2. LOANS
FUND BASED NON-FUND BASED
TERM LOAN
BILL DISCOUNTING
RETAIL LOAN
WORKING CAPITAL
EXPORT FINANCE
BANK GUARANTEE
LETTER OF CREDIT
3. WORKING CAPITAL
It is a short-term cash loan to a company. The business
that receives the loan can continuously draw from the
bank up to a certain specified amount.
TERM LOANS
A bank loan to a company carrying fixed interest rates,
and monthly or quarterly repayment schedules and
include a set maturity date.
4. RETAIL LOANS
It is the practice of loaning money to individuals rather
than institutions. These loans are the loans for
automobile purchases, home purchases, medical care,
home repair, vacations, educational loans and other
consumer uses.
EXPORT FINANCE
This type of a credit facility is provided to exporters
who export their goods to different places.
Pre-Shipment Finance
Post-Shipment Finance
5. BILL DISCOUNTING
While discounting a bill, the Bank
buys the bill (i.e. Bill of Exchange)
before it is due and credits the value
of the bill after a discount charge to
the account of the customer. The
transaction is practically an advance against the
security of the bill and the discount represents the
interest on the advance from the date of purchase
of the bill until it is due for payment.
6. BANK GUARANTEE
A bank guarantee is a written contract given by a
bank on the behalf of a customer. By issuing this
guarantee, a bank takes responsibility for payment
of a sum of money in case, if it is not paid by the
customer on whose behalf the guarantee has been
issued. In return, a bank gets some commission for
issuing the guarantee.
8. CREDIT ANALYSIS
MARKET ANALYSIS
• Market Demand and Potential for each product
item and its variants/substitutes.
• Critical Analysis regarding Size of the Market.
• Influence of Government policies like
Government Import Policy and Import duty
structure also need to be evaluated.
9. TECHNICAL ANALYSIS
• Location and Size
• Raw Material
• Plant & Machinery,
Plant Capacity and
Manufacturing Process.
MANAGEMEMENT & ORGANIZATION ANALYSIS
Strengths and Weaknesses of the Management by
commenting on the background, qualifications,
experience, and capability of the Promoter.
CREDIT ANALYSIS
10. FINANCIAL ANALYSIS
• Cost of Project & Means of Financing
• Profitability Statement
• Break-Even Analysis
• Fund-Flow Statement
• Balance Sheet Projections
• Internal Rate of Return
• Sensitivity Analysis
• Financial Ratios
• Debt-Equity Ratio
• Debt-Service Coverage Ratio
• Current Ratio
• Output Investment Ratio
CREDIT ANALYSIS
11. Investment Decision
Free Cash Flow =EBIT+Deppreciation –Increase in WC- Capital
Expenditure
Methods of Investment Evaluation
Payback Period
NPV Method
IRR
ENPV Method
Decision Tree Analysis
12. Ratios Formula Standard
Debt-Equity Ratio Debt (Term Liabilities) / Equity 2:1
Debt-Service
Coverage Ratio
(Net Profit After Taxes + Depreciation + Annual interest on
long term debt + extra ordinary income – extra ordinary
expenses) /(Annual interest on long term debt + Repayment
of debt)
1.5 to 2
Current Ratio Current Assets / Current Liabilities 1.33:1
Output Investment
Ratio
Sales / Total capital employed NA
CREDIT ANALYSIS
13. CREDIT APPRAISAL
• Credit appraisal means an
investigation/assessment done by the bank prior
before providing any loans & advances/project
finance & also checks the commercial, financial &
technical viability of the project proposed.
• Proper evaluation of the customer is preferred
which measures the financial condition & ability to
repay back the loan in future.
14. CREDIT APPRAISAL
• Credit appraisal is the process of appraising the
credit worthiness of the loan applicant.
• Factors like:-
Age
Income
Number of dependents
Nature of employment
Continuity of employment
Repayment capacity
Previous loans, etc. are taken into account while
appraising the credit worthiness of a person.
15. CREDIT APPRAISAL PROCESS
Receipt of application from applicant
Receipt of documents
(Balance sheet, KYC papers, MOA, AOA, and Properties
documents)
Pre-sanction visit by bank officers
Check for RBI defaulters list, willful defaulters list, CIBIL data, etc.
Title clearance reports of the properties to be obtained from
empanelled advocates
Valuation reports of the properties to be obtained from
empanelled valuer/ engineers
16. CONTINUED…
Preparation of financial data
Proposal preparation
Assessment of proposal
Sanction/approval of proposal by appropriate sanctioning
authority
Documentations, agreements, mortgages
Disbursement of loan
Post sanction activities such as receiving stock statements,
review of accounts, renew of accounts, etc.
(on regular basis)
17. CREDIT APPRAISAL
CREDIT INFORMATION OF THE BORROWING
COMPANY
Banks and Financial Institutions
Bank References
Credit Rating Agencies
Published Books
Company Financial Reports
Press Reports
Personal Visit
Factory Visit
18. CREDIT APPRAISAL
CREDIT INFORMATION TO BE SUBMITTED BY THE
BORROWING COMPANY
Basic background information on the company
Copy of certificate of registration of firm
Memorandum and Articles of Association
Required facility
Management
Details of the Security to be pledged
Key industry dynamics
Present Relation with the Bank
19. CREDIT RISK
• “Credit risk” is the possibility of loss associated
with changes in the credit quality of the
borrowers
or counter parties.
• In a bank’s portfolio, losses stem due to inability
or unwillingness of a borrower to honor
commitments
in relation to lending, settlement and other
financial
transactions.
20. CREDIT RISK RATING
CATEGORY PARAMETERS / INPUTS
Management Evaluation
Capital market perception of the group Management Setup
Risk bearing capacity
Integrity, commitment and
sincerity
Track record in debt repayment Financial flexibility
Business Evaluation
Range of services Level of customer satisfaction
Quality of service offered
Advertising / promotional
strategies
Location advantage Brand equity
Ambience of service outlet Expected market growth
Effectiveness of distribution channels Technology adopted in the process
Quality of infrastructure available
Financial Evaluation
Debt – Equity Ratio Internal Rate of Return
Foreign exchange risk Working capital cycle (in months)
Project Implementation Risk
Evaluation
Project complexities Expected time overrun
Expected cost overrun Status of obtaining clearances
Funding risk Service period (in years)
22. POST-SANCTION FOLLOW UP
• To keep a watch on the project during
implementation stage so that there are no time &
cost overruns.
• To ensure that is no diversion of funds.
• To monitor operations in the account particularly cash
credit facilities which indicate health of the account.
• To obtain market report on the borrower, to gather
information like reputation/financial standing etc.
• To ensure that the unit's management and
organizational set-up is effective.
• To detect signals and symptoms of sickness or
deterioration taking place in conduct/performance of
the account.
24. • Risk is the center most part of the analysis and basis
for the decision of the bank.
• All the analysis is being done to generate a grade,
which represents the intensity of risk, that helps in
determining the condition of the corporate applying
for loan.
• The whole process of credit appraisal helps in
providing a suitable measure to minimize the risk due
to non repayment of loan to the bank.
SUMMARY
