Sumedha is an investment banking and wealth management firm incorporated in 1989 that provides a wide range of financial services including corporate finance, investment banking, and portfolio management. It has a pan-India presence through six offices located in major cities. The company focuses on creating long-term client relationships and carving a niche in the financial services sector.

1. Information Series
LOAN APPRAISAL
METHODOLOGY

2. Loan Appraisal
Methodology

3. Loan Appraisal Methodology
CONTENTS
BROAD OUTLINE OF :
Approaching Bank
Moving Proposal
Proposal Appraisal by Banks
Critical areas of appraisal
Contd.

4. Loan Appraisal Methodology
APPROACHING BANK
A) Identifying Bank
Preferably to approach existing banker who know the promoter and his business well
as a new bank will like to know every thing from scratch which may be time consuming.
If existing banker is not ready, to approach a new bank who should be proactive.
Some industries may be in negative list of a particular bank or there may be restriction of
exposure limit which needs to be ascertained.
Consultants who are in regular touch with Banks may be of great help in identifying
suitable bank.
Contd.

5. Loan Appraisal Methodology
B) Working out exact requirement
Term Loan or Working capital or both
For Greenfield project, both TL and WC will be required
For existing units, TL may be required for expansion/regular Capex.
Existing unit require working capital to fund stock, debtors. Higher WC is required to
support growth or higher requirement due to change in working capital cycle
Non Funds based limits like LC and BG may also be required
If export unit, Packing Credit/Export Bill Purchase facility, Forward Contracts may be
required.

6. Loan Appraisal Methodology
MOVING PROPOSAL
Prescribed application/ Formal proposal
Financial Projections /CMA
Relevant documents as desired by respective bank
PROPOSAL APPRAISAL BY BANKS
Based on preliminary discussions with the Promoter, looking at his past track record,
going through Financial Statements and other details, report from market, the Bank
forms an opinion whether to consider the proposal or not.
If prima facie, the Bank finds proposal worth going ahead, they go for in-principle
sanction from their higher authorities.
In case, the proposal gets go ahead signal from their higher authorities, they issue in-
principle sanction which does not necessarily mean formal sanction or commitment. It
only signifies that the proposal will be taken for detailed appraisal.

7. Loan Appraisal Methodology
CRITICAL AREAS OF APPRAISAL
A) Promoters
Track record
Experience
Resourcefulness
B) Industry
Present and future prospects of the industry both domestic and global.
C) Govt. Regulations
How important is industry in government industrial policy.
Whether government policy support industry or not

8. Loan Appraisal Methodology
D) TECHNOLOGY
Whether proposed technology latest or outdated
Chances of technological obsolescence
E) JUSTIFICATION FOR PROJECT COST
Correct estimates of Project Cost vital for viability of the project
• There is tendency to show higher project cost which may affect viability of the project
• Estimates of Project Cost t is verified based on actual, estimated based on quotations,
orders placed, MOU with suppliers
There is industry benchmark for setting up a new unit. Estimated Project Cost is
compared with industry standard.

9. Loan Appraisal Methodology
Contd.
F) DEBT EQUITY
Total funding may be through combination of debt and equity.
Correct blend necessary for viability of the project
Higher loan component will entail higher interest and repayment which may be difficult to
service.
Normally preferred Debt Equity is 2:1
Some capital intensive industry may however require higher debt component.
G) DEFINE SOURCE OF PROMOTERS FUNDS
Timely induction of funds is one of prerequisite to timely implementation of project.
Project implementation may be delayed if funds are not inducted on time.

10. Loan Appraisal Methodology
Bank therefore wants to know definite source from which promoters will induct
their friends.
Banks normally stipulate 25-50% of their contribution to be inducted upfront
before their disbursement start.
For Quasi Equity, Bank normally wants an undertaking that the same will not be
withdrawn till loan is repaid.
In case of Internal Accruals, the same should have some relation with past and
future generation
Promoters may bring their contribution by way of Share Capital, Unsecured
Loan(Quasi Equity), internal accruals in case of existing company.

11. Loan Appraisal Methodology
H) INTEREST RATES
Cost of funds very critical to the success of the venture.
Bank fix interest based on internal rating and risk perception
Normally it is MCLR/Base Rate +some mark-up based on risk perception which is
called Card Rate.
Lower the internal rating, higher will be interest rate
Interest Rate is however negotiable and can be lower than card rate in deserving
cases
Besides interest, Bank levy charge for other facilities like upfront fee for term
loans, processing fee for working capital facilities, LC/BG commission, renewal
fee etc. These charges are also subject to negotiations.

12. Loan Appraisal Methodology
I) MARGIN
Margin is insisted so that the borrower will take interest if there is some percentage of
his own money in the activity. Banks ask to provide margin on :
 Stock of Raw Materials
 Work in process
 Finished Goods
 Receivables
 LC, BG, etc
 Export Packing Credit

13. Loan Appraisal Methodology
J) VIABILITY
Viability is ultimate objective for all stakeholders be it is owner or lenders
Lenders are interested that their loan is serviced in time.
Owner is interested in recovery of their investment in shortest possible time with future
generation of surplus
Actual viability may however vary from estimates due to various reasons mainly due to
changed business environment, economic scenario, Govt. policies
Banks use various ratios to ascertain profitability, liquidity and repaying capacity mainly
being current ratio, DSCR, IRR, Break Even etc. concerning liquidity, solvency of the unit

14. Loan Appraisal Methodology
Contd.
K) SECURITY
Although Collateral security should not be criteria for considering loan proposal, Banks
in practice look for adequate security coverage so that it may fall upon the same in case
there is default
Banks normally hold primary as well as collateral security
Primary securities are those securities against which the Bank has provided funds like
stock, debtors, fixed assets
Collateral securities are additional securities that Bank hold for safety measure
Bank may ask for collateral security ranging between 25% to 100% of sanctioned
facilities based on risk perception. This is however subject to negotiations.

15. Loan Appraisal Methodology
Only those properties can be provided as collateral security which have clear titles. Bank
get it verified by one/two of its empanelled lawyers.
Agriculture land cannot be provided as collateral security. Only industrial land can be
mortgaged
Banks get property valued by its empanelled valuer
The properties are to be valued at every 2 years interval. Valuation more than 2 years
old need to be valued again
For loan amount more than Rs. 50 cr., valuation has to be done by 2 empanelled
valuers.

16. Loan Appraisal Methodology
L) PLEDGE OF SHARES
Bank sometimes ask for pledge of promoters/total shares so as to ensure promoters
commitment to the company.
M) PERSONAL GUARANTEE
Bank ask for personal guarantee of promoters to make them personally liable for loan
taken by the borrower
In case the company provide collateral owned by an individual/corporate, their guarantee
will also be required.
N) CORPORATE GUARANTEE
Group companies may be asked to provide its corporate guarantee

17. Sumedha – An Overview

18. About Sumedha
Listed Investment Banking company
Incorporated in the year 1989
Journey has been extremely focused and demanding.
Wide bouquet of services ranging from Corporate Finance, Issue Management,
Restructuring, Corporate Advisory and Portfolio Management.
Pan India presence across six locations.
Client centric business approach
Focus on creating long term business relationships with clients
Carving a niche in the financial services sector
www.sumedhafiscal.com

19. Key Areas
Investment Banking Wealth Management

20. Investment Banking

21. Investment Banking
SEBI CATEGORY 1 MERCHANT BANKER: MB/INM000008753

22. Wealth Management

23. Wealth Management
PMS: INP000004144, AMFI NO : ARN 0205

24. Reach Us

25. Contact us
AHMEDABAD
A/82 Pariseema Complex, Opp. IFCI Bhawan,
C.G. Road , Ahmedabad – 380 009
Telephone: +91 79 3002 3337 / 6605 2957
Fax: +91 79 2646 0394
Email: ahmedabad@sumedhafiscal.com
Contact : Mr. K. K. Kabra
BANGALORE
“Park Plaza”, 1st
Floor, No. 1 Park
Road, (Off. Infantry Road), Tasker
Town,
Bangalore – 560 051
Telephone: +91 80 4124 2545 / 2546
Fax: + 91 80 4124 2547
Email: bangalore@sumedhafiscal.com
Contact: Mr. Anil Birla
HYDERABAD
309/1, 3 rd Floor, Krishna Plaza,
Khairatabad, Hyderabad-500 004
Telephone: +91 40 4020 2826 / 4026
7272
Fax: +91 40 4020 2826
Email: hyderabad@sumedhafiscal.com
Contact : Mr. M .S. Prashant
NEW DELHI
B1/12 Safdarjung Enclave,2nd
Floor,
New Delhi – 110 029
Telephone: +91 11 4165 4481 / 82
Fax: +91 11 4165 4483
Email: delhi@sumedhafiscal.com
Contact : Mr. M.L. Jain
MUMBAI
C-703 "Marathon Innova",
Off Ganapatrao Kadam Marg,
Opp. Peninsula Corporate Park,
Lower Parel (W) , Mumbai - 400 013
Telephone: +91 22 4033 2400
Fax: +91 22 2498 2878
Email: mumbai@sumedhafiscal.com
Contact: Mr. B.S. Rathi
Registered & Corporate Office
KOLKATA
8B Middleton Street, 6A Geetanjali,
Kolkata – 700 071
Telephone: +91 33 2229 8936 / 6758 / 3237 / 4473
Fax: +91 33 2226 4140 / 2265 5830
Email: kolkata@sumedhafiscal.com
Contact : Mr. Vijay Maheshwari / Mr. Bijay Murmuria
CIN: L70101WB1989PLC047465