Professional Documents
Culture Documents
Appraisal?
A structured analytical tool to take a credit decision The basic premises of an appraisal are to assess/ analyze: The Promoters. Viability of the business acro ! icro "n#ironment of the $usiness. $usiness financials Various Risk ! its miti%ation. Permission ! Appro#als from Re%ulatory $odies.
Promoter evaluation
Track record of promoters & 'et (orth/A#ailability of funds ana%ement & ")perience of ana%ement & *(nership Pattern +heck R$, -efaulters .ist +heck +,$,. Records
+ompetent ana%ement -istincti#e competiti#e ed%e in terms of cost3 product differentiation3 R!-3 skills etc 4ood $rand ,ma%e /tron% ! %ro(in% customer base. ,ndustrial relations lo( attrition rate. /ufficient 5inancial Resources.
.ack of ana%ement -epth/ Talent -eterioratin% competiti#e position 'e(comer (ith unpro#en track record. /hort on 5inancial Resources Technolo%y *bsolescence.
Threats 1Areas to .ook for2 4ro(in% competiti#e pressures. 4ro(in% bar%ainin% po(er of customers/ suppliers +han%in% buyers needs/ tastes Risin% sale of substitute products Ad#erse 4o#t Policies. Vulnerability to recession/ business cycle.
,ndustrial /cenario 5aster market %ro(th "nter ne( market/ customer se%ments. ")pand product line/ o#e up in the #alue chain to meet the %ro(in% aspirations of customers Vertical ,nte%ration.
Business Financials
What are e looking at?
anufacturin% efficiency *peratin% efficiency ,s the unit turnin% o#er the assets efficiently. +ash 5lo( pattern. .i6uidity to meet day to day operations 0hat is the 6uality of current assets +an the unit sustain in difficult times +an it ser#ice our interest and repayments
4ro(th in sales & ,t sho(s prosperity R +ontent in sales ,t indicates cost efficacy 4ross profit/sales ,t indicates mf%. efficacy P$-,T/sales ,t indicates operatin% efficacy +ash accruals//ales 7ltimate earnin%s +urrent ratio 0ill it meet commitments T*./T'0 Resilience in difficult times /ales/TTA Asset turn around capacity R*+" *#erall efficacy
Forms of A&vances
5und $ased 5acilities Term .oans +ash +redit $ills -iscounted/ Purchased -emand .oans3 *#erdraft etc 'on 5und $ased 5acilities .etter of +redit 1-omestic/ 5orei%n2 4uarantee -eferred Payment 4uarantee/ +o& Acceptance of $ills
Pro'ect Financing
A fundin% structure that relies on future cash flo(s from a specific de#elopment as the primary source of repayment (ith that de#elopment8s assets3 ri%hts and interests le%ally held as collateral security. The 9ey Areas are & ana%ement Analysis arket ! -emand Analysis Technical Analysis 5inancial Analysis
Pro'ect Financials
Focus Areas
+apital /tructure a2 -esired -ebt/"6uity Ratio : ;:< b2 in. Promoter +ontribution at ;=&;>? 5i)ed Asset +o#era%e Ratio 15i)ed Assets 10-V2/Term .iabilities2 5i)ed Asset +o#era%e @<.;> is preferred. -ebt /er#ice +o#era%e Ratio 1-/+R2 "$,-A/1,nterest A Principal Amount2 -esired -/+R is @<.>=
Pro'ect Financials
Focus Areas
$reak "#en Point .o(er the le#el3 the better it is for the project. /ensiti#ity Analysis ,mpact study on the cash flo(s due to ad#erse chan%es in the B+ost8 or the B/ales8 side. Repayment Period 'ormally repayment term of C years is preferred.
)etho&s of W( Assessment
As per 'ayak committee 1Turno#er 0orkin% +apital 4ap ethod +ash flo( method
ethod2
Turnover )etho&
For Working (apital *imits up to "s+ ,+-- (rore <. Annual turno#er as projected by borro(er. ;. Turno#er as accepted by $ank. E. 0orkin% +apital re6uirements F;>? of sales i.e. item ;G. H. inimum mar%in re6uired F>? of sales i.e. item ;G. >. Actual mar%in a#ailable 1'et 0orkin% +apital2. I. a)imum permissible $ank 5inance is lo(er of the 1item E item H2 and 1item E item >2.
(ash/flo )etho&
Prepare a cash flo( statement for the ne)t <; months Arri#e at the ma)imum re6uirement. *btain documents for the ma). amount. *peration based on monthly re6uirements. onitorin% at periodical inter#als.
5uel /upply Risk Re%ulatory Risk Policy Risk *perations and aintenance Risk