This document discusses credit appraisal for working capital finance provided to small and medium enterprises (SMEs) by State Bank of India (SBI). It outlines various methods used by SBI to assess working capital needs and provide financing, including the Tandon Committee method, projected annual turnover method, and projected balance sheet method. The document analyzes SBI's loan policies, credit appraisal standards, and the use of financial ratios to evaluate credit risk. It also provides recommendations to improve SBI's support for SME working capital needs through measures like a rating system, relationship lending, and an IT-enabled application and monitoring system.

1. CREDIT APPRAISAL FOR WORKING CAPITAL FINANCE TO S.M.E.’s atS.B.I. Admin Unit, VISAKHAPATNAMPRESENTED BY,T.ANANTH VIJAYREGD NO:0920332

2. STATEMENT OF THE PROBLEM Analysis of various components of working capital w.r.t. to S.M.E. needs, method of credit risk assessment and measures to enhance the support.OBJECTIVES OF THE STUDYCredit appraisal system for working capital finance.

3. A comparative analysis of various methods.

4. To study measures and to increase the quantum of credit to S.M.E.’s at the right price.RESEARCH METHODOLOGYRESEARCH DESIGN AnalyticalPRIMARY DATA Interactions with the manager of C.P.C. and other employees of S.B.I.SECONDARY DATA Data from the websites of the firms, the data supplied by the banks.DATA PROCESSING & ANALYSIS PLAN Calculation of financial ratios, calculations of leverages and compilation and tabulationsASSUMPTIONS Selected study period Financial ratios reflect financial performance

5. ANALYSIS AND INTERPRETATIONSTATE BANK OF INDIA’S LOAN POLICYOptimum exposure levels are set out in the policy to different sectors

6. The policy sets out minimum scores/hurdle rates CREDIT APPRAISAL STANDARDS QUALITATIVE: Past experience with the promoters

7. Opinion reports from previous bankersFINANCIAL RATIOS USED FOR C.R.A.

9. W.C. AND ITS ASSESSMENT

10. TRADITIONAL METHOD FOR ASSESSMENT

11. TANDON COMMITTEE-M.P.B.F.

12. Method 1: 0.75(CA-CL) = 075(50-15) = Rs.26.25 million

13. Method 2: 0.75(CA)-CL = 0.75(50)-15 = Rs.22.5 million

14. Method 3: 0.75(CA-CCA)-CL= 075(50-20)-15= Rs.75millionMethod 2 is adopted in financing by the bank since it has the least amount of financing required by the bank.Limitations:Represents position on a particular date

15. Not tuned to Peak Time Assessment

16. Not applicable for service industries

17. In practice may differ with Drawing PowerPROJ. ANNUAL TURN OVER METHOD- NAYAK COMMITTEEExample: Rs. In 000’sAnticipated annual output : 1200 (A)Working capital requirement @ 25% of A : 300 (B)Less: liquid surplus or 5% of A Whichever is higher (liquid surplus, say, is Rs. 20000) : 60 (C)Minimum permissible bank Finance (B-C) : 240 Limitations:Used for assessment of working capital needs of small trading companies

18. Not appropriate for manufacturing and big trading companiesPROJECTED BALANCE SHEET CREDIT RISK ASSESSMENT (CRA)