Risk Assessment in lending to SME's

At Religare finvest Ltd

Presented By: Saurav Raj

Saurav Raj

ContentIntroductionObjective of InternshipCredit Analysis ProcessResearch and methodologyConclusion

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INTRODUCTON• Religare Finvest Limited (RFL) a subsidiary of Religare Enterprises

Limited (REL) is a Small and Medium Enterprise (SME) financing focused NBFC. With a wide network of branches and ISO certification 9001:2008, RFL is committed to providing debt capital to power the growth of the SME’s which constitute as the backbone of India’s economy. The diversified suite of lending solutions include:-

- SME Mortgage Loans- SME Working Capital Loans- Loan against Marketable securities

• RFL understands that each financial need is unique and offers customized solutions to empower the customer to prosper. With a belief that the customer’s success is their success, its presence in 25 branches across all major cities plays a vital role in nurturing the customers business while growing to a book size of over INR 120.9 billion. (As of December 31st 2014)

• Founder of this company is Mr. Sunil Godhwani• CEO of this company is kavi Arora

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Objective of InternshipTo Know Basic Risk Assessment

ToolsDue Diligence carried out in

assessing the Credit Risk of a client

Risk Management post disbursal

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Deal Flow Process

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Login Desk

Pre Underwriting ProcessCredit Executive(CAM ,FIN1,Banking, RTR)

Yes

NO(Reject)

Credit Manager

(Risk Analysis Of

Deal)

Query Raised

Customer

Yes

Disbursal of loan

Query To customer(If Fulfill

Statement)Yes/No Reject

Query Resolved

• What is NBFCA Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 and is engaged in the business of Loans , Advances, Acquisition of shares/stock/bonds/debentures/ securities issued by Government or local authority or other securities of like marketable nature, Leasing, Hire-purchase, Insurance business, Chit business.• What is Risk Management?

The process of determining the likelihood that a specified negative event will occur. Investors and business managers use risk assessments to determine things like whether to undertake a particular venture, what rate of return they require to make a particular investment and how to mitigate an activity's potential losses.

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Credit Analysis Process

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Login: Document (KYC, Property paper) Self Attested - Financial Documents - Bank Documents - Sanction Letters of existing loans

Pre Approval:

Credit Executive: Tele Verification - Telephone Information Field Investigation – contact point verification, residence & office verification De-dupe - check on Official MIS CIBIL- History to know about all loan and how he pay. Fraud Control Unit – Get Internal Investigation CET Preparation CAM - Credit Approval Memo, Customer Details FIN1- Profit&loss, Balance Sheet Banking- enter bank statement of client for last 6 months RTR - To depict & map all exiting Loans

Risk Analysis by Credit Manager (in chronological order)

CET Analysis. Some standard indicators (applicable to many industries) of good credit worthiness are: DSCR > 1.25 TD / EBITDA < 5 Banking Turnover > 80% No cash losses in last 3 Financial Years

• Personal discussion with Client• Google search – check for pending court cases, negative news• DIN check – check if directors are part of any other company which is defaulting• 5C’s Credit Analysis (explained in next slide)• Ratio Analysis – check whether ratios like EBITDA margin, Net Working Capital

Cycle, Debt/equity etc.• Analysis of Bank Statements for debt repayments, banking turnover, inward and

outward cheque bounces• Mapping of all the existing loans along with their repayments in the last 6

months• Future growth & EBITDA margin assumptions are taken based on last 3 yrs.

CAGR• Market Feedback • Industry analysis• Management analysis

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5C’s Credit Analysis

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Character: Repayment Background, Social Character, willingness to meet one's obligations

Capacity: Income Statement analysis to repay the loanCapital: Assets&Liabilities, EquityCollateral: Tangibility, Marketability, Easily LocatedConditions: Better Security for loan, Future Monitoring of

loan

Post-Disbursal Monitoring Tracking Post Disbursal Documents (in some cases, e.g. Property

papers, BT loans) Escrow Monitoring – whether money inflow regular & from the

designated sources Google Alerts Check – receive alerts on e-mail Portfolio Delinquency Monitoring - check regular EMI payment

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RESEARCH METHODOLOGYResearch Methodology Used In This Project Is Descriptive Research• Primary data sources

This data has been obtained directly from discussion with head of finance department of the company.

• Secondary data sourcesReligare finvest ltd. annual reportInternetBooks ,newspapers, article.

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FINDINGSTurnover of Religare has increase in 2013-

2014 to INR 120.9 billion.The current ratio is increased in 2014 to INR

120.9 billion. from INR 11484.72 crores in 2013.

The major part of the revenue raised by Religare is from the NBFC’s sector which is 71% of the total revenue.

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Conclusion• The metrics and processes studied during the

internship tenure gave a macro as well as a micro level insight into the assessment of credit-worthiness of a client.

• Financial institutions use some form of the five C’s in the credit evaluation process

• They like to lend money because that is the way that they make money.

• They only want to lend money to someone who can repay the loan in full and on time

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