The study is categorized to

Mid-corporate Branch of Branch office,Hazratganj, Lucknow. A term loan proposal

recently came to CBI for approval. So the researcher decided to take up this proposal for

appraisal purpose. The findings may or may not be similar to the other branches of the

company across the country.


22/45

22

3.3 Sample Size

The study has been done based on the detailed project report submitted by the project

developer and queries regarding the report were answered by the developer of the report.

Thus it was convenience sampling as there was just one target audience which was to be

analysed. Sample Size was too very small here, as all the queries during the study was

answerable by the developer of the report or by the promoters of the company.

3.4 Data Collection

For the purpose of data collection, two different sources were adopted for the study:

Primary Sources

Secondary Sources

Primary Source was the detailed project report submitted by the clients along with the

application to issue term loan. Since the promoters do not previously run any listed

company, so Project report prepared by authorised and reputed financial consultant was

acceptable.

For secondary Data, various guidelines and methodology used by the banks were used.

During the study many research papers based on tools and techniques for risk calculation


23/45

23

in term loan was studied. For making any forecasts, proposed data from financial

magazines and journals was used.

Bank uses tool named CIBIL (Credit Information Bureau (India) Limited), which is used to

check the financial health of any individual or organisation, primary information was used

as input for this tool. The Data of this report was regarded as secondary data.

Apart from this, many calculations were made to check the creditability of the client, e.g.

calculation of DSCR (Debt-Service Coverage Ratio), calculation of time value of money

etc.

3.5 Data Analysis

An actual term loan proposal was done to get a hand on experience on the procedure of

Project Appraisal. Excel statistical tools have been used for analyzing the data.

Following steps were taken for analysis (appraising the project):

Doing a management appraisal-checking the promoters contribution, credentials

and years of experience in the business.

Doing a technical appraisal-visiting the locality of the project and checking whether

the machines and other utilities for the plant are sufficient to sustain the project.

Doing a financial appraisal-Doing a ratio analysis and checking whether the ratios

adhere to the prescribed norms. Calculating Debt Service Coverage Ratio, IRR,

NPV and doing a sensitivity analysis.

Doing a commercial appraisal- Checking the demand and supply of the project.


24/45

24

3.6 Field Experience

The data analyzed was the result of interviews and questioning from the officials of CBI,

Lucknow. The project was dealt by Mid-Corporate branch of Hazratganj, Lucknow.


25/45

25

Chapter 4: Detailed Analysis

This chapter will deal with the detailed analysis of the project undertaken. The project is

from a Healthcare sector where the client is proposing to setup a healthcare centre naming

Medics International Life sciences Ltd. (Name Changed, due to confidentiality of the

project)

4.1 Case M/s Medics International Life Sciences Ltd.

M/s Medics International Life Sciences Ltd. (Medics) is going to be a new healthcare

centre to be established in Lucknow by January 2015. There are 10 partners of the centre,

all being reputed personality of the city. The Chairman Dr. Sushil Gattani is also the

founding member of Awadh hospital, Lucknow (A healthcare centre that needs no

introduction in Lucknow region). Others are either senior doctors themselves or business

tycoons having agency ofHyundai, Tata, Rolexetc.

The total cost of healthcare centre is proposed to be Rs. 160.48 Crs., of which 41.84 Crs

will be funded by the promoters themselves and rest 118.64 Crs has to be funded by

Banks, namely Central Bank of India & Bank of Baroda. Both the banks will share an equal

amount of Rs.59.32 Crs.

At Central Bank of India, researchers job was to analyse the feasibility of sanction the

loan.


26/45

26

Following was the detailed Gist of the proposal:-

Limits Purpose Amount (in Crs.)

Term Loan-I

(Phase I)

For payment to Luckow Development

Authority (LDA), Construction of hospital

Building, Infrastructure development

37.99

Term Loan-II

(Phase I)

Purchase of medical equipments 15.43

Term Loan-III

(Phase II)

Infrastructure Development for additional 114

Beds in proposed Hospital

5.90

Total 59.32

Phase I: Company will start its operations with 150 beds, tentative date is January 2015.

Phase II: Expansion of existing facilities by operationalizing additional bed of 114 in the

said hospital, tentative date is January 2018.


27/45

27

4.2 Proposed Balance Sheet

The propose Balance Sheet of the firm is as below

Particulars Projected Projected Projected Projected Projected

2015 2016 2017 2018 2019

Share Capital 37.55 40.16 41.84 41.84 41.84

Reserves & Surplus -8.53 -9.91 -6.85 1.07 20.16

Net Worth 29.01 30.25 34.99 42.92 62.00

Intangible assets 0.00 0.00 0.00 0.00 0.00

Tangible Net worth 29.01 30.25 34.99 42.92 62.00

Term Liabilities 104.73 102.90 99.78 97.64 72.94

Term Loans 104.73 102.90 99.78 97.64 72.94

Unsecured Loans 0.00 0.00 0.00 0.00 0.00

Other Creditors 0.00 0.00 0.00 0.00 0.00

Capital Employed 133.75 133.15 134.77 140.56 134.94

Net Block 127.23 119.42 122.76 126.02 118.82

Funds invested outside business 0.00 0.00 0.00 0.00 0.00

Other noncurrent assets 0.00 0.00 0.00 0.00 0.00

Current Assets 9.89 23.28 25.61 31.19 51.29

Inventories 0.58 1.13 1.41 1.68 2.07

Debtors 0.99 5.74 7.51 9.42 12.18

Cash & Bank Balance 8.32 16.41 16.69 20.10 37.05

Other Current Assets 0.00 0.00 0.00 0.00 0.00


28/45

28

Current Liabilities 3.38 9.55 13.60 16.66 35.17

Creditors 0.39 0.80 0.99 1.18 1.46

Bank Borrowings 0.88 4.55 5.95 7.43 9.00

TL payable in one year 2.10 4.20 6.66 8.04 24.70

Other Liabilities/Provisions 0.00 0.00 0.00 0.00 0.00

Net Current Assets 6.52 13.73 12.01 14.54 16.12

Capital Deployed 133.75 133.15 134.77 140.56 134.94

Operational data: 0.00 0.00 0.00 0.00 0.00

Gross Sales 12.08 69.78 91.38 114.60 148.17

Less: Excise/Sales Tax 0.00 0.00 0.00 0.00 0.00

Net sales 12.08 69.78 91.38 114.60 148.17

Other Income 0.00 0.00 0.00 0.00 0.00

Direct Cost 7.92 44.52 58.35 72.43 88.14

Admn. Selling expenses 0.85 4.88 6.40 8.02 10.37

Depriciation 8.49 7.81 7.89 7.98 7.20

Interest 3.37 13.94 14.17 14.31 13.87

Net Profit before Tax -8.53 -1.37 4.58 11.86 28.58

Tax Provisions 0.00 0.00 1.52 3.94 9.50

Net Profit after Tax -8.53 -1.37 3.06 7.92 19.09

Dividend 0.00 0.00 0.00 0.00 0.00

Cash Accruals -0.05 6.44 10.95 15.90 26.90

Ratio Analysis:

PBT/NS (in %) -70.63 -1.97 5.01 10.35 19.29


29/45

29

PAT/NS (in %) -70.63 -1.97 3.35 6.91 12.88

Return of capital employed (in %) -6.38 -1.03 2.27 5.64 14.15

Current Ratio (Considering TL) 2.93 2.44 1.88 1.87 1.46

Current Ratio (Without TL) 7.76 4.35 3.69 3.62 4.90

4.3 Security Coverage:

Apart from this proposal following was the security that the promoters are willing to keep

as bank guarantee.

Primary Securities Value (Rs. in crores)

1. Land on Lucknow Kanpur Road (Area 7000 sq.m) 27.37

2. Hospital Building 75.80

3. Plants & machinery 36.20

4. Furniture & fixtures 4.00

Total Security value 143.37

Total Credit Facilities 118.64

Security Coverage Primary (Times) 1.21 Times


30/45

30

4.4 About Promoters:

Following is the Name and Net Worth of the Promoters of the Healthcare Centre

S. No. Name

Net Worth as on 31.03.2012

(Rs. In Crores)

1. Dr. Sushil Gattani 7.78

2. Ravi Somani 2.06

3. Priya Somani 1.14

4. Jagdish Prasad Dhoot 10.92

5. Vijay Kumar Agarwal 28.45

6. Suresh Kumar Agarwal 14.25

7. Dr. Mayank Somani 0.44

8. Ashok Kumar Agarwal 0.92

9. Kavita Somani 1.02

10. Sunita Gattani 4.00

Also CIBIL Report of all the promoters was observed, it was found that none of the

promoters have ever defaulted in any financial process, 3 of them do have an existing

personal loans but the repayment is on-time. Respective banks have issues a No

objection certificate to them.


31/45

31

Chapter 5: Detailed Analysis Contd.

This section would deal with other qualitative and quantitative data being observed.

5.1 Background of the company

The Medics International Life Sciences Ltd. Incorporated on 12.01.2011, with

objective to setup a super specialty hospital in Lucknow.

The promoters, Dr. Sushil Gattani, is one of the reputed cardiologist ,also founder

partner of 100 beds hospital Avadh Hospital and Heart Centre Lucknow and

having a vast experience of 23 years in management & operation of hospital.

The project comprises of a total of 264 beds (04 Suits, 37 Single rooms, 40 Semi

private, 99 General ward, 38 Intensive care Unit, 14 Neonatal Care unit, 20 High

Dependency Unit, 6 Cardiac care Unit, 6 CTVS ICU).

Out of this company has proposed to install 150 beds in phase I. The proposed

Hospital will mainly cater to the following major services:

Emergency & Trauma care

General Surgery

Obstetrics & Gynecology

Orthopedics

Medical & Surgical Gastroenterology

ENT

Neurology


32/45

32

Burns Treatment and Plastic Surgery

Neurology & Neurosurgery

Women Child Care

Cardiology & Cardiothoracic Surgery

Minimum Access Surgery

Ambulatory Services: Endocrinology, Dialectology, Endoscopy, Weil

womens Clinic.


33/45

33

5.2 Cost and Means of finance of the project:

Cost of Project Phase 1 Phase 2 Total

Land 27.37 0.00 27.37

Building & E&M Cost 60.05 15.74 75.80

Plant & Machinery 30.53 5.67 36.20

Furniture & Fixture 2.95 1.06 4.00

IDC 14.82 0.00 14.82

Construction Period Expenses 2.00 0.00 2.00

Working capital Margin 0.29 0.00 0.29

Total Project Cost 138.01 22.47 160.48

Means of Finance Phase 1 Phase 2 Total

Term Loan 106.83 11.81 118.64

Borrowers Fund 31.18 10.66 41.84

Total Project Cost 138.01 22.47 160.48


34/45

34

5.3 Repayment of Loan

Term Loan-I

Period Repayment Per

Month

No. of Installments Total

Oct 15 to Mar 17 0.125 18 2.25

Apr 17 to Mar 19 0.20 24 4.80

Apr 19 to Aug 22 0.737 41 30.20

Sept 22 0.74 1 0.74

Total 84 37.99

Term Loan-II

Period Repayment per

Month


Oct 15 to Sept 17 0.05 24 1.20

Oct 17 to Sept 19 0.075 24 1.80

Oct 19 to Aug 22 0.345 35 12.08

Sept 22 0.35 1 0.35

Total 84 15.43


35/45

35

Term Loan-III

Period Repayment per

Month


Jan 18 to Jun 19 0.06 18 1.08

Jul 19 to Dec 20 0.09 18 1.62

Jan 21 to Nov 22 0.133 23 3.07

Dec 22 0.13 1 0.13

Total 54 5.90


36/45

36


Chapter deals with the business Risk involved and the SWOT analysis of the project

6.1 Business Risk

Factors Impact Explanation

Industry Moderate Since Lucknow is capital city of the Uttar Pradesh and it is

well connected with nearby cities, and there is a good

demand of good quality medical facilities and it is expected

that there will be above average level of capacity utilization in

the proposed Hospital.

It is expected that the patients from various

cities/town/villages will approach the proposed hospital to

avail quality medical services.

The proposed 264 bed multispecialty hospital will be having

ultra modern medical equipments/machines supported by the

experienced and renowned doctors of various fields. The

promoter are already running the 100 bed hospital in the

same city since last 10 years and the support facilities are

clearly above average, and are a significant strength to the

companys operations.

Demand & Moderate Past growth rates relatively high and stable. Positive


37/45

37

Supply demand-supply gap scenario. Relatively insulated from

economic Recession. Favorable growth rate likely to continue

in the medium term. However, product off take not as easily

assured as higher grades.

Government

Policy

Positive Moderately favorable policies (such as protective import

tariffs/incentives), positively impacting profitability.

Hospital industry comes under service industry and generally

the policies of the government are moderately favorably to

this line of activity. Government is also promoting entry of the

private sector in these activities as existing medical system

cannot meet the requirement of the growing population.

Availability

of skilled

Manpower

Positive Skilled manpower easily available for the foreseeable needs

of the company.

Promoters of the lucknow are themselves renowned doctors

of the lucknow city and they are already running 100 beds

hospital successfully in the lucknow city and as such there

will be no shortage of skilled labour to meet out the

foreseeable needs of the company.

Management Positive Since the promoters of the proposed Hospital are having a

long experience in this line activity, it can be presumed that

they will ensure that the controls and processes are highly

organized and they will also develop a mechanism to get

feedback of the customers so that they may further improve


38/45

38

the operating procedures.

The management has exposure to the business for more that

15 years and they are already running a 100 bed hospital

(Avadh Hospital) with which our bank is also having a walk in

facilities.

6.2 SWOT analysis

Strengths:

Its strength lies in its diverse economic base, conducive environment for industrial

growth provided by responsive local administration.

City is the capital of Uttar Pradesh state, which attracts patients from cities of Uttar

Pradesh and also neighboring states. A new Multi Super specialty hospital will only

increase the trend of referral in the city.

The population is mixed, but with enough affordability for the services of the

proposed hospital.

The location is excellent with no direct competitor in the vicinity.

The promoters, well known Doctors themselves have successfully managing 100

bed hospital in the name of Avadh Hospital & Health Centre.

The promoter is not only looking at profitable business as the primary end product.

As per all the promoters primary end product will be delivering world class

healthcare services to the population being catered and revolutionize the standards

of healthcare in Lucknow.


39/45

39

Weaknesses:

Although Lucknow is a large city, many of the consumers had not seen or heard

about the medical services available at the well established hospitals.

Patients referral chain system is dominated by GPs in the region; cut practice trend

of 20 to 50% of patient bills prevails in the healthcare market.

This deep rooted health seeking behavoiur of first visiting the general practitioner

and quakes has created the cut practice. This cut practice is not only unethical but

also results in the trickledown effect where the consumer ultimately bears the

inflated price of services.

The major weakness of the city is lack of educational institutions to respond to local

institutional demand and inadequacy of integrated health facilities to cater to the

needs o population in 2011 and 2021.

The presence in a smaller city as compared to other metros viz Delhi, Mumbai may

make it difficult to attract the right talent inform of junior doctors, nurses and

paramedical staff. Added incentives and attractive remuneration packages will have

to be designed for this purpose.

The government sector has got a good presence currently in the area for secondary

and tertiary care, like King Georges Medical University & Sanjay Gandhi post

graduate Institute of medical sciences. But the infrastructure and services do not

seem to be adequate for the population. If this is strengthened then government

hospitals can become direct competitors.


40/45

40

Since Lucknow is not very from Delhi, Patients may choose to seek secondary and

tertiary care in well tries out institutions of Delhi which is the current practice.

Opportunities:

The recent development and growth of the industries in the city region should be

considered as an opportunity for further growth and business friendly environment.

Not much has happened in terms increase of hospital beds in the city, where as

population has increased by 30% every decade.

The healthcare industry in India has show a CAGR of 12-13 percent based on a

demand supply gap and the need for quality health infrastructure and services.

There is said to be a huge untapped potential for growth.

There is as such no established major private hospital presence and hence no

major competition in the region.

Threats:

Many of paying population goes to Delhi for planned procedure and poor goes to

KGMU hospital or SGPGI, Lucknow, so creating a market for a new brand will be a

hard work.

There is no information or data on any other developments planned by unknown

new players in Lucknow and the surrounding districts. However this cannot be ruled

out.

Trained and paramedical staff has to be attracted with good remunerative

packages, and high turnover of this trained staff is a big threat.


41/45

41


This chapter deals with the breakup of revenue and net profit.

7.1 Breakup of Revenue:

Particulars 2014-15 2015-16 2016-17 2017-18 2018-19

Bed Charges 1.30 7.50 9.82 12.31 15.92

OT 4.27 24.64 32.27 40.47 52.33

Consultation 0.87 5.05 6.61 8.29 10.72

Lab Sciences 3.98 22.98 31.10 37.78 48.80

Pharmacy 1.66 9.61 12.58 15.78 20.40

Total Revenue 12.08 69.78 91.38 114.60 148.17

7.2 Net Profit


2015 2016 2017 2018 2019

Net PBT -8.53 -1.37 3.06 7.92 19.09

Depreciation 8.49 7.81 7.89 7.98 7.20

Cash

Accruals

-0.05 6.44 10.95 15.90 26.29


42/45

42


2015 2016 2017 2018 2019

PAT/Net Sales -71% -2% 3% 7% 13%

EBIDTA/Net Sales 27% 28% 28% 29% 33%

7.3 Debt-Equity and Current Ratio


2015 2016 2017 2018 2019

DE Ratio (TTL/TNW) 3.61 3.40 2.85 2.28 1.18

DE Ratio (TOL/TNW) 3.73 3.72 3.24 2.66 1.74

Current Ratio 2.93 2.44 1.88 1.87 1.46


43/45

43

Chapter 8: Conclusion

Credit facility in any banking environment is a systematic cascaded process of many

investigations. In major cases the borrower needs to fulfill nearly all the necessary

requirements of the lender, however many a times the lender can see-off some of the

criteria as per the situation. Many qualitative comparison are based on the judgement of

officials, thus their results may vary from branch to branch and bank to bank.

8.1 Major Findings of the study

During the analysis of financial records of the borrowers, many of the pre-defined steps

are followed, such as checking the bank account details of the borrowers, the applicability

of the project, the acceptability of the project, various ratios like DSCR over the time, also

breakup of revenue, Net profit, and depreciation techniques used.

During the study of this project the bank employees have found all the necessary details to

be fine. Therefore the borrower was sanctioned the loan amount.

8.2 Suggestion

Although the banking process is already well structured and concrete in itself to avoid any

discrepancies in the repayment of the loan, however there is always a chance of

improvement in all such activities.

Researcher would suggest that all the data passed on by the financial consultant to the

bank must be randomly checked by authorities; also all majors should be taken to


44/45

44

safeguard the entire amount of the bank. Many a times, when things are qualitative, the

officials should have an extra strictness as that information can be ambiguous in nature.

8.3 Limitation of the study

The data received from the financial consultant is the only well-structured source of the

primary data, sometimes the financial consultant may dress up a false figure in favour of

the borrower. Thus our study may have a failure if such situation arises.

Also, majority of the calculations are based on proposed data, which is affected by rate of

interest, repo rate, CRR, inflation, CPI, WPI etc. The bank official do try to reach to

possible forecasted figures, but any change in macro economic level may change the

credibility of the borrower, it may show its effect both positive and negative for the

borrower.

8.4 Further Scope of the Study

The data analysis done at the time of issuing of loan and after a significant interval of time

will be different, thus the bank official needs to constantly keep a check on the credibility if

the borrower, the repayment amount and the repayment time should be well monitored

until the entire amount of loan is not received.


45/45

Bibliography

Medics International Life Sciences Ltd. ANNUAL REPORT

Detailed project report from Medics

Management of Indian Financial Institution, 10th

Edition, R.M. Srivastava

Financial Institution and Markets, 5th

Edition, L.M. Bhole

Documents

Credit facility in Bank