The document discusses the key factors a bank considers when appraising a term loan application from a new manufacturing unit. The bank evaluates the economic viability of the project, management capabilities, technical aspects, and cash flow projections. It examines the creditworthiness, repayment ability, management skills, willingness to repay, and risk factors. The bank ensures the project is economically justified and can survive implementation, gestation, and operational stages. It also reviews DSCR and free cash flow ratios to check the loan repayment capacity. The interest rate is set based on the degree of risk and probability of default.
The webinar will provide enriching insights of Credit appraisal, why it is required and the advantages of the same. The key areas of elucidation will include banker's preference for credit appraisal, traditional method Vs current trends, understanding various business models. The discussion shall also include the role of Chartered Accountants in credit appraisal, the edge CA's have over others and also the added advantages it brings in to their professional practise.
The webinar will provide enriching insights of Credit appraisal, why it is required and the advantages of the same. The key areas of elucidation will include banker's preference for credit appraisal, traditional method Vs current trends, understanding various business models. The discussion shall also include the role of Chartered Accountants in credit appraisal, the edge CA's have over others and also the added advantages it brings in to their professional practise.
Challenges for banking in current scenarioHumsi Singh
The presentation describes the challenges faced by the banking sector in today's scenario. It tells about the various problems faced by banks nowadays.
NPA - Non Performing Assets by Meka SantoshSantosh Meka
NPA which is gobal problem for the banks with the borrower who they not pay money back to the banks with the given period of time.The silde have been describing toward INDIAN bank. More over it includes the impact, problem, solution and action taken by RBI and Govt of India to solve the issue of NPA.
Mortgage Pledge Hypothetication Lien Charge(1st and 2nd Charge) Fixed & float...Study Guide Pro
This PPT is for BMS and Banking student . It consist of following Terms with suitable example.
Mortgage
Pledge
Hypothetication
Lien
Charge(1st and 2nd Charge)
Fixed & floating charge
Pari passu
PlR
Margin money
A powerful presentation on non performing assets which very much influencial when presented before others. Being a law student, I myself created the presentation and presented before the elite authorities which impressed them to a larger extent.
Payment cycles identification and cash flow improvement 2008 and 2020 crisisWaldemar Jackiewicz
The idea of Financial process and supporting IT System to Identify the Payment Cycles, reduction of Payment Bottlenecks and Improvement of Cash Flows.
Scope:
1. background
2. definition of payments cycle
3. reason for fining and reduction
4. technical solution
5. financial background
- cash flow
- cash liquidity
- factoring
- tax maintenance
6. conclusions
Transforming wealth management customer onboarding with the power of process automation, rules based straight thru processing and data driven real time intelligence.
Challenges for banking in current scenarioHumsi Singh
The presentation describes the challenges faced by the banking sector in today's scenario. It tells about the various problems faced by banks nowadays.
NPA - Non Performing Assets by Meka SantoshSantosh Meka
NPA which is gobal problem for the banks with the borrower who they not pay money back to the banks with the given period of time.The silde have been describing toward INDIAN bank. More over it includes the impact, problem, solution and action taken by RBI and Govt of India to solve the issue of NPA.
Mortgage Pledge Hypothetication Lien Charge(1st and 2nd Charge) Fixed & float...Study Guide Pro
This PPT is for BMS and Banking student . It consist of following Terms with suitable example.
Mortgage
Pledge
Hypothetication
Lien
Charge(1st and 2nd Charge)
Fixed & floating charge
Pari passu
PlR
Margin money
A powerful presentation on non performing assets which very much influencial when presented before others. Being a law student, I myself created the presentation and presented before the elite authorities which impressed them to a larger extent.
Payment cycles identification and cash flow improvement 2008 and 2020 crisisWaldemar Jackiewicz
The idea of Financial process and supporting IT System to Identify the Payment Cycles, reduction of Payment Bottlenecks and Improvement of Cash Flows.
Scope:
1. background
2. definition of payments cycle
3. reason for fining and reduction
4. technical solution
5. financial background
- cash flow
- cash liquidity
- factoring
- tax maintenance
6. conclusions
Transforming wealth management customer onboarding with the power of process automation, rules based straight thru processing and data driven real time intelligence.
Scenario 1 (length as needed)You are considering auctioning a L.docxkenjordan97598
Scenario 1 (length: as needed)
You are considering auctioning a Leonardo Da Vinci original sketch. You entice four bidders to come to your auction. The bidders’ valuations of the sketch in decreasing order are $3.0, $2.2, $2.0, and $1.5 (in millions).
· If you used a second-price sealed bid auction, who would win and what would the winning price be?
· If you used a first-price sealed bid auction and the optimal strategy for the participants was to shade their bid by 20% and the participants used this strategy, who would win and what would the winning price be?
· Which auction should you choose to maximize your profit?
Answer the above questions if the valuations of the sketch are $3.0, $2.7, $2.0 and $1.5.
Scenario 2 (length: 0.5 page)
In the auction described above, suppose that you could entice additional bidders to attend your auction. However, none of the new bidders would have a valuation greater than $3.0 million. Despite that fact, you expect the amount that the winning bidder must pay to increase regardless of the type of auction you use (first- or second-price sealed bid). For each auction, explain why you would expect the auction price to increase. If you want, you may assume the valuations of the original four participants are $3.0, $2.2, $2.0 and $1.5 million.
Scenario 3 (length: 0.5 page)
Some recent Super Bowl advertisements have spent very little time mentioning anything about their product--or even the name of the company. In particular, the two-minute long Ram Trucks "Farmer" commercial had only a few brief and almost unidentifiable views of their product until the last ten seconds of the commercial. Further, the name of the company was only mentioned in the last five seconds of that commercial. Explain why this commercial demonstrated the concept of signaling described in the textbook. In other words, why should consumers be convinced that a Ram truck is of high quality because of the airing of that commercial?
Scenario 4 (length: as needed)
Suppose there are two types of people who need health insurance; high-risk and low-risk consumers. High-risk consumers have a relatively high probability of needing expensive medical care and on average incur $2,000 of medical expenses per year. The high-risk consumers would be willing to pay up to $2,500 for insurance that covers all their medical bills. Low-risk consumers would be willing to pay up to $1,500 for full-coverage insurance and on average would incur on average $1,200 in medical bills. Assume 1/3 of all consumers are high-risk and the remaining 2/3 of consumers are low-risk. Consumers know whether they are high-risk or low-risk. The insurance company knows 2/3 of all consumers are low-risk but cannot identify which consumers are low-risk.
1. If all consumers bought insurance, what price must the insurance company charge to break even in expectation? That is, what price must the insurance company charge so that the expected payments equals the premium?
2. Which consumers w.
RMD24 | Retail media: hoe zet je dit in als je geen AH of Unilever bent? Heid...BBPMedia1
Grote partijen zijn al een tijdje onderweg met retail media. Ondertussen worden in dit domein ook de kansen zichtbaar voor andere spelers in de markt. Maar met die kansen ontstaan ook vragen: Zelf retail media worden of erop adverteren? In welke fase van de funnel past het en hoe integreer je het in een mediaplan? Wat is nu precies het verschil met marketplaces en Programmatic ads? In dit half uur beslechten we de dilemma's en krijg je antwoorden op wanneer het voor jou tijd is om de volgende stap te zetten.
Business Valuation Principles for EntrepreneursBen Wann
This insightful presentation is designed to equip entrepreneurs with the essential knowledge and tools needed to accurately value their businesses. Understanding business valuation is crucial for making informed decisions, whether you're seeking investment, planning to sell, or simply want to gauge your company's worth.
3.0 Project 2_ Developing My Brand Identity Kit.pptxtanyjahb
A personal brand exploration presentation summarizes an individual's unique qualities and goals, covering strengths, values, passions, and target audience. It helps individuals understand what makes them stand out, their desired image, and how they aim to achieve it.
Memorandum Of Association Constitution of Company.pptseri bangash
www.seribangash.com
A Memorandum of Association (MOA) is a legal document that outlines the fundamental principles and objectives upon which a company operates. It serves as the company's charter or constitution and defines the scope of its activities. Here's a detailed note on the MOA:
Contents of Memorandum of Association:
Name Clause: This clause states the name of the company, which should end with words like "Limited" or "Ltd." for a public limited company and "Private Limited" or "Pvt. Ltd." for a private limited company.
https://seribangash.com/article-of-association-is-legal-doc-of-company/
Registered Office Clause: It specifies the location where the company's registered office is situated. This office is where all official communications and notices are sent.
Objective Clause: This clause delineates the main objectives for which the company is formed. It's important to define these objectives clearly, as the company cannot undertake activities beyond those mentioned in this clause.
www.seribangash.com
Liability Clause: It outlines the extent of liability of the company's members. In the case of companies limited by shares, the liability of members is limited to the amount unpaid on their shares. For companies limited by guarantee, members' liability is limited to the amount they undertake to contribute if the company is wound up.
https://seribangash.com/promotors-is-person-conceived-formation-company/
Capital Clause: This clause specifies the authorized capital of the company, i.e., the maximum amount of share capital the company is authorized to issue. It also mentions the division of this capital into shares and their respective nominal value.
Association Clause: It simply states that the subscribers wish to form a company and agree to become members of it, in accordance with the terms of the MOA.
Importance of Memorandum of Association:
Legal Requirement: The MOA is a legal requirement for the formation of a company. It must be filed with the Registrar of Companies during the incorporation process.
Constitutional Document: It serves as the company's constitutional document, defining its scope, powers, and limitations.
Protection of Members: It protects the interests of the company's members by clearly defining the objectives and limiting their liability.
External Communication: It provides clarity to external parties, such as investors, creditors, and regulatory authorities, regarding the company's objectives and powers.
https://seribangash.com/difference-public-and-private-company-law/
Binding Authority: The company and its members are bound by the provisions of the MOA. Any action taken beyond its scope may be considered ultra vires (beyond the powers) of the company and therefore void.
Amendment of MOA:
While the MOA lays down the company's fundamental principles, it is not entirely immutable. It can be amended, but only under specific circumstances and in compliance with legal procedures. Amendments typically require shareholder
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
Tata Group Dials Taiwan for Its Chipmaking Ambition in Gujarat’s DholeraAvirahi City Dholera
The Tata Group, a titan of Indian industry, is making waves with its advanced talks with Taiwanese chipmakers Powerchip Semiconductor Manufacturing Corporation (PSMC) and UMC Group. The goal? Establishing a cutting-edge semiconductor fabrication unit (fab) in Dholera, Gujarat. This isn’t just any project; it’s a potential game changer for India’s chipmaking aspirations and a boon for investors seeking promising residential projects in dholera sir.
Visit : https://www.avirahi.com/blog/tata-group-dials-taiwan-for-its-chipmaking-ambition-in-gujarats-dholera/
Putting the SPARK into Virtual Training.pptxCynthia Clay
This 60-minute webinar, sponsored by Adobe, was delivered for the Training Mag Network. It explored the five elements of SPARK: Storytelling, Purpose, Action, Relationships, and Kudos. Knowing how to tell a well-structured story is key to building long-term memory. Stating a clear purpose that doesn't take away from the discovery learning process is critical. Ensuring that people move from theory to practical application is imperative. Creating strong social learning is the key to commitment and engagement. Validating and affirming participants' comments is the way to create a positive learning environment.
Premium MEAN Stack Development Solutions for Modern BusinessesSynapseIndia
Stay ahead of the curve with our premium MEAN Stack Development Solutions. Our expert developers utilize MongoDB, Express.js, AngularJS, and Node.js to create modern and responsive web applications. Trust us for cutting-edge solutions that drive your business growth and success.
Know more: https://www.synapseindia.com/technology/mean-stack-development-company.html
The world of search engine optimization (SEO) is buzzing with discussions after Google confirmed that around 2,500 leaked internal documents related to its Search feature are indeed authentic. The revelation has sparked significant concerns within the SEO community. The leaked documents were initially reported by SEO experts Rand Fishkin and Mike King, igniting widespread analysis and discourse. For More Info:- https://news.arihantwebtech.com/search-disrupted-googles-leaked-documents-rock-the-seo-world/
Search Disrupted Google’s Leaked Documents Rock the SEO World.pdf
Term Loan Appraisal
1. Term Loan Appraisal
A new manufacturing unit
wants a term loan – will the
bank appraise it ?
2. What to look at ?
Credit Cash Flows Risk
Worthiness
Dalaal-Street.com
3. Credit Worthiness
Repayment
Personality of capacity of the
the borrower borrower
Results of
Willingness to Management economic
repay talents activities
Dalaal-Street.com
4. 3 stages of any new business
Project
Gestation Period Earning Profits
Implementation
Dalaal-Street.com
5. 3 stages of any new business
This is the period when no
cash is generated from the
operations. During this
period the movement of
money is only from bank to
Project
the borrower.
Implementation
Dalaal-Street.com
6. 3 stages of any new business
Gestation Period
The unit comes into
operation and starts
generating cash but
takes time to reach the
Interest is accrued
break-even point.
during this period to
include it into the
cost of product.
No money movement takes place between the
borrower and the bank.
Dalaal-Street.com
7. 3 stages of any new business
This is the stage when enough
cash flows are expected to be
generated from the business to
meet the instalments (including
interest and principle).
The cash-flows should be at least
1.5 times the instalments amount.
Earning Profits
The movement of money is from
borrower to bank now.
Purpose for having more cash-flows than the instalment is two-fold:
1) The borrower must also get the part of earnings (else he might not work if all proceeds go
to bank).
2) The cash flows are not actual but estimated, this provides the security to margin of error.
Dalaal-Street.com
8. Evaluation of a Business
Economic Management Technical
Evaluation Evaluation Evaluation
Financial
Evaluation
Dalaal-Street.com
9. Economic Evaluation
The demand of the product is evaluated.
There should be a demand-supply
gap, price advantage, timing and other
such benefits.
The prime attention is that the project
should survive the three stages of the
business (implementation, gestation
and operations).
Dalaal-Street.com
10. Economic Evaluation
Thus the bank prefers loans where there is a large gap between the
supply and current demand.
E.g.:
Where a manufacturer of tables needs a loan:
1) Demand = 10000 Units The market already
Supply = 12000 Units has enough supply
New Project = 2000 Units (prices might also fall).
2) Demand = 10000 Units
Not enough demand
Current Supply = 8000 Units
supply gap.
New Project = 2000 Units
3) Demand = 10000 Units Large gap, thus the
Current Supply = 2000 Units product has a wide
New Project = 2000 Units market.
Dalaal-Street.com
11. Economic Evaluation
Case Study #1:
A company specialising in plastic engineered goods
wants to setup a plant for manufacturing large
computer keyboards (back in 90‟s) seeing the large
market demand.
Dalaal-Street.com
12. Economic Evaluation
Case Study #1:
A company specialising in plastic engineered goods
wants to setup a plant for manufacturing large
computer keyboards (back in 90‟s) seeing the large
market demand.
Banks rejects it as it was found that the new types of
keyboard were soon to be introduced with new
additional features.
The survival of the project throughout the loan period
was doubtful.
Dalaal-Street.com
13. Economic Evaluation
Case Study #2:
A person wants to set up a mini cement plant in the
local area. However UltraTech, Ambuja etc rule the
current market.
Dalaal-Street.com
14. Economic Evaluation
Case Study #2:
A person wants to set up a mini cement plant in the
local area. However UltraTech, Ambuja etc rule the
current market.
Cement plants are basically of three sizes, Ultra –
Mega and Mini Cement Plant. The Ultra Projects
have lower fixed costs but higher transportation
costs.
The mini plants though higher on fixed costs have
the benefit of low transport costs, thus if there is
potential of cement market (good book orders)
within 100 kilometres, then the project is
economically viable.
Dalaal-Street.com
16. Economic Evaluation
Case Study #3:
A Small Power Project in Himachal or in New Delhi ?
The electricity produced is supplied to the national
grid (at a fixed price). The areas such as Himachal
have very low stealing of electricity while there is
always a power crisis in Delhi due to high stealing
of electricity.
Thus a small power project in New Delhi is preferred
as the demand – supply gap increases. This is one
of those “harsh realities.”
Dalaal-Street.com
17. Management Evaluation
Case Study #1:
A “Lalaji” from Bihar (with enough land there), seeing
the rise in IT Industry, too wants to start a new IT
Company.
Dalaal-Street.com
18. Management Evaluation
Case Study #1:
A “Lalaji” from Bihar (with enough land there), seeing
the rise in IT Industry, too wants to start a new IT
Company.
Bank might rate him good with the entrepreneur
skills but rate him very low for the lack of
experience in the business.
Dalaal-Street.com
19. Management Evaluation
Case Study #1:
A “Lalaji” from Bihar (with enough land there), seeing
the rise in IT Industry, too wants to start a new IT
Company.
“Lalaji” still enthusiastic
about the business hires 2
genius (one from Infosys and
another from Wipro).
Dalaal-Street.com
20. Management Evaluation
Case Study #1:
A “Lalaji” from Bihar (with enough land there), seeing
the rise in IT Industry, too wants to start a new IT
Company.
“Lalaji” still enthusiastic about the business hires 2
genius (one from Infosys and another from Wipro).
Bank still rates low. Like “Lalaji” took them from
Infosys and Wipro, someone else might take them
away from him someday too.
Bank needs to have safety and surety of survival
throughout the three periods.
Dalaal-Street.com
21. Management Evaluation
Thus the “promoters” MUST be in
the core of the business.
Good Collaterals are often taken as enough security
to skip any other evaluation.
However a term loan is a loan where the instalments
are to be paid by earning from the assets (not from
selling the assets – though bank can always do so).
Dalaal-Street.com
22. Technical Evaluation
Technical Evaluation is closely linked to the
Economic and Managerial Evaluation. The
technical competencies of the Management and
technicalities are evaluated in economic
specifications.
These ensure the technical feasibility of a project as
to whether a particular capacity machine is
available in market or not and all other such
technical evaluations.
Dalaal-Street.com
23. Financial Evaluation
This is the ultimate part of the evaluation process
where all the things are summed up in the terms of
money.
The cash flows are estimated, the instalments periods
are fixed, the interest rate is computed and the
project is made bankable.
Dalaal-Street.com
24. Cash Flow Structure
Cash from Operations:
Profit generated by the production & sales of goods and
services
+/- Adjustments for the expansion and tightening of working
assets
+/- Adjustments for non-cash income and expense items
Cash from Investments:
Cash generated by changing the asset base
Cash from Financing:
Cash associated with borrowings, dividends paid and
private withdrawals
+ Consideration of opening cash balance
Dalaal-Street.com
25. Analysis of Cash Flows
The most commonly used indicators for
doing this are:
• Debt Service Coverage Ratio
(DSCR); and
• net cash flow after loan repayment
or “free net cash flow.”
Dalaal-Street.com
26. Debt Service Coverage Ratio (DSCR);
Cumulative Net Cash Flow over Loan Period
Total Loan Repayment plus Interest
> 1.5
This indicator is calculated by adding up all the
monthly/quarterly balances during the envisaged
loan term and comparing this figure to the total
amount to be repaid (including both principal and
interest). Since the cumulative net cash flow needs
to be higher than the total repayment obligation
which the applicant would have towards the lender,
this indicator must be above 1 (recommended at
1.5). Dalaal-Street.com
27. Case Study
The new manufacturing which wants a four year term loan has
following projected cash flows:
All amounts in Rs. crores
Loan Application Net Cash Flow before Loan repayment
Loan amount 200 First Year 50
Equal annual Second Year 100
instalments @ Third Year 175
15% per annum 69.93 Fourth Year 300
TOTAL 279.72 TOTAL 625
Dalaal-Street.com
28. Case Study
The new manufacturing which wants a four year term loan has
following projected cash flows:
All amounts in Rs. crores
Loan Application Net Cash Flow before Loan repayment
Loan amount 200 First Year 50
Equal annual Second Year 100
instalments @ Third Year 175
15% per annum 69.93 Fourth Year 300
TOTAL for 4 years 279.72 TOTAL 625
Accumulated Repayment Capacity = 625 / 279.72 = 2.23
However, it does not show whether the applicant will be able to
cover every individual repayment instalment (as in first year).
Thus comes the “free net cash flow” method.
Dalaal-Street.com
29. Free net cash flow method
Net Cash Flow after Repayment
Loan Repayment Instalments
> 0.5
This indicator is ratio of the net cash flow after
repayment and the loan repayment instalments. A
“free net cash flow” indicator must be positive
(recommended at 0.5).
Dalaal-Street.com
30. Case Study
The new manufacturing which wants a four year term loan has
following projected cash flows:
All amounts in Rs. crores
Loan Application Net Cash Flow before Loan repayment Free Net Cash Flow
Loan amount 200 First Year 50 -0.28
Equal annual Second Year 100 0.43
instalments @ Third Year 175 1.50
15% per annum 69.93 Fourth Year 300 3.29
TOTAL 279.72 TOTAL 625
Accumulated Repayment Capacity = 625 / 279.72 = 2.23
The free Net Cash Flow is negative in the first year and too
low in the second year. Thus, it is recommended to reschedule
the loan and provide necessary moratorium period.
Dalaal-Street.com
31. Financial Evaluation
The interest rates are fixed based on the degree of
risk. This risk is computed based on the concepts
of probability and margin of safety.
Margin of Safety- is how much output or sales level
can fall before a business reaches its breakeven
point.
Thus where the margin of safety is riskier, the
interest premium applied is also higher (above the
PLR – Prime Lending Rate)
Dalaal-Street.com
32. RISK
“The only man who sticks closer to
you in adversity than a friend is a
creditor.”
Dalaal-Street.com
33. RISK
Webster‟s Dictionary- “exposing to danger or hazard.”
Chinese Symbol- “The first symbol is the symbol for „danger‟, while
the second is the symbol for „opportunity‟, making risk a mix of
danger and opportunity.”
Financial Terms- Risk, as we see it, refers to the likelihood that we
will receive a return on an investment that is different from the
return we expected to make. Thus, risk includes not only the bad
outcomes, i.e. returns that are lower than expected, but also good
outcomes, i.e., returns that are higher than expected. In fact, we
can refer to the former as downside risk and the latter is upside
risk; but we consider both when measuring risk.
Dalaal-Street.com - From “Damodaran on Valuation” by Aswath Damodaran
34. RISK
There are 3 types of business decisions:
1)Certainty: These are those decisions
relating to events which are bound to
happen. Thus these are risk free.
The good companies (often with a very high credit
rating) even bargain for loans at below the PLR
(Prime Lending Rate). The reason being, they take
their borrowings as almost risk free.
Dalaal-Street.com
35. RISK
The second is not “Uncertainty” but “Risk”
2)Risk: These are those decisions relating
to events which are risky and might not
happen as expected.
These are the decisions where the profits are made. The
banks give the loans on evaluation of risk and thus
charge a higher interest.
This is based on the same principle as the principle of
insurance business.
Dalaal-Street.com
36. RISK
In insurance business the loss of few
people is distributed among a large
group (via premiums).
Similarly the bank operates, based on the probability. Say
that out off every 100 borrowers – 4 make a default.
Thus the bank charges around 4% higher interest (i.e.
above PLR) from each of the borrower. Thus these
“risky” lending are more generous.
Also, if the bank is able to recover from those 4% who
default, then the are the even higher super profits
resulting from risks.
Dalaal-Street.com
37. RISK
The third is “Uncertainty”
3)Uncertainty: The decisions relating to
events which can not be predicted.
These are baseless.
A gambling is an example of “Uncertainty” as the
results cannot be predicted but only hoped for. The
result of such is mostly LOSS.
Dalaal-Street.com
38. Common Practices
One of the common practices in the market is that
once a person gets a loan, he floats it in the market
at even higher rates.
Thus a person may get a loan @ 15% and he might
float it in the market at 25% as there are many
who are unable to get the loans sanctioned from
the banks.
Thus the evaluation in all the four areas needs to be
careful and well evaluated.
Dalaal-Street.com
39. A Good Bank ?
Overall, a good bank is not the one that
rejects “not-so-good” loans, but the
one that makes every loan appraisal
bankable.
Dalaal-Street.com