A PROJECT REPORT

ON

“LOAN SYNDICATION & FINANCIAL SERVICE FOR FUND BASED CREDIT FACILITY IN THE FORM OF CASH CREDIT”

Submitted By

RAVI SHIVHARE

Roll No. PGDMFY10026 Sem 2 (2010 – 2012)

In Partial fulfillment of the requirement for the award of

POST GRADUATE DIPLOMA IN MANAGEMENT (PGDM)(Two year Full Time residential programme )

PARUL INSTITUTE OF MANAGEMENT ( PGDM )At : Limda, Ta: Waghodia, Distt: Vadodara

July 2011

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PREFACE

Practical training is a step to bridge the gap between the theoretical studies of management and its practical applications. It is very easy to learn theoretical subject in classroom, but many difficulties are faced when they are implemented in the market. Training thus aims at giving practical exposure to the students, as it is well said that “experience is the highest qualification” and in the project students acquire the same. The demand of management is very high in industries. It is obvious that success of any business depends upon the management of different functions of business and for that, the person should have both theoretical and practical knowledge. In order to get this practical knowledge and to get in touch with business administration and its environment this practical training is very important. Training is an integral part of PGDM students have to go for training for 8 weeks moreover they have to prepare report on the same training. I got an opportunity to do my training at Chirantan consultant at Vadodara Branch, which is very popular for the financial service advisory and financial planning for the people who want to invest money to get substantial profit with low risk.

I have worked with sincerity and dedication in this project. Any shortcoming and inability on my

part is regretted.

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CERTIFICATE

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ACKNOWLEDGEMENT

I take this an opportunity to extend my sincere thanks to “CHIRANTAN CONSULTANTS” for offering me a unique platform to earn exposure and earn knowledge in the field of finance and learn the day-to-day activities that are carried out in the company.

I am thankful to Mr. KALPESH MANKAD (Director of Chirantan Consultants) and all employees of Chirantan Consulting firm for helping and guide to prepare the project report.

I would like to thanks to, Mr. N.K. Kapoor (Director of Parul Institute of Management, Vadodara) for giving me an opportunity to complete this project.

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DECLARATION

I hereby declare that the project work entitle “LOAN SYNDICATION AND FINANCIAL SERVICES FOR FUND BASED CREDIT FACILITY IN THE FORM OF CASH CREDIT” submitted to PARUL INSTITUTE OF MANAGEMENT VADODARA, as a pre-requisite for the partial fulfillment of PGDM Programme, is a record of original work done by me, under the supervision of Mr. Kalpesh Mankad from Chirantan Consultants in Vadodara branch.

The present work is completely original to the best of my knowledge.

RAVI SHIVHARE

DATE:

PLACE:

EXECUTIVE SUMMARY

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The main purpose of the project is to understand the whole concept of loan syndication & financial service in the form of cash credit, and its methods and needs of loan syndication & financial service in the form of different committee recommendation and methods.

To know the needs and methods of loan syndication & financial service for term loan and working capital loan in small- scale industry as well as large-scale industry and various guidelines issued by the RBI for banking sector for Project finance.

The project has been divided into two parts. In initial chapters of the project was given to general concept and fundamental principles for loan syndication, method of loan syndication for cash credit, requirement of project financing in various types of industries, the finance requirement to the borrowers and the various approaches adopted by the borrowers for selecting the mode of financing. The later chapter covers various methods of loan syndication and its sub methods i.e. Working capital limit in project financing. Funding the requirement of the term loan and working capital by the following procedures of Credit Monitoring Assessment (CMA) for funding of short-term loan and long-term loan. And finally various committees’ recommendation and current scenario of the MPBF were elaborated in detail.

The survey was done in GIDC WAGHODIA and GIDC MAKAROURA VADODARA, it was in the form of descriptive method (sampling and questionnaire technique). Which is helpful in getting the perception of the businessmen toward the financial service specially for cash credit.

The tax benefits which can be drawn from the loan fund and help the businessmen to understand them that how they are missing the tax benefit if they are not using the loan fund.

INDEX

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SR. CHAPTER NAME PAGE 1. Introduction of Loan Syndication 82. Overview of the Company 93. Objective of the Project 224. Literature review 235. Introduction of Cash Credit 246. Process, Sanction & Disbursement 267. Credit Analysis 278. Project Evaluation 29

9. Tax Calculation 35

10. Sanction Process Chart 40

11. Research Methodology 47

12. Survey in GIDC WAGHODIA 52

13. Survey in GIDC MAKARPURA 59

14. Suggestion 68

15. Conclusion 69

16. Limitation 70

17. Annexure 71

18. Bibliography 75

INTRODUCTION TO THE LOAN SYNDICATION & FINANCIAL SERVICE FOR FUND BASED CREDIT FACILITY IN THE FORM OF CASH CREDIT

The syndication of loans is an internationally practiced model for financing credit requirements. The banks are free to adopt syndication route, irrespective of the quantum of credit involved, if the arrangement suits the borrower and the financing banks.

Loan syndication & financial service has become one of the core activities of banks in the recent years. With the growth in the economy and the revival in the industrial sector coupled with the increasing role of private players in the field of infrastructure, more and more banks are entering into the project finance area. This examination is specially designed, in collaboration with the Institute for Financial Management and Research (IFMR), Chennai, to familiarize candidates with basic issues arising in financing projects, as well as risk analysis and risk mitigation methodologies with a specific emphasis on structured financing.

The financing of long-term infrastructure and industrial projects based upon a complex financial structure where project debt and equity are scope of the project financing.

Arranging short-term financing, controlling cash, managing accounts receivable, inventory management are function including in project financing of finance management. A thorough understanding and application of all these aspects is necessary to be able to maintain the optimum level of finance within the firm.

The requirement of the loan is depending upon the nature of the business. The business may be small are large, but the requirement depend on the operation of the business it means the cycle of the business. If the operating cycle is longer the requirement of finance would be longer of the business.

According to the requirement financing agencies, companies and banks provided finance to the borrowers in the form of fund based and non-fund based.

Managing cash inflow and out flows efficiently for the optimum use of capital and to release the finance blocked in inventory and receivables constitutes the single largest problem have in business. As such the solution on this problem is that to borrowing the finance from Banks, financial institute etc. has increased tremendously in all aspects.

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ABOUT THE COMPANY

Name of company:- CHIRANTAN CONSULTANTSEstablished Year:- 1997Legal status of Firm:- Sole ProprietorshipNature of the business:- Service provider.Contact person:- Mr.kalpesh mankadTelephone:- +(91)-(79)-26445544No. of employees :- 10 employeesWeekly Off Day:- SundayAddress:- 401,samedh,Nr.maradia plaza,

C.G.Road, Navrangpura, Ahmedabad-380 009.gujarat,india.

Web-site :- www.chirantan consultant.comE-mail ID :- director@chirantanconsultants.com

COMPANY PROFILE

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Chirantan Consultants is a team of Professionals having expertise in arranging loans and Finance from Banks for Industrial, Manufacturing, Trade and Services Sectors. It provides concrete solutions to all the financial needs to grow the business.

It is PASSIONATE – SUPPORTIVE – DEDICATED - COLLOBORATIVE to understand and arrange for the financial needs and help to enhance the financial stability.

Integrity to the Core: Integrity is fundamental to the services. It adheres to moral and ethical principles in everything it does as professionals, colleagues and corporate citizens. The reputation based on high standards of integrity which is invaluable.

Focus on the Client Need: It always put the interest of clients before its own. It understands the client needs, seek new opportunities for them, address them and deliver unique solutions as per their expectations. The fulfillment of all financial needs of its clients is the biggest reward for it.

Innovative Solutions: It analyzes the clients' financial needs and develops solutions for the most complex or the simplest, the biggest or the smallest financial transactions, whether for individuals or institutions. Creativity and innovation are key factors to everything it do.

PROFESSIONAL TEAM:

Genuine, Honest, Fast, satisfactory professional advice on Loans and Finance From Banks

Expert advice on Financial Planning

Dedicated professional people with vast experience and expertise in every business sector.

Panel of Accounting, Finance, Corporate, Legal, Banking and technical experts.

Observance of highest professional ethics and transparent services

Long term relations with Banks and Financial Institutions

VISION

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The vision of Chirantan Consultant is to become the most transparent, respected & trusted Loan Syndication Company providing best solutions to every financial need of clients with an all India recognition and accreditation.

MISSION

The mission is to give you a whole new experience in the field of availing Loans and Finance from Banks wherein it intend to provide all kinds of Loan & Finance Syndication services to the best satisfaction of its clients. The philosophy is to provide advisory services to make your finances work and earn money for you. For us anything worth doing is worth doing wholeheartedly only. To help the clients realize their dream by raising equity capital or by arranging loans, finance for

(1) Starting new business,(2) National and international business acquisition, (3) Restructuring of equity, debt, loans and finance,(4) Reduction in financing cost.

WHAT COMPANY DOES?

Its umbrella of services include Projects Consultation, Assistance in Project Feasibility Study, Project Financing for Individuals, Partnerships, Trust and Non Governmental Organizations, Educational Institutes, Hospitals, Businessman, Corporate Houses, Micro Small and Medium Enterprises and Traders, Exporters and Importers etc.

It arranges All Kinds of Bank Loans and Finance from Nationalized & Private Sector Banks - Foreign Banks - Housing Finance Companies - Non Banking Financial Services Companies. Its exhaustive arrays of loans syndication services include arranging various financial assistance for all kinds of Borrower segments like

(A) Individuals-

(1) Salaried or (2) Self Employed Professional Persons like Doctors- Advocates- InfoTech- Architects-

(1) Land Purchase (2) Home Purchase (3) Home Extension (4) Home Repair & Improvement (5) Farm House (6) Second House- Weekend Home (7) Loan Against Property- Mortgage Loan (8) Reverse Mortgage Loans (9) Unsecured Personal Loans (10) Premium Car & Vehicle Loans (11) Loan to Purchase ESOPs (12) Easy Travel Loans (13) Educational & Career Loans (14) Loan Against Rental Income (15) Gold & Jwellary Loan (16) Loans against Shares & Securities (17) Loan to Medical Professionals (18) Loan to Architects (19) Loans to Advocates (20)Loan to Information Technology Professionals

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(B) BUSINESS PERSON OPERATING IN ANY

(1) Industrial (2) Manufacturing (3) Trading (4) Services

A- Domestic Business

(1) Sole Proprietary Firms (2) Hindu Undivided Family (3) Partnership Firms (4) Limited Liability Partnership Firms (5) Private Limited Companies (6) Public Limited Companies

(1) Project Finance (2) Long Term Loans (3) Short Term Loans (4) Unsecured Loans (5) Working Capital Loans (6) Inland Bank Guarantees- Performance & Financial (7) Inland Letter of Credits (8) Asset Purchase Loans (9) Commercial Vehicle Loans (10) Construction Equipments Loans (11) Loan to pay Earnest Money Deposit- Tender Deposit (12) Business Loan against Property (13) Dealer Financing (14) Structured Loans (15) Open Term Loans (16) Specialized Loans to Micro Small & Medium Enterprises (17) Overdrafts (18) Inland Bills Purchase (19) Inland Bills Discounting (20) Deferred Payment Guarantees

B- International Businesses - Import & Exports

(1) Project Finance (2) Long Term Loans (3) Short Term Loans (4) Unsecured Loans (5) Working Capital Loans Like Pre shipment- Post Shipment Credits (6) Foreign Bank Guarantees- Import & Export  (7) Foreign Letter of Credits- Import & Exports (8) Asset Purchase Loans (9)Loan to pay Earnest Money Deposit - Tender Deposit (10) Business Loan against Property (11) Dealer Financing (12) Structured Loans (13)Open Term Loans (14) Specialized Loans to Micro Small & Medium Enterprises (15) Overdrafts (16) Foreign Bills Purchase (17) Foreign Bills Discounting (18) Deferred Payment Guarantees 

(C) Charitable Trusts Educational Trusts Non Governmental Organizations,

(D) Financial Service Sectors like Micro Finance Institutes and Companies,

(E) Micro Small and Medium Enterprise, Small Scale Industries in India.

THE PROFESSIONAL ETHICS

Chirantan Consultants seek to be a value-driven organization, where the values direct make growth and success and it strongly believe and adhere to basic principles of ethics. Chirantan

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Consultants follow strict Professional Ethics and observe highest standards of Honesty, Integrity and Transparency with our valued clients.

CATEGORIES OF CLIENTS IT SERVE

Individual Persons

Salaried Persons

Self Employed Professionals.

Businesses

Sole Proprietary

BusinessHindu

Undivided FamilyPartnerships

Limited Liability Partnerships

Association Of Persons and Body Of Individuals

Co-Operative Societies,

Companies- Private Limited, Public Limited,

Small Scale, Micro Small & Medium enterprise

Corporate & Large Undertakings

Not For Profit Organizations-

Private Discretionary & Benefit Trusts

Public Religious or Charitable Trusts,

Non Profit Companies,

Non Governmental Organizations.

Education Institutes - Students

Educational Institutes like Schools, Colleges and Universities, Coaching Classes, Tutorials,

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Students intending to pursue Higher Education in India and Abroad.

 Industries

The Chirantan Consultants arrange all types of loans and finance for all industries operating in Infrastructure Industry, Non- Infrastructure Industry, Manufacturing Activity, Trading Activity or Services Sector.

It arranges all types of Loans and finance from various Nationalized Banks (Public Sector Bank), Old Private Sector Banks, New Private Sector Banks, Financial Institutions, Housing Finance Companies, Non Banking Financial Companies, Mutual Funds, Insurance Companies.

INDUSTRIES IT CATERS

INFRASTRUCTURE SECTOR:-

Road & Urban infrastructure- Road / Bridges / Drainage/ Water / Pollution Contractors

Real Estate Developers, Builders, Contractors

Power and Electricity - Conventional- Non Conventional Energy- Thermal / Solar / Wind Mills

Oil & Gas

Natural Resources- Mines, Minerals, Stone Quarries

Ports and Shipping

Airports & Aviation

Telecommunications

Microfinance Companies & Institutions (MFI's)

Non-infrastructure sector

Manufacturing & trading:-

Agriculture - Cereals, Pulses, Spices

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Metals – Steel, Aluminum, Copper, Galvanize, Bullion

Cement

Engineering

Auto components

Textiles

Plantation , Pulp & papers

Chemical & Dyes

Drugs & Pharmaceuticals

Gems & Jewelry

Fibers & Plastics

Wooden Industries

Electric and Electronics

Petrochemicals

Medical, Surgical Equipments

Services:-

Transport

Travel & Tourism

Hotel & Hospitality

Educational Institutions

Health industry

Information Technology

Institution it work with

It arrange and syndicate all types of loans from following nationalized, private and foreign banks in India

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NATIONALIZED:

Allahabad Bank

Andhra Bank

Bank of Baroda

Bank of India

Bank of Maharashtra

Canara Bank

Central Bank of India

Corporation Bank

Dena Bank

Oriental Bank of Commerce

Indian Bank

Indian Overseas Bank

Punjab & Sind Bank

Punjab National Bank

Syndicate Bank

UCO Bank

Union Bank of India

United Bank of India

Vijaya Bank

State Bank of India

State Bank of Hyderabad

State Bank of Indore

State Bank of Mysore

State Bank of Patiala

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State Bank of Travancore

State Bank of Bikaner & Jaipur

IDBI Bank Ltd.

OLD PRIVATE SECTOR: -

Tamilnad Mercantile Bank Ltd.

The Bank of Rajasthan Ltd.

The Catholic Syrian Bank Ltd.

The Dhanalakshmi Bank Ltd. -

The Federal Bank Ltd. -

The Jammu & Kashmir Bank Ltd.

The Karnataka Bank Ltd.

The Karur Vysya Bank Ltd.

The Lakshmi Vilas Bank Ltd. -

The South Indian Bank Ltd.

NEW PRIVATE SECTOR: -

Axis Bank Ltd.

Development Credit Bank Ltd.

HDFC Bank Ltd.

ICICI Bank Ltd. -

Indusind Bank Ltd.

Kotak Mahindra Bank Ltd.

YES Bank

FOREIGN BANKS: -

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ABN Amro Bank - N. V.

Barclays Bank – PLC

BNP Paribas

Citi Bank - N. A.

Calyon Bank

Deutsche Bank AG

JPMorgan Chase Bank

Standard Chartered Bank

UBS AG

The Development Bank of Singapore Ltd

The Hong kong and Shanghai Banking Corporation Ltd.

HOUSING FINANCE COMPANIES: -

Can Fin Homes Limited

Deutsche Postbank Home Finance Limited

Dewan Housing Finance Corporation Ltd.

DHFL Vysya Housing Finance Ltd.

GRUH Finance Ltd.

Housing and Urban Development Corporation Ltd.

Housing Developement Finance Corporation Ltd.

ICICI Home Finance Company Ltd.,

IDBI Homefinance Ltd

LIC Housing Finance Ltd

Sundaram BNP Paribas Home Finance Ltd.

AIG Home Finance India Limited.

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NON BANKING FINANCE COMPANIES: -

Srei Infrastructure Finance Co Ltd

Chola DBS

Moneyline Credit

Reliance Money

Indiabulls Finance

Muthoot Finance

Shriram Transport Finance

Sundaram Finance

Bajaj Finance

DFC Ltd

Infrastructure Leasing & Financial Services Ltd

Transportation Networks Ltd

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THE PRESENT BUSINESS DOMAIN BY CHIRANTAN CONSULTANTS

LOAN SYNDICATION

Term Loan, Working capital facility, short-term loan, and other financing needs of corporate from Banks, Financial institutions and private Investors.

PROJECT FINANCE

Financial Viability study, business plans and project report, financial Planning and syndication requirements.

CORPORATE ADVISORY SERVICES

Financial restructuring, mergers and acquisitions divestment and splits, business tie-ups.

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SWOT ANALYSIS

STRENGTHS

The Director of the firm has vast experience in the field of finance.

The firm has strong customer base many of which are with the firms for last many years.

Firms have good contact with in industry.

Good reputation in market.

WEAKNESSES

Firm does not put any efforts on marketing, which may help to grow the market.

The firm has sole proprietary structure and hence inherits the limits associated with this kind of organizational structure.

OPPORTUNITY

Economic is in booming condition so companies are investing their money, they may choose the loan fund which may be helpful to the chirantan consultants to expand the current business.

THREATS

Similar types of competitors.

Foreign financial services coming in India.

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OBJECTIVES

To understand the concept of loan syndication & financial service in the form of cash credit, it’s various components, methods and nature of project financing.

Another important objective is to analyze the various components of project financing, which is specifically used in borrowing the finance for the small-scale industry and large-scale industry. It focuses on the requirement and the procedures applied by the banks for assessing and sanction the loan.

To understand the complexities of organization life.

To become aware of our strength and weakness as required for potential managers.

To know about the cash credit.

To understand the perception of businessmen towards the loan fund.

To get the idea that how much businessmen are interested towards the loan facility in the form of cash credit.

It also studies the various guidelines issued and recommended by various RBI committees.

To understand how the loan fund is used for the running of the enterprise.

To understand the tax benefit from the loan fund.

To apply these procedures at a practical level with the help of a case study.

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CONCEPTUAL FRAMEWORK

History of Loan syndication & Financial service:-

The syndicated loan market is the dominant way for corporations in the U.S. and Europe to tap banks and other institutional financial capital providers for loans. The U.S. market originated with the large leveraged buyout loans of the mid-1980s, and Europe's market blossomed with the launch of the euro in 1999.

At the most basic level, arrangers serve the investment-banking role of raising investor funding for an issuer in need of capital. The issuer pays the arranger a fee for this service, and this fee increases with the complexity and risk factors of the loan. As a result, the most profitable loans are those to leveraged borrowers issuers whose credit ratings are speculative grade and who are paying spreads (premiums or margins above LIBOR in the U.S., Euribor in Europe or another base rate) sufficient to attract the interest of non-bank term loan investors. Though, this threshold moves up and down depending on market conditions.

In the U.S., corporate borrowers and private equity sponsors fairly even-handedly drive debt issuance. Europe, however, has far less corporate activity and its issuance is dominated by private equity sponsors, who, in turn, determine many of the standards and practices of loan syndication.

The retail market for a syndicated loan consists of banks and, in the case of leveraged transactions, finance companies and institutional investors. The balance of power among these different investor groups is different in the U.S. than in Europe. The U.S. has a capital market where pricing is linked to credit quality and institutional investor appetite. In Europe, although institutional investors have increased their market presence over the past decade, banks remain a key part of the market. Consequently, pricing is not fully driven by capital market forces.

In the U.S., market flex language drives initial pricing levels. Before formally launching a loan to these retail accounts, arrangers will often get a market read by informally polling select investors to gauge their appetite for the credit. After this market read, the arrangers will launch the deal at a spread and fee that it thinks will clear the market. Until 1998, this would have been it. Once the pricing, or the initial spread over a base rate which is usually LIBOR, was set, it was set, except in the most extreme cases. If the loans were undersubscribed, the arrangers could very well be left above their desired hold level. Since the 1998 Russian financial crisis roiled the market, however, arrangers have adopted market-flex language, which allows them to change the pricing of the loan based on investor demand in some cases within a predetermined range and to shift amounts between various tranches of a loan, as a standard feature of loan commitment letters.

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WHAT IS CASH CREDIT?

A cash credit is an arrangement by which a bank allows his customer to borrow money up to a certain limit against some tangible securities or guaranties. The customer can withdraw from his cash credit limit according to the needs and he can also deposit any surplus amount with him.

A cash credit is a short-term cash loan to a company. A bank provides this type of funding, but only after the required security is given to secure the loan. Once a security for repayment has been given, the business that receives the loan can continuously draw from the bank up to a certain specified amount. Prearranged loan that a business does not have to take until it is needed

Cash Credit is also known as Working Capital. Cash Credit is a facility to withdraw the amount from the business account even though the account may not have enough credit balance. The limit of the amount that can be withdrawn is sanctioned by the bank based on the business cycle of the client and the working capital gap and the drawing power of the client. This drawing power is determined, based on the stock and book debts statements submitted by the borrower at monthly intervals against the security by hypothecating of stock of commodities and/ or book debts.

The excess withdrawal of cash is made generally on demand from the customer and the customer has to pay interest on the excess amount he/she has withdrawn. The Cash Credit facility is quite useful to those businesses where cash payment like wages, transportation, cash purchases are to be made and the receivables are not realized in time.

The interest in the case of cash credit is charged on the daily balance and not on the entire amount of the account. For these reasons, it is most favourite mode of barrowing by industrial and commercial concerns.

The RESERVE BANK OF INDIA issue directive to all scheduled commercial bank on 28 th

march 1970, prescribing a commitment charge which bank should levy on the unutilized portion of the credit limits.

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DOCUMENT REQUIRED FOR CASH CREDIT

The borrower and/or the guarantors have to provide the following documents to the banks or the lending institutions while submitting Cash Credit Application. Certain documents may be demanded by the bank or the lending institutions in post sanction phase or on periodical basis.

Address Proof:- Latest Electricity/Telephone Bill or Receipt of Maintenance Charges or Valid Passport or Voter’s Identity Card or Purchase/Lease Deed/ Leave & License Agreement of Residence or Office Premises.

Identity Proof: - Valid Passport, PAN Card, Voter’s Card, Any other photo identification issued by Government Agencies.

Business Proof: - VAT/CST Registration No. or MIDC Agreement or SSI Permanent Registration Certificate or Warehouse Receipts or Shop & Establishment Act Certificate or Copy of Lease Agreement along with the latest Rent paid Receipt.

Business Profile on Company’s Letterhead.

Partnership deed in case of partnership firms.

Certificate of incorporation, Date of Commencement of Business and Memorandum of Title Deeds, Form 32 in for Addition or Deletion of Directors in case of companies.

Last three years Trading, Profit & Loss A/c. and Balance Sheets (duly signed by a Chartered Accountant wherever applicable).

Last one years’ Bank statement of the Firm.

If existing loan, then sanctioning letter and repayment schedule of the same.

Firm/Company’s PAN Cards.

Individual Income Tax Returns of the Individual/Partners/Directors for last three years.

Last one years’ Bank statement of Individuals, Partners, Directors.

SEBI formalities in case of listed companies.

Share Holding pattern of Directors duly certified by a Chartered Accountant.

List of the Existing Directors of the company from the Registrar of the Companies.

Written & approved confirmation of having No Legal Suit filed against any of the directors. If any such legal suit or proceedings are pending then the details of such legal suit or proceeding.

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PROCESS OF CASH CREDIT: -

The following are the sequence of steps taken by the banks on receipt of completed application forms.

Application form is accepted and acknowledged.

Personal interview /discussions are held with the customers by the bank’s officials.

Bank's Field Investigation team visits the business place/work place of the applicant. (All the documents submitted are verified by the bank with the originals so as to ensure the authenticity of the same.)

Bank verifies the track record of the applicant with the common information sharing bureau (CIBIL).

In case of fresh projects the bank analyses the back ground of the applicant/firm/company and the Technical feasibility/financial viability of the project based on various parameters and also the existing market conditions.

Depending on the size of the project the file is put up for sanction to the appropriate level of authority.

SANCTION AND DISBURSEMENT:-

On approval/sanction, the sanction letter, is issued specifying the terms and conditions for the disbursement of the loan. The acceptance to the terms of sanction is taken From the Applicant.

The processing charges as specified by the bank have to be paid to proceed further with the disbursement procedure.

The documentation procedure takes place viz. Legal opinion of various property documents and also the valuation reports (Original Documents to title of the immovable assets are to be submitted).

All the necessary documents as specified by the legal dept., according to the terms of sanction of the loan of the bank are executed.

Disbursement of the loan takes place after the Legal Dept. Certifies the Correctness of execution documents.

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CREDIT ANALYSIS OF THE COMPANY

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

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 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

CREDIT ANALYST

All the operations of banks in India are guided by recommendations of BASEL committee. In credit department also a lot of improvement has happened and it is understood that BASEL committee has recommended banks to split the credit department on the basis of the size of the loans they handle.

As per those recommendations our bank has divided the work of commercial lending into mainly three departments. Ticket size 10-500Cr will be handled mainly by Mid-Corporate Group (MCG). While SMEs handle credits less than 10Cr while Corporate Accounts Group handle amounts above 500Cr. This has improved the operational efficiency of lending in banks.

Money maker for the bank is the Relationship manager (AGM) who interacts with already existing or new customers. He gets the basic details of the credit requirement and passes it on to a Credit Analyst.

A credit analyst’s responsibility is to get more details from the customer for which he/she can meet the key management personals and visit the facilities. After proper analysis the customer is provided with a quote. Quote means the possible type of loans that can be extended from bank’s side and at what price (interest rates). There are basically two types of loans. Fund based (FB)

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and Non fund based (NFB). Fund based loan include Cash credits for working capital, Term Loans, corporate loans etc. Non fund based loans include mainly Bank Guarantee (BG) and Letter of Credit limits (LC).

In order to reduce human influence and improve logical reasoning in decision making a system is defined to rate the customer. As per that a credit score is assigned to the borrower. To generate a credit score we take the help of Audited balance sheet of the previous years as well as the current year and also the estimates done in the previous year for the current year, for assessing the company’s performance. As a bank we are financing the company to procure assets that will generate profits which the company has to use to pay back the loans. The assessment demands more perfection because most of the loans are of high value and so the risk.

RBI has suggested a basic format for analyzing the company’s performance of the past as well as the projections of the future to arrive at a score. It is called Credit Monitoring Arrangement (CMA). There are five forms in this format. Form-II is the Operating statement analysis. Form-III is the Analysis of Balance sheet Liabilities. Form- IV is the comparison of Current Asset and Current Liabilities. Form- V is the evaluation of maximum permissible bank finance; Form-VI is the Fund flow statement. These formats define the financial statement (Balance sheet, Income Statement and Cash Flow statement and Notes on accounts) in a more elaborate and clear way so as to do credit scoring.

Credit scoring is a method to measure the concerned borrower. The borrower gets a score based on various financial parameters as well as the management’s performance.

The scoring model is developed internally and it is different for different financial institutions. The scoring has got different dimensions which include scoring for various facilities (credits) we extend to the borrower. Decision regarding the type of facilities to be extended is more of an iterative process after consulting with the management of the borrowing company after the credit rating is derived. Once the scoring is done the credit risk assessment report (CRA) is put for validation in front of a sub-committee by the Credit Analyst. The committee suggests modifications to be incorporated if required.

The basic purpose of this credit scoring (CRA report) and related functions is to develop a Credit Proposal. A credit proposal is the official document prepared by Credit Analyst that communicates the details of the company, their future plans, why they require the credit and how can it improve the performance and how they are going to service the loan. This document is presented in front of a committee by Credit Analyst to convey the needs. Credit analyst acts as the face of the borrower inside the bank. After detailed scrutiny the committee may approve or reject or suggests modification to the proposal. Sometimes the proposal may not be coming under the powers of the committee it so will be forwarded to a higher level committee where it will be presented by higher authorities.

Once the proposal has passed through then the loan is sanctioned based on the recommendations in the proposal as well as of the committee. Then the next thing an analyst has to do is to start the next done …

28

PROJECT EVALUATION

Project evaluation is a high level assessment of the project to see whether the project is

worthwhile to proceed and whether the project will fit in the strategic planning of the whole

organization. Project evaluation helps to decide which of the several alternative projects has a

better success rate, a higher turnover.

STEPS IN PROJECT EVALUATION

29

KEY PARAMETERS TO BE EVALUATED IN A PROJECT

The key parameters to be evaluated in a project are:

Risk Analysis

Demand Analysis

Project Cost Estimation

Revenue Analysis

Financial Analysis

Project Selection Criteria

RISK ANALYSIS

Risk analysis is a technique to identify and assess factors that may jeopardize the success of the

project. Risks associated with capital investment proposals can be broadly classified as:

1. Financial Risk

2. Other-Risk:

Financial Risk:

Financial risk is defined as the possibility that the actual return on an investment will be different from the expected return. Many techniques are available for determining financial risk involved with the projects like Risk adjusted Discount Rate, Certainty Equivalent, Sensitivity Analysis, DCF, Break Even Analysis, Probability Assignment, Standard Deviation etc.

OTHER RISKSOther risks constitute risks which may be an obstacle in the success/ Completion of the project.

Risks which can be included in other risk are

Availability Risk

30

Completion (technical and timing) Risk

Counterparty credit risk

Country (political) Risk

Inflation Risk

Input and throughput Risk

Market (demand) Risk

Technological Risk

DEMAND ANALYSIS:

Success of a project depends on the projects usage potential and user willingness to pay. Demand analysis involves forecasting the demand on the basis of market surveys and manufacturing capacity of the unit and this is decided through the study of demand and supply. The potential users, their habits, and possibility of changing these habits, the pricing of the products, the designing are studied under demand forecasting. In the demand analysis we check if there is a scope for laying a pipeline, if the demand at destination is less, then a pipeline is not required.

The major Steps in demand analysis are

Determining different uses of a project output

Determining current consumption level and future demand

Finding financial and economical benefits from the project

PROJECT COST ESTIMATION

Accurate estimation of costs is vital for the effective evaluation of the project since it is important for knowing the financial feasibility of the project. The capital costs and operating costs of the project is considered in this step.

The following factors needs to be kept in mind while estimating costs.

Base Cost Estimate

Contingency Costs

Cost Factor for difference between domestic & foreign inflation rates

31

Financing cost incurred during the construction period on loans specifically borrowed for project is capitalized at the actual borrowing rates.

REVENUE ANALYSIS

Revenue analysis is estimation of the revenues which would be earned in the future. Revenue projections are formed on the basis of Output sales. It helps in finding out the profits/ losses in the future. Revenue analysis is all the more important in project finance because the debts have to be repaid through the revenues generated by the project.

FINANCIAL ANALYSIS

Financial analysis refers to an assessment of the viability, stability & profitability of a project. It seeks to ascertain whether the proposed project will be financially viable in the sense of being able to meet the burden of servicing debt and whether the project will satisfy the return expectations of those who provide the capital.

PROJECT SELECTION CRITERIA

Once information about expected return and costs has been gathered, the next question arises: whether the project should be selected or not. There are many methods of evaluating the profitability of the project. The various commonly used methods are as follows:

1) PAY-BACK PERIOD METHOD:

It represents the period in which the total investment in permanent assets pays back itself. Under this method various investments are ranked according to the length of their pay-back period and the investment with a shortest payback period is preferred. The pay-back period can be ascertained in the following manner:

Payback period = Investment

Cash Flows/year

2) AVERAGE RATE OF RETURN METHOD:

This method takes into account the earnings expected from the investment over their whole life.

According to this method the project with the highest rate of return is selected. The return on

investment is calculated with the help of following formula.

32

ARR = Average Annual Profits after depreciation & Taxes x 100

Average Investment

Where, Average Investment = Original Investment + Salvage Value

2

3) NET PRESENT VALUE METHODS:

The Net present value method is the modern method of evaluating investment proposals. This

method takes into consideration the time value of money and attempts to calculate the return on

investments by introducing the factor of time-element.

NPV= Present value of cash inflows – Present value of cash outflows.

4) INTERNAL RATE OF RETURN METHOD:

It is also known as trial & error yield method. The following steps are required to practice the internal rate of return method:

Determine the future net cash flows during the entire economic life of the project. The cash inflows are estimated for future profits before depreciation but after taxes.

Determine the rate of discount at which the value of cash inflows is equal to the present value of cash outflows. If annual cash flows are equal then it can be easily found out otherwise it has to be found out by hit and trial method.

Accept the proposal if the IRR is higher than or equal to the minimum required rate of return i.e. cost of capital or otherwise reject the proposal.

In case of alternative proposals select the proposal with highest IRR.

33

5) PROFITABILITY INDEX

This method is also known as benefit cost ratio and is similar to NPV approach. It measures the Present Value of returns per rupee invested based on the following formula:

PI = Present value of Cash Inflows

Present value of cash Outflows

34

TAX CALCULATION

In project finance basically three types of taxes are calculated while doing financial analysis and these are:

Minimum Alternate Tax

Income Tax

Capital Gains Tax

Minimum Alternate Tax (MAT)

Normally, a company is liable to pay tax on the income computed in accordance with the provisions of the income tax Act, but the profit and loss account of the company is prepared as per provisions of the Companies Act. There were large number of companies who had profits as per their profit and loss account but were not paying any tax because income computed as per provisions of the income tax act was either nil or negative. To avoid this practice, MAT was introduced in section 115JB of the Income Tax Act. Profit computed under the regular method is called regular profit and profit computed under sec 115JB is called Book profit and the tax computed is called MAT.

If a company is having regular profits then income tax @ 33.99% (30% tax + 10% surcharge + 3% education cess) is charged on it. However if the books show losses, then MAT is calculated and if MAT shows profits, tax is calculated @ 11.33% (10% tax + 10% surcharge + 3% education cess). And if MAT shows losses, then tax is not to be charged.

MAT Credit

When a company pays tax under MAT, tax credit is allowed in respect thereof during the years when the company pays normal corporate tax. The tax credit earned is the difference between the amount payable under MAT and the regular tax. The amount of MAT credit can be set-off only in the year in which the company is liable to pay tax as per the regular tax. MAT credit will be allowed carry forward facility for a period of five assessment years immediately succeeding the assessment year in which MAT is paid.

35

MAT CALCULATION

First of all, the book profits are calculated using the formula

Book profit= Taxable profit + depreciation previously deducted - actual depreciation as per Income tax Act

MAT loss is added to the book profit to obtain the adjusted book profit on which the MAT is calculated @ 11.33% (MAT rate).

Capital Gains Tax

If any Capital Asset is sold or transferred, the profits arising out of such sale are taxable as capital gains in the year in which the transfer takes place.  Capital asset gains are of two types

Long term capital gains: - Gains on assets held for more than 36 months before they are

sold or transferred. In case of shares, debentures and mutual fund units the period of holding

required is only 12 months. Rate of tax applied on long term capital gains is 22.66% (20% tax +

10% surcharge + 3% education cess).

Short term capital gains: - Gains on assets held for less than 36 months are included in this

category. Rate of tax applied on short term capital gains is 15%.

CALCULATION OF CAPITAL GAIN

Net capital gain is calculated with help of formula:

Net Capital Gain = Gross Gain (Cost of Acquisition + Indexation Cost) – Expenses on Sale

Indexation Cost = Original value X Present year Index

Capital gain is calculated at 22.66% of Net Capital Gain.

36

Base year/year of Acquisition Index

CASH CREDIT FACILITY TO BUSINESSMEN/TRADERS AGAINST COLLATERAL OR HYPOTHECATION OF STOCK IN TRADE

BENEFICIARY

Any individual, proprietary/partnership concern/company etc. residing/operating in the area of operation of the bank and engaged in the procurement, stocking, sale, distribution and marketing of goods and commodities shall be eligible to borrow under the scheme. Such individuals/firms shall enroll themselves as associate member of the concerned bank.

PURPOSE OF LOAN

The loan shall be available for purchasing, stocking and marketing of goods and commodities and meeting out other business related expenses.

ELIGIBILITY

The borrower shall be eligible for a cash credit limit 25% of the annual business turnover. The scheme shall also be implemented by the Apex Bank after the formal notification by the govt. under the Coop. Societies Act, 1984.

VALUATION OF STOCK

The stocks hypothecated to the bank shall be valued on the basis of their book value or market value whichever is less.

OPERATIVE PERIOD

The limit shall be initially sanctioned for a period of one year which shall be renewable on the basis of its financial discipline and past performance such as sale and deposit of sale proceeds in cash credit account etc.

DRAWING POWER

The operations on the limit shall be allowed up to the level of 60% of the value of stocks hypothecated to the Bank.

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SECURITY

In addition to the hypothecation of stocks and their comprehensive insurance with a bank clause, the bank should obtain tangible security equal to 1 ½ time of the amount of cash credit limit sanctioned. If the borrower does not possess sufficient tangible security, the tangible security owned by his relatives, friends etc. shall be acceptable to the bank.

RATE OF INTEREST

Presently interest 13% p.a. shall be charged which is subject to change in pursuance to Directives on interest rates on advances by RBI/NABARD. In the event of default or infringement of any term and condition of sanction penal interest 3% p.a. over and above the normal shall be charged for the amount and period during which the default subsists. The interest shall be calculated on daily balances and will be recovered at quarterly intervals by debiting to the cash credit account or any deposit account maintained with the Bank.

STOCK STATEMENT AND PHYSICAL VERIFICATION

The borrower shall furnish monthly stock statements as well as with each drawal for working out the drawing power. The Bank reserves to itself the right to:-

Conduct physical verification of the stocks hypothecated to the Bank;

Impose/vary any term and condition of the sanction to safeguard its funds; and

Suspend operation on the limit or recall the entire loan in lump sum without assigning any reason.

DOCUMENTATION

The Bank shall obtain necessary documents such as hypothecation-deed, Letter of Acceptance, Letter of Continuity, Demand and Time Promissory Notes, Mortgage-deed of tangible security, Insurance cover/policy etc.

38

FIRST STEP IN A LOAN SYNDICATION & FINANCIAL SERVICE IN THE FORM OF CASH CREDIT:- THE

FEASIBILITY STUDY.

GENERALLY. As one of the first steps in loan syndication, the sponsor or a technical consultant hired by the sponsor will prepare a feasibility study showing the financial viability of the project. Frequently, a prospective lender will hire its own independent consultants to prepare an independent feasibility study before the lender will commit to lend funds for the project.

CONTENTS. The feasibility study should analyze every technical, financial and other aspect of the project, including the time-frame for completion of the various phases of the project development, and should clearly set forth all of the financial and other assumptions upon which the conclusions of the study are based, Among the more important items contained in a feasibility study are:

Description of project.

Description of sponsor.

Sponsors' Agreements.

Project site.

Governmental arrangements.

Source of funds.

Feedstock Agreements..

Construction Contract.

Management of project.

Capital costs.

Working capital.

Equity sourcing.

Debt sourcing.

Financial projections.

39

SANCTION PROCESS OF CASH CREDIT & WORKING CAPITAL:-

40

41

42

43

44

45

46

METHODS OF LENDING

Like many other activities of the banks, the Reserve Bank of India till 1994 mandated method and quantum of short-term finance that can be granted to a corporate. This control was exercised on the lines suggested by the recommendations of a study group headed by Shri Prakash Tendon.

The study group headed by Shri Prakash Tendon, the then Chairman of Punjab National Bank, was constituted by the RBI in July 1974 with eminent personalities drawn from leading banks, financial institutions and a wide cross-section of the Industry with a view to study the entire gamut of Bank's finance for working capital and suggest ways for optimum utilization of Bank credit. This was the first elaborate attempt by the central bank to organize the Bank credit. The report of this group is widely known as Tendon Committee report. Most banks in India even today continue to look at the needs of the corporate in the light of methodology recommended by the Group.

As per the recommendations of Tendon Committee, the corporate should be discouraged from accumulating too much of stocks of current assets and should move towards very lean inventories and receivable levels. The committee even suggested the maximum levels of Raw Material, Stock-in-process and Finished Goods, which a corporate operating in an industry should be allowed to accumulate these levels, were termed as inventory and receivable norms. Depending on the size of credit required, the funding of these current assets (working capital needs) of the corporate could be met by one of the following methods:

FIRST METHOD OF LENDINGBanks can work out the working capital gap, i.e. total current assets less current liabilities other than bank borrowings (called Maximum Permissible Bank Finance or MPBF) and finance a maximum of 75 per cent of the gap; the balance to come out of long-term funds, i.e., owned funds and term borrowings. This approach was considered suitable only for very small borrowers i.e. where the requirements of credit were less than Rs.10 lacs

SECOND METHOD OF LENDINGUnder this method, it was thought that the borrower should provide for a minimum of 25% of total current assets out of long-term funds i.e., owned funds plus term borrowings. A certain level of credit for purchases and other current liabilities will be available to fund the buildup of current assets and the bank will provide the balance (MPBF). Consequently, total current liabilities inclusive of bank borrowings could not exceed 75% of current assets. RBI stipulated that the working capital needs of all borrowers enjoying fund based credit facilities of more than Rs. 10 lacs should be appraised (calculated) under this method.

47

THIRD METHOD OF LENDING

Under this method, the borrower's contribution from long term funds will be to the extent of the entire CORE CURRENT ASSETS, which has been defined by the Study Group as representing the absolute minimum level of raw materials, process stock, finished goods and stores which are in the pipeline to ensure continuity of production and a minimum of 25% of the balance current assets should be financed out of the long term funds plus term borrowings

48

RESEARCH & METHODOLOGY OF PROJECT

1) INTRODUCTION:-

The most of important part and main strength of project comes from the process of collecting; classification and analyzing work will depend upon the methodology. It is in a way proposed plan of the study.

2) OBJECTIVE OF THE REPORT:-

To know the history and growth of company.

To know and understand the definition of the term “loan syndication & Financial service in the form of cash credit” in Chirantan Consultants.

To know and understand the meaning & definition of Projections and financial statements.

To be acquainted with annual reports & contents.

To study the financial statement with the help of cash credit.

To analysis & interpret the financial statements and to preparation of Credit Monetary Assessment (CMA).

To know & understanding the banking monetary system and how the bank sanction the loan.

To find out the right projection of the company.

To understanding the loan syndication system and actualization in practical.

To know the attitude of businessmen toward the cash credit facility for the continuous running of the enterprise.

49

To understand the risk taking capacity of the businessmen.

SOURCES OF DATA COLLECTION: -

Data Collection is key part of project work. There are two types of data collection, first is primary source and second is secondary of data collection.

PRIMARY SOURCES: -

The data were collected by visiting in GIDC WAGHODIA and GIDC MAKARPURA VADODARA.

The data were also collected by the Survey using Questionnaire and personal interview in different-2 industries.

RESEARCH DESIGN: -

DESCRIPTIVE METHOD: - SURVEY AND SAMPLING TECHNIQUE (Personal Interview, Questionnaire etc)

SAMPLE SIZE- 100

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DESCRIPTIVE RESEARCH

Dear Respondent,

As a part of my academic evaluation, I would like to undertake a detailed research study on a topic of LOAN SYNDICATION AND FINANCIAL SERVICE FOR FUND BASED CREDIT FACILITY IN THE FORM OF CASH CREDIT. I will be grateful if you would fill out this questionnaire and assist me in completing the survey appropriately.

Thank You

Descriptive Research

Name: ______________________________

Date of Birth: ______________________________

Gender: Male Female

Educational Qualification: ____________________

Name of the organization ____________________

Type of Organization:

Sole Prop…

Partnership

Pvt Ltd

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Public Ltd

Society

Trust

Others

Contact Address ________________________________

Contact no _____________________________________

Service/ Profession/ Business/ Others

If Business: the sale of last 3 years__________________

Whether availing any bank loan like?

T/L C/C B/G M/L P/L H/L V/L

Is Bank loan helpful to reduce the tax?

Yes No

Are you interested in bank loan for the running of the business?

Yes No

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SECONDARY SOURCES:-

The secondary data includes company profile, financial statements etc has been obtained from Chirantan Consultants.

The secondary data relating to the procedures of assessment of cash credit in small-scale industry (SSI), and large-scale industry, RBI guidelines etc. have been sourced from reference books and websites.

SCOPE OF THE PROJECT:-

Company has given various guidelines, advice and projection for obtaining the finance from the banks and other financial services, and developing of the company keeping in the view economic of the country. I have under taken the study of fast developing company with reference to its financial position. It is necessary to under taken the impact of “Chirantan Consultancy Firm” & various services provide to their clients.

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SURVEY DONE IN GIDC WAGHODIA VADODARA GUJARAT

SR NO NAME OF ORG….TYPE OF ORG…

PERSON WE MEET LOAN STRUCTUR

1 Parashmani Industries Sole Prop…. Shrenik Doshi C/C2 Baroda Moulds & Dies Pvt Ltd Arvind Patel N/A3 Pioneer Industries Partnership Kirit Patel C/C4 Bright Industries Partnership Tushar Ghandhi C/C5 Patel Electricals Sole Prop…. Tushar Patel C/C6 Bright Alloy & Fabricators Partnership B.K. Patel C/C7 Bakulesh Fabricators Partnership Swetal Parikh CC8 Griphold (engee & hydraulics) Pvt Ltd Geetkrishna N.sharma C/C9 Nitin Fastners pvt ltd Pvt Ltd J.N. Singal T/L

10 Automation technology Sole Prop…. Mahesh Tendulkar T/M, C/C11 Paras Electricals Partnership Bhavnesh Patel T/L, C/C12 S R J Engineering Industries Partnership Shailesh Misrti N/A13 Namosha Minerals Pvt Ltd Prakash Patel N/A14 Medicare Equipment Pvt Ltd Mukesh Patel N/A15 Hari om plywood Pvt Ltd Ramesh bhai C/C16 Hi Tech Electroder Pvt Ltd Bipin.M C/C17 Jayesh Electricals Ltd Public Ltd Jayesh bhai Patel N/A18 Gurjar Paints Sole Prop…. Bachubhai K patel C/C19 Saraf Food Ltd Pvt Ltd Suresh Saraf N/A20 Shivam Engineers Partnership Bhavesh K Patel N/A21 Ranker Bioagro INNDUSTRIES Partnership S.K. Singh C/C22 Shivsons Industries Partnership Virendra Patel C/C23 RadiantParenterals Limited Partnership A.B.Patel T/L, C/C24 Parekh Engineering Co Partnership V.R. Parekh N/A

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(Q):- Which type of facility you are using for the development of your business?

(A) Own fund (B) Loan fund

FACILITIES USED BY BUSI-NESSMEN

0%

10%

20%

30%

40%

50%

60%

70%

67%

33%OWN FUNDLOAN FUND

INTERPRETATION:- 67% of the businessmen replies that they are using the loan fund remaining 33% of the business are using their own fund for the running of the business

(Q) If loan fund then which type of loan fund?

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(A) T/L (B) C/C (c) B/G (D) M/L (E) L/C

Category 10%

10%

20%

30%

40%

50%

60%54%

17%

29%C/CT/LN/ALinear (N/A)

INTERPRETATION: - 54% of the businessmen are using the cash credit facility while 17% of the businessmen are using the term loan facility and remaining 29% are not using any type of the financial service.

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NO OF COMPANIES FACILITIES USED BY COMPANIES

PERCENTAGE

13 C/C 54%

4 T/L 17%7 N/A 29%24 (TOTAL) 100%

13

4

7

DATA OF GIDC WAGHODIA

C/CT/LN/A

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(Q):- Types of organization

(A) Sole prop... (B) Partnership (C) Pvt Ltd (D) Public Ltd

Category 10%

10%

20%

30%

40%

50%

60%

17%

50%

33%SOLE PROP…PARTNERSHIPPRIVATE LIMITED

INTERPRETATION: - 17% of the companies are in the form of sole

proprietorship while 50% are in the form of partnership and remaining 33% are in

the form of private limited.

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(Q):- Are you aware about the tax benefit from loan fund?

(A) Yes (B) No (C) Little

70%

20% 10%

DATA ABOUT TAX AWARENESS

YESNOLITTLE

INTERPRETATION: - 70% Businessmen replies that they know the

benefit from the loan fund, 20% replies that they do not have much

knowledge about the tax (these companies are small companies which

are manufacturing the product and supplied to big companies) and

remaining 10% says that they have some knowledge about the tax

benefit from the loan fund.

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ANALYSES OF THE SURVEY DONE IN GIDC WAGHODIA

I visited in GIDC WAGHODIA and found that most of the companies are SOLE PROPRIETOR FIRM and they are using CASH CREDIT rather than TERM LOAN or any other type of the loan.

The reason behind this is that, these companies are small and they are not able to afford the big loan and they are also not able to compete against big companies.

There is the labour problem so these companies are hesitating to make some big investment because they think that their money may be blocked.

The other problem is the attitude of the owner of the companies they think that the loan is always bad for the companies and they will get the troublesome at the time of payment.

Most of the owner of the companies is not aware about the benefit of the loan fund so they are using their own fund rather than loan fund.

Due to the unawareness they are missing the tax benefit and they are paying more tax.

So from the above data (from table, bar chart, and pie chart) we can say that the most of the companies are using the cash credit facility, and other companies are using their own fund. They are not interested in taking any type of the loan.

The other reason is that there are more small-small companies which are not able to compete against the big companies so they are hesitating to take the risk.

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SURVEY DONE IN GIDC MAKARPURA VADODARA GUJARAT

SR NO NAME OF ORG….

TYPE OF ORG… PERSON WE MEET

LOAN STRUCTURE

1 ASHOK ENGINEERING PARTNERSHIP HITESH PATEL N/A

2 SEAL PACK ENGINEERING PARTNERSHIP T.K. PANDA N/A

3 BARODA FORGING SOLE PROP.. SOHEKET ALI C/C

4 SAIOM ENGINEERING PVT LTD PRAKASH BHAI C/C

5 INDO TOOLS SOLE PROP.. INDRAJEET ASHAT N/A

6 AMBICA ENGTECHWORKS PVT LTD SUSHIL T/L

7 ALANKAR UDYOG SOLE PROP.. VICKY G SAINI T/L, P/L

8 M.M.ENGINEERING SOLE PROP.. P.K.R.NAIR N/A

9 EVERGREN ENGINEERING PARTNERSHIP KASHYAP PATEL T/L

10 MUTEL FABRICATORS ENG.. PARTNERSHIP RAJENDRA SHAH C/C

11 BHAGWATI BALLOON IND SOLE PROP.. RAKESH KASHIWALA N/A

12 BEARING MANUAF.. PARTNERSHIP R.M. MORI N/A

13 DOLF INDUSTRIES PVT LTD K.M. RAJAN C/C

14 SWITCH GEAR INDUSTRIES SOLE PROP.. RAJENDRA SHINDE N/A

15 SHIPRASH INDIA SOLE PROP.. MAHESH MISTRY C/C

16 SUN-TECH ENGINEERING SOLE PROP.. KALPESH PANCHAL T/L, C/C

17 B M ENGINEERING IND SOLE PROP.. MUKESH GUPTA N/A

18 SHYAM INDUSTRIES SOLE PROP.. CHIRAG MISTRY C/C

19 EARTH ACQUIRER SOLE PROP.. AMIT PATEL C/C

20 IMPACK INDUSTRIES SOLE PROP.. PAAVAN PATEL T/L

21 RAJYOG ENGINEERING PVT LTD CHINTAK MEHTA N/A

22 L.K. INDUSTRIES PARTNERSHIP DILIP RAWAL C/C,T/M

23 DELTA ENGINERING PARTNERSHIP MUSTUFA VAHORA N/A

24 C.J. ENGINEERING SOLE PROP.. NILESH PANCHAL C/C

25 RISHABHLAM & IND… SOLE PROP.. JYOTI N SHAH N/A

26 VERSATILE ENGINEERS SOLE PROP.. HETENDRA MANDALIYA C/C

27 TANISH ENGINEERS PARTNERSHIP MANISH DESAI N/A

28 SULY CHEMICALS PARTNERSHIP CHIRAG PATEL C/C,T/M

29 FORGINGS & FORGINGS SOLE PROP.. K.G. PATEL N/A

30 PAREKH ENTERPRISES SOLE PROP.. K.K. PAREKH C/C

31 SUPER STAR FIRETECH PVT LTD TUSHAR MEHTA N/A

32 D.P. ENGINEERS SOLE PROP.. SHAILESH PANCHAL N/A

33 RAY DISPLAY SYSTEM PVT LTD AFSAR HAKIM T/L,C/L

34 DIVYA CONTROL PVT LTD NITIN KUMAR C/C.M/L

35 K.M. ENGINEERING SOLE PROP.. MUKESH POSHIYA V/L

36 EAGLE PLASTIC LIMITED PARTNERSHIP R.V. PATEL C/C

37 VIPOR CHEMICALS PVT LTD MAHESH BHAI N/A

61

38 DEEP SUN INDUSTRIES SOLE PROP.. HARESH PANCHAL C/C

39 APEX ASSOCIATION PARTNERSHIP GOPAL BHAI C/C

40 J.K. CHEMICALS SOLE PROP.. SATPAL SINGH C/C

41 SHREE TULJA INDUSTRIES PARTNERSHIP DEEPAK SONI C/C

42 VINAY ENGINEERING IND PARTNERSHIP KALUBHAI C/C

43 SHREEJI ENGINEE WORKS SOLE PROP.. RAJUMAKWANA C/C

44 KABEER ENGINEE WORKS SOLE PROP.. AHMD M. MALEK UBS A/C

45 HPS EXIM PVT LTD PARAS SHAH C/C

46 INDRAMANI ELECTRONICS SOLE PROP.. JATIN SHAH N/A

47 P.H.ELECTRO PLATES SOLE PROP.. HARSHAD.H N/A

48 BHUMIKA ENGINEERS SOLE PROP.. H.L. PATEL C/C

49 ELECTRONICS SYSTEMS PARTNERSHIP N.K. SWADIA C/C,T/M

50 NAVARANG AUTO IND... PVT LTD PRAFUL M GORANA C/C,T/M

51 VIKAS PAINT & CHEMICAL PARTNERSHIP K.S. VERMA C/C

52 MILAN ENGINEERS SOLE PROP.. ATUL M MILAN C/C

53 DILIP ENGINEERING SOLE PROP.. PRAKASH BHAI SHAH T/L

54 LEO ENGINEERING SOLE PROP.. SUDHIR ROY C/C

55 MARUTI SALES & SERVICE PARTNERSHIP KANTILAL DEVBHAIPATEL N/A

56 MARUTI FABRICATORS PVT LTD MAHENDRA BHAI C/C

57 MASCOT INDUSTRIES SOLE PROP.. RAMESH D PATEL T/L

58 VIPUL STEEL SOLE PROP.. VIPUL SHAH C/C,T/M

59 NEEMA ENGINEERING PVT LTD R.M PARIKH C/C

60 MATANGI ENTERPRIZE SOLE PROP.. BHAVIN SHAH C/C

61 SHAKTI STEEL & CUTTING SOLE PROP.. V.T.PATEL C/C,T/M

62 NASA ELECTRONICS SOLE PROP.. DHIRUBHAI SIDHPURA C/C

63 MICRO CARE IND PARTNERSHIP SURESH BHADESHIA T/L

64 MIHIR ENTERPRIZE SOLE PROP.. MILIND J PATHAK N/A

65 NEELAM ENGINEERING SOLE PROP.. J.P.MYSTRI C/C,T/M

66 Power Drives (Gujarat) PVT LTD VASANT M. BHATE C/C,T/M

67 PETRO CHEM STEEL FABRI.. PVT LTD HASHMUKH PARIKH C/C

68 RAJYOG ENGINEERING PVT LTD YOGESH VADODARIA N/A

69 R.R. ENTERPRIZE SOLE PROP.. RAJNESH PATEL C/C

70 PRADEEP ENGINEERING SOLE PROP.. RAJU BHAI PATEL C/C

71 RAVI INDUSTRIES Partnership RAJU SONI N/A

72 MEHTA RACE PRODUCT SOLE PROP.. MEHUL MEHTA N/A

73 R.K. ENGINEERS SOLE PROP.. SURESH K SHAHANI N/A

74 KIRAN PROFILES PARTNERSHIP KIRAN PATEL C/C

75 DAVAR AGRO CHEMICAL SOLE PROP.. I.Y.KHATRI N/A

76 KHALSA MACHINE TOOLS SOLE PROP..BALWANT SINGH RAMGADIA N/A

77 FRIEND INDUSTRIES PARTNERSHIP BHAVESH PATEL C/C

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78 TECHNIQUE ENGINEERING SOLE PROP.. SUMEDHA T/L

79 PARAS HERBAL PHARMA PARTNERSHIP JIGAR M SHAH T/L, C/C

80 PRAGATI ENGINEERS SOLE PROP.. PRAVEEN ACHARYA NA

81 TWIN ENGINEERS PVT LTD RAJESH SOLANKI N/A

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(Q):- Which type of facility you are using for the development of your business?

(A) Own fund (B) Loan fund

Category 10%

10%

20%

30%

40%

50%

60%

70%66%

34%LOAN FUND OWN FUND

INTERPRETATION: - 66% of the businessmen replies that they are using the loan fund remaining 34% of the business are using their own fund for the running of the business.

(Q):- If loan fund then which type of loan fund?

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(A) T/L (B) C/C (c) B/G (D) M/L (E) L/C

Category 10%

10%

20%

30%

40%

50%

60%

51%

22%

4%

20%

1% 1% 1%

C/CT/ML/CN/AM/LP/LV/L

INTERPRETATION: - In GIDC MAKARPURA 51% of the companies are using the cash credit facility while 22% of the companies are using the term loan facility. 20% of the companies do not use any type of the financial service for the running of the business and some industries (very less) are using the mortgage loan and personal loan which is maximum 1% to 2%.

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NO OF COMPANIES FACILITIES USED BY COMPANIES

PERCENTAGE

41 C/C 51%

18 T/L 22%16 N/A 20%3 L/C 4%1 M/L 1%1 P/L 1%1 V/L 1%81 (TOTAL) 100%

41

18

16

13 1 1

Column1

C/CT/MN/AP/LL/CM/L

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(Q):- Types of organization

(A) Sole prop... (B) Partnership (C) Pvt Ltd (D) Public Ltd

Category 10%

10%

20%

30%

40%

50%

60%

53%

27%

20%

SOLE PROP….PARTNERSHIPPRIVATE LIMITED

INTERPRETATION: - 53% firms are in the form of sole proprietorship, 27% firms are in the form of partnership while 20% are in the form of private limited.

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(Q) Do you know the tax benefit from the loan fund?

(A) Yes (B) No (C) Little

76%

18%6%

DATA RELATED TO TAX AWARENESS

YESNOLITTLE

INTERPRETATION: - In the survey of GIDC MAKARPURA 76% of the people said that they are aware about the tax benefit from loan fund, but now they need not any type of financial help, they have the sufficient help.

18% of the people said that they are not interested in loan fund so they do not have any involvement in tax related to the loan fund.

6% of the people said that they are not having the sufficient knowledge about the tax by using the loan fund.

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ANALYSES OF THE SURVEY DONE IN GIDC MAKARPURA

In makarpura survey I found that there are mostly three types of the companies (sole proprietorship, partnership and private limited). The area of GIDC makarpura is vast than to the GIDC waghodia.

In makarpura GIDC there are hundreds of the small-small companies as same in GIDC waghodia. Some companies which are facing the fund problem are using the cash credit facility. Some big companies are using the cash credit as well as term loan facility.

But in case of small companies they are not able to take the risk. They are afraid from the big companies as well as the market scenario. They think due to fluctuation in the market (Inc in bank rate of interest) they may suffer from the loan facility.

In spite of the cash credit and the term loan some companies is interested in taking the loan of B/G, L/C, M/L, V/L etc.

So on the basis of above bar chart, pie chart, and the table I can say that due to the labour problem, fluctuation in the market and due to the new competitors small and the medium size companies are not interested in taking the big loan. But they are using the cash credit facility fully because it easily available and risk is also low as compared to the others.

SUGGESTION

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Cash credit financial service is one of the best financial services in India, because it is easier to the others. But to increase this service, some changes should be implemented in the procedure.

The complexities of the procedure of cash credit should be reducing so that businessmen/traders easily use this service.

The rate of interest should be reduced.

The awareness of this service should be prevailed in the whole industries.

The payment system of cash credit should also be very easy so that the barrower may easily pay the installment.

The limit of cash credit should also be defined very well so that the barrower may not get any type of confusion.

The time which is used at the time of the sanction of cash credit should be reduced so that it may easily be used within the right time.

The terms and conditions should be specified and mentioned clearly so that everything related to loan should be clear.

Chirantan consultants should pay more attention toward marketing so that people may know it very well.

CONCLUSION

The summer internship I have done in “loan syndication and financial services for fund based credit

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facility in the form of cash credit” at Chirantan consultant.

In these two months tenure I achieve a lot of knowledge about loan syndication and cash credit. It is nothing but to provide the loan in the form of cash credit to the companies for the running of the business. In this period I have visited in many companies get the response towards loan and other financial services, there projection and prepare project report.

It is totally based on our logical skill as well as on hard working skill and even it has to depend upon our analytical skill.

In the projection I have learn how to remove the companies problem related to fund or proper utilization of the fund whether it may be in the form of own fund or loan fund.

In today’s age the corporation business has advanced and become complicated because business is the going concern, so nobody would like to stop. Everybody wants to grow more and more, he wants to take the business upward and for these works there is the need of the fund.

Funds are the life blood of any organization, without it nobody can raise the business. People may use its own fund otherwise loan fund.

Most of the companies are interested in taking in cash credit facility and some of them are interested in term loan also, but as the cash credit is the easiest way to finance the short term loan, so people prefer it first.

Competitors are also increasing day by day, so to survive in the market it is necessary to increase the business and capture the market for the expansion of the business, there is need of the fund, and for these requirement as well as for working capital they prefer to take the facility of cash credit.

At the last I would like to conclude that during the research in my summer internship programme, I found that companies are more interested in cash credit facility rather than others. In spite of it some of the companies do not want to take any kind of the financial service because they think that their own fund is enough and they are not interested in taking any kind of risk.

LIMITATION OF STUDY

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The time, limitation is the most important problem to collect the various information.

It required a lot of time and more expensive.

Very less time interacted with customer during filling up of questionnaire.

Some respondents did not take the survey seriously and did not give appropriate answers.

The study is conducted considering the prevailing conditions which are subject to change in the future.

All the work was limited in some limited area of vadodara so the findings should not be generalized.

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QUESTIONNAIRE

Name –Designation-Occupation-Address –

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Phone-

1. Which type of facility you are using for the development of your business?

(A) Own fund (B) Loan fund

2. If loan fund then which type of loan fund?

(A) T/L (B) C/C (c) B/G (D) M/L (E) L/C

3. Types of organization

(A)Sole prop... (B) Partnership (C) Pvt Ltd (D) Public Ltd

4. Are you aware what are the different tax saving scheme available in the market?

(A) Yes (B) No (c) Little

5. Are you aware about the tax benefit from loan fund?

(A) Yes (B) No (c) Little

6.How much tax you are paying in current situation

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(A) (B) (C) (D)

7. Are you satisfied with current tax structure?

(A) Yes (B) No (c) Little

8. Do you think that loan fund is helpful in reducing the tax rate?

(A) Yes (B) No (C) cannot say

9. Do you think that loan fund is better than own fund for the running of the business?

(A) Yes (B) No (C) cannot say

10. Do you know that loan fund is helpful in diversification of investment?

(A) Yes (B) No

11. Do you know that cash credit is the easiest way to sanction the loan?

(A) Yes (B) No

12. What is your suggestion?

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BIBLIOGRAPHY

WEBSITES:

http://www.rbi.org

http://www.statebankofindia.com

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http://www.icicibank.com

http://www.chirantanconsultants.com

http://www.wikipedia.org

BOOKS:

I M Pandey. Financial Management. Published by Vikas Publishing House Pvt Ltd, New Delhi. Tenth Edition (2010).

Shashi K. Gupta, R.K. Sharma. Financial Management. Published by Kalyani Publishers New Delhi. Fifth Edition (2006).

Donald R Cooper. Business Research Methodology. Published by the Tata McGraw- Hill New Delhi. Ninth Edition (2010).

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