STUDY OF CREDIT APPRAISAL

IN IDBI

Guided by: Presented by:

Suryanaryana S Sravya Kamma

ITM Business School 1

Agenda:

 Company Profile
 Objective
 Methodology
 Case Study
 Findings
 Limitations
 Suggestions
 Conclusion

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Company Profile:

 On Oct 1,2004 IDBI converted into Banking Company.

 Merger of IDBI bank with its parent company IDBI Ltd on
April 2, 2005 .
 Merger of United western Ltd with IDBI Bank on Oct
3,2006.

Vision:
“To be trusted partner in progress by leveraging quality
human capital and selling global standards of excellence to
build the most valued financial conglomerate”
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Product Profile:

 Preferred banking
 Deposits
 Loans
 Cards
 24 Hours banking
 Corporate banking
 Investment Advisory
 SME finance
 Agri Finance
 NRI Services
 Lockers
 Institutional banking
 Services

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Objective:

 To understand the existing credit appraisal techniques in

IDBI.
 To understand the various valuations that happen in credit
appraisal
 To understand the risk management that exists in credit
appraisal.

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Methodology:

Study

Study of Credit Case Study

Risk Rating Study of the
procedure
involved in
Credit
Appraisal

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Study of Credit Risk Rating:

Risk
Assessment
Module

Scoring
Andersen
Internal rating Models sheets/
Module
Models

Enhanced SME
Rating Model

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Procedure in Credit Appraisal:

Request
from the
corporate
for credit
Business
Final Approval
screening
by Branch
by Regional
Head Managers

Financial
Credit Rating
Analysis by
by Mumbai
Regional
Head Quarters
Officers
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Case Study of ABC Ltd:

 Introduction:
 ABC Ltd is a agro based company.
 Data Sources: Secondary data collected from Company
Records, Books and Internet.
 Proposal : Request for credit extension from existing 25
crores to 75 crores.
 The credentials of the firm for credit extension have been
evaluated on not just financial grounds but overall
performance of the company in every aspect possible has
been evaluated.

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Tools for Analysis:

Background
information

Industry Tools for Market

Analysis analysis Analysis

Financial
Indicators

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Background Information:
Background
Information

Awards
Business Product and
Activities Profile Rewards

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Industry Analysis:

 Deals with status of industry, growth rate, drawbacks and other

technical factors.
 Status of the industry: Eighth largest commercial seed market with
an estimated size of INR 49 billion.

STRENGTH WEAKNESS

OPPURTUNITIES THREATS

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Market Analysis:
Market
Analysis

Market Level of
Position Threats
Competition

Processing capacity
and arrival of foreign
seeds

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 Financial Indicators:

 Tangible Net Worth

800 Sales 500
700
400
600
300
500
200 Sales
400 Total Assets
PBDIT
Total Outside
300 100 Net Profits
Liabilities
200 Tangible 0
Networth
100
0

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 Financial Indicators:

Current Assets/Net Sales(%)

Net Working Capital 120
90 100
80
80
70
60
60
50 Column2 40 Series 3
40 20
30 0
20 a r 1 ar 2 ar 3 ar 4
10 Ye Ye Ye Ye
0
Year 1 Year 2 Year 3 Year 4

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Liquidity Ratios:

1.6

1.4

1.2

0.8 Current Ratio

Series 3
0.6

0.4

0.2

0
Year 1 Year 2 Year 3 Year 4

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 Profitability Ratios

35

30

25

20 PBDIT/Net Sales (%)

OPBT/Net Sales(%)
15 Net Profit/Net Sales(%)

10

0
Year 1 year 2 Year 3 Year 4

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Growth ratios

200

150

100
Net Sales Growth(%)
Net profit Growth(%)
Net Worth Growth(%)
50

0
Year 2 Year 3 Year 4

-50

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Findings in the case:

 Sales and profit after tax are showing rapid growth

 Debt Equity Ratio is favourable.The value is showing a decrease.
 Current Ratio is favorable. The current assets are being properly
utilized to deal with current liabilities.
 An appropriate current ratio is an indication of the stability of the
sister firms too if they has being any diversion of firms.
 The other current assets declared are of current nature only.
 The bank borrowings declared are within the limits permitted by us.
 The director’s report provided vital information on trading conditions,
plans for future, labor relations, impact of government policies,
changes in management.

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Findings in the case:

 All profitability ratios namely operating profit/sales etc indicate good

performance and financial health of the firm.
 The turnover ratios of the firm are fair enough
 A critical examination of the cash flow statement tells us that funds have been
effectively and efficiently used.
 There has been never undue building of fixed assets and also there has being
increase in sales without increase in fixed assets.
 The proportion of increase in owned funds and borrowed funds to the proportion
of increase in working capital is high.
 The firm has being fair enough in the apportionment of profits and payment of
dividends.
 The credit rating as given by crisil is fair enough.
 The pre sanction inspection has been satisfactory and has helped in the validation
of market information, correctness of particulars given in the credit application
form so on and so forth.

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Other factors…..

 Marketing prowess
 Research and Development
 Infrastructure
 Technology
 Operational performance
 achieved 450-460 crores INR against the projected 500 crores
 42% increase in turnover with respect to the previous year.
 increase of 79% in cotton seeds
 launched 11 number of varieties

 Crisil rating

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Result….

 A blend of the characteristics defined above make the

firm a reliable client.
 In view of above analysis, it is recommended that
credit could be provided to the borrower. Borrower
request for enhancement of credit from 25 crores to 75
crores can be sanctioned. Borrower should be
continuously monitored and steps should be taken to
improve their financial position

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Limitations:

 Study limited to business loans.

 Findings and suggestions were based on secondary data
 Study is limited to Hyderabad branch
 The findings can’t be generalized for the varied range of
industries of borrowers

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Learnings:

 Financial Analysis is not the only requirement-overall

analysis is must.
 Updation on technology and tools is a must be it a
individual or organization.
 Understanding the nature of business and the market
conditions is crucial for effective credit appraisal
 Real time communication with clients helped me enhance
my communication skills.
 Decent understanding of the credit appraisal techniques.

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Suggestions:

 Current Appraisal System is good.

 Direct Interaction with the clients should be improved.
 The loan processing time should be reduced.
 The documents required for processing the loan should be reduced.
 The bank should focus more on advertising to increase awareness
among the public about the services that it offers.
 The bank should completely eliminate the file system and go
computerization at every stage as this removes paper work and creates
transparency in the system.
 The bank should work on standardizing the processes and systems
their follow.
 Care must be taken to ensure that the judgment in appraisal process
does not depend on one single person and a single factor.
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Suggestions:

 Need for improvised methods that are on par with

international standards.
 Revising the factors on which appraisal is done to face the
ever increasing violatility.
 Need for improvement in Risk Management system.

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Conclusion:

 The company is doing well in credit appraisal.

 Scale of funding is high compared to private banks.
 The system in IDBI is risk-averse.
 Decreasing effect of the recession and ever increasing
start ups the bank can see a lot of business on its way.
 Need for upgradation-Increasing violatile markets and the
upgradation of the financial techniques all around the
globe.
 Need for revising the parameters on which the valuations
are done.

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THANK YOU !!!

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