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UNIVERSITY OF MUMBAI

PROJECT REPORT

ON

CREDIT APPRAISAL

UNION BANK OF INDIA

SUBMITTED BY:

Mr. SAGAR JADHAV

ROLL NO: 33

MASTER OF MANAGEMENT STUDIES

SEM III

LALA LAJPATRAI INSTUTUE OF MANGEMENT

[2009-2011]

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SR.

NO

CONTENT PAGE

NO

1 ACKNOWLEDGMENT 3

2 EXECUTIVE SUMMARY 4

3 OBJECTIVES OF THE STUDY 6

4 OVERVIEW OF THE BANKING INDUSTRY 8

5 OVERVIEW OF UNION BANK OF INDIA 10

6 INTRODUCTION 12

7 TERMINOLOGIES INVOLVED 13

8 TYPES OF CREDIT 21

9 CASE STUDY 25

10 CONCLUSION 54

11BIBLIOGRAPHY

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ACKNOWLEDGMENT

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I sincerely feel the credit of the project work could not be narrowed to only one

individual. This work is an integrated effort of all those concerned with it, it would have been

quite difficult without their direct & indirect co-operation. I wish to express my appreciation and

gratitude to all the concerned people.

First and the foremost my intellectual debt is to (Senior Lecturer Institute of

Management Studies) and (General Manager Credit Department Union Bank of India, Thane)

who have contributed significantly towards the completion of the project They have provided

the guidelines on which this project was made.

I am thankful to all the people who have given their precious time and provided me with

requisite data without which this project would not have completed .I also thank them for giving

their valuable suggestions during the entire period of research.

However, I accept the sole responsibility for any errors of omission and commission.

SAGAR JADHAV.

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EXECUTIVE SUMMARY

The project undertaken is credit appraisal of industrial finance for SMEs. The

project emphasis on understanding the procedure and process used by union bank of India

to assess the credit worthiness of the borrower. Small scale industry in India is booming

and contributing to 17% of GDP in year 2009, many banks are focusing their attraction

towards this sector.

The credit appraisal process is the scientific way of giving the credit to corporate client by

analyzing the credit worthiness of the company through different parameters. The first

step in credit appraisal project is to understand the Indian banking industry and the

performance of the few Indian banks in the previous financial years since project

undertaken is in banking industry a glance on union bank of India and small scale industry

in India is given and the steps taken by the banks to development and welfare of SSI.

The credit appraisal for SME starts with Understanding the need of loan to the borrower

i.e. for which purpose the loan is required. After this next step is to analyze the financial

statement of the company to whom the loan is to be sanctioned. The main things which are

taken into consideration while analyzing the financial statement are type of statement,nature of activity ,accounting policy, qualities of assets and liabilities , unit wise

performance result of the company & directors report.

After analyzing the financial statement the second step is to study the

principle given by Basel committee on banking supervision which basically Indian banks

have to be following as per the order By Reserve Bank of India. The third step is to analyze

the key financial ratios of the company such as:

Leverage ratio, liquidity ratio, profitability ratio, turnover ratio, inventory norms.

The next step is to understand the methodology used to determine the credit rating. Since

the credit rating methodology differ from bank to bank in term of the weight age given to

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the parameters but the parameter used by the banks to assess credit worthiness are almost

same to all company. The banks mainly provide two types of credit facility known as term

loan and working capital loan. The working capital loan is given by three methods namely-

Turn over method, FBF method and cash budget method.

Term loan is the loan given by the company for a long term generally

more than one year and less than 10 years to company. The term loan is assessed by the

break even analysis, cost benefit ratio, payback period. While appraising the term loan

technical, managerial, financial feasibility is checked. The debt service coverage ratio is

used for assessing the company capacity to pay back installment of loan and interest on

term loan.

OBJECTIVES OF THE STUDY

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The methodology used in my case is exploratory study. Exploratory study is used to

gather preliminary information. In this conclusion cannot be predicted. In my case it was not sure

whether the concerned party would get the credit or not.

The data used is secondary data. The basic source of data was as follows:

balance sheets

company profile data

Previous ratings of the organization if any.

The indicators used were mainly the Ratios; the purpose of each ratio is as follows:

1) Current ratio to examine the liquidity aspects.

2) Debt equity ratio to examine term liability.

3) Debt service coverage ratio to examine the servicing capability of repayment obligations.

For term loans financing DSCR plays an important role. While for loan relating to working

capital financing Current ratio & DER are mainly considered.

LIMITATIONS OF THE STUDY:-

Every study or research is conducted under some limits and there are some restrictions which

have some impact on the project.

Limitations of this project are:

Coverage: The study aims at covering the corporate banking of Union Bank of India only.

The study aims at gaining the practical knowledge by taking help of bank personals. So

there might have been tendencies among the personals to amplify or filter their responses

due to time limitation.

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OVERVIEW OF THE BANKING INDUSTRY

Banking in India originated in the first decade of 18th century with The General Bank of Indiacoming into existence in 1786. This was followed by Bank of Hindustan. Both these banks are

now defunct. The oldest bank in existence in India is the State Bank of India being established as

"The Bank of Bengal" in Calcutta in June 1806.

Nationalization:-

By the 1960s, the Indian banking industry has become an important tool to facilitate the

development of the Indian economy. At the same time, it has emerged as a large employer, and a

debate has ensued about the possibility to nationalize the banking industry. Indira Gandhi, the-then Prime Ministerof India expressed the intention of the GOI in the annual conference of the

All India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalization."The

paper was received with positive enthusiasm. Thereafter, her move was swift and sudden, and the

GOI issued an ordinance and nationalized the 14 largest commercial banks with effect from the

midnight of July 19, 1969.A second dose of nationalization of 6 more commercial banks

followed in 1980. The stated reason for the nationalization was to give the government more

control of credit delivery. With the second dose of nationalization, the GOI controlled around

91% of the banking business of India.

Liberalization:-

In the early 1990s the thenMr.NarasimhaRao government embarked on a policy ofliberalization

and gave licenses to a small number of private banks, which came to be known as New

Generation tech-savvy banks, which included banks such as UTI Bank(Now Axis), ICICI Bank

and HDFC Bank. This move, along with the rapid growth in the economy of India, kick started

the banking sector in India, which has seen rapid growth with strong contribution from all the

three sectors of banks, namely, government banks, private banks and foreign banks.

Current scenario:-

Currently, overall, banking in India is considered as fairly mature in terms of supply, product

range, Even though reach in rural India still remains a challenge for the private sector and foreign

banks. Most of the banks in this category are concentrated in the high-growth urban areas in

metros (that account for approximately 70% of the total banking business). Even in terms of

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quality of assets and capital adequacy, Indian banks are considered to have clean, strong and

transparent balance sheets-as compared to other banks in comparable economies in its region.

The Reserve Bank of India is an autonomous body, with minimal pressure from the government.

The stated policy of the Bank on the Indian Rupee is to manage volatility-without any stated

exchange rate-and this has mostly been true.

The banking industry in India seems to be unaffected from the global financial crises which

started from U.S in the last quarter of 2008. Despite the fallout and nationalization of banks

across developed economies, banks in India seems to be on the strong fundamental base and

seems to be well insulated from the financial turbulence emerging from the western economies.

The Indian banking industry is well placed as compare to their banking industries western

counterparts which are depending upon government bailout and stimulus packages.

The strong economic growth in the past, low defaulter ratio, absence of complex financial

products, regular intervention by central bank, proactive adjustment of monetary policy and so

called close banking culture has favored the banking industry in India in recent global financial

turmoil.

Although there will no impact on the Indian banking system similar to that in west but the banks

in India will adopt for more of defensive approach in credit disbursal in coming period. In order

to safe guard their interest, banks will follow stringent norms for credit disbursal. There will be

more focus on analyzing borrower financial health rather than capability. Indian banks are now

quoting al higher valuation when compared to banks in other Asian countries (viz. Hong Kong,

Singapore, Philippines etc.) that have major problems linked to huge Non Performing Assets

(NPAs) and payment defaults.

Indian nationalized banks (banks owned by the government) continue to be the major lenders in

the economy due to their sheer size and penetrative networks which assures them high deposit

mobilization.

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OVERVIEW OF UNION BANK OF INDIA

Union Bank of India was inaugurated by the father of the nation Mohandas Karamchand

Gandhi. It commenced operations in the year 1920.

Union Bank has offered vast and varied services to its entire valuable clientele taking care of

their needs. Today, with its efficient customer service, consistent profitability & growth,

adoption of new technologies and value added services, Union Bank truly lives up to the image

of, Good People to bank with. Anticipative banking is an integral ingredient of value-based

services. This ability to gauge the customer's needs long before he realizes, best reduces the gap

between expectance and deliverance

Manpower is the key factor for the success of any organization. Union Bank has a dedicated

family of about 26,000 qualified / skilled employees who will and always will be delighted to

extend their services to the customers with heartfelt efforts

The Bank is a Public Sector Unit with 55.43% Share Capital held by the Government of India.

The Bank came out with its Initial Public Offer (IPO) in August 20, 2002 and Follow on Public

Offer in February 2006. Presently 44.57 % of Share Capital is presently held by Institutions,

Individuals and Others.

The Bank has over the years earned the reputation of being a techno-savvy Bank and is one of

the front runners amongst public sector bank in the field of technology. It is one of the pioneer

public sector banks, which launched Core Banking Solution in 2002. As of September 2005,

more than 719 branches/extension counters of Bank are networked under Core Banking Solution,

powered with the centralized technology platform; the Bank has launched multiple Electronic

Delivery Channels and has installed nearly 469 networked ATMs. Online Tele banking facility is

available to all its Core Banking customers. The multi facility versatile Internet Banking Solution

provides extensive information in addition to the on line transaction facility to both individuals

and corporate banking with the Core Banking branches of the Bank. In addition to regular

banking facilities, today customer can also avail variety of value added services like cash

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management service, insurance, mutual funds, Demat from the bank. Today there are more than

26,000 employees in Union Bank of India.

UBI has been ranked at 5th position among the nationalized bank in India.

Corporate Mission:

A logical extension of the Vision Statement is the Mission of the Bank, which is

to gain market recognition in the chosen areas.

To build a sizeable market share in each of the chosen areas of business through

effective strategies in terms of pricing, product packaging and promoting the product in the

market.

To facilitate a process of restructuring of branches to support a greater efficiency

in the retail banking field.

To sustain the mission objective through harnessing technology driven banking and delivery

channels.

To promote confidence and commitment among the staff members, to address the expectations ofthe customers efficiently and handle technology banking with ease.

ABOUT UNION BANK OF INDIA

We should have the ability to carry on a big bank, to manage

efficiently Crores of rupees in the course of our national activities. Though we have not many

banks amongst us, it does not follow that we are not capable of efficiently managing Crores and

tens of Crores of rupees."

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MAHATMA.GANDHI

INTRODUCTION

Credit appraisal is the process in which lenderappraises the creditworthiness of the borrower.

In other words we can say that Credit Appraisal is a process to ascertain the risks associated

with the extension of the credit facility.

Offering credit is an operation involving risk. Before offering credit to an organization, its

financial health must be analyzed. Credit should be disbursed only after ascertaining

satisfactory financial performance. Based on the financial health of an organization, banks

assign credit ratings. These credit ratings are used to fix the interest rate and quantum of

installment.

This study aims to analyze the financial health of organizations that approach Union Bank of

India (UBI) for credit facilities. After analyzing credit health, the credit rating is determined. On

the basis of credit rating, the interest rate guidelines circular is consulted to fix a price for the

credit facilities i.e. determine the interest rate.

The significance of this project is that every organization needs credit for some or the other

purposes but financial institution cannot just give credit to anybody as there is risk involved in

that. So before coming to the decision of lending credit appraisal is carried out.

I always wanted to know the procedure behind lending process and summer project in that was

best opportunity for me to know the same. In this I have taken a case study of UBI client to

explain the same.

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TERMINOLOGIES INVOLVED

Prime Securities- Primary security is the asset created out of the credit facility extended to the

borrower and / or which are directly associated with the business / project of the borrower for

which the credit facility has been extended.

Collateral Securities- In lending agreements, collateral is a borrower's asset that is forfeited

to the lender if the borrower is insolvent --- that is, unable to pay back the principal and

interest on the loan. When insolvent, the borrower is said to default on the loan, in which case the

lender becomes the owner of the collateral. It is the additional security given while applying for

the loan.

Credit rating- It is the rating which determines the creditworthiness of the concerned party.

Union Bank of India follows a finely defined Credit Rating Model for assessing thecreditworthiness of the applicant. The credit rating model asses various aspects of the projects

and assigns scores against them thereby determining the risk level involved with the project

It is divided in Four Sections:

1. Rating of the Borrower

Financial Risk

Management Risk

Market Condition/ Demand Situation

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2. Rating of the Facility

3. Risk mitigators

4. Business Consideration

1) Rating of the Borrower: This part of credit rating model deals with assessing the financial

and managerial ability of the borrower. The financial ability of the firm is derived by

calculating ratios that determine the short term and long term financial position of the firm

Short term ratios include Current Ratio, determines the liquidity position of the company over a

period of one year. The current ratio is an indication of a firm's market liquidity and ability to

meet creditor's demands. It is excess of current assets over current liability. If current liabilities

exceed current assets (the current ratio is below 1), then the company may have problems

meeting its short-term obligations. If the current ratio is too high, then the company may not

be efficiently using its current assets.

According to the guidelines given to UBI the ideal level is at 1.33:1 however the acceptable

level is at 1.17:1.

However at times current ratio may not be a true indicator, the current ratio for road projects is

very high but this does not indicate that the company is not using its assets well but the ratio is

high because the activity involves more in dealing with current assets. Hence it is important for

the evaluator to understand the nature of the industry.

Long term ratio include Debt Equity Ratio is a financial ratio indicating the relative proportion

of equity and debt used to finance a company's assets. This ratio is also known as Risk,

Gearing or Leverage. A high debt equity ratio is not preferable by an investor as the company

already has acquired high amount of funds from market thereby reducing the investor share over

the securities available, increasing the risk.

It is also important for the lender bank to assess the firms debt paying capacity over a period.

Such capacity is derived by calculating ratio like Debt Service Coverage Ratio minimum

acceptable level is 1.50.

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It also necessary for the lender to determine the ability of the firm to achieve the projected

growth by evaluating the projected sales with actuals. However such parameter remains non

applicable if the business is new.

Financial risk evaluation is only one of the parameter and not the only parameter for

determining the risk level. It is important to evaluate the Management Risk also while

evaluating the risk relating to borrower.

It is the management of the company that acts as guiding force for the firm . The key

managerial personnel should bear the capacity to bail out the company from crisis situation. In

order to remain competitive it is essential to take initiatives. Such skills are developed over years

of experience, thus for better performance it is required to have a team of well qualified and

experienced personnel.

Market potential / Demand Situation

A Company does not operate in isolation there are various market forces that acts in either

favorable or unfavorable manner towards its performance. Thus the rating would not give

true picture if does take market or demand situation in consideration.

The demand supply situation / market Potential plays an important role in determining the

growth level of the company like

i) Level of competition: monopoly, favorable, unfavorable

ii)Seasonality in demand: affected by short term seasonality, long term seasonality or may not

be affected by seasonality in demand.

iii)Raw Material Availability:

iv) Location Issueslike proximity to market, inputs, infrastructure: Favorable, neutral,

unfavorable.

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The diagrammatic representation is shown as below:-

Financial Risk Management Risk Evaluation of market/industry

After evaluating the risk level involved the lender bank decided on lending Interest Rate.

In UBI they are categorized in 9 segments

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Credit rating

Rating of

Borrower

Rating of

Facility

Risk Mitigator Business

Aspects


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1. lowest Risk CR-1

2. Low Risk CR-2

3. Medium Risk CR- 3

4. Moderate/ Satisfactory Risk CR- 4

5. Fair Risk CR- 5

6. High Risk CR- 6

7. Higher Risk CR- 7

8. highest risk CR- 8

9. NPA CR- 9

In UBI, a business receiving Credit Rating above level 6 are not considered good from point of

investment and thus are avoided.

Working Capital Gap-

Working Capital Gap (WCG) is the difference between Current assets and Other Current

Liabilities (OCL) [excluding Bank Borrowings] of a unit. This has to be financed from the NWC

and BB only.

Working Capital Gap = Current Assets - Current Liabilities other than Bank Borrowings

Margin -

Margins are imposed with a view to have adequate stake of the promoters in the business both

to ensure his adequate interest in the business and to act as a bulwark against any shocks that

the business may sustain. The margins stipulated will depend on various factors like salability,

whether the material is imported or indigenous, quality, durability, price fluctuations in the

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market for the commodity etc. Sundry creditors and advance payments received will not be

reckoned towards margins. Margin on different items of stocks viz. raw material, stock in

process, finished goods may be kept same or different. Margins on receivables are usually higher

than stocks as receivables include profits. The logic is that raw materials, by definition, should

have alternative uses and hence, salability of raw materials should be easier than finished goods

and of course, stock in process. Receivables attract the highest margin as bankers are skeptical

about the accuracy, reliability of dues and even the very existence of the receivables, as checking

on them could be a cumbersome task.

DETERMINATION OF INTEREST RATE-

The interest rate is determined from the interest rate guidelines circular. This circular is regularly

updated to reflect the banks latest credit policies. The rupee credit is based on BPLRand the

foreign exchange loans are based on LIBOR.

Credit disbursement at Union Bank of India

This project was undertaken at the Industrial Finance Branch of Union Bank of India, at the

Credit Department. Financial requirements for Project Finance and Working Capital purposes are

taken care of at the Credit Department. Companies that intend to seek credit facilities approach

the bank. Primarily, credit is required for following purposes:-

1. Working capital finance

2. Term loan for mega projects

3. Non fund based Limits like Letter of Guarantee, Letter of Credit

Companies present audited balance sheets of the current and previous years. These are used to

determine the financial health, turnover trends and rise and fall of profitability. Then credit rating

is done.

The financial health and credit rating are theoretical methods for determining the right interest

rate. However, in practice, banks consider other factors such as history with client, market

reputation and future benefits with clients. Thus, a difference exists between theory and practice.

ASSESSMENT OF WORKING CAPITAL REQUIREMENT:-

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The working capital Assessment depends upon the level of business, segment of the borrower,

prevailing guidelines of RBI, trade and industry practice prevailing and other objective factors.

The assessment shall be based on a total study of borrowers operations, the processing and

production cycle of the Industry, Financial and Managerial capability of the borrowers and other

parameters relating to the unit and the Industry.

The Assessment of the working capital of the borrower can be done under anyone of following

four methods:

1) Turnover Method:-

Under this method, the working capital limit shall be computed at 20% of the projected sales

turnover accepted by the Bank.

In the case of MSE borrowers seeking/enjoying fund based working capital facilities uptoRs 500Lacs , the limits shall be assessed on the basis of turnover method.

The turnover method shall be applied for sanction of fund based working capital limits to the non

MSE borrowers requiring working capital facilities up to Rs. 100 Lacs from the banking system.

This system shall be made applicable to traders, merchants, exporters who are not having a

predetermined manufacturing/ trading cycle.

Under the Turn over method, branches/ offices shall ensure maintenance of a minimum margin

on the projected annual sales turnover. In other words, 25% of the estimated sales turnover value

shall be computed as working capital requirement , of which at least 4/5th (20%) shall beprovided by the bank and the balance 1/5th (5%) shall be by way of promoters contribution

towards margin money. However, if the available NWC is more, the same shall be reckoned for

assessing the extent of bank finance and lower limits are to be considered.

2)FLEXIBLE BANK FINANCE:-

Flexible bank finance method is an extension of permissible bank finance method with

customer friendly approach in as much as the scope of current assets is made broad based and for

evaluating projected liquidity, acceptable level of current ratio is taken at 1.17: 1 against

benchmark level of 1.33: 1 .

FBF method is applicable for account with credit limits of Rs 1 crore and above for other

advances and above Rs 5 Crores for MSE advances.

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Under the FBF system, an uniform classification for current assets and current liabilities shall be

adopted on the terms given in CMA data format.

The assessment of credit requirement of a party shall be made based on the projected study of theborrowers business operations vis--vis the production/processing cycle of the industry.

The projected level of inventory and receivable shall be examined in relation to the past trend,

market developments and industry trend.

TYPES OF CREDIT FACILITY THAT BANK PROVIDES:-

A) FUNDED CREDIT FACILITIES:

1. Working capital

2. Term loans

B) NON- FUNDED CREDIT FACILITIES:

a. Guarantee

b. LC.

FUNDED CREDIT FACILITIES:

Funded credit facilities mainly consist of:

1. Working capital :-

Working capital is a financial metric which represents the amount of day-by-day operating

liquidity available to a business. Also known as operating capital, it is calculated as current assets

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minus current liabilities. A company can be endowed with assets and profitability, but short of

liquidity, if these assets cannot readily be converted into cash.

Current assets and current liabilities include three accounts which are of special importance.

These accounts represent the areas of the business where managers have the most direct impact:

Accounts receivable (current asset)

Inventory (current assets), and

Accounts payable (current liability)

In addition, the current (payable within 12 months) portion of debt is critical, because it

represents a short-term claim to current assets. Common types of short-term debt are bank loans

and lines of credit.

A positive change in working capital indicates that the business has either increased current

assets (that is received cash, or other current assets) or has decreased current liabilities, for

example has paid off some short-term creditors.

The working capital includes the following :

a. Cash credit hypothecation of stocks

b. EPC-sublimit of CC

c. Cash credit hypothecation of book debts

d. FBP/FBD/ODF OBC(foreign bill payment, foreign bill negotiation)

FBN-DP/DA 90 days.

2. Term loans:-

A term loan is a secured commercial loan made to business concerns for a specific period

(normally three to ten years).It is repaid with interest, usually with regular periodical payments.

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Term Loan usually are granted for the purchase of longer-term fixed assets (land, buildings and

equipment etc.). Other purposes may include business expansion investments and company

acquisitions. The repayment term of an individual loan will vary depending on the useful life of

the asset being financed and the lending policy of the financial institution (e.g. 3 years for a

computer, 10 years for machinery etc.). Generally, the interest rate on a term loan will be higher

than the rate on an operating loan to reflect the risk associated with the longer term.

NON- FUNDED CREDIT FACILITIES:

Besides meeting the credit requirements of the borrowing enterprises by way of fund-based

credit facilities, banks also cater to the non-fund based requirements of their clients.

The fund-based facilities provided by the banks require immediate outlay of funds which

must be provided beforehand. On the other hand, the non-fund based facilities are essentially

in the nature of promises made by banks in favor of a third party to provide monetary

compensation on behalf of their clients if certain situations emerge or certain conditions are

fulfilled.

These non-fund based facilities may be in the nature of Bank Guarantees or Letters of Credit

issued by the bank. These facilities may also be in the nature of co-acceptance of bills

accepted by their borrower clientele. In the wake of globalization of economy, the non-fund

based facilities are playing a far more important role, where banks act as intermediaries

between the buyers and sellers, the providers and recipients of services or the contractors and

the contra tees situated across the globe.

The borrowing clients of banks prefer to avail of the non-fund based facilities on account of two

factors. First, the facility does not require immediate outlay of funds and therefore the cost of

such facilities tend to be lower than the cost of fund based facilities charged by the bank.

Secondly, a bank guarantee or a letter of credit issued by a bank on behalf of the client is an off-

balance sheet item in the books of the client, which enables the latter to prepare a more appealing

balance sheet for the lending banks the cost of providing non-fund based facilities is significantly

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lower than the cost of providing fund-based facilities especially if the probability of default by

the client is low. Banks earn fee-based income in course of providing non-fund based facilities.

This is the second most important source of income for the banks, next only to interest income on

funds lent

Bank Guarantee:

A guarantee from a lending institution ensuring that the liabilities of a debtor will be met. In

other words, if the debtor fails to settle a debt, the bank will cover it. A bank guarantee might be

used when a buyer obtains goods from a seller then runs into cash flow difficulties and can't pay

the seller. The bank guarantee would pay an agreed-upon sum to the seller. Similarly, if the

supplier was unable to provide the goods, the bank would then pay the purchaser the agreed-upon

sum. Essentially, the bank guarantee acts as a safety measure for the opposing party in the

transaction.

Letter of Credit:-

A Letter of credit also known as documentary credit is the most commonly accepted

instrument of settling international trade payments. A letter of credit is an arrangement whereby

a bank, acting at the request of a customer, undertakes to pay a third party by a given date, on

documents being presented in compliance with the conditions laid down.

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CASE STUDY

ABC Pvt. Ltd.

VashiTurbhe, R.O (NORTH) Thane

It was incorporated on 10.04.1994. They are into the business of ship Repairing, management of

ONGCs offshore vessels & suppliers of Ship spares to ONGC. Importers of Diesel engines

spares & machinery.

The Directors of the Company are :

Mr.AdityaChiplunkar.

Mr.SagarJadhav.

The company is managed by the Directors who are experienced Marine Engineers havingexperience in ship repairing. They are running this company for last 16 years.

COMPANY PROFILE:

BRIEF HISTORY:

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The Company ABC Pvt.Ltd.was originally incorporated in 1994 as partnership concern forproviding quality marine service with educated, technically qualified, experienced & trained

staff. The firm looking to the business opportunities and necessities was converted to a private

limited company in 1996.

In 1997 ABC has ventured into ship management and has been successfully managing offshoresupply Vessels and Crew Boats for ONGC.

The core activities of the company includes Ship management, ship repairs, Trading in spares

and stores related to and used in ships repairs, operation and maintenance of ship and charteringof ship. The companys philosophy is to provides a competent and accountable service and to

ensures constantly improved and updated its systems and working methodology.

ABC has been approved as ship repair unit by the Directorate General of shipping, by virtue of

which, imports of machinery spares required for repairs can be done duty free. ABC also has aLicense for steel Hull Repairs in Mumbai Dry Docks issued by the Mumbai Port Trust.

The company has two crew Boats RAAVI , CHENAB and they are provided on charter Hire

to oil & ONGC which supplements their Mumbai offshore logistics requirements.

ABC is also registered with Naval Dockyard LTD. Mazagon Cocks Ltd and Mumbai Port Trustfor major repair and overhauling jobs.

In 2002-03 OSV Sindhu -11 a vessel which was submerged for nearly 50 days under water was

revamped and handed over to ONGC witin a short span of 12 months

(B) MANAGEMENT AND TECHINICAL ASPECTS:-

Management structure

ABC is a professionally managed company headed by a strong technical team of highlyqualified and experienced marine engineers ,ably assisted by a team of experienced and skilled

personnel

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MrAditya.Chipulnkar Director of the company had Distinction class in Engineering with 13years experience in Merchant Navy and 8 Years in ONGC . MrSagarJadhav is an Engineer with

15 years

Experience in Merchant navy and 5 years with WartsilaDiesel .MrPratik Palkar is a an Engineerwith 10 Years experience in merchant Navi and 5 years with WartsilaDiesal. Company is in

business for last 15 Year. The company has sufficient manpower and infrastructure facility so as

to provide the value added Service. The company has efficient staff of ship of ship captain. Chiefengineer, second engineer, chief

Officer, radio officer, cook, seaman, filter person etc.

The company has easy availability of engine stores And spares.

SERVICE DIVISION:

The company has an ISO 9001:2000 certified workshop, headed by highly qualified and

experienced engineers and technical workforce extending service and maintenance services to

off shore supply vessels owned by, among others, ONGC, Essar shipping , shipping corporationof India (SCI) , South India Corporation (A) ltd. (SICAL), Great eastern shipping , SAMSON

Maritime Ltd.

The company also undertakes Propeller Blade repairs in association with their Principle, M/SVan VoordenReparatie RV, Netherlands, who specialize in hub and propeller blade repairs and

also make new propellers that may be required for new ship building. They repair approx. 10000propeller blades per year.

c) COMPANYS DIVERSIFICATION, EXPANSION,

MODERNIZATION PROGRAMME:

The company is getting the chartering on confirmed basis from ONGC ltd. The chances ofgetting more contracts from ONGC are on higher sides. Due to good business potential for

chartering of ships to ONGC, the company is now concentrating on chartering of ships. The

company has decided to expand its operating and have acquired Two Crew Boats costing aroundRs 1400 lacs. The said crew Boats are equipped with all the required technology and amenities.

d) DETAILED INDUSTRIAL SCENARIO

The total Indian fleet, which was hovering around 7.0 million GT for a long time, registered a

sudden surge over the last two years and reached a historic high when it crossed the 8.0

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million GT mark. This corresponds, for the the last two years, to nearly 14 % growth for the

last two years. Today Indian shipping companies collectively owns about 704 vessels with

8.3 million gross tonnage (GT) or around 13.75 million deadweight tonnages. This recentsurges is attributable to the remarkable upswing in the shipping markets globally coupled

with the supportive measures initiated by the Indian government and easing of procedure for

acquiring second-hand vessels. Indian shipping industry contributes approximately 0.3% tothe countrys GDP.

The offshore industry comprises of support services to the exploration and production (E&P)

Activity of oil & gas in offshore areas. The industry includes a wide array of activities rangingfrom drilling rigs, marine construction, port support services to development of oil field &

production of support facilities.

Contrary to global scenario, offshore industry in India has started of late in the 1970s withfinding of oil in Bombay high region. In the initial years the offshore industry in India was

supported by support vessels owned and operated by foreign offshore service providers.

However from mid 1960s Indian shipping companies started participating in the industry with

long-term chartering of various tugs by OIL and Natural gas Corporation (ONGC) of India.Presently a handful number of Indian Offshore service providers like Shipping Corporation of

India. Great Eastern Shipping, Essar shipping are involved in the offshore business, serving to

domestic industry. The sector demanded by ONGC which is largest owner of offshore fleet inIndia as well as biggest client to other service providers.

With regards to the increasing demand for crude oil, Government is giving more emphasis on

exploration and production activities in deepwater blocks. The recent awarding of 25 out of 48

oil blocks by the union government of India through the New Exploration and Licensing Policy(NELP) has boosted the prospects of the Indian offshore sector and would give rise to significant

number of new opportunities in the near future.

Thus prospects of the industry demand are very bright considering the requirement of oil in ourcountry and consequent productions of the same by the ONGC. The company is getting the

chartering operation and management contracts on confirmed basis by ONGC and there are

chances of getting more contracts from ONGC are on high side ,Due to good business potentialfor chartering of ships to ONGC

The company has concerted on chartering of ships.

(F)COMPANY S CONTRACT WITH ONGC

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ONGC, tops the list of six Indian companies figured in the Business Week list of Asia s 50 bestfirms. Other Indian companies appear on the list along with ONGC are Tata Steel ,Reliance

Industries ,Tata motors, Larsen &Turbo and Infosys Technologies.

ONGC as an E&P company ,is venturing out into new areas of Deep water frilling ,exploration

of marginal fields ,optimization of production from offshores fields and associated engineering,construction and allied activities .Increased activities require increased effort and resources in

the form of marine spreads like offshore supply vessels ,production supply vessels ,Anchor

Handling Tug-cum-supply Vessels Multipurpose support Vessels ,crew boats Survey VesselsStimulation Vessels besides other type of vessels required for the allied jobs .

Oil and Natural Gas Corporation Limited (ONGC) is India s Most valuable company having a

market share of above 80% in India Crude Oil and Natural Gas Exploration and Production.ONGC also produce Value added products (VAP) like C2-C3 ; LPG ; Naphtha and SKO.

(G) SWOT ANALYSIS:

Strengths

The Promotes are well experienced and financially sound . They are qualified marine engineers

and engaged in the business of ship management ,ship repairs ,import of spares and offshoresupply vessels and chartering of ships since last 15 years.

The performance of the associate concern M/s Arc Marine Pvt Ltd. Has been quite satisfactoryand the account of the associate concern has been classified as standard assets

The company is having confirmed contract with ONGC for three years extendable by one year in

hand .

Weaknesses

The availability of the spare for vessels sometimes may take longer time.

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Opportunities

Apart from ONGC there is good business potential for chartering of vessels to ShippingCorporation of India, Mazagaon Dock Ltd, Naval Dockyard ,Mumbai Port Trust ,etc. further

private companies like Reliance ,Shell ,ESSAR, etc. have also entered Oil & Gas exploration.

Threat

Rough weather at sea may lead to damage to the vessels.

It is a normal operational risk and insurance cover is already taken for the same.

The group has been dealing with ONGC since 1995 and due to its satisfactory performance new

contract have been awarded to the group by ONGC.

COLLATERAL SECURITY

The concerned party has given the collateral security of value Rs 495.71(lacs) which

includes personal owned flats, office building, and some deposits

Analysis

Projected Balance Sheet Rs. in Crores

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Furniture and Fixtures 2.70 2.30 1.88

Crew Boats 165.08 132.06 105.65

Property 11.00 54.50 59.65

TOTAL FIXED ASSETS 263.34 267.84 246.76

LONG TERM LIABILITIES

Deferred Tax Liability 8.24 8.24 8.24

Redeemable Pref Shares

Loan from Ass.Concern

Term Loan-Other

Term Loan UNION BANK

Other Term Liabilities(security deposits) 20.00 20.00

Unsecured loan from FRIENDS &

RELATIVES

0.00 291.54

TOTAL LONG TERM LIABILITIES 8.24 28.24 319.78

MISCALLENOUS ASSETS

Deferred Tax Assets

Bals/Dep with p.Trust/customs 17.71 0.00 0.00

Other loans and advances 2.29 417.11 550.45

Unquoted investments 3.88 5.88 5.88

Other miscellaneous assets 300.00 0.00 0.00

Book debts older than 6 months 0.00 0.00 184.96

Security and other deposits 2.12 0.00 0.00

Total miscellaneous assets 326.00 422.99 741.29

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Net worth

Paid up capital 50.00 50.00 50.00

General reserves & surplus 14.00 14.00 14.00

Other reserves-revaluation reserve 9.58 9.58 9.58

Balance of profit 747.28 891.35 931.29

Total net worth 820.86 964.93 1004.87

Total assets 2029.24 1909.15 2114.03

Total liabilities 2029.24 1909.15 2114.03

Tangible net worth 820.86 964.93 1004.87

Current ratio 1.20 1.33 1.43

Der .01 .03 .32

Tol/tnw 1.47 .98 1.10

Net working capital 239.76 302.34 336.60

Sales 1539.19 2098.99 1468.24

Purchases 1227.05 1649.91 921.94

Profit 80.31 175.48 151.35

Depreciation 50.22 39.96 32.79

PAT 80.31 175.48 101.35

1. TOTAL INDEBTEDNESS : (Rs. in crores)

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1. TOTAL INDEBTEDNESS : (Rs. in crores)

2 FINANCIAL INDICATORS :

(Rs. in crores)

34

FUND BASED NON-FUND BASED TOTAL

Existing Proposed Existing Proposed Existing Proposed

our Bank

CC

SOD

LG/LC

80.00

154.4

-

200

-

-

-

-

400.00

-

-

280.00

80.00

154.40

400.00

200.00

-

280.00

Term Loan - -- - - - -

Sub-Total 234.40 200.00 400.00 280.00 634.00 480.00

Other Banks

- - - - - -

Fin. Institutions - - - - - -

TOTAL 234.40 200.00 400.00 280.00 634.00 480.00


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Year Ending31.3.2008

(Aud.)

31.3.2009

(Est.)

31.3.10

(Proj)

Paid up Capital 50.00 50.00 50.00

Reserves & Surplus. 770.86 914.93 954.87

Intangible Assets 0.00 0.00 0.00

Tangible Net Worth (excl.

revaluation reserve)

820.86 964.93 1004.87

Long Term Liabilities 8.24 28.24 319.78

Capital Employed 263.34 267.84 246.76

Net Block 263.34 267.84 246.76

Investments 3.88 5.88 5.88

Non Current Assets 322.12 417.11 735.41

Net Working Capital 239.76 302.34 336.60

Current Assets 1439.90 1218.32 1125.98

Current Liabilities 1200.14 915.98 789.38

Current Ratio 1.20 1.33 1.43

Debt Equity Ratio (LTL/TNW) 0.01 0.03 0.32

TOL/TNW (with unsecured loan

as quasi capital/Equity)

1.47 0.98 1.10

Net Sales 61.90 69.56 28.01

Other Income 61.90 69.56 28.01

Net Profit Before tax 80.31 175.48 151.35

Net Profit After Tax 80.31 144.06 101.35

Depreciation 50.22 39.96 32.79

Cash Accruals 130.53 184.02 72.73

3. COMMENTS ON FINANCIAL INDICATORS:

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1. Sales of the company has reduced from Rs. 2089.99 Lacs in 2008-09 to Rs. 1468.24 Lacsin 2009-10. It was due to cancellation of contracts with HUL Offshore pvt.Ltd. An amt of Rs.

184.96 Lacs is reflected in their Balance Sheet as on 31.03.2010. as a book debt older than 6

months for this party.

2. Corresponding to the reduction in the Sales. Profit Before Tax reduced from Rs. 175.48

Lacs to 151.35 Lacs. However, net Profit After Tax has reduced sizably from Rs. 144.06 Lacs to39.94 Lacs. The main reason was Provision for Tax of Rs.50 Lacs and adjustments by way of

short provision of Rs. 61.42 Lacs pertaining to taxation of earlier year (PY Rs. 31.41 Lacs)

3. Total Net Worth of the company has improved from Rs. 964.93 Lacs to Rs. 1004.87 Lacs ason 31.03.2010.

4. NWC has also improved from Rs. 302.34 Lacs to Rs. 336.60 as on 31.03.2010.

5. Due to substantial increase in LTL from Rs. 28.24 Lacs to Rs. 319.78 Lacs, DER increased

from 0.03:1 to 0.32 :1 and TOL/TNW from 0.98: 1 to 1.10:1. Term Liability include unsecuredloans of Rs. 291.54 Lacs from friends and relatives

Assesment of working capital-

As the propose limit is above 1 crore FBF method should be followed.

2008 2009

A) TOTAL CURRENT ASSETS 1439.90 1218.32

B) CURRENT LIABILITIES ( EXCLUDING

BANK BORROWINGS)

768.74 849.95

C) WORKING CAPITAL GAP 671.16 703.64

D) NET WORKING CAPITAL (ACTUAL) 239.76 302.34

E) 25% OF THE CURRENT ASSETS (MINIMUM

STIPULATED NWC)

359.96 304.58

F) ITEM NO (C D) 431.4 401.3

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G) ITEM NO (C E) 311.2 399.06

H) MAXIMUM FBF (ITEM F OR G WHICHEVER

IS LOWER)

311.2 399.06

FBF has worked out to be 399.06 for the financial year 08-09 on the sales of 2098.99 it has been

recommended the CC limit to be increased to 200lacs which can be accepted

4. EVALUATION OF INDUSTRY

Shipping with respect to Offshore Exploration is a different kind of industry. This business

has very limited players and requires high investment. The industry mainly consist of oil

rigs for drilling and platform for pumping the crude oil. Crew boats, security boats,

Security boats and helicopters support this. At the base they are supported by Marine

Logistics division and by Marine Workshops for repairs.

5. EVALUATION OF BUSINESS RISK :

There is not much competition visible in this field as it requires a highly specialized area

requiring expertise in Marine Engineering Practices, Marine repairs, Liason with the

Ministry Of surface Transport, etc.

Rating Model- III

Revised Rating Model for Large Borrowers -

With Credit Limits between Rs. 1 Croreto Rs. 10 Crores

(Fund Based & Non-Fund Based)

Name of Branch VashiTurbhe Region _R O THANE_______

Name of Borrower ABC PVT LTD

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Credit Facilities

Nature of limit Amount of limit

_________________________ ___280.00

_________

_________________________ _____________

_________________________ _____________

_________________________ _____________

_________________________ _____________

Rating Assigned

Date of Rating

Rating assigned based on audited/provisional financials as of

Rating Model -III

Applicable for sanctions between Rs. 1 Crore to Rs. 10 Crore

(Fund Based and Non-Fund Based)

INVESTMENT GRADE NON INVESTMENT GRADE

CREDIT

QUALITY

RATING

NUMERI

C

AGGREGATE

SCORE

CREDIT

QUALITY

RATING

NUMERIC

AGGREGATE

SCORE

Lowest risk CR 1 >90 Risk Prone CR 7 51-55

Minimal risk CR 2 81-90 High Risk CR 8 50 & below

Moderate risk CR 3 71-80 Sub-Standard CR 9 Default NPA

Satisfactory risk CR 4 66-70 Doubtful CR 10 -

Acceptable risk CR 5 61-65 Loss CR 11 -

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Watch List CR 6 56-60

I. RATING OF THE BORROWER

No

.

Parameter/Criterion Parameter/Criterion Score Max

A. FINANCIAL RISK [ as per last audited financial statement ] (static)

I DEBT EQUITY RATIO

[Term Liability

to Tangible Net Worth]

1.50 and below 3 *

2.00 and below 2

2.50 and below 1

Above 2.50 0

II Ratio of Total Outside Liability

to Tangible Net Worth

3.00 & below 3 *

Above 3.00-4.00 2

Above 4.00-5.00 1

Above 5.00 0

III. CURRENT RATIO Liquidity

Ratio

Current Assets

Current Liabilities

1.33 and above 5 *

1.25 and above 4

1.17 and above 3

1.10 and above 2

1.00 and above 1

Less than one 0

IV Return on Capital Employed

Net Profit after Taxes

15% and above 4

12% and above 3

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Capital Employed

Capital Employed means =

TNW + Long Term Liabilities

10% and above 2

7% and above 1

Less than 7% 0

V NET SALES

Actual vis--vis

Projections

Indicates achievement level

100% and above 3

> 80% < 100% 2

> 60% < 80% 1 *

Below 50% 0

VI Interest Service Coverage Ratio

Measures firms ability to pay

interest

Profit before Interest, Depreciation,

tax

Interest

More than 2.5 3 *

2.00 to 2.5 2

1.99 to 1.50 1

Less than 1.50 0

VI

I

Debt Service Coverage Ratio

Measures firms ability to pay

interest &installment

Net Profit +Interest on TL +

Depreciation

Installment + Interest on TL

> 2 3

> 1.50 TO 2.00 2 NA

> 1.10 TO 1.50 1

< 1.10 0

VII

I

Growth in net sales

As compared to previous year

> 20% 3 *

> 15% < 20% 2

> 10% < 15% 1

Less than 10% 0

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IX. Growth in Net profit

As compared to previous year

In excess of 20% 3 *

In excess of 15% < 20 % 2

In excess of 10% < 15 % 1

Less than 10% 0

SUB-TOTAL 30

B. MANAGEMENT RISK

I Hands on experience of the management

personnel in the industry

The management/proprietor understands

of the business environment the borroweroperates in.

(If an experienced management of well-

managed company/firm undertakes a new

industry/business sector, they may be

given the marks for managerial

competence, as per rating of the existing

account provided the industry/business

sector they propose to start is related to

their existing one.)

Very High >5

years

3 *

High (2 to 5 yrs) 2

Moderate

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- Payment of interest/installment

- Retirement of bills

- Govt. dues like sales tax/income tax

(whether attachment orders received

from sales tax/income tax, etc.

- Return of cheques

- A/c within limits

- Creditors velocity ratio in line withthe projections/acceptable level

Honored but

delayed beyond

acceptable period

(beyond 15 days

business)

1

Not honored 0

IV Concentration of

Management

Team of qualified professional 2 *

Business managed by family

members/concentrated in few

hands

1

Business dependent on 1 or 2

individuals

0

V Labour Management in the past.

In case of the borrower employing

substantial labour force the parameter

should be rated. If there has been no

history of labour problems max. score.

Very Good 2 *

Cordial 1

Inadequate 0

VI Affiliate concerns performance Absent 2 *

Present 0

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In case there are affiliates of the same

management of the borrower then this

criteria to be applied, as to whether these

concerns are classified as NPAs by

banks/FIs.

VI

I

Market reputation of the promoters /

management. (In case of adverse report on

the promoters /directors, proposal will not

be entertained)

Excellent image 2

No adverse factors 1 *

VI

II

Ability of the promoters / management to

bail out the company in case of crisis

Yes 1 *

No 0

IX Succession planning in key business areas Yes 1 *

No 0

X Balance Sheet

Practices

Consider those

qualification having

adverse impact on NetProfit & TNW

Unqualified Report for the past 3

years

2 *

Unqualified Report for the past 2

years

1

Other cases 0

XI Statutory Compliance Complied with 2 *

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Compliance with the following

(a) Pollution Board

(b) Environmental clearance

(c) Sales Tax Income Tax No.

(d) Export/Import code

(e) (list only illustrative)

Not complied with 0

Sub-Total 22

C. MARKET- INDUSTRY RISK

I. Market potential/Demand situation

Consider the following :

Assessment of the market/demand for the

product being or proposed to be sold by

the borrower in the area of operation.

Compare demand / supply scenario. Say

supply is short of demand can be

classified as a good scenario. If supply

more or less matches demand, it can be

classified as neutral scenario.

Good 2

Neutral 1 *

Unfavorable 0

II Diversification among different consumer

segments/geographical spread

Consider the following

High 2 *

Moderate 1

Low 0

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Diversification among consumers and

geographical spread of the products sold.

Say whether highly diverse set of

customers or products or fairly diverse

set of customers / products

III Competitive Situation

Every business unit is exposed to

competitive pressures, except in

monopoly. With the available

information, an approximate assessment

of the competitive situation should be

arrived at after considering the following

aspects : -

a) Number of Competitors

b) Presence of big competitors with

inherent strength

c) Existence of parallel Markets

d) Competitive advantages enjoyed by

the borrower such as cost efficiencies,

superior technology, brand loyalty,

etc.

e) Market share of key products

f) Impact of WTO liberalization

Monopoly

situation

3

Favorable 2

Neutral 1 *

Unfavorable 0

IV Inputs/Raw materials availability High 2 *

Moderate 1

Low 0

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The availability, quality of key

inputs/raw materials is having bearing on

the quality and price of the final

product/services

Consider the following :

a) Continuous availability of quality

inputs/raw materials

b) Availability of substitutes for

inputs/raw materials

c) Affordability of quality inputs/raw

materials

V Locational issues

Locational advantage might provide a

borrower with a competitive advantage

vis--vis competitors like availability ofinfrastructure, favorable government

policies, nearness to raw

materials/markets, etc.

a) Infrastructure facilities

b) Proximity to Inputs

c) Proximity to markets

d) Presence in a state with favorable

policies

Favorable 2 *

Neutral 1

Un

Favorable

0

VI Technology (T.O. findings)

Consider the following factors :

Superior 2

Adequate 1 *

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- Availability of R&D facilities

- Proven Technology,(i.e. not subjectedto changes in the immediate future)

- Technology likely to undergo

changes (i.e. Company capable ofsurviving the changes.)

- Outdated technology

Low 0

VII Manufacturing efficiency/capacity

utilization.

Consider the following : -

More than 90% - Good

Between 75% to 90% - Satisfactory

Between 50% to 75% - Average

Below 50% - Below

Average

Provided unit is working above the break

even point, otherwise score of 0 to be

given

Good 3

Satisfactory 2

Average 1 *

Below Average 0

VII

I

Cyclicality/Seasonality Not affected by cyclical

fluctuations

2

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Favourable industry cycle

with long term prospects

1 *

Susecpetible to unfavourable

changes in the markets/

Industry cycle

0

Sub- total 18

SUMMARY

Borrower Rating

Marks

A Financial Aspects 10 30

B Management aspects 10 22

C Market/Industry aspects 8 18

TOTAL 28 70

II. RATING OF THE FACILITY

A. Compliance of Sanction Terms

I Compliance of

Sanction terms

All sanction terms complied with and

legally enforceable documentation

held on records

2 *

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Only 2nd Charge not registered 1

EM not completed 0

II Submission of Stock

Statements/QPR

Timely Submission 2 *

Submitted within 30 days from due date 1

Belated Submission beyond 30 days 0

III Submission of Audited

Balance Sheet & Profit &

Loss A/c & Financial

Data in CMA forms

Submitted within 5 months from

the closure of the account

2

Submitted within a period of > 5

months < 8 months from theclosure of the account

1

Delay > 8 months 0 *

IV. Repayment schedule for

Term Loans only

Upto5 years 2 *

> 5 years 1

V. Operations in theaccount

- Turnover Commensurate with sales 3 *

- Turnover > 70% to < 90% 2

- Turnover > 60% to < 70% 1

- Turnover < 60% 0

VI. Operations in theaccount Top Class

No occasion of excess and return of

cheques

3

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Satisfactory

Rare occasions of excess and returns of

cheques

2 *

Average

Occasional excesses and return of

cheques

1

Below Average

Frequent excess and return of cheques

0

VI

I

Commitments under

DPGL/Term Loan

and payment ofinterest on cash

credit/overdraft, etc.

Timely payment 4 *

Irregular/overdue unto one monthfrom due date 3

Irregular/overdue beyond one month

unto 2 months

2

Delayed beyond 2 months 0

VII

I

Margin given on

Term Loan

> 40% Margin 3 *

25% to < 40% 2

20% < 25% 1

< 20% 0

TOTAL 21

III. RISK MITIGATORS

Availability of Collateral Security

and quality of collaterals. More than75% to

100% of the total

Exposure

3

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Note :

Marks to be allotted only if the

formalities of documentation /

creations of securities are completed

in all respects.

Between 50% to

75% of the

exposure.

2 *

Less than 50% of

the exposure

1

No Collateral

Security

0

Availability of Guarantee

Promoter Directors Guarantee /

Third Party Guarantee

Means of the Guarantor = Total

Exposure (FB + NFB) TAKEN

Guarantee available 2

Guarantee not available 0 *

Sub- total 5

IV. BUSINESS CONSIDERATION:-

I Length of Relationship

Under length ofrelationship, it is now clarified

that marks can be allotted if

any group/ associate concern

dealing with the bank is

floating a new venture, the

relationship value of the

group/ associate concern can

be taken in to account.

Having satisfactory

relationship with the Bank

for > 5 years

2 *

Having satisfactory


between 1 5 years

1

Having satisfactory


for < 1 year

0

II Income Value to the Bank (Interest,

commission, exchange, etc.) from the

> 10% 2

> 8% - 10% 1

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account as percentage to total fund

based limits

< 8% 0 *

SUB-TOTAL 4

SUMMARY

Marks

I Rating of the Borrower 70

II Rating of the facility 21

III Risk Mitigator 5

IV Business Aspects 4

Total 100(78)

Note:

1. The total score under the model is 100. Where one or more parameters are not

applicable, the score obtained under the applicable parameters should be converted

into % terms and appropriate grade / rating is assigned

2. Presently, the entire facility rating is treated as not applicable for new borrower.

However, marks may be allotted for proposed margin and repayment schedule for

term loans as margin and repayment schedule are among other things, main pre-conditions for sanction of the facility

52


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CREDIT RATING:-

Year Previous yr. Current yr.

Total score obtained

Grade CR-4 CR-3

The company has scored 78/97 points i.e. 80% and is rated as CR-3. The interest rate applicablefor CR- 3 rating is BPLR + 0.5.

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DISBURSEMENT:

After submission Proposal to Designated/ Sanctioning Authority for sanctioning the Term Loan.The authorities may raise quarries, if any relating to projects and thereby convey it to the

processing officer the processing officer in turn addresses them to the borrower for necessary

step to be taken; such quarries are required to be solved to the earliest by the applicant for further

processing of the proposal.

If the authorities are satisfied and have no further quarries with respect to proposal, the Loan gets

sanctioned and the disbursement would be released in as per the terms decided.

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CONCLUSION

Credit Appraisal is a process of appraising the credit worthiness of loan applicants. The funds of

depositors i.e. general public are mobilized by means of such advance / investment. Thus it

extremely important for the lender bank to assess the risk associated with credit; thereby ensure

the security for the funds deposited by the depositors.

In UBI the credit appraisal is done by thorough study of the project which involves

Following:

1)Evaluation of Management: A detailed study about the promoters is carried out in order to

ensure promoters are experienced in the line of business and are capable to implement and run

the project

2) Technical Feasibility: A detailed study about the technical aspects is done to determine the

technical soundness of the project

3) Financial Viability: A detailed study relating to financial viability of the project is done;

thereby ensuring that project will generate sufficient surplus to repay the installment and interest

4)Risk analysis: it determines the risk associated with the project this is done by performing a

Sensitivity analysis and Credit Rating. With Sensitivity Analysis the projects capacity to service

debts under worsened conditions is determined. Credit rating, provides rating for various

parameters like management, financial, market and so, thereby determine the credit worthiness of

the borrower

5) It is on the basis of the credit risk level, collateral securities to be given by the borrower are

determined.

This shows Union Bank of India has sound system for credit appraisal.

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BIBLIOGRAPHY

Websites:-

www.marketresearch.com

www.Investopedia.com

www.cmia.com

www.unionbankofindia.com

www.google.com

www.rbi.org.in

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http://www.marketresearch.com/http://www.investopedia.com/http://www.cmia.com/http://www.unionbankofindia.com/http://www.google.com/http://www.rbi.org.in/http://www.marketresearch.com/http://www.investopedia.com/http://www.cmia.com/http://www.unionbankofindia.com/http://www.google.com/http://www.rbi.org.in/


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