Report Summer Internship

Credit Appraisal in Textile Sector
SUMMER INTERNSHIP PROJECT

In Partial Fulfilment of the Post Graduate Program in Management at the University Business School, Chandigarh
Submitted By:
Gunpreet Singh (MBA Finance)
Acknowledgement
A journey to the world outside text books and class rooms has remained the best teacher for ages. My project at UCO Bank was an expedition to learn, in a different way. I avail this opportunity to express my profound sense of sincere and deep gratitude to many people who are responsible for the knowledge and experience I have gained during the project work. I would like to express heartfelt gratitude to my project mentor Mr. Rajiv Gupta UCO Bank, Sector 17, Chandigarh. It was due to his vast experience that I got a chance to learn many things. UCO Bank gave me an opportunity to study and understand the different facets of credit management and their importance. This practical insight into the functioning of the credit management was an enriching experience and I am sure it would stand me in good stead in my professional life. Last but certainly not the least, I would also like to thank my institute University Business School, Panjab University, Chandigarh for inculcating in me the management knowledge and skills and then providing me with the best opportunity to apply and update my knowledge and skills through summer internship in such an esteemed organization.
Gunpreet Singh University Business School
DECLARATION FORM I hereby declare that the Project work entitled, Credit Appraisal in Textile Sector submitted by me to UBS, PANJAB UNIVERSITY for the Summer Internship during the Post Graduate Program in Management is my own original work and has not been submitted earlier either to UBS or to any other Institution for the fulfilment of the requirement for any course of study. I also declare that no chapter of this manuscript in whole or in part is lifted and incorporated in this report from any earlier / other work done by me or others.
Signature of Student:
Signature of Company Mentor:
Table of Contents
Chapter -1 Objectives & Background ................................................................................... 1 1.1 Project Overview .............................................................................................................. 1 1.2 Objectives of the Project .................................................................................................. 2 1.3 UCO Bank ........................................................................................................................ 2 1.3.1 Introduction ............................................................................................................... 3 1.3.2 Vision Statement........................................................................................................ 4 1.3.3 Mission Statement ..................................................................................................... 4 1.3.4 Strengths .................................................................................................................... 4 1.3.5 Organisation Structure ............................................................................................... 4 1.3.6 Key Highlights........................................................................................................... 4 1.3.7 Key Risks................................................................................................................... 5 1.3.8 Financial Position ...................................................................................................... 5 1.3.9 Annual Results........................................................................................................... 7 Chapter -2 UCO Bank Loan Policy Overview ...................................................................... 9 2.1 Section 1 ........................................................................................................................... 9 2.2 Section 2 ........................................................................................................................... 9 2.3 Section 3 ......................................................................................................................... 12 2.4 Section 4 ......................................................................................................................... 21 2.5 Section 5 ......................................................................................................................... 35 2.6 Section 6 ......................................................................................................................... 42 2.7 Section 7 ......................................................................................................................... 43 2.8 Section 8 ......................................................................................................................... 46 2.8 Section 9 ......................................................................................................................... 54 Chapter -3 Credit Appraisal & Credit Rating .................................................................... 55 3.1 Credit Monitoring........................................................................................................... 55 3.1.1Monitoring Objectives: ............................................................................................. 55 3.1.2 Monitoring Tools: .................................................................................................... 55 3.1.3 Stages of Monitoring: .............................................................................................. 56 3.1.4 Monitoring Process:................................................................................................. 56 3.2 Credit Rating .................................................................................................................. 58 3.2.1 UCO BANK Credit Rating ...................................................................................... 58 3.2.2 ICRA Rating ............................................................................................................ 64
3.2.3 CIBIL Rating ........................................................................................................... 66 3.3 Management of NPAs: .................................................................................................. 69 Chapter -4 Industry Overview & Analysis of Proposal ..................................................... 71 4.1 Overview of the Textile Industry ................................................................................... 71 4.1.1 Introduction ............................................................................................................. 71 4.1.2 SWOT of the Textile Industry: ................................................................................ 72 4.1.3 Textile Sectors in India:........................................................................................... 73 4.1.4 Policy and Regulatory Framework .......................................................................... 75 4.1.5 EXIM scenario......................................................................................................... 79 4.1.6 SMEs in the Textile Industry ................................................................................. 81 4.1.7 Future Outlook......................................................................................................... 84 4.1.8 UCO Bank Outlook on Textile ................................................................................ 84 4.2 Genus Texspin: Company and Financial Data .............................................................. 86 4.2.1 Company Overview ................................................................................................. 86 4.2.2 Account Profile:....................................................................................................... 86 4.2.3 Shareholding Pattern: .............................................................................................. 87 4.2.4 Financial Overview.................................................................................................. 88 4.2.5 Proposal: .................................................................................................................. 94 4.2.6 Exposure of Other Banks ....................................................................................... 108 4.2.7 Group Credit .......................................................................................................... 108 4.2.8 Assessment of Proposal ......................................................................................... 110 4.2.9 Banks Comments on the Account: ....................................................................... 111 Chapter 5 Conclusion & Recommendations ..................................................................... 114 5.1 Conclusion.................................................................................................................... 114 5.2 Recommendations ........................................................................................................ 114 Glossary of Terms .................................................................................................................. 117 Bibliography .......................................................................................................................... 118
Chapter -1 Objectives & Background
Chapter -1 Objectives & Background 1.1 Project Overview

Credit Appraisal Credit Appraisal is the process by which a lender appraises the technical feasibility, economic viability and bankability including creditworthiness of the prospective borrower. Each bank has its own methodology to determine if a borrower is creditworthy or not. It is determined in terms of the norms and standards set by the bank. Acredit appraisal is an important part of determining the eligibility for a loan, and the quantum of the loan. A prospective borrower has to go through the various stages of the credit appraisal process of the bank. Each bank has its own criteria to satisfy itself on the credit worthiness of the borrower. The eligibility for the loan that a person can get depends on his credit worthiness, determined in terms of the norms and standards of the bank. Being a crucial step in the loan process, a borrower needs to be careful in planning his financing modes. The credit worthiness assures the repayment capacity of the borrower - whether the borrower is capable of repaying the loan and dues on time. The process of Credit Appraisal is multidimensional and includes Management Appraisal Technical Appraisal Commercial Appraisal Financial Appraisal Economic Appraisal.
Credit Management- It is a collection of processes involves qualifying the extension of credit to a customer monitors the reception and logging of payments on outstanding invoices, the initiation of collection procedures, and the resolution of disputes. The process of credit management begins with accurately assessing the credit-worthiness of the customer base. This is very important because the bank chooses to extend different lines of credit at different rates to different customers. Proper credit management calls for setting specific criteria that a customer must meet before receiving credit As part of the evaluation process, credit management also calls for determining the total credit line that will be extended to a given customer. Several factors are used as part of the credit management process to evaluate and qualify a customer for the receipt of credit. This includes gathering data on the potential customers current financial condition, including the current credit score. The current ratio between income and outstanding financial obligations will also be taken into consideration.
After establishing the credit limit for a customer, credit management focuses on ensuring timely repayment of loans, reviewing and renewing the credit limits extended to the clients.
1.2 Objectives of the Project

Credit Appraisal is one of the most significant and important task that any lender faces. Its importance lies in the fact that the survival of the lending institution will depend on how well the exposures are managed. Each exposure undertaken by the Bank will have different set of opportunities and challenges, and the ability of the customer to repay will depend on these conditions. UCO Bank has established detailed guidelines regarding the facilities to be offered to various types of customers, the amount of exposure to be undertaken, the conditions for the exposures, the Rate of Interest to be charged under different cases. Keeping the importance of Credit Rating in cognisance, the primary objectives of my Summer Internship with UCO Bank were:
To study & understand the credit policy of the bank and the credit appraisal process as a whole. To study the credit rating methods followed by the Bank for different credit ranges. To study the method used by bank to calculate the interest rates to be charged. To understand the method of detailed analysis of financial statements and make a sound credit decision. To understand the causes of problem loans, be able to identify early warning signals and take remedial actions.
1.3 UCO Bank

UCO Bank is a commercial bank established in 1943. The idea to establish the bank was first conceived by G.D. Birla, the famous industrialist, after the historic 'Quit India Movement' in 1942. The idea was culminated on the 6th of January 1943, when The United Commercial Bank Ltd. was born with its Registered and Head Office at Kolkata. A commercial bank and a Government of India Undertaking, it comprises of government representatives as well as renowned professionals, management experts, economists,
businessmen, and so on, in its Board of Directors. United Commercial Bank has stretched out to of all segments of the economy - be it agriculture, industry, trade and commerce. Along with 13 other major commercial banks of India, United Commercial Bank was nationalized on 19th July, 1969, by the Government of India. Thereafter the Bank expanded rapidly. To keep pace with the developing scenario and expansion of business, the Bank undertook an exercise in organizational restructuring in the year 1972. Under the act of Indian Parliament, in 1985, its name changed from United Commercial Bank to the present name, UCO Bank. As of 2005, the bank has 2000 Service Units spread all over India. A distinctive feature of UCO bank is its introduction of 'NO HOLIDAY' branches. These bank branches work on all the 365 days of a year. With the age of global banking, UCO bank has also changed to be adept with the newest technology, boasting of specialized computerized branches in both India and overseas. Banks loan products include housing loan, education loan, personal loan, car loan, trade loan, cash rental loan, working capital financing and term loans for agriculture and other loan schemes. In addition the bank offers various international banking services, which comprise foreign currency loans, finance/services to exporters and importers, remittances, forex and treasury services, resident foreign currency deposits, correspondent banking services, and various general banking services. It provides international banking services for customers including corporate, nonresident Indians, overseas corporate bodies and foreign companiesindividuals. 1.3.1 Introduction Heritage Having traversed periods of expansion and consolidation, the Bank was nationalized by the Government of India on the July 1969 whereupon 100 per cent ownership was taken over by the government in UNITED COMMERCIAL BANK. This historic event brought about a sea-change in the entire fabric of the bank's thinking and activities, commensurate with the government's socio-political approach of mass banking as against class banking hitherto practiced. Branch expansion started at a fast pace, particularly in rural areas, and the bank achieved several unique distinctions in Priority Sector lending and other social upliftment activities. To keep pace with the developing scenario and expansion of business, the Bank undertook an exercise in organizational restructuring in the year 1972. This resulted into more functional specialization, decentralization of administration and emphasis on development of personnel skill and attitude. Side by side, whole hearted commitment into the government's poverty alleviation programmes continued and the convenorship of State Level Bankers' Committee (SLBC) was entrusted on the Bank for Orissa and Himachal Pradesh in 1983.
The year 1985 opened a new chapter for the Bank as the name of the Bank changed to UCO BANK by an Act of Parliament. The customer friendly and socially committed character, however, remained even with this change in name which has, over the years, been regarded as one of the well known and vibrant banks in the country. Today, with all its inner strengths, UCO Bank has come a long way to symbolize friendliness for customers and efficiency in its banking business. Truly, UCO Bank HONOURS YOUR TRUST. Organisation Structure Headquartered in Kolkata, the Bank has 35 Regional Offices spread all over India. Branches located in a geographical area report to the Regional Office having jurisdiction over that area. These Regional Offices are headed by Senior Executives ranging upto the rank of General Manager, depending on size of business and importance of location. The Regional Offices report to General Managers functioning at Head Office in Kolkata.
1.3.2 Vision Statement To emerge as the most trusted, admired and sought-after world class financial institution and to be the most preferred destination for every customer and investor and a place of pride for its employees. 1.3.3 Mission Statement To be a Top-class Bank to achieve sustained growth of business and profitability, fulfilling socio-economic obligations, excellence in customer service; through up gradation of skills of staff and their effective participation making use of state-of-the-art technology. Global banking has changed rapidly and UCO Bank has worked hard to adapt to these changes. The bank looks forward to the future with excitement and a commitment to bring greater benefits to you. UCO Bank, with years of dedicated service to the Nation through active financial participation in all segments of the economy - Agriculture, Industry, Trade & Commerce, Service Sector, Infrastructure Sector etc., is keeping pace with the changing environment. With a countrywide network of more than 2000 service units which includes specialised and computerised branches in India and overseas, UCO Bank has marched into the 21st Century matched with dynamism and growth! 1.3.4 Strengths Country-wide presence Overseas Presence with Profitable Overseas Operations Strong Capital Base High Proportion of Long Term Liabilities A Well Diversified Asset Portfolio
A Large and Diversified Client Base Fully Computerised Branches at Major Centres Branch representation in Top 100 Centres (as per deposits) in the country
1.3.5 Organisation Structure Headquartered in Kolkata, the Bank has 35 Regional Offices spread all over India. Branches located in a geographical area report to the Regional Office having jurisdiction over that area. These Regional Offices are headed by Senior Executives ranging upto the rank of General Manager, depending on size of business and importance of location. The Regional Offices report to General Managers functioning at Head Office in Kolkata. 1.3.6 Key Highlights Broad scale of operations UCO bank had an asset base of Rs.1373.5 bn as on March 31, 2010 which accounted for 2.7% and 2.4% of total deposits and advances respectively in India. The banks deposits and advances registered a CAGR of 23.6% and 20.6% respectively over the past three years. As on March 31, 2010 it had deposits of Rs.1224 bn and advances of Rs.825 bn. The bank has a panIndia presence with a healthy network of 2202 domestic and 4 overseas branches with 608 ATMs facilitating 1.33 mn card holders as on March 31, 2011.The banks entire branch network has now been covered under core banking solutions (CBS) which puts the bank in a position to compete with other larger banks. Moderate capitalization with modest resource profile UCO bank has moderate capitalization supported by capital infusion aggregating to Rs.15.73 bn by Government of India (GoI) through perpetual non cumulative preference shares in the past twoandhalf years. The banks TierI Capital Adequecy Ratio (CAR) under BaselII stood at 7.5% as on December 31, 2010. The banks modest resource profile is marked by lowerthanindustry average share of current account and savings account (CASA) deposits in its total deposits. The bank continues to face challenges in improving the proportion of retail deposits (savings account and term deposits) in total deposits and is therefore highly dependent on bulk deposits and certificates of deposits (CDs) for its growth. The banks CASA deposits, at 24.8% as on December 31, 2010 was lower than the industry average of 35% on the same date. The bulk deposits and CDs constituted 45% of the total deposits. Government ownership provides stability GoI is the majority shareholder in UCO bank with shareholding of 63.59% as on December 31, 2010. This gives stability to the bank both on an ongoing basis and in the event of distress. In 201011, GoI has committed infusion of Rs.201.57 bn in PSBs as additional capital to help the banks maintain Tier I CAR of 8% and to increase its stake in a few PSBs to at least 58%. The government has stated it will maintain overall CAR of PSBs at ~12%, so that the banks can grow their balance sheets and remain competitive.
1.3.7 Key Risks Risk of non payment by customers Average asset quality Credit risk on account of slowdown in economy 1.3.8 Financial Position UCO bank witnessed a significant growth of 41.3% in its NII for FY10 and it stood at Rs.23.2 bn as against Rs.16.4 bn in FY09 backed by strong yoy growth in deposits and advances by ~ 22.1% and 19.6% respectively. The bank recorded a strong growth of ~27% in agriculture landing and 35% in MSME loans. Strong growth in PPP coupled with bringing down the cost of funds substantially by shedding high cost deposits and improvement in yield on advances boosted PAT by 81.5% to Rs.10.1 bn in FY10 from Rs.5.5 bn in FY09. UCO banks yearly average cost of deposits dropped to ~5.9% in FY10 against 6.6% in FY09 because of reduction in high cost deposits partly because of decline in interest rates. This helped to grow the net interest margin (NIM) by ~30 basis points to 1.9% in FY10 from 1.6% in FY09. The bank is well capitalized, with a capital adequacy ratio (CAR) of 13.2% at the end of March 31, 2010 as per BaselII norms as, compared with 11.9% as on March 31, 2009. The bank has raised subordinated debt of Rs. 13 bn by issue of unsecured redeemable bonds of Rs.5 bn as Upper TierII capital and unsecured redeemable bonds of Rs.8 bn as subordinated debt under Tier II capital. The bank has also redeemed Rs.1.5 bn of subordinated debt instruments under TierII capital during the year.
1.3.9 Annual Results
Sources: UCO Bank CRISIL Company Report www.ucobank.com
Chapter -2 Loan Policy Overview
Chapter -2 UCO Bank Loan Policy Overview

2.1 Section 1
Scope of the Policy The Loan Policy Document provides necessary directives covering all loans and advances to borrowers/proposed borrowers but does not cover loans and advances to Bank's own staff Bank's Directors Relatives of Directors Directors and their relatives on reciprocal basis. Loans and advances to Bank's own staff would be governed by schemes approved by the Board of Directors in terms of guidelines on the matter received from Govt. of India. Loans and advances to Bank's Directors, Relatives of Directors, Directors and their relatives on reciprocal basis would be based on specific approval of Board of Directors and should conform to the statutory and Regulatory directives in force. Objectives of Loan Policy The Loan Policy Document-2010 seeks to respond to the present requirements in the light of expected environment. Its objectives are: 1. Incremental credit deployment as per the Bank's business plan. 2. Create requisite capacity in the Credit Administration structure for credit dispensation and monitoring. 3. A well diversified fully rated credit portfolio. 4. Control credit quality such that default rate over the year is contained within 5. 2% so as to achieve reduction in provision requirements. 6. Optimize profit from the portfolio.
2.2 Section -2
Policy directives on strategies to achieve the target The Bank would seek to achieve the target set for credit expansion through emphasis on thrust areas as per Bank's business plan, distribution of targets across its branches based on credit deployment/ absorption capacity of branches and their command areas and delegation of discretionary powers across field functionaries. Additionally, the Bank would provide marketing support, products aligned with market demand, and competitive pricing. Effective client contact on a regular basis would be encouraged. The Bank would also seek to standardize its products, as far as possible, for ease of handling and to reduce operational costs. Monitoring of credit accounts will receive priority at all levels. Bank will take effective steps to constantly improve credit appraisal and account maintenance skills of its personnel. These steps would help the Bank to achieve its objective of minimizing slippage.
2.2.1 Segment- Wise Target Allocation Across Zones The Bank has allocated segment wise targets to the Zones taking into account their capacity for credit expansion. The Zones further have distributed these targets amongst the branches under their control, keeping in view the potential of the branches. Quarterly review of the performance vis-a-vis targets allocated would be carried out and necessary follow up would be carried out to achieve over all target set for credit expansion. 2.2.2 Delegation of Discretionary Powers Suitable discretionary powers have been delegated to the field functionaries to enable them to accord sanctions on credit proposals without delay. However, suitable flexibility in the existing structure may be carried out to reflect the requirements specific to a scheme or product. This may be based on lower risk perception associated with products/ schemes or competitive requirements. 2.2.3 Alignment of Products and Pricing With Market Demand The Bank has adopted a strategy to design and market standardised credit products for various segments in the credit market. Additionally, Bank would also, based on its experience and feed-back received on market and demand, modify its products with a view to improve its market share. Bank would also recognize price competition and align its pricing, subject to other relevant factors, with the market. In case of credit proposals specific to a unit, the Bank would continue to take into account their specific needs keeping in view Bank's profitability, Loan Policy and other directives/ guidelines. 2.2.4 Product Development Banking product is a package of deliverables/services, which is specifically designed by the bank for a set of target customers with a purpose that customer and the bank are mutually benefited from it, on an ongoing basis. Bank from time to time develops various products relating to its different business dimensions and can broadly be classified into the following categories: 1) Loan products which are designed as tailor made schemes targeting a particular segment of clients/borrowers e. g. UCO Shelter, UCO Traders, UCO Car, UCO Mahajan etc. 2) Deposit products which are designed in a manner to impart maximum value to the depositors and to garner deposits for the Bank e.g. UCO Premium, UCO Star etc. 3) Technology based products rendered to supplement the existing products/services for the customers like VISA Card, RTGS, Multicity Cheque Facility, E-Banking etc. 4) Hybrid Products: a single product carrying features of more than one product e.g. friend-in-need scheme etc. 5) Any Other A product in its process of development undergoes various stages viz. conceptualization, development of modalities, cost-benefit analysis, risk perception, approval, implementation,
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review and monitoring etc. therefore needs to go through a structured process of development. 2.2.5 Marketing Support The Bank will undertake product publicity through various modes available keeping in view the cost-benefit aspect, coverage and other relevant factors. This would be carried out to popularize our products and to convey information content. Bank has added officers with specialization in marketing to its resources. They would form the nucleus around which client contact strategy would be developed. Client contact would serve the objective of maintaining close liaison with existing and potential major customers for the purpose of business and feedback. 2.2.6 Standardisation in Credit Dispensation Retail / SE Departments at Head Office will take steps to standardize respective credit products to the extent possible. Standardization of various schemes incorporating process note, documentation, monitoring and follow up will be carried out to simplify credit dispensation process. This will also help in handling volumes by field functionaries and reducing costs. Zonal Offices would also be encouraged to develop schemes suitable to various groups of borrowers within their command area subject to approval by HO Retail/ SE Department as the case may be. 2.2.7 Credit Appraisal & Account Maintenance Skills As a long-term measure, the Bank would continue to recruit/identify officers for specialization in credit dispensation. Identified officers would receive exposure in credit processes at branches, controlling offices and Head office. They would also be imparted onthe-job training and classroom trainings at Bank's Staff Training College, B.T.C., and NIBM etc. Short-term measures would include deputing officers from Head Office and controlling offices to assist branch level functionaries in credit dispensation. Further, thrust branches shall be identified based on business potential for maintaining large borrower accounts. These branches would be provided with officers possessing required credit dispensation skills. 2.2.8 Marketing for High Value Corporate Accounts Considering the fact that a fair share of Credit Expansion has to come from Corporate Sector, marketing efforts in this segment will be intensified at all levels.
2.3 Section 3
Policy Directives on Portfolio Exposure The Bank would adhere to the following guidelines in achieving its objective of portfolio diversification. The guidelines restrict Bank's exposure on single borrower, group borrower, counter-parties (i.e. commercial banks, Regional rural banks (RRBs) etc.) and foreign
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countries. It also restricts overall unsecured exposure, exposure on capital market and provides for monitoring aggregate exposure on high value individuals/groups. It seeks to ovoid industry concentration and limits further exposure in specified industries. Definitions Exposure Exposure shall include credit exposure (funded and non-funded credit limits), investment exposure (including underwriting and similar commitments) as well as certain types of investments in companies, in Indio or abroad and credit exposure of derivative products. The sanctioned limit or outstanding, whichever is higher, shall be reckoned for arriving at exposure limit. However, in case of fully drawn term loans, where there is no scope for redrawal of any portion of the sanctioned limit, the outstanding would be reckoned as exposure. Capital Funds Capital funds will comprise of Tier-I & Tier-II capital as defined under capital adequacy standards and as per the published accounts as on March 31 of the previous year. The infusion of Capital under Tier-I and Tier-II, either through domestic or overseas issue after the published balance sheet date, will also be taken into account for determining the exposure ceilings. Other accretions to Capital Funds by way of quarterly profits etc. would not be eligible to be reckoned for determining the exposure ceiling. The Bank is prohibited from taking exposure in excess of the ceilings in anticipation of infusion of Capital at a future date. 2.3.1 Prudential Exposure ceilings The Bank shall limit its Exposure on a single borrower and borrowers belonging to a group to the following limits. 1. Single Borrower 2. Group Borrower Single Borrower 15% of Bank's Capital Funds 40% of Bank's Capital Funds Single borrower would imply individual borrower that may be an individual, a HUF, a proprietorship/partnership/private or public limited concern, trust etc., but should be a single unit. Borrowers belonging to a Group a) Business entities, whether proprietorship or partnership or private limited company or public limited companies having one or more common Partner /Director. However, in case of Public Limited Companies, the group approach will be based on the concept of commonality of management and effective control on the basis of relevant information available with the Bank. In other words, if a professional (i.e. non-promoter) Director is common between two Public Limited Companies, who does not have substantial share holding / management control, such companies will not be treated as group companies merely on this ground,
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OR b) A limited Company, which is subsidiary of another limited company or closely held company with substantial interest 2.3.1.1 Prudential Exposure norms for NBFC: Single borrower NBFC 10% of Bank's Capital Funds Single Borrower NBFC 15% of bank's Capital Funds (In case additional 5% is on lent to Infrastructure) 2.3.1.2 Exemptions Single/Group Exposure limit will not be applicable on the following types of exposures: Limits allocated directly by the Reserve Bank of Indio for food credit. Existing/additional credit facilities (including funding of interest and irregularities) granted to weak/sick industrial units under rehabilitation packages. Exposures where principal and interest are fully guaranteed by Government of India. Loans and advances granted against security of Bank's own term deposits. 2.3.2 The indicative list of various forms of exposure: All types of funded and non-funded credit limits. Facilities extended by way of equipment leasing, hire purchase finance and factoring services. Advances against shares, debentures, bonds, units of mutual funds etc. Bank loan for financing promoter's contributions. Bridge loans. Financing of Initial Public Offerings (IPOs) / Employee stock Options (ESOPs). Underwriting obligations. Buy bock Commitments. Investment in shares and debentures/bonds of companies acquired through direct subscription, devolvement arising out of underwriting obligations or purchased from secondary markets or on conversion of debt into equity. Investment in PSU bonds through direct subscription, devolvements arising out of underwriting obligations or purchase mode in the secondary market. Investment in Commercial Papers (CPs) issued by Corporate Bodies/PSUs. Investment in debentures /bonds /security receipts /pass through certificates (PTCs) issued by a Securitization Company (SC)/ Reconstruction Company(RC). Credit exposure equivalent of derivative products 2.3.2.1 Measurement of Credit Exposure of Derivative Products For the purpose of computing credit exposure of all derivative products Current Exposure Method as given below should be followed. Current Exposure Method:
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Under Current Exposure Method, credit exposure equivalent of off-balance sheet interest rate and exchange rate instruments shall be the sum of: 1. The total of replacement cost (obtained by "marked to market") of all contracts with positive value (i.e. when the Bank has to receive money from the counter party). 2. An amount for potential future changes in credit exposure calculated on the basis of the total notional principal amount of the contract multiplied by the following credit conversion factors according to the residual maturity:
Residual Maturity
Less than one year One year and over to less than 5 yrs
Conversion factor to be Interest Rate Exchange Rate Contract Contract 0.50% 2.00% 1.00% 10.00%
The derivative products shall be marked to market at least on a monthly basis. The Bank would follow the internal methods of determining the marked to market value of the derivative products. The credit exposure for single currency floating / floating interest rate swaps would be evaluated solely on the basis of their mark-to-market value. 2.3.3 Infrastructure Lending According to RBI master circular on Exposure Norms Infrastructure lending would include all credit facilities extended in any form to a borrower entity engaged in: 1. Developing. 2. Operating and maintaining. 3. Developing, operating and maintaining any infrastructure facility that is a project in any of the following sectors, or any infrastructure facility of a similar nature. A road, including toll road, a bridge or a rail system. A highway project including other activities being an integral part of the highway project. A port, airport, inland waterway or inland port. A water supply project, irrigation project, water treatment system, sanitation and sewerage system or solid waste management system. Telecommunication services, weather basic or cellular including radio paging, domestic satellite service (a satellite owned and operated by an Indian company for providing telecommunication service), network of trunking, broadband network and Internet services. An industrial park or special economic zone. Generation or generation and distribution of power. Transmission or distribution of power by laying a network of new transmission or distribution lines. Construction relating to projects involving agro processing and supply of inputs to agriculture.
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Construction for preservation and storage of processed agro products, perishable goods such as fruits, vegetables and flowers including testing facilities for quality. Construction of educational institutions and hospitals. Laying down and/ or maintenance of gas, crude oil and petroleum pipelines. Any other infrastructure facility of similar nature. 2.3.4 Substantial Exposure Sum total of exposures assumed in respect of single borrowers enjoying credit facilities in excess of a threshold (10% say) of Capital Funds was stipulated at 400% of Capital Funds in the Loan Policy Document approved by the Board for the year 2001-2002. However, a report on accounts, where the exposure has crossed threshold limit of 1 0%, shall continue to be placed before the Board every six months for review. 2.3.5 Unsecured Exposure Unsecured exposure is an exposure comprising all funded and non-funded exposures (including underwriting and similar commitments) where the realizable value of security, as assessed by the Bank/ approved valuers/ Reserve Bank's Inspecting Officers, is not more than 10 percent, ab-initio, of the outstanding exposure. But the classification of advances as secured or unsecured would be revisited at the time of review of advances and also as part of preparation of final statements. Security will mean tangible security properly charged to the Bank and will not include intangible securities like guarantees, comfort letters, charge on rights, licenses, authorizations etc. 2.3.6 Capital Market Exposure Following exposures shall qualify as Capital Market Exposure: i) Direct investment in equity shares, convertible bonds, convertible debentures and units of equity-oriented mutual funds the corpus of which is not exclusively invested in corporate debt. ii) Advances against shares/bonds/debentures or other securities or on clean basis to individuals for investment in shares (including IPOs /ESOPs), convertible bonds, convertible debentures or units of equity-oriented mutual funds etc. iii) Advances for any other purposes where shares or convertible bonds or convertible debentures or units of equity oriented mutual funds are taken as primary security. iv) Advances for any other purposes to the extent secured by the collateral security of shares or convertible bonds or convertible debentures or units of equity oriented mutual funds i.e. where the primary security other than shares/convertible bonds/convertible debentures/units of equity oriented mutual funds does not fully cover the advances. v) Secured and unsecured advances to stockbrokers and guarantees issued on behalf of stockbrokers and market makers. vi) Loans sanctioned to corporates against security of shares /bonds/debentures or other securities or on clean basis for meeting promoter's contribution to the equity of new companies in anticipation of raising resources. vii) Bridge loans to companies against expected equity flows/issues.
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viii) Underwriting commitments taken by the Bank in respect of primary issue of shares of convertible bonds or convertible debentures or units of equity oriented mutual funds. However, with effect from April 16, 2008, Bank may exclude its own underwriting commitments, also the underwriting commitments of its subsidiaries, if any, through the book running process for the purpose of arriving at the capital market exposure of the solo bank as well as well the consolidated Bank. ix) Financing to stockbrokers for margin trading. x) All exposures to Venture Capital Funds (both registered and unregistered). This exposure will be deemed to be at par with equity. All Such Exposures, as mentioned above, shall be governed in terms of Policy Guidelines on Capital Market Exposure 2.3.7 Country Exposure Bank's funded and non-funded exposure on different countries would form country exposure. Such exposures shall be governed in terms of the Policy Guidelines on Country Risk Management. The Bank takes both funded and non-funded exposure of different maturities on different countries worldwide during the course of its operations. These exposures are generally of the following types: 1) Funded Exposures 2) Non-funded Exposures While taking such exposures the bank is required to consider the risk associated with the country where the underlying assets are created over and above the counter party risk. Country exposures for the domestic operations are taken by the designated branches in India. The overseas centres, Singapore and Hong Kong also take country exposures. RBI's guidelines on Country Risk Management are applicable to the bank as a whole. However, for Singapore and Hong Kong the stricter of the provisions for country risk management as prescribed hereunder or that prescribed by the respective monetary authorities of those countries shall apply. Country Risk Defined Direct country risk: Direct country risk will imply the risk associated with the country where the underlying assets are created out of the exposure taken. Indirect country risk: Indirect country risk shall arise in cases where a domestic commercial borrower has large economic dependence on a certain country. Large economic dependence for this purpose shall mean economic dependence of more than 50% on a particular country. Risk wise Classification of Countries: The bank will use the seven-category classification followed by Export Credit Guarantee Corporation of India Ltd (ECGC) for the purpose of classification of country risk exposures as given hereunder:
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Risk Category
ECGC Classification
Insignificant A1 Low A2 Moderate B1 High B2 Very High C1 Restricted C2 Off-credit D Such classification shall be updated with quarterly updates to be obtained from ECGC by Head Office. Any sudden change in classification of a country in the interim period as advised by ECGC shall also be reckoned. Computation of Exposure Exposures will be computed on a net basis i.e. gross exposure 'minus' collaterals, guarantee, insurance etc. Netting may be permitted for cash collaterals, bank guarantees and credit insurance available in/ issued by countries in a lower risk category than the country on which exposure is assumed. Indirect exposures shall be reckoned at 50% of the exposure for the purpose of these guidelines. For the present, only in respect of the country, where a bank's net funded exposure is 1 per cent or more of its total assets, indirect country risk shall be reckoned for measuring, monitoring and controlling. 2.3.8 Counter Party Exposure Bank's exposure on Clearing Corporation of Indio Limited (CCll), Scheduled Commercial Banks, Regional Rural Banks, Co-operative Banks, Mutual funds and Primary Dealers shall form counter party exposure. 2.3.9 Industry/Sectoral Exposure The Bank has undertaken a study on industry/sector correlation and the policy for allocation of credit exposure on various industries/sectors in the portfolio has been adopted with due approval of Risk Management Committee of the Board (RMCB) as under: I. Where industry specific exposure is less than 1 % of total credit exposure, the exposure limit would be 1 % of the total projected credit exposure. II. Where industry specific exposure is above 1 % but up to 2% of total credit exposure, the exposure limit would be 2.5% of the total projected credit exposure. III. Where industry specific exposure is above 2% but up to 4% of total credit exposure, the exposure limit would be 5% of the total projected credit exposure.
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IV. Where industry specific exposure is above 4% but up to 6% of total credit exposure, the exposure limit would be 7.5% of the total projected credit exposure. V. Where industry specific exposure is above 6% of total credit exposure, the exposure limit would be 10% of the total projected credit exposure. 2.3.10 Tenor Based Exposure Asset Liability Management Committee (ALCO) shall decide, every year, the incremental level of long-term exposure having tenor of 3 - 5 years and above 5 years considering structural liquidity position of the Bank and shall allocate the same across various authorities engaged in sanctioning credit proposals. Further, industries/sectors would be identified where the Bank would take medium/long term exposure and such level of exposure would be quantified. In doing so, the ALCO would take into account industry outlook provided by reputed agencies. This would be an annual exercise but may be reviewed from time to time. Further, the ALCO would also crystallize critical success factors in such identified industries and borrower's strength vis-a-vis crystallized critical success factors would be assessed in taking exposure on borrowers. Similarly Commercial Papers (CPs), because of their short-term nature and having impact on Asset Liability Management (ALM), total exposure & tenure and its allocation across various authorities engaged in sanctioning CPs would be determined by the ALCO from time to time. 2.3.11 Proposals Prohibited This lending policy prohibits loans & advances (including non-fund based facilities) for the following purposes or to the following categories of borrowers. 1. Loans & advances for speculative purposes. 2. Proposals from defaulters of our Bank (excluding exempted categories). 3. Loans and advances to borrowers dealing in sensitive commodities as notified by RBI from time to time, which directly or indirectly violate the spirit of the Selective Credit Control directives (presently applies to buffer stock of sugar with Sugar Mills and unrealized stocks of sugar with Sugar Mills representing levy sugar and free sale sugar). 4. Loans against commodities, possession/ production of which are prohibited by the law of the land. 5. Sanction of fresh loans to clear the NPA accounts in the group/ associates. 6. Loans and advances against company shares to promoters of such companies (however, promoters holding given as additional collateral for specific approved purposes may not come under such prohibition). 7. Purchase and discount of bills, which are accommodative in nature. 8. Loans and advances to industries consuming/ producing ODS (Ozone Depleting Substance). 9. Loans and advances to industries, whose application for clearance from Pollution Control Board/s have been turned down or are under dispute/litigation. 10. Credit proposals from companies/borrowers whose name(s) appear in defaulters/ suit filed accounts lists published by the Reserve Bank of India from time to time and whose names appear in the ECGC caution list for exporters.
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11. Loans and advances on the security of UCO Bank's shares and for the purpose of purchase/subscription to public issues of UCO Bank's shares. 2.3.12 STATUTORY AND REGULATORY RESTRICTIONS Statutory restrictions, regulatory restrictions, restrictions on other loans & advances have been advised by RBI. Statutory restrictions: a) Advances against Bank's own shares. b) Advances to Bank's Directors. c) Restrictions on holding shares in Companies. d) Restrictions on Credit to Companies for Buy-back of their securities. Regulatory Restrictions: a) Granting Loans and Advances to relatives of Directors. b) Restrictions on Grant of Loans and Advances to the relatives of senior Officers of Banks. c) Restrictions on grant of financial assistance to Industries producing/ Consuming Ozone Depleting Substances (ODS). d) Restrictions on Advances against Sensitive Commodities under Selective Credit Control (SCC) e) Restriction on payment of commission to staff members including officers. Restrictions on other Loans and advances: a) Loans and advances against Shares, Debentures & Bonds. b) Advances against Money Market Mutual Funds. c) Advances against Fixed Deposit Receipts issued by other Banks. d) Advances to Agents/ Intermediaries for Deposit Mobilisation. e) Loans against Certificate of Deposits (CDs). f) Bank Finance to Non-bank financial Companies (NBFCs). g) Financing of Infrastructure/ Housing Projects. h) Issue of Bank Guarantees in favour of financial institutions. i) Discounting /rediscounting of Bills by banks. j) Advances against bullion/primary gold. k) Advances against Gold Ornaments & Jewellery l) Gold (Metal) Loans m) Loans and advances to Real Estate Sector n) Loans and advances to small-scale industries. o) Loan system for delivery of Bank Credit. p) Lending under Consortium Arrangement/ Multiple Banking Arrangement q) Working Capital Finance to Information technology & Software Industry. r) Guidelines for Bank Finance for PSU Disinvestments of Govt. of Indio. s) Grant of Loans for acquisition of Kisan Vikas Patras (KVPs) t) 7% Savings Bonds 2002, 6.5% Savings Bonds 2003 (Non-taxable) & 8% Savings (Taxable) Bonds 2003-Collateral facility
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u) Guidelines on Settlement of Non Performing Assets Obtaining Consent Decree from Court v) Project Finance w) Bridge Loans against receivables from Government In addition, the following directives may be adhered to: 1) Loans & advances to bank's directors/Relatives of directors/Lending to directors and their relatives on reciprocal basis. Every borrower should furnish a declaration where the borrower is an individual) he is not a director or specified near relation of director of a banking company; (where the borrower is a partnership firm) none of its partners is a director or specified near relation of a director of a banking company; and (where the borrower is a joint stock company) none of its directors is a director or specified near relation of a director of a banking company. Where the declaration in respect of the above is in affirmative, the proposals along with details of relationship should be sent to the Secretary to Board and Chairman & Managing Director, for necessary clearance before taking up the proposal. Such proposals have a reporting/clearance requirement either from Reserve Bank of India or from Board of Directors. 2) Loans & Advances to Bank's Senior Officers and their relatives Every Borrower should furnish a declaration (where the borrower is an individual) he is not a specified near relation of any senior officer of the Bank; (where the borrower is a partnership firm or HUF firm) none of partners or none of the members of HUF is a specified near relation of any senior officer of the Bank; and (where the borrower is a joint stock company) none of its directors is a specified near relation of any senior officer of the Bank. 3. The Bank will not give any advance in respect of the Following Categories: Advances against Bank's own shares. Credit to companies for buy bock of their securities. Finance for setting up new units consuming/producing ozone depleting substances listed below. 4. The following categories of advances shall have special stipulations/Guidelines: a. Advances against money market mutual funds. Banks are to be guided by SEBI Regulations in this regard. Guidelines issued by Reserve Bank of Indio have since been withdrawn. b. Advances against sensitive commodities under Selective Credit Control. c. Loans and advances against shares, debentures and bonds. d. Bank's finance to non-banking finance companies including Bank finance to equipment leasing companies and Bank finance for purchased lease of existing assets.
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e. f. g. h.
Financing infrastructure/housing projects. Issue of Bank guarantee against financial institutions. Discounting/rediscounting of bills by banks. Advances against Fixed Deposit Receipts issued by other Banks
2.4 Section 4
Policy directives on credit rating The Bank introduced, with approval of the Board, a rating Module developed by NIBM effective from 01.04.2003 for rating of accounts with limits of Rs 2 crores and above. However, the module has been criticized by the users as being complicated and conservative. CRMC desired that a simplified model be developed for rating of accounts. Meanwhile, a draft credit rating model was developed by a study-group of Institute of Chartered Accountants of India that was appointed for the purpose. The rating module suggested by the study group took into account the guidelines of Reserve Bank of India on the matter. Corporate Risk Management Committee of the Bank and Risk Management Committee of the Board (RMCB) suggested certain changes in this module. These changes had been incorporated in the module and the Bank adopted the module with approval of the RMCB. 2.4.1 Rating of accounts Rating has to be assigned to all the Credit accounts with the Bank in terms of the guidelines prescribed for the purpose. In addition, credit portfolio of the branches, Zones and the Bank as a whole are also to be rated. In rating individual accounts, the extant guidelines provide for rating of all individual accounts (excluding accounts under retail segment) having exposure above Rs 25 lacs. Accounts having exposure of Rs 25 lacs and below and those under retail segment are also to be rated, but rating for these accounts are determined based on aggregate default performance of group of similar accounts (pooled assets). For example, all accounts under 'UCO Shelter' may have one rating assigned to it. All accounts under this category would be assigned the rating. Classification of all accounts having exposure of Rs 25 lacs and below in to various asset pools and their respective rating would be communicated by Head Office, Risk Management Department over a period of time. Portfolio rating of the entire credit exposure at branches, Zones and the Bank as a whole is determined based on weighted average rating (based on outstanding balance as well as limit sanctioned) of all credit accounts at branches, Zones and Bank as a whole respectively. 2.4.1.1 Aggregate FB and NFB limit upto Rs 25 lac: Accounts with aggregate FB &NFB limit upto Rs 25 lac would be rated on portfolio basis. 2.4.1.2 Aggregate FB and NFB limit over Rs 25 lac and up to Rs 5 crore: Impact of expected industry performance on accounts with exposure up to Rs 5 crore would be taken at aggregate level of exposure on a given industry. This is because, implications of
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industry rating are not significant enough in small accounts being usually local in nature and therefore, depends upon the local economy. In case of such accounts, rating would be determined on the basis of scores in Management rating (that includes conduct of account as well) and Financial rating based on audited balance sheet/ financial statements as at the end of the immediate preceding financial year. In arriving at final rating, management and financial rating shall have equal weights. In rating new accounts or green field accounts in the first year of operation, assessment of management rating would be based on available information and maximum score would change accordingly. For financial rating, projections for the next year or average position in case where term financing is involved, may be relied upon. The average position in case of greenfield projects shall be arrived on the basis of overage figures of the first three years of the projected financials. The first year to be considered shall be the year in which the loan is sanctioned. The final score shall be brought down by 5 marks and rating may be given accordingly. 2.4.1.3 Aggregate FB and N FB limit over Rs 5 crore without Term Facilities or with term facilities of maturity not exceeding 5 years: In rating accounts with total exposure in excess of Rs 5 crore under this category, apart from management rating and financial rating, industry rating is also to be taken into account. Industry rating would be made available by Risk Management Department to respective sanctioning authority. This rating shall be updated from time to time and advised separately. In arriving at final rating, management and financial rating shall have 45% weight each while industry rating shall have 10% weight. Management and financial rating would be arrived at in the same manner as in case of accounts with exposure up to Rs 5 crore. 2.4.1.4 Aggregate of FB and N FB limit over Rs 5 crore with term facilities of maturity more than 5 years: In rating accounts with total exposure in excess of Rs 5 crore under this category, apart from management rating and financial rating, 'Project Rating Index' (PRI) is also to be taken into account. Since all accounts having on exposure of above Rs 5 crore would fall under the discretionary powers of D.G.M. and above, computation of PRI would be a Z.O./H.O. level activity. Critical Success Factors, needed in computing PRI, would be made available by Risk Management Department, H.O. In arriving at final rating, management and financial rating and PRI shall have equal weight. Management and financial rating would be arrived at in the some manner as in case of accounts with exposure up to Rs 5 crore. 2.4.1.5 Green Field Projects with aggregate FB and NFB limit over Rs 5 crore with maturity of more than 5 years: Green Field Project is defined as under: A totally new project started by a new company. An expansion project of on existing company where investment in the asset of the new project is more than 50% of the tangible net worth of the company. In rating these accounts in the first year of operation, assessment of management rating would be based on available information.
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For financial rating the following factors have been adopted: 1. Project debt equity ratio: Lower the debt equity ratio less risky is the finance extended to the project. 2. Timing of capital infusion by the promoter - earlier the better. 3. Existence of additional cash flow, which can be used for repayment of interest and principal in addition to availability of cash flow upon completion of the project. This comfort would be available in case of existing project going in for expansion. In case of stand-alone project, this comfort is not available and therefore stand-alone project would be more risky compared to the expansion of existing projects. The existing process of deducting 5 marks from the total weighted score for giving rating would not be necessary in view of the fact that the financial rating is arrived at without basing on projected financials. 2.4.1.6 Rating of NBFCs: Separate rating module has been introduced for rating: i) Equipment Leasing Companies ii) Hire Purchase Companies iii) Investment Companies iv) Loan Companies v) Residual Non-bonking Companies vi) Housing Finance Companies with aggregate FB & NFB limit of Rs 25 lac and above. 2.4.1.7 Rating of companies akin to NBFCs: Separate rating module has been introduced for rating of: i) Infrastructure Development Corporation ii) Industrial Development Corporation iii) Financial & Development Institutions with aggregate FB & NFB limit of Rs 25 lac & above. This module is basically identical to NBFCs module except that Total Outside Liability to Net Owned Fund in the module for NBFCs has been replaced by Total Outside Liability to Tangible Net Worth in this module. 2.4.1.8 Quarterly Monitoring Of Rating Of Accounts In The Private Sector Having Short Term Unsecured Exposure Of Rs.100 Crore And Above In order to have better control on unsecured exposure, the credit ratings of the accounts pertaining to short term unsecured exposure of Rs.100 crore and above to private companies in FC segment would be re-drawn on quarterly basis, on the strength of latest available information on their financials and conduct. 2.4.1. 9 Rating Nomenclature and its meaning:
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Rating carried out by using the above models shall have the following meaning of the rating nomenclature used. Rating Meaning A++ Indicates high position of (Negligible Risk) sustainable strength- absolute as well as relative over short to medium term A+ Indicates high position of strength (Very Low Risk) at relative level over short to medium term A Indicates moderate degree of (Low Risk) strength at relative level over short to medium term B+ Indicates moderate degree of (Medium Risk) strength with marginally uncertain stability over short to medium term B Indicates low degree of strength (Medium Risk) strength with uncertain stability over short to medium term B- Indicates low degree of strength (High Risk) with uncertain stability over short to medium term C Indicates fundamental weakness (High Risk) likely to affect performance in near future 2.4.2 Rating and Rating Review: Rating of all accounts, which are to be sanctioned at Head Office level, would be carried out by Risk management Department, Head Office. In addition, Risk Management Department, Head Office would review rating of all accounts above Rs. 15 crores sanctioned by the FGMs and Zonal Heads. However, rating of accounts up to Rs.15 crores sanctioned by the FGMs and Zonal Heads would be reviewed by Risk Management Department, H.O. on random basis. Credit Monitoring Department of Zonal Office shall forward the necessary details to Head Office, Risk Management Department for review of rating. Necessary details would include the following: Process Note Audited Financial statements for the relevant year MCMR in respect of the account (in respect of existing accounts) Project Report (in respect of green field accounts/projects) 2.4.3 Rating Based Action Points: 2.4.3.1 Review/Renewal of Accounts Short review in accounts rated '8' or below should be carried out every 6 month with emphasis on operations and primary securities. In other accounts annual review/renewal exercise should be carried out. 2.4.3.2 Stock Audit: Rating Amount of Exposure Frequency of stock audit
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A and above (Rs 20 crore and above) - Once a year B+ (Rs 10 crore and above) - Once a year B and below (Rs 5 crore and above) - Once in six months A and above (Below Rs 20 crore) - Sanctioning authority may authorize conduct of stock B+ (Below Rs 10 crore) - audit depending upon the requirement B and below (Below Rs 5 crore) - development in the account
2.4.3.3 Pricing: As pricing is related to rating, on review of rating by HO Risk Management Department/Credit Monitoring Department of Zonal Office, the pricing may require revision. This would be applicable to accounts sanctioned at branches and by Zonal Heads. However, revision in pricing, if any, on account of review of rating by Risk Management Department at Head Office would be decided by either of the Executive Directors or Chairman & Managing Director. 2.4.3.4 Concessionary Rate of Interest: In permitting concessionary rate of interest, the competent authority shall use the rating assigned/reviewed by Risk Management Department, Head Office/Credit Monitoring Department at Zonal Office as the case may be. 2.4.3.5 Portfolio Rating: Portfolio Rating (Exposure) is the weighted overage of rating-wise exposure (i.e., total limits, fund based as well as non-fund based). Similarly, Portfolio rating (Outstanding) is the weighted overage of rating-wise outstanding balances (i.e. total outstanding, both fund based and non-fund based). Portfolio ratings are a major determinant of portfolio quality and it needs to be monitored. Portfolio rating also provides on indication of available risk appetite of the Bank and can be used to optimize return on the credit portfolio. Accordingly, it is desirable that this is tracked on a regular basis. 2.4.4 RATING GUIDELINES 2.4.4.1 RATING OF ACCOUNTS WITH EXPOSURE OF RS 25 LACS OR BELOW & ACCOUNTS UNDER RETAIL SEGMENT Credit rating of accounts having exposure of Rs 25 lacs or less and Bank's mid-market products such as UCO Shelter, UCO Mortgage, UCO Trader, UCO Cash, UCO Education etc. are to be arrived at based on Bank's default experience at aggregate level. The rating of such accounts would be advised from time to time. Branches and controlling offices would be required to assign credit rating on these accounts based on instructions issued by Head Office, Risk Management Department. 2.4.4.2 RATING OF ACCOUNTS (EXCLUDING ACCOUNTS UNDER RETAIL SEGMENT) WITH EXPOSURE OF MORE THAN RS 25 LACS
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Rating of Accounts with Exposure of more than Rs 25 Lacs (excluding accounts under retail segment) are to be carried out for each account using an appropriate rating model. The rating process involves: a) Selection of Appropriate Rating Model- It is clarified that Credit rating of all the accounts cannot be carried out using a single rating model. Bank has developed various rating models depending upon the size, type and experience with an account. Accordingly, appropriate rating model has to be selected depending upon Size of exposure, Type of exposure and Whether the account is on: Existing account- These are borrowal accounts of business units which are already in existence and are having account with us. The business units would have annual financial statements i.e., balance sheet and profit & loss accounts and would also have a track record with the Bank that enables it to assess them on conduct of accounts etc. New account - These are borrowal accounts of business units which are already in existence but are not having account with us. The business units would have annual financial statements i.e., balance sheet and profit & loss accounts but would not have a track record with the Bank. This makes it difficult to assess them on conduct of accounts including that on non-fund based facilities, performance in relation with projections etc. Green field account - These are new business accounts and therefore do not have past financial statements i.e., balance sheet and profit & loss accounts and also have no track record to assess them on conduct of accounts etc. This makes it difficult to assess them on conduct of accounts including that on non-fund based facilities, performance in relation with projections, performance on operational and financial parameters. Green field project - These are new project started by a new company or a project of an existing company where investment in the asset of the new project is more than 50% of the tangible net worth of the company. Newly Promoted NBFCs/lnfrastructure Development Corporation, Industrial Development Corporation and Financial & Development Institutions - These are new accounts of NBFCs/ Infrastructure Development Corporation, Industrial Development Corporation and Financial & Development Institutions and therefore do not have past financial statements i.e., balance sheet and profit & loss accounts and also have no track record to assess them on conduct of accounts etc. This makes it difficult to assess them on conduct of accounts.
b) Operational instructions
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General lnstructions 1. Rating models provide for rating of existing, new and green field accounts. However, depending on the type of account, limit and tenure of the facility relevant rating model should be used. The maximum marks will be different for existing, new and green field accounts. Therefore, total marks scored is to be converted out of 100 for uniformity for management rating as well as rating of operational performance/financial ratios. 2. Rating is to be based on financial data as on immediate past financial year closing. 3. While rating a business unit there is no need to take into account proposed borrowings etc. 4. It is clarified that "Entry Barriers" may provide for certain benchmark ratios that may include proposed borrowings. Such ratios may be computed as has been provided for in the Loan Policy. 5. In fact, with every new activity undertaken by a business unit or with every additional dose of financial facilities, rating may undergo a change. This would call for re-rating of the unit based on revised data. Rating models have been designed to evaluate' Management', 'Operational Performance & Financial Ratios' and 'Industry Outlook or Project rating'. However, depending upon type of exposure, the relevant factors differ.
Accounts with aggregate FB and NFB limit over Rs 25 lacs and up to Rs 5 crores The credit rating model adopted by the bonk for these accounts have taken into consideration the following relevant factors grouped under two heads: A. Management - In predicting performance of a business unit, assessment of management quality is a crucial factor. Single most important reason for business failures have been attributed to inefficient management. Factors: 1. Integrity / Commitment - This is a qualitative assessment of promoter(s) or proprietor or partners or top management in case of professionally managed companies (i.e., public limited companies where majority of shares are held public/Fls/MFs etc. like Larsen & Toubro, ITC etc.). Assessment on this aspect of management should be based on market and bankers' report, willingness to offer securities to secure Bank's loan, commitment of the management towards the business, management's track record in honoring its commitment in the past. A qualitative view on the management may be taken based on the attributes mentioned above and the management can be categorized as excellent, good, average or poor. 2. Financial Strength - "Financial strength" under management rating should be carried out in the following manner: Market value of the shares (as on the date of rating) of the company to its Nominal value. In case of companies where no share have been issued or in the case of companies where shares are not traded in the market or regular quotes are not available in the market, marks i.
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awarded should be "0". This is because of the reason that such companies would not be in a position to raise additional funds from the market. ii. Capacity of internal generation of funds. Return on Equity has been taken as an indicator for the Capacity of Internal generation of funds. This is defined as under: Return on Equity (ROE) = Profit after Tax/ Total Equity (paid-up Capital) iii. Net Worth of the promoters excluding stake in the business: This will indicate the extent to which the promoters would be able to inject additional funds from their own sources whenever required. 3. Technical/Finance Knowledge - This is a qualitative assessment. This aspect of the Management is rated based on technical and financial qualification of the promoters/key personnel, their knowledge of financial and banking related aspects, their ability to manage funds in an optimum manner, their ability to manage manufacturing processes in an efficient manner etc. 4. Organizational Structure / Succession Plan - This is a qualitative assessment of the company's organization and its functioning. This aspect of the management is assessed based on type of: Organization structure and hierarchy, Qualification/quality of persons holding key positions, Employee turnover in the organization, Coordination among executives of different departments, Delegation of responsibilities and powers, Succession plan for top management etc. 5. Selling and distribution network - This is a qualitative assessment of company's capability to sell what it produces. This aspect of the company is assessed based on its strength to reach its customers and how well it is placed to meet the market competition. Company's sales network, marketing plan including advertisement for its products and quality of sales are relevant factors here. Quality of sales here refers the realization of cash within reasonable period from credit sales and relative share of cash sales in total sales. 6. Experience of Directors & Promoters - This aspect is assessed based on number of years of effective experience in handling similar line of business and the level at which functional experience has been acquired. More the experience better will be the awareness about the finer points of the line of business. Higher the functional level at which the experience has been acquired, better would be the overall knowledge in the line of business.
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Normally five years of experience in the line of business as promoter/top level functionary should be good enough for highest rating. Where experience in the line of business is not there, minimum rating should be assigned under this factor. 7. Pending Litigations - Assessment on this aspect is based on number of cases pending against the company and/or its management. Where litigations involve reputation of the company and/or its management and/or have financial implications, where litigations relate to non-compliance with requirements of regulatory/statutory nature such as tax related issues or environmental or license related issues, or where litigations involve patents/trademark/intellectual property rights related matter etc., such litigations would have impact on the company's financial position or operations. In such cases lowest rating should be awarded under this category. Information on these matters are usually available from market, annual report of the company including" Notes to Accounts" attached to annual reports and can be assessed from contingent liability schedule of annual report. 8. Market Reputation & Past Track Record - Market is the major source of information. Track record with the Bank is a matter of record. One should also look up the RBI Defaulter List and ECGC list also for assessing company's track record with other bonks/financial institutions. B. Operational Performance & Finance Ratios - Apart from management evaluation, operational performance and financial parameters can be used to predict the performance of a business organisation or a business unit. The financial and performance ratios that have high predictive power and have been taken into account in rating of borrowers are listed below. Ratios have been defined so that every borrower is rated on the same standard. For the purpose of credit rating "Tangible Net Worth" would be net of intercorporate transfers. Similarly, "Current Assets" would also be net of Loans & Advances to sister or associate concerns or subsidiaries or group companies. Ratios: 1. Sales/ Break Even Sales - Net Sales/ Break Even Sales = (Net Sales - Variable Expenses)/ Fixed Expenses Higher the sale to break-even sales ratio, higher is our margin of safety. Depending on the value of the ratio, this performance area may be assessed on a five point scale. Note: Variable expenses may be taken as Cost of Sales and fixed expenses as Total Expenses less Cost of Sales and Extraordinary Expenses, if any. 2. Current Ratio - Current Assets/Current Liabilities
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This ratio is popularly known as Current ratio and indicates ability of a business unit to meet its short term obligations. This indicates business unit's ability to carry on its day-to-day business activities. A current ratio greater than 1 .33 is considered as highly satisfactory. 3. Return on Capital Employed -= (Profit after Tax + Interest)/ (Tangible Net Worth + Long Term Borrowings + Bank Borrowings) Return on capital employed (ROCE) is a measure of efficiency of capital employed in business as also earning capacity of the business. ROCE should be higher than the cost of capital. Where interest rate on borrowings is higher than ROCE, it is loosing proposition for equity holder. In other words, ROCE should be higher than the rate of interest chargeable adjusted for taxes. Assuming a tax rate of 30% and interest rate of 13%, the minimum ROCE a company should earn is 9% [(1- 0.3) x 13 %]. 4. Debt Service Coverage Ratio (DSCR) = (Net Profit + Depreciation + Interest on Term Loan) / (Annual Repayment of Term Loan + Interest on Term Loan) This ratio measures the capacity of a company to service its debts i.e. repay term loan instalments and interest on it in time. Higher the ratio, higher is our margin of safety 5. Long Term Debt/ Equity = Total long term debt / Tangible Net Worth (Including subordinated interest free borrowings from promoters). The ratio is on indicator of promoters/shareholders stake in business when compared to total long term debts. low debt equity ratio means higher long term stability and in case the ratio is generally coming down, represents plough bock of profits. 6. Total Outside Liabilities/Tangible Net Worth - = Total Outside Liabilities/Tangible Net Worth (Including subordinated interest free borrowings from promoters) This ratio is also on indicator of promoters/shareholders stake in business when compared to total outside liabilities. lower ratio means higher long term stability and in case the ratio is generally coming down, represents plough bock of profits. Effective TOL/ Effective TNW This ratio is to incorporate the impact of non-fund based limits on credit risk in the borrowal account. In this ratio total outside Liabilities will include apart from the entire liabilities other than net worth as per the balance sheet (Audited) the credit equivalents of existing non-fund based limits. Credit equivalent of non-fund based limits would be determined based on credit conversion factor as prescribed by RBI for capital adequacy computations. Effective Total Outside Liabilities = long term borrowings + short term borrowings + sundry creditors + other liabilities + credit equivalent of non-fund based outstandings. Effective Net worth = Paid up capital + reserves excluding revaluation reserves + interest free subordinate loans - investments in sister/associate concerns (unquoted shares) -loans to sister/associate concerns - intangible assets). Note:
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It is clarified that only subordinated interest free borrowings from promoters can be treated as equity as no repayment obligation to promoter arises before outstanding debts are paid. Further, like equity capital, there is no charge on the operating surplus on account of interest. 7. Achievement of Net Sales Projections = Actual Net Sales Achieved/Net Sales Projected for the Year The level of net sales achieved as compared with what was projected indicates management's foresightedness that is so important in keeping their commitments. 8. Achievement of Net Profit Projections = Actual Net Profit Achieved/Net Profit Projected for the Year 9. Operations in Non - Fund Based Loan Limits - Non-Fund Based Limits include letter of guarantee, Letter of Credit (both Inland and foreign), Deferred Payment Guarantee etc. Where the L/e & B/G limit taken together is less than 5% of the fund based limit, this may be ignored and need not be taken into account in rating a borrower. L/e and B/G do not involve extending any fund or money but involve commitment by the banks on behalf of their customers to pay in the event of default by the customers. Many a time the non-fund limits get converted into fund based as the borrowers sometimes delay and even default in honouring their commitment. The borrower is less risky if L/es and B/Gs do not devolve or invoked or if he arranges funds whenever any non fund based limit devolves/is invoked. Associated risks are more if there is delay in arranging funds once any non fund based facilities devolve or is invoked. 10. Diversion of Funds - Banks should critically appraise whether the borrower is diverting funds to their allied and associate concerns particularly when they are themselves not doing well. Fund diversion may affect the company's liquidity position and operation. It also impacts debt equity ratios. A company utilizing short term fund for long term purposes could also become a matter of concern. Overall, it may affect financial stability of the firm. 11. Net Profit / Net Operating Cash Flow - This ratio determines quality of earnings. Besides, the importance of operating cash arises from the fact that it is cash, which actually pays interest and instalments. The prospective borrower is expected to have a net profit after tax as well as a positive net operating cash flow. Usually, it is less than one indicating net profit at less than net operating cash flow. If the ratio is more than one, then it indicates sales achieved through more than usual receivables. This parameter may be assessed on a four point scale. Note: Net Operating Cash Flow is computed as given below. + / (-) Operating profit / (Operating Loss) before extraordinary items + Depreciation Taxes + / (-) Increase / (Decrease) in Net Working Capital = Net Operating Cash Flow Accounts with aggregate FB and NFB limit over Rs.5 crores without term facilities or with term facilities of maturity not exceeding 5 years
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The credit rating model adopted by the bank for these accounts have taken into consideration all the relevant factors applicable for accounts with aggregate FB and NFB limit over Rs 25 lacs and up to RS.5 crores. The guidelines applicable for accounts with aggregate FB and NFB limit over Rs 25 lacs and up to RS.5 crores would apply to accounts under this category as well. In addition the model takes into account the following factor: Industry Outlook- Impact of expected industry performance would be taken into account in such cases. For this purpose, the latest industry scores as advised by Head Office, Risk Management Department from time to time would be factored into the rating model. Accounts with aggregate FB and NFB limit over Rs.5 crores with term facilities with maturity of more than 5 years The credit rating model adopted by the bank for these accounts have taken into consideration all the relevant factors applicable for accounts with aggregate FB and NFB limit over Rs 25 lacs and up to RS.5 crores. In addition the model takes into account the following factor: Project Rating Index - Impact of expected industry performance is taken into account in such cases by estimating' Project Rating Index' (PRI). Business units may have different strengths vis-a-vis the industry specific attributes. In view of this, in case of projects/term finance that repays over a longer period, "Project Rating Index" (PRI) is estimated and factored into in lieu of simply incorporating industry rating. Based on the environment and industry analysis 7 to 10 factors may be identified that are most likely to impact the success probability of the project under examination. These are called 'Critical success Factors' or 'Indicators for Industry Attractiveness'. An illustrative list of such factors is given below. Market size Market growth rate Cyclicality Competitive structure Barriers to entry Industry profitability Technology Inflation Regulation Workforce availability Social issues Environmental issues Political issues Legal issues Business Attractiveness Index: This is a matrix developed based on identified CSFs and its relative weight as applicable to the industry vis-a-vis group' s/borrower' s strength on each of the CSFs on a scale of say 10. A weighted score indicates an objective measurement on the project.
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Exposure on Green Field projects with aggregate FB and NFB limit over Rs.5 crores with maturity of more than 5 years The credit rating model adopted by the bank for these accounts have taken into consideration the following relevant factors grouped under three heads: A. Management B. Project Financial Evaluation 1. Project Debt Equity Ratio - Lenders comfort in project finance comes from the owner's/promoter's stake in the project. Where the stake of the owner/promoter is higher, the comfort level is also higher. This is assessed through Project Debt Equity Ratio. Higher the ratio comfort level is more and risk is lesser. 2. Timing of Capital Infusion - Timing of owner's capital infusion also adds to the comfort of a lender. Where owners bring in his share in the project upfront, lenders comfort is more as compared to a situation where lender/owner brings in funds in equitable proportion. The comfort is least where capital contribution of the owner is infused in the project at a later date. 3. Cash Flow from other Sources - In standalone project finance banker depends primarily on the revenue generated by a single project as a source of repayment and on the collateral value of the project's assets for security. Project finance may take the form of financing of the construction of a new capital installation or refinancing of an existing installation with or without improvements. The examples are power plants, infrastructure projects, telecommunications infrastructure, processing plants etc. Payment of interest and repayment of principal is out of money generated by the project. For instance, revenue generated from electricity sold by a power plant would provide the source of revenue for repayment of interest and principal lent for the construction of the project. However, where a project is not entirely on a standalone basis for instance expansion of an existing capital installation for increased capacity or for the purpose of forward or backward linkages, repayment of interest and principal would also come, in addition to the cash flow generated by the project undertaken, from the cash flow generated by the existing installation. To this extent, a project on a standalone basis may be more risky as compared to a project which is an expansion of existing project. Riskiness of the later would, however, depend upon the size of the expansion vis-a-vis the size of the existing project. In other words, where the expansion project is large compared to the existing project, it would be more risky in comparison to the expansion project which is relatively smaller than the size of the existing project. Exposure on NBFCs with aggregate FB and NFB limit of RS.25 lacs and above The credit rating model adopted by the bank for these accounts have taken into consideration the following relevant factors grouped under three heads: A. Management
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B. Operational Performance & Finance Ratios: Some additional factors are included: 1. Operating Profit/Average Assets Operating Profit = Fund Based Income+ Non-fund based Income-Financial ExpenditureOperating & other expenditure. This ratio is an indicator of profitable use of the assets of the business unit. An unit with large asset base but with low operating profit would indicate that either the assets are not income generating or the use of the assets has not been proper. Investment as percentage of outstanding Public Deposit NBFCs accepting public deposits would be given better marks based on the percentage of their investment in unencumbered approved securities to the outstanding public deposit. This is because such investment gives a comfort towards ascertaining the strength of the NBFCs in meeting public deposit at maturity.
2. Capital Adequacy Ratio The balance sheets of NBFCs get strengthened with compliance of prudential norms for Capital Adequacy. This ratio being an indicator of as to what extentthe risk weighted assets are covered by the capital base, a higher ratio would indicate soundness of the business unit. 3. Over dues to Total Cumulative Demands The level of over dues to total cumulative demands is an indicator of the quality of the receivables of the unit. Over dues above a certain tolerable level would certainly indicate that the unit is not doing well. 4. Net NPA as percent of Credit Exposure This ratio will indicate the quality of the credit the unit has extended. High level of NPAs eats away the profits and makes the existence of the unit vulnerable. Exposure on Accounts of infrastructure Development Corporation, Industrial Development Corporation and Financial & Development Institutions with aggregate FB and NFB limit of RS.25 lacs and above The credit rating model adopted by the bank for these accounts are basically same excepting that in evaluating Operational Performance & Finance Ratios, Total Outside Liabilities / Net Owned Funds has been replaced with Total Outside Liabilities / Tangible Net Worth. c) Awarding score in terms of guidelines prescribed d) Total Weighted Score & Rating Final rating of the accounts would be awarded on the basis of total weighted scores arrived at using the above rating modules, as applicable.
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2.5 Section 5
Policy directives on credit dispensation In the matter of Credit Administration, GM (Credit Monitoring) would have jurisdiction over all the branches and controlling offices in India. GM would have jurisdiction over all the branches and controlling offices within their respective areas of operation excepting in respect of accounts, which fall beyond the discretionary powers of CMD. Zonal Managers would have jurisdiction over all the branches reporting to it excepting in respect of accounts, which fall beyond the discretionary powers of CMD. However, General Manager (Flagship Corporate) would have direct jurisdiction in respect of accounts, which fall beyond the discretionary powers of CMD. Credit dispensation shall be carried out at all levels, by those assigned with the responsibility, within the ambit of Loan Policy, extant directives of the Bank, RBI and other relevant authorities. Unless specifically authorized credit decisions shall be in accordance with the guidelines and authority delegated. Roles and responsibility would be in accordance what has been provided in Bonk's Credit Monitoring Policy in force and any amendment thereto. 2.5.1 CREDIT SANCTION PROCESSES 2.5.1.1 Existing Accounts Credit sanction process of existing accounts shall include Review/Renewal of accounts within due date and, as far as applicable, with due regard to, among others, conduct of the account, performance and financial position of the unit, movement of critical ratios, marketing ability and demand and variations in projected and actual performance. Assessment of Credit rating, where applicable. Sanctioning authority will take a view on future exposure in relation to the account reviewed/renewed and advise field functionaries whether Bank's exposure should be increased, maintained or curtailed. 2.5.1.2 New Accounts - Standardized Products Sanction in new accounts shall be in accordance with the schemes designed and circulated for the relevant product. 2.5.1.3 New Accounts - Other than Standardized Products Sanction of new accounts would follow due diligence on promoters and line of business and be in accordance with Prudential Guidelines. New accounts should, in general, be marketed in the Thrust Areas identified. NEW ACCOUNTS - EXPOSURE IN EXCESS OF Rs 10 LAC All proposals for credit to new units/accounts of Rs 10 lac and above and accounts taken over (irrespective of amount) from other banks/ financial institutions will have to be cleared by the
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relevant" New Business Committee" (NBC). The Committee will give its clearance on the promoters/group behind the units and the line of business for further processing. New units promoted by group/promoters already having credit account with the Bank will not need this clearance so long as the proposed line of industry/activity is same as their existing activity. 2.5.1.4 Risk Evaluation: Credit Appraisal Grid/s: For the purpose of risk evaluation of credit proposals - both domestic and foreign, Committees christened as 'Credit Appraisal Grids' shall be constituted at Head office, FGM and Zonal office levels for vetting credit proposals from risk angle, falling with in the delegated authority of MCB/CMD/ED, Field General Manager and Zonal Head, respectively. 2.5.2 Mandatory Components of Sanction Processes * Recording in the Sanction Register * Reporting to next higher authority in prescribed format * Communicating sanction with terms and conditions to borrowers and obtaining their consent * Obtaining Compliance Certificate from branch concerned * Creating/updating party file with relevant records, process notes and related correspondence, papers etc. 2.5.3 Discretionary Power Discretionary power for credit dispensation will be used: * by the officials authorized for the purpose, * for borrowers within the command area, * as per the guidelines and * within the ceiling Command Area Defined In case of Scale I, II & III branches, one of the contact points with the borrower i.e., either the factory/ business premises or residence should be within 20 kms radius. Provided further that location of business premises, residence and collateral security, if any, should be within the City / Town / Panchayat Samity limits. However, wherever Service Area of the branch has been defined, the command area shall also include the service area. In case of Scale IV & above branches, command area would be the city limits within which factory/business premises/residence should be located. However, Scale-IV and above branches may accept collateral security anywhere in India irrespective of distance only after verification of the security/title deeds etc, by the nearest branch of the bank. Exceptions may be permitted by Zonal Manager provided both fall within the area of their respective jurisdiction. HO controlled/ permitted accounts would be exempt from these provisions. Additional stipulations 1) Exercise of Emergency Lending Powers shall have following additional mandatory requirements:
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* It will be exercised only in case of sanctioned facilities. * It is to be recorded in a register with relevant details maintained specifically for the purpose. Marking off should be carried out as soon as it is adjusted and the dote of adjustment is to be recorded. * It is to be reported to sanctioning authority and controlling authority * Higher authorities visiting branches should inspect this register without foil and advise appropriate authority of any reportable matter. 2) In current accounts where there is no sanctioned limi!, temporary overdraft may be allowed only in case of first class parties who are maintaining current account with the branch or having very good depository relation by way of savings or term deposits to the extent permitted under" Emergency Lending Power". However, the powers for purchase of cheques /drafts and accommodation against uncleared effects on casual basis may be exercised as per delegation of powers in vogue. 3) Total of all advances granted to two or more allied/ associate/ connected concerns by the delegatee, up to the level of DGM, shall not exceed the permissible limit of power of the delegatee per borrower. 4) The discretionary power for opening of LCs for capital goods and Revolving LCs would be with GM/FGM and higher authorities. However, Zonal Managers may permit opening of LCs for capital goods against duly sanctioned matching Term Loan facility allowed by ZO or by Branch Managers. ACCOUNTS WITH MULTIPLE BRANCHES Accounts of a business entity, group or allied/associate/connected concerns may, at the request of customer(s), be maintained at more than one of the branches but with prior permission from the authority having jurisdiction over all the branches involved. Sub-limit allocation to different branches would be carried out by the sanctioning authority. However, in case of accounts falling within the power of ED, CMD and MCB, ED will have the authority in this respect. 2.5.4 Lines of Credit Credit shall be made available in one or more of the following form as detailed: a. Fund Based facilities: i. Overdraft ii. Cash Credit iii. Demond Loan iv. Bills Purchase/Discounting v. Pre-shipment Export Packing Credit vi. Post-shipment Foreign Bills Purchase vii. LC Negotiation viii. Bridge Loan/Interim Finance ix. Foreign Currency Loan
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x.
Term Loan
b. Non-Fund Based facilities i. Financial guarantees including Bid Bonds etc. ii. Performance guarantee iii. Deferred Payment guarantees iv. Letter of Credit
2.5.5 Maturity Norms Short term financing - Inland bills and export bills discounting up to 180 days and Demand loans repayable with a period of less than 3 years. Medium Term Loans - Maturity range from 3 years and above up to and inclusive of 5 years. Long-term loans - Term loans in the maturity range of above 5 years to 10 years. However, housing loans, plantation loans, infrastructure lending, etc. may be considered for longer duration. The aggregate term loans of medium/long term maturity shall be restricted to be in line with the directions of ALCO (Asset Liability Management Committee). 2.5.6 Norms for Secured/Partly Secured/Unsecured Loans & Advances Secured loans/advances mean loan or advance mode against security of assets whose market value net of prescribed margin is more than or equal to the amount of such loan and advance. Where market value net of prescribed margin is less than the amount of such loan and advance, it is partly secured. Unsecured advance means a loan or advance not secured as defined above. Valuation of land and building: All landed properties must be valued by the registered valuers who are in the current empanelled list of the Bank and having good market reputation. In assessing market value of landed property the following approach will be adopted: The value of the land will be assessed separately and would be compared with valuation on record by Govt. Authorities including Municipal Bodies. Any excess over Gov!. valuation would need to be duly explained by the head of the branch where the relevant proposal has originated. Construction on the said land would be valued separately and compared with value of insurance taken to cover the said property. Where the insurance cover falls short of the market valuation, it would need to be duly explained by the head of the branch where the relevant proposal has originated. 2.5.6.1 Discretionary Power structure for allowing dilution of security and allowing 2 nd loan against the residual value of the security already charged to the bank: Allowing further loans and advances, enhancements and adhoc facilities etc. against the security, which is already charged to the Bank, results in higher loan to value (LTV) ratio. In view of this, discretionary power structure for allowing further credit facilities against the security already charged to the Bank has been put in place as detailed below:
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Particulars Sanctioning Authority 1. Allowing enhancements and adhoc Delegatee under whose facilities by extending charge on sanctioning powers the collateral security proposal falls. 2. Allowing further loan/s against Delegatee under whose the residual value of property sanctioning powers the charged as collateral security in proposal falls. the first loan (except those in item no. 3 below). 3. Loans and advances against the Zonal Head property mortgaged as primary security in the first loan (e.g. UCO Shelter, UCO Mortgage) and taking it as collateral in the second loan. 4 Allowing partial/full release of it would normally not be collateral security and/or permitted except in extreme substitution of collateral and rare instances where the security with lower value does not have any adverse security impact from credit risk angle and would be allowed only by an authority one step higher than the sanctioning authority. 2.5.7 Guidelines for taking over of accounts from other banks/financial institutions The Bank shall consider, in appropriate cases, taking over of accounts from other banks/financial institutions during the course of its business within the framework of RBI guidelines on transfer of borrower accounts from one bank to the other. While taking over accounts, the following additional requirements are to be followed: 2.5.7.1 Eligible accounts 1. Standard accounts with credit rating of 'A' and above with minimum 2/3rd of the total score under management rating would be eligible for take over from other banks. 2. The borrowing Company/group should be known to the Bank. 3. Business of the borrowing company/firm should have run at least for last three years. 4. Statement of Account at least for the last six months from the existing banker should be obtained and account should depict satisfactory conduct. 5. Take-over proposals would be considered at BPLR and above. Any relaxation in the aforesaid norms would be considered only in exceptional cases by the concerned Executive Director. Concerned Branch Manager and/or Zonal Head should give their specific recommendations with reasons for allowing relaxation and acceptance of take over proposal. 2.5.7.2 NBC Clearance All proposals of take-over accounts would be placed before the relevant NBC for prior clearance as below: a) For proposals more than Rs. 5 Crore b) For proposal up to Rs. 5 Crore Note: 1. Branches would refer the take-over cases to related NBCs through their respective Zonal Offices. Branches headed by AGMs would refer the take-over proposals directly to the concerned NBC.
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2. The NBC proposal should essentially contain a copy of the Sanction advice from the existing banker for the account, proposed to be taken over. 2.5.7.3 Sanction: After NBC's clearance and getting the proposal vetted from the respective Credit Appraisal Grid in eligible cases, the proposal would be sanctioned by the delegatees with in their discretionary powers. Following provisions are to be complied with for sanction of the proposals: 1. Fresh valuation of security should be obtained from the Bank-approved valuers. 2. Fresh search report on the title of the immovable property has to be obtained from the empanelled lawyer of the Bank before disbursement. 3. Necessary Credit information from the existing banker as per IBA prescribed format shall be obtained. 4. Related Branch Head would procure the statement of account for the last six months from the existing banker and specifically comment about the operations and conduct of the account. 5. Credit facilities to be provided should be in compliance with the provisions of Loan Policy Guidelines. 6. CQC/ST-47 has to be sent accordingly to the controlling authority. 2.5.7.4 Other Modalities 1. Before releasing the limit, all pre-disbursement conditions are to be complied with and due permission to disburse the limit should be obtained from the Competent Authority. 2. An undertaking is to be obtained from the existing banker that on receipt of the total dues (as specified by them) from our Bank; they would relinquish their charge and part with the securities and an authorized officer of the Bank would receive: a. The title deeds/ securities, duly released from the existing banker. b. No Dues" certificate from the existing banker. Or An undertaking may be given to the existing banker that the Bank will reimburse the amount to them on handing over the securities to the Bank and the securities found in order. 3. Prescribed processes for creation of mortgage/charge on the securities would be carried out immediately by the concerned branch and should be completed with-in stipulated time as per sanction. 4. First transaction in the account should be allowed for the amount for liquidation of dues with existing banker. The payment to the existing banker should be sent directly by a Banker Cheque/ 00/ POI Draft in favour of Bank account, and 'No dues' and certificate of relinquishment of charge of the existing banker should be obtained immediately.
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5. A close supervision of take-over accounts would be ensured by the Branch Head and he would keep the sanctioning authority informed of the developments in the account on an ongoing basis. 2.5.8 Takeover of Export Credit Comprehensive Policy for takeover of Export Credit accounts from other Banks/Financial Institutions has been put in place. 2.5.9 Credit Monitoring Processes Bank has adopted a separate Credit Monitoring Policy. The provIsions of the policy and amendment there;fe would govern the credit monitoring processes. 2.5.10 Mandatory Requirement Monitoring of all credit accounts at all level has assumed utmost importance. At Head Office, a separate credit-monitoring department monitors the accounts with FB & NFB limit above RS.l crore. Credit monitoring cells have been created at all Zonal Offices for effective monitoring of the credit accounts under their control. The Bank has in place a well articulated monitoring and follow-up process duly codified in Manual of Instructions related to Advances, adherence to which is mandatory. Reporting of sanctions, temporary accommodations, status of running accounts, watch list accounts and appropriate steps to tackle undesirable developments in credit accounts would form an integral part in credit monitoring.
2.5.11 Rephasement/ Restructuring/ Rehabilitation The Bank has put in place the policy guidelines in this respect duly approved by the Board. The bank has also issued necessary operational instructions. 2.5.12 Management of N PAs including provisioning and Recovery Processes The Bank has in place Policy on Management of NPAs and the processes in this area would follow the directives given therein.
2.6 Section-6
Policy Directives on Loan Review Mechanism The Loan Policy provides in built system for review of loans sanctioned at various levels. The Bank has required information system in place to provide the management at all levels with necessary information for credit administration. The criteria for identifying assets that have developed weaknesses, its reporting and corrective measures are also provided in the Loan Policy. These review processes will continue to remain as a part of credit administration. The Bank will undertake review of its credit portfolio, in stages and over a period, to identify and assess risks associated with it.
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Loan review shall focus on one or more of the following areas: Approval process; Accuracy and timeliness of credit ratings assigned by loan officers; Adherence to internal policies and procedures, and applicable laws/regulations; Compliance with loan covenants; Post-sanction follow-up; Sufficiency of loan documents; Portfolio quality; and Recommendations for improving portfolio quality. Loan review mechanism shall comprise of the following sUb-systems: Credit Audit Stock Audit Legal Audit In order to put in place a proper Loan Review Mechanism for large value accounts we propose the following: 0-20% of the portfolio shall be subjected to loan review every year. Loan review shall be undertaken through credit audit processes by officers having sound knowledge in credit appraisal, lending practices, loan policy of the bank and well versed in the relevant laws and regulations; Findings of reviews shall be discussed with the line Managers and the corrective actions shall be initiated for all deficiencies. 2.6.1 Credit Audit Credit audit of accounts shall be carried out in accordance with the provisions of Bank's Credit Audit Policy contained in Credit Monitoring Policy of the Bank. 2.6.2 Stock Audit The bonk has framed separate guidelines for stock Audit, which has been incorporated in Bonk's Credit Monitoring Policy of the Bonk. stock Audit would be carried out as per provisions of the said policy. 2.6.3 Legal Audit Legal Audit would be conducted in accordance with the provisions thereof contained in Bonk's Credit Monitoring Policy of the Bonk.
2.7 Section 7
Policy Directives on Pricing
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It would be the responsibility of branches to ensure that interest rates charged on customers' accounts are strictly in accordance with interest rate circulars of the Bank except where specifically permitted by competent authority. Branches should also ensure correctness of interest computation. The controlling offices would also have the responsibility to ensure that branches are applying proper interest rates and charging interest appropriately on the accounts maintained by them. 2.7.1 Communication of Interest Rate & Interest Rate Structure Risk Management Department, at the beginning of each financial year will issue a Moster Circular on Interest Rates on Loans and Advances providing in detail the interest rate structure of the Bank as it prevails at that time. Subsequent changes during the course of the year will be advised through circulars with appropriate reference to relevant paragraph of the Moster Circular. This will ensure proper communication of the Bank's interest rate as it prevails from time to time. Interest rates as determined by ALCO shall be communicated to Branches/ Offices under joint signature of Deputy General Manager/Assistant General Manager, Risk Management Department and General Manager. Note: On review of rating by HO Risk Management Department/Credit Monitoring Department at Zonal Office, the pricing may require revision. This would be applicable to accounts sanctioned at branches and by Zonal Heads. 2.7.2 Competent Authority for Interest Rate & Interest Rate structure ALCO is the competent authority in the matter of deciding interest rate structure, interest rate on various products and delegation of authority to allow concessionary rate of interest in respect of all loans and advances.
2.7.3 BPLR determination: ALCO will determine BPLR of the bonk taking into account Cost of funds Transaction/Operating expenses Charge on account of loan losses Capital charge and profit margin. ALCO will also revise BPLR from time to time as may be called for on account of changes in cost of fund, transaction/operating costs, risk perception and capital charge etc. As far as practicable, all loans and advances, including housing loans under variable rate will be linked to BPLR.
2.7.4 Pricing of New Products:
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ALCO will determine the pricing of standardized products taking into account cost of funds, transaction cost, risk perception, capital charge and profit margin. Such pricing shall be linked to BPLR as far as possible. 2.7.5 Loans & Advances at Fixed Rate of Interest: At present only Chairman & Managing Director is authorized to allow fixed rate of interest. 2.7.6 Concessionary Rate of Interest Bonk may offer, depending on business considerations, concessionary rate of interest to its valuable clients. The authority for reduction in applicable interest rate shall lie with CMD and EDs unless expressly authorized no other authority shall allow reduction in rate of interest as applicable. The concessionary rate would be determined keeping in view (i) the tenor of the facility (ii) the actual cost of fund for the tenure (for example actual cost of fund for shorter tenure is less than that of longer tenure) (iii) the transaction cost of the facilities (for example transaction cost in case of bullet payments is less) (iv) cost of provisions (based on risk perception - for example Govt. guaranteed accounts may have zero risk) (v) Capital charge (vi) Return on capital 2.7.7 Penal Rate of Interest No penal interest should be charged for loans up to Rs. 25,000/-. For limits over RS.25,000/- terms and conditions covering sanction should invariably include provision for charging penal rate of interest in the following situations: 1) Default in repayment of loans. 2) Irregularities in cash credit accounts. 3) Excess/additional borrowings 4) Non-submission of stock statements, book-debt statements and other financial data 5) Non-payment/ non-acceptance of demand/ usance bills of exchange on presentation on due dote 6) Default in borrowing covenants/terms of sanction. 2.7.8 Exchange, Commission and Service Charges Applicable service charges, including exchange and commission, on loans and advance related services extended to Bank's customers are advised from time to time by Strategic Planning Department, Head Office. Recovery of applicable charges is responsibility of branches and should invariably be recovered. 2.7.9 Pre-Processing and processing charges
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In all cases of new accounts with exposure of Rs 10 lac and above, preprocessing charges equal to 10% of total applicable processing charges would be recovered upfront after clearance of the advance proposal by the related New Business Committee (NBC) i.e. before taking up the proposal for detailed processing. Detailed processing would be taken up only after the recovery of preprocessing charges. Pre-processing charges would be non-refundable. NBC may exempt or give concession in the processing charges and in such cases preprocessing charges are to be recovered accordingly i.e. worked out on the basis of the NBC direction. Sanctioning authority before according his sanction is to ensure that the pre-processing charges have been recovered. Remaining 90% of the processing charges are to be recovered in full before the disbursement begins.
2.7.10 Pre-payment and Commitment Charges 2.7.10.1 Prepayment charges Prepayment charges are to minimize the effect on Net Interest Income (Nil) and Asset Liability mismatch in the event of prepayment/non-availment of line of credit sanctioned. Objective: To discourage such borrowers, who have availed term loan with finer rate of interest from moving over to other banks/FIs and gain at our cost by forcing Asset Liability mismatch in our bank. To minimize the effect on Net Interest income arising out of prepayment/nonavailment of line of credit sanctioned. Guidelines: Sanctioning authorities shall stipulate prepayment /commitment charges in sanction terms. Prepayment charges shall also be applicable to mid-market products of the bank and the products shall stand modified to that extent. There will no prepayment charges in the case of the following: i) Agricultural Loans up to Rs 10 lacs ii) Other Priority Sector Loans up to Rs 5 lacs iii) Other Term Loan Accounts with limit up to Rs 2 lacs Prepayment/commitment charges shall be applicable to new sanctions/renewal. In case of prepayment of installment (s), prepayment charges shall be levied on the prepaid amount at the rates mentioned. Waiver of prepayment charges Individual cases of prepayment charges may be reviewed at higher level depending upon the merits of each case and charges may be waived by Delegated authority for allowing Extent of waiver to be allowed
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a) General Manager- 50% of the (For Loans sanctioned up to his applicable vested sanctioning powers) charges. b) Executive Director 75% of the (For Loans sanctioned up to his applicable vested sanctioning powers) charges. c ) Chairman & Managing Director 100% of the (For Loans sanctioned up to the Applicable vested sanctioning powers of CMD and Charges MCB) charges. 2.7.10.2 Commitment Charges Where average availment of fund-based credit during a month is less than 70% of the limit sanctioned, commitment charges @ 1 /12th percent on the unutilized limit shall be levied for that month. Service tax at applicable rate shall be added to the commitment charge. Note: Assessment of average availment during a month shall be based on the percentage of actual interest for the month with respect to the interest calculated on full limit for the entire month. Waiver of Commitment Charges A review of individual cases of commitment charges may be made depending on merits of each case. Chairman and Managing Director/ either of the Executive Directors can waive the commitment charges partly or fully.
2.8 Section 8
PROPOSAL PROCESSING DIRECTIVES Lending powers shall be used judiciously by only those authorized and lending discipline with regard to appraisal, sanction, monitoring and end use/utilization of fund should be strictly adhered to by all. 2.8.1 BORROWER STANDARDS After submission of application for any credit / quasi credit facilities in Bank's prescribed format the branch shall open dialogue with the borrower where considered necessary and obtain all pertinent information / particulars including audited balance sheet, project details, projections, requirement of credit/quasicredit limits etc. The branch should ascertain and ensure that the activity of the borrower is permissible under the Law of the Land, the company /group companies/associates/ subsidiaries/ sister concerns and directors/promoters are not defaulters of other banks/other branches of our bank or have not been caution listed by banks / ECGC/RBI/CIBIL etc. Good credit management warrants the Bank to extend finance to such borrowers who have sound financial position, satisfactory track record and where the business relationship will offer good return to the bank and the advance shall remain safe and secured. Branches and offices should therefore consider the fresh proposals or fresh entry into the consortium in respect of accounts, which fulfill the following criteria:
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Asset classification Credit Rating Management Rating Standard Not below B+ Minimum 2/3rd score All new proposals shall conform to the following general norms: 1. Satisfactory Market Reports. 2. B+ Credit Rating and minimum 2/3rd score under management rating as per internal rating system of the Bank 3. For working capital finance: Normally Current Ratio of 1.33:1 but should not be less than the level of 1.1 7: 1. 4. Total outside liabilities (including the proposed borrowing) to equity shall normally be 3:1 as benchmark but should not exceed 3.5:1. 5. For term loans/project finance: Promoter's contributions should normally be 25% or above. 6. Term Debt-Equity ratio (including the proposed borrowing) not to exceed 2:1. However, in case of project finance, term-debt (including the proposed borrowing) quity ratio should not exceed 3:1. 7. Debt Service Coverage ratio of minimum 1.5:1 with benchmark level of 2:1. CREDIT RISK ANALYSIS: While processing a credit proposal, it is necessary that the credit risks involved be identified and incorporated in the appraisal note so that the sanctioning authorities may take into account the same while taking a credit decision.The depth of credit risk analysis would depend upon the nature and level of proposed exposure. Accordingly, for credit risk analysis the following cut-off limit and the areas of risk shall be considered: 1. Exposure upto 2 lacs: No additional credit risk analysis need be done. 2. Exposure above 2 lacs and upto Rs 25 lacs: Credit risk analysis in case of such proposals would comprise of sensitivity analysis with 10% downward variation in sales and 5% downward variation in price in combination. 3. Exposure above Rs 25 lacs: These accounts shall require credit risk analysis in greater details in the following areas Achievement of Sales Projections Achievement of Profit Projections Contingent Liabilities/Forex exposure/Investments in the books of the firm/company 4. Project Loans Risk in the following areas shall be identified. 1) Project Completion Risk Design & Construction Risk Cost & Time overrun Risk.
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Financial Risk 2) Market Risk Volume & Price Risk Payment Risk 3) Operational Risk Performance Risk Maintenance Risk 4) Force Majure Risk Events beyond the control of borrower Events beyond the control of lender 2.8.2 APPRAISAL STANDARDS 2.8.2.1 Methods of Lending & Assessment of Working Capital finance Banks are now free to evolve, with the approval of their Board, methods for assessing the working capital requirements of borrowers, within the prudential guidelines and exposure norms prescribed.Banks, however, have to take into account Reserve Bank's instructions relating to directed credit (such as priority sector, export, etc.) quantitative limits on lending (such as against shares) and prohibition off restriction on credit (such as bridge finance) while formulating their lending policies. 2.8.2.2 APPRAISAL OF HIGH TECH PROPOSALS Bank Finance to high value projects (Rs 50 crores and above) must be accompanied by Project Appraisal including technical appraisal. While project appraisal would be compulsory in respect of projects with debt component of Rs 50 crores and above, in case of projects with debt component Rs 10 crores and above, NBC would decide on the desirability of project appraisal. The feasibility of the project has to be studied from different angles like a) Management b) Commercial c) Technical d) Financial e) Economic The technical feasibility study would include the following: a) Process technology b) Technical know-how consultancy c) Size of the plant d) Plant & machinery e) Location f) Loy-out g) Row Materials and other inputs h) Utilities i) Labour
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j) Effluent Disposal/ Pollution Control k) Project Scheduling & Monitoring I) Cost of Project m) Cost of Production
2.8.2.3 OPERATIONAL INSTRUCTIONS IN RESPECT OF WORKING CAPITAL i. Bank finance to leasing concerns should be restricted only to "full payout" leases i.e. those leases where the cost of the asset is fully recovered during the primary lease period itself and further it should cover purchase of only new equipment. ii. As a prudent policy, lease rentals due during the period of next five years should alone be taken into account for the purpose of lending. iii. Stipulated minimum Net Working Capital may be reckoned after excluding receivables on account of exports from the current assets. iv. Guidelines issued by RBI on classification of current assets and current liabilities with certain changes viz. Non-inclusion of receivables in the form of sales bills (Inland & Export) under LC as Current Assets, non-inclusion of bank borrowing in the form of LC bills purchase/discounting as Current liability (to be taken as contingent liability instead) and inclusion of Cash margin for LCs & Guarantees (for working capital purposes) as Current Assets mode by the Bank in Alternative Method of Assessment. v. As per RBI guidelines, review of all borrower accounts enjoying fund-based working capital credit limits of Rs 10 lacs and above should be undertaken at least once a year. The Bank shall undertake review/renewal of all borrower accounts once in a year for effective monitoring and control. vi. Every borrower enjoying aggregate working capital fund based limit of Rs 1 crore and above from the banking system should submit statements under Quarterly Information System/ Monthly Cash Budget System to enable the Bank to monitor the accounts effectively. vii. Discounting/negotiation of bills under LCs shall be considered as per policy guidelines approved by the Board. viii. Cash margins deposited by the borrower in respect of LC and Guarantee facilities availed of for working capital purposes will be treated as current assets. ix. Investments like fixed deposits with Banks, units of UTI, temporary investment in commercial paper, certificate of deposit will be treated as current assets provided they are receivable within one year. x. All overdue term loans should be treated as current liability unless the loan has been rescheduled by the financial institutions/Banks. xi. With a view to prevent diversion of fund the branch manager/ his deputy shall scrutinise all drawals of Rs 20 lacs and above in respect of working capital limits of Rs 10 crore and above from the banking system and shall ensure before allowing such drawals that the amount is drawn for purpose for which the credit limits are sanctioned. xii. Guidelines regarding transfer of borrower accounts such as obtaining credit information report by the transferee bank from the transferor bank, completion of documentation and
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other formalities, independent assessment of the borrower account by the transferee bank etc. as contained in the Manual of Instructions General shall be adhered to. 2.8.2.4 APPRAISAL OF PROPOSALS OF GROUP CONCERNS Credit proposals of borrowers coming under a group should be assessed keeping in consideration the following: 1) The conduct of other accounts of the group with us or with other banks and their IRAC status. 2) Completion of necessary formalities for creating charge on the securities as stipulated in the existing accounts. 2.8.2.5 REVIEW/RENEWAL The bank has in place a separate Credit Monitoring Policy 2007 08. The provisions of this policy and any amendment thereof would govern Review/Renewal of accounts. 2.8.2.6 EXIT CRITERIA FOR RECALLING/CLOSING EXISTING BORROWAL ACCOUNTS The objective of exiting from an account is to come out from the exposure, which is proving non-emunerative and undesirable. An indicative list of symptoms which may warrant exit are as under: 1. Conflict amongst the partners/ directors/ trustees, which is detrimental to the progress of the unit and may cause delinquencies in the account at a later stage. 2. Continuous deterioration in the health of the account. 3. Reports about the Borrower defaulting with other banks/financial institutions. 4. Instances of diversion/ siphoning of Bank's funds by the borrower 5. Steep depletion in value of security. 6. Leaving of key person(s) from the organization. 7. Sudden stoppage of transactions in the account.
2.8.3 GUARANTEE STANDARD 1) Credit facilities/loans extended to partnership firm and private/public limited companies shall normally be supported by personal guarantees of the partners/promoters directors. 2) Corporate guarantee of the Flagship Company of the group shall be explored depending on the strength or otherwise of the Applicant Company. 3) Under consortium lending arrangements, we shall be falling in line with the consortium decision. 4) Independent third party guarantee shall be obtained for all small loans,especially for new loans, unless it is prohibited by the RBI like in the cases of special lending schemes formulated by the Government. 5) Such personal guarantees shall cover both fund based and non-fund based limits. 2.8.4 CREDIT REPORTING
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Reporting of sanction and review by reporting authority shall be governed by the provisions of the bank's Credit Monitoring Policy. 2.8.5 Approach to Consortium Finance/ Multiple Banking Arrangement Depending upon the financial strength, prospects of the industry, credit rating, value of the connection and exposure norms, the Bank's share in consortium lending would be determined. More and more companies are approaching banks for financing under multiple banking arrangements instead of consortium arrangement. Such requests have to be very carefully assessed after obtaining required credit information from credit information bureau set up by RBI / SBI or other reputed agencies, as multiple banking arrangement at present in Indio runs the risks of lock of coordination, security sharing among the banks. Absence of it may lead to dilution of security and increase in the risks. 2.8.6 INDUSTRY/SECTOR SPECIFIC POLICY 2.8.6.1 INFRASTRUCTURE PROJECTS Our participation in economically viable and financially sound infrastructure projects particularly in power, ports, roads shall continue. In case of telecommunications our approach shall remain cautious in view of rapid technological changes and too many entrants in the field and the fact that the financial viability based on economic level of operations may not be foreseen at this juncture. Take-out financing arrangement: In order to meet long-term financial requirements of infrastructure projects, our bank may take recourse to Take-out financing arrangement with IDFC/other financial Institutions to address issues such as liquidity, asset-liability mismatches etc. 2.8.6.2 INFORMATION TECHNOLOGY CIT) AND SOFTWARE INDUSTRY (Lending powers under this area is to be exercised by General Manager & above) While genuine credit needs of the sector shall be addressed, considering the fact that the area is new we shall tread cautiously. ECGC cover wherever available shall be taken by the bank to mitigate the risks. 2.8.6.3 FILM Industry (All proposals for finance to film Industry are to be cleared by NBC irrespective of amount. Lending powers under this area is to be exercised by General Manager & above)Finances to film industry shall be as per the scheme for financing film production approved by the Board. (HO Circular No. CHO/ ADV / 64/ 2002-03 dated 15.01.2003). However, financing to Film Industry may not be restricted to single film. Borrowers may be extended finance to produce more than one film provided other terms and conditions are complied with. 2.8.6.4 FINANCING OF RECEIVABLES THROUGH BILLS.
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In order to promote payment discipline which would to a certain extent encourage acceptance of bills, all corporates and other constituent borrowers having turnover above threshold level of Rs. l000 crores would be required to disclose 'aging schedule' of their overdue payables in their periodical returns submitted to the bank. 2.8.6.5 FINANCING OF RENT RECEIVABLES (UCO RENT) Term Loans against future Rent Receivables may be sanctioned to Individuals for augmenting their earnings like investing in bonds/securities, repairs/renovation of properties Firms and Companies for ploughing back in their business activity. 2.8.6.6 FINANCING MARGIN TRADING Revised scheme for financing of Margin Trading has been approved by the Board. Financing Margin trading shall be done by only the designated branches as per scheme with prior clearance from HO. 2.8.6.7 ADVANCES TO MICRO-FINANCE INSTITUTIONS (MFIs) Micro Finance Institutions (MFIs) are the financial intermediaries for on-lending to Self Help Groups/Joint Liability Groups. Policy Guidelines for financing them have been put in place with the approval of the Board of Directors in its meeting held on 08.5.2009 and are enclosed as Annexure-6, page. It is to be noted that the credit proposals relating to Micro Finance Institutions will be sanctioned only by the Management Committee of the Board. 2.8.6.8 ADVANCES TO NBFC SECTOR The Bank has framed policy guidelines for financing non-banking financial companies covering new proposals and renewal proposals with/without enhancements. Normally credit facilities for leasing and hire purchase activities shall be restricted to limited companies only. 2.8.6.9 Loans to Real Estate Promoters/Developers and Construction Sector Loans and advances to this sector shall be governed by the policy guidelines adopted by the Bank for the some. 2.8.6.11 Advances Against Bullion I Primary Gold a. Banks should not grant any advance against gold bullion. b. Banks should desist from granting advances to the silver bullion dealers which are likely to be utilized for speculative purposes. c. Banks should desist from giving loans to finance 'Badia' transactions in. 2.8.6.12 Advances Against Selective Credit Control Commodities The bank shall comply with directives of Reserve Bank of India from time to time covering margin requirements and the level and quantum of accommodation that could be granted against the Selective Credit Control commodities.
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2.8.6.14 Advances to Tea Industry Bank has put in place comprehensive policy for exposure on Tea industry. Detailed guidelines on Tea financing including sanction of need based working capital as well as Term Loans, monitoring and follow-up of Tea borrowal accounts and Restructuring and Nursing of sick Tea units are available. 2.8.6.15 Advances against shares to individuals, share and stockbrokers etc. & issue of guarantees The Bank has well laid down policy approved by the Board for granting loan against shares for individuals (ceiling limit Rs 20 lacs against shares in Demat form) and share and stockbrokers. All advances should be against shares in demat form. Uniform margin of 50% based on market value of shares in dematerialized for shall be applied. The shares should invariably be valued on every Friday and drawing power fixed after deduction of the margin. All shares should be held in demat whether held as primary or collateral security. Shares held in physical form should be substituted by Shares of requisite value in demat form in case the credit facilities are to be continued. 2.8.6.16 Advances Against Deposits The Bank shall levy rate of interest as applicable for loan/advance granted against own term deposits only in cases where deposits stand in the name of 1. The borrower either singly or jointly; 2. One of the partners of a partnership firm and advances is mode to the said firm 3. The proprietor of a proprietary concern and the advance is mode to such a concern 4. A ward whose guardian is competent to borrow on behalf of the ward and where the advance is mode to the guardian of the ward in such a capacity. In all other cases, the rate of interest shall be levied as applicable for loans/advances against third party deposits. 2.8.6.17 Discounting of Bills under Letter of Credit Financing of Bills under Letter of Credit shall be as per guidelines contained in Bank's guidelines. 2.8.6.18 Financing PSU Disinvestments (Competent Authority: Chairman and Managing Director) Financing PSU Disinvestments shall be as per guidelines contained in Bank's Circular. 2.8.6.19 Financing of acquisition of equity in overseas companies by Indian entities Separate policy guidelines for financing of acquisition of equity in overseas companies by Indian entities has been approved by the Board. 2.8.6.20 Financing to Indian Joint Ventures / Wholly Owned Subsidiaries (WOS) and Overseas step-down subsidiaries of Indian Corporates Separate Policy guidelines have been put in place by the Bank for Exposure to Indian Joint Ventures / Wholly Owned Subsidiaries (WOS) and Overseas stepdown subsidiaries of Indian Corporates.
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2.9 Section -9
General Any deviation/exemption from the norms/benchmark level mentioned in this document shall be permitted sparingly by the competent authority only, on account of emergent business compulsions in areas where banks have been given freedom to exercise such deviation/so Where RBI/SEBI/our Board directives are mandatory such deviation would not be permitted. 2.9.1 Deviations from Policy angle (other than pricing) The authority for permitting deviations in accounts from policy angle other than pricing would be with respective Field General Manager for all accounts falling with in discretionary powers of DGM and below. In respect of accounts falling under the discretionary powers of Field General Managers/General Managers at HO, the competent authority would be the concerned Executive Director. For the accounts coming under the discretionary powers of Executive Director, the authority would be Chairman & Managing Director. Requests with recommendations and compelling reasons for such deviations/ exemptions shall be brought out in the appraisal notes before the sanctioning authority. Policies as laid down in this document shall be modified to give effect to any mandatory directives of the RBI (as may be announced through the half-yearly Credit Policy and operative circulars) or any policy changes advised by the Government of Indio or environmental demand and market conditions.
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Chapter-3 Credit Appraisal & Credit Rating
Chapter -3 Credit Appraisal & Credit Rating

The process of credit appraisal would begin with the selection of the proponent. It would involve appraising the background of the proponent/management, commercial, technical and financial appraisal. Appraisal of credit facilities would comprise two distinct segments: Appraising the acceptability of the customer. Assessment of the customer's credit needs.
Both the aspects need to be examined simultaneously at the time of the initial entry of a customer to the Bank as also subsequent periodic renewals.
3.1Credit Monitoring
3.1.1 Monitoring Objectives: A. Oversee delivery of credit initially after complying with the terms & conditions of sanction following laid down procedures & systems. B. Watch the conduct of advance account on the expected level. C. Identify weak accounts & advise the same to competent authority for prompt corrective action to protect the quality of the account. D. Keep track of the health of the credit portfolio of the bank. E. Developing adequate & appropriate systems & procedure to achieve the above. 3.1.2 Monitoring Tools: Indicative list of various monitoring tools:A. Branch Level: i. Search report from ROC ii. Information from market/newspapers iii. Factory visit reports iv. Annual financial statements v. Stock statements B. Controlling office level: i. Annual review of the account ii. Statutory audit report iii. RBI inspection report iv. Consortium meeting minutes v. Internal inspection rates C. On Site Tools: i. Inspection of books ii. Stock audit iii. Inspection of fixed assets iv. Interaction with borrowers & their employees
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v.
Inspection of order book position
D. Off Site Tools: i. Conduct of account ii. Credit audit report iii. Legal audit report iv. Promptness in payments v. Special watch report
3.1.3 Stages of Monitoring: A. Pre disbursement: It is to be taken care by Branches, ZOs & concerned sanctioning authorities. Depending upon the terms of sanction in each case, the following actions, wherever applicable, may be taken prior to disbursement: i. Seeking approval from the competent authorities for disbursal of loans/advances sanctioned at Head Office/ Zonal Office by submitting Post Sanction Compliance Report. Completion of legal vetting of documents. Collection of document proof like pro-forma invoice/quotation for the fixed assets to be financed
ii. iii.
B. During disbursement: All disbursements, whether in loan account or in running accounts, will be related to actual/acceptable performance of business unit. The following aspects wherever applicable, is to be considered for monitoring. i. a) b) ii. a) b) C. i. ii. iii. For Loan Accounts: Actual implementation vis-a-vis project schedule Possibility of time or cost overrun For Cash Credit Accounts: Compliance of sanction terms/stipulations Verification of the completion of the implementation of the project. Post-discbursement: Periodic inspection of stocks Review of account Scrutiny of operations in the account vis-a-vis the activity of the borrower
3.1.4 Monitoring Process: A. Reporting of Sanction & Scrutiny by Review Authority
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B. C. D. E. F.
G. H.
I. J.
Documentation Legal Audit Inspection of Stock & Book Debts Stock Audit Special Investigate Audit In cases wherein financial/accounting irregularities like diversion of funds outside business,etc, are noticed and/or suspected, Special Investigate Audit by independent C.A and/or competent officer of the bank may be conducted. Credit Audit Annual Review/Renewal of borrowal accounts for eg in case of Term Loan accounts, annual review is mandatory & the limit has to be reviewed on run down balance basis after such review. An account where the regular/ad hoc limits have not been reviewed/renewed within 180 days from the due date(12 months from the date of sanction), it will be treated as NPA. Monthly Credit Monitoring Report Early Warning Signals & Watch Report For internal monitoring purposes under the system, threshold time limits for overdue accounts of different types are designated for a proactive intervention-well before the accounts become NPA. This is to enable the Bank to assess whether the default is due to inherent weakness or due to a temporary liquidity/cash flow problem. Some Check Points for Detecting Early Warning Signals
No.
2 3 4 5 6 7
CHECK POINTS 1 Unusual Debt Entries Unusual credit entries Frequent return of checks Low turnover/stagnancy of operations Inward bills remaining unpaid Frequent development of LCs Statutory dues falling in arrears
LIKELY REASONS Diversion of funds Borrowing from outside sources Shortage of WC requirements Lock out Inadequate funds Supplier not adhering to terms Poor financial management
K. Slippage Ratio Zones should compute the slippage ratio of the branches under their control & classify them based on such slippage ratio. Branches classified poorly due to hig accretion to NPA, should be monitored more closely to arrest further slippage. Slippage Ratio = (Fresh NPA accretion during a year * 100)/Standard advances as at the end of the preceding year. L. Follow up, Supervision & Monitoring of advances under consortium/ Multiple Banking arrangement.
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3.2 Credit Rating

Credit Rating technique of credit risk measurement and as a part of risk management, price the product vis--vis the inherent risk. Credit rating is also used to price the product in a scientific and transparent manner. Hence, apart from analyzing the various risks, due weightage has been given to factors such as volume of business, share of ancillary business, length of relationship with the bank , threat of loss of business due to competition , overall image / reputation of the customer/group , etc., to decide the pricing. 3.2.1 UCO BANK Credit Rating The Bank introduced, a rating Module developed Institute of Chartered Accountants of India. The rating module stakes into account the guidelines of Reserve Bank of India on the matter. Corporate Risk Management Committee of the UCO Bank and Risk Management Committee of the Board (RMCB) suggested certain changes in this module. These changes had been incorporated in the module and the Bank adopted the module with approval of the RMCB. The details of UCO Bank Credit Rating has been explained in Section 4 of the Loan Policy
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Chapter-3 Credit Appraisal & Credit Rating For Accounts with Total Fund and Non-Fund Based Exposure of Above Rs.5 Crores with or without term facilities but the majority period of term facilities not exceeding 5 years Annexture-IIIA Name of the Company Group, if any Rating as on Industry Category (As per annexure A) Fund Based Limit Of Which, Term Loan Non Fund Based limit Existing/New/ Green Field Account
MANAGEMENT RATING AND EVALUATION A Management Evaluation (Rating Guidelines) a Integrity/commitment Excellent-3, Good-2, Average-1, Poor-0 b Financial Strength i) Market Value of shares (as on the date of rating) of the company to its nominal value 10 or more---3 5 or more but less than 10----2 2 or more but less than 5------1 Less than 2 ------0 ii) Capacity of internal generation of funds: ROE=Profit after Tax/Total Equity (paid up capital) ROE greater than 100%--3 ROE greater than 50% but less than 100%--2 ROE >25% but <50%-------1 ROE up to 25%-----0 iii) Total Net worth of the promoters excluding stake in the business More than 2 times the stake in the business---3 1 to 2 times the stake in business----2 0.5 to less than 1 time the stake in business1 Less than 0.5 times the stake in the business--0 c d Technical/Financial Knowledge Excellent-3, Good-2, Average-1, Poor-0 Organizational Structure/Succession Plan Excellent-3, Good-2, Average-1, Poor-0 Management Evaluation ( Rating guidelines)
Marks Awarded Existing Accounts 2 0
3 3
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Chapter-3 Credit Appraisal & Credit Rating e f g h Selling and Distribution Network Excellent-3, Good-2, Average-1, Poor-0 Experience of Directors& Promoters Excellent-3, Good-2, Average-1, Poor-0 Litigation cases pending against company/Directors Excellent-3, Good-2, Average-1, Poor-0 Market Reputation& Past Track Record Excellent-3, Good-2, Average-1, Poor-0 Sub Total- Management Evaluation (Max 30) Conduct of Bank Account Account Operations Account Running regular-10 Account remained irregular for 15 days-8 Account remained irregular for 16-30days-6 Account remained irregular for 31-45days-4 Acctt. Remained irregular for more than 45 days-0 Compliance of terms/conditions of sanction All Conditions Complied-5 Conditions relating to Security Creation complied other not-4 Conditions other security creation complied-2 Conditions have not bee complied-0 Discipline in timely submission of data/information Timely submission- 5 Delayed submission up to 15days-4 Delayed submission 16-30 days-3 Delayed submission 31-45 days-2 Delay of more than 45 days- 0 Management of Inventory & receivable (Inventory+Receivables)/ Net sales per month < 3 months-5 3-<4 months-4 4-<5months-3 5-<6months-2 6 months and above-0 Reliability of Receivables& Valuation of Inventory Comments given by Bank inspectors/Stock Auditor Satisfactory-5 Raises some doubts but no shortfall indicated-3 Indicates some shortfall up to 5%-1 Indicative of poor quality of receivables and inventory-0 3 3 2 3 22 10
2 A
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Transparency in Accounting Statements Accounting practice &Qualification by Auditors No Qualification from Auditors-5 Qualification having no financial implication-4 Qualification having financial implication-3 Unaudited balance Sheet certified by the borrower-2 Others-0 Total Marks Obtained Max Marks Marks out of 100(%)=A Operational Performance &Financial Ratios (Rating guidelines)
56 65 86.15 Based on BS/PL 31st march 2010 8
Sales/Break Even Sales=(Sales-Variable cost)/ Fixed cost More than 1.67=15 More than 1.3 but up to 1.67=12 More than 1.1 but up to 1.33=08 More than 1.0 but up to 1.1=04 1.0 or less than 1.0=0 Current Ratio= CA/CL More than 1.33=10 More than 1.25 but up to 1.33=8 More than 1.17 but up to 1.25=5 More than 1.0 but up to 1.17=2 1.0 or less than 1.0=0 Return on Capital Employed (PAT+Interest/(Net Worth+Long Term Borrowings+ Bank Borrowings) More than 15%=10 More than 13% but up to 15%=8 More than 11% but up to 13%=5 More than 9% but up to 11%=2 9% or less tha 9%=0 Debt Service Coverage Ratio (DSCR) (NP+Dep.+Interest on Term Loan)/(Annual Repayment of Term Loan+Interest on TL) More than 3=15 More than 2.5 but up to 3=12 More than 2 but up to 2.5=08 More than 1.5 but up to 2=04 1.5 or below=0
15
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Chapter-3 Credit Appraisal & Credit Rating 5 Long Term Debt/Equity Ratio = Long Term Debt( not including proposed long term borrowings)/Tangible Net Worth( including subordinated interest free borrowings from promoters) More than 2.5=0 More than 2 but up to 2.5=3 More than 1.5 but up to 2=6 More than 1 but up to 1.5=8 1 or below=10 Total Outside Liabilities/Total Net Worth = Total Out side Liabilities(not including proposed long term& short term borrowings)/tangible Net Worth(including subordinated interest free borrowings from promoters) More than 3.5=0 More than 3 but up to 3.5=3 More than 2.5 but up to 3=6 More than 2.0 but up to 2.5=8 2 or below=10 Effective Total Outside Liabilities(including non fund based credit)/Effective Tangible Net Worth More than 4 = 0 More than 3.5 but up to 4 = 3 More than 2.5 but up to 3.5 = 6 More than 2.0 but up to 2.5=8 2 or below=10 Achievement of Net Sales projections Actual Net Sales Achieved/Net Sales Projected for the year More than 90%=10 More than 85% but up to 90%=8 More than 80% but up to 85%=6 More than 75%but up to 80%=4 75% or below-0 Achievement of Net Profit Projections Actual Net Profit Achieved/ Net Profit Projected for the year More than 90%=5 More than 85% but up to 90%=4 More than 80% but up to 85%=3 More than 75%but up to 80%=2 75% or below-0 Operations in Non-Fund Based Loan Limits (Where L/C and/or B/G limit is less than 5% of Fund Based limit, ignore it) 3
10
10
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Chapter-3 Credit Appraisal & Credit Rating Borrower arranges funds whenever L/C or B/G liability falls due=10 Borrower arranges funds whenever liabilities devolve but takes Max. 15 days in meeting his liabilities=6 Borrower generally delays in arranging funds whenever liabilities devolve but delays up to 30 days=4 Borrower generally delays in arranging funds whenever liabilities devolve by more than 30 days=0 Diversion of Funds Company is not diverting any funds=10 Company has diverted funds maintaining CR and DE ratio within the Banks accepted norms=7 Company is diverting funds from short term to long term to meet emergent needs in the company itself= 4 Company diverting funds to its allied associate concern by affecting its CR and DE ratio beyond the Banks accepted norms=0 (Net Profit/Net Operating Cash Flow) Net Op. Cash Flow= +/(-) OP/(OL) before extraordinary items+ Dep.- Taxes+/(-) Increase/(Decrease) in NWC= Net Operating Cash Flow. Ratio is less than0.75=10 Ratio is 0.75 or more but less than0.90=7 Ratio is 0.90 or more but less than 1=4 Ratio more than 1=0 Net profit is Nil or negative=0 Net Operating Cash Flow is Nil or Negative=0 Marks obtained Max Marks Marks out of 100(%)=(B) Industry Score %(As per annexure/Advised by RM,HO) Total Weighted Score Parameters (1) Management Rating Finance Rating Industry Rating RATING SCORE Rating, based on Total Weighted score should be as given in the table below
11
10
12
10
79 125 63.20 4.4
Score (2) A B C
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Chapter-3 Credit Appraisal & Credit Rating Weighted Score 90% and more 80% to less than90% 70% to less than 80% 60% to less than 70% 60% to less than 50% 50% to less than 40% Below 40% Equivalent Rating A++ A+ A B+ B BC
3.2.2 ICRA Rating ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services companies as an independent and professional investment information and credit rating agency. Today, ICRA and its subsidiaries, along with their subsidiaries, together form the ICRA Group of Companies. ICRA is a public limited company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. ICRA Limited (ICRA) is one of the most experienced Credit Rating Agencies in the country today. ICRA rates rupee denominated debt instruments issued by manufacturing companies, commercial banks, non-banking finance companies, financial institutions, public sector undertakings and municipalities, among others. ICRA also rates structured obligations and sector-specific debt obligations such as instruments issued by Power, Telecom and Infrastructure companies. The other services offered include Corporate Governance Rating, Stakeholder Value and Governance Rating, Credit Risk Rating of Debt Mutual Funds, Rating of Claims Paying Ability of Insurance Companies, Project Finance Rating, and Line of Credit Rating. ICRA, along with National Small Industries Corporation Limited (NSIC), has launched a Performance and Credit Rating Scheme for Small-Scale Enterprises in India. The service is aimed at enabling Small and Medium Enterprises (SMEs) improve their access to institutional credit, increase their competitiveness, and raise their market standing. The international Credit Rating Agency Moodys Investors Service is ICRAs largest shareholder. The participation of Moodys is supported by a Technical Services Agreement, which entails Moodys providing certain high-value technical services to ICRA. Specifically, the agreement is aimed at benefiting ICRAs in-house research capabilities, and providing it with access to Moodys global research base. The agreement also envisages Moodys conducting regular training and business seminars for ICRA analysts on various subjects to help them better understand and manage concepts and issues relating to the development of the capital markets in India. Besides this formal training programme, the agreement provides for Moodys advising ICRA on Rating-products strategy, and the Ratings business in general.
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ICRA information products, Ratings, and solutions reflect independent, professional and impartial opinions, which assist businesses enhance the quality of their decisions and help issuers access a broader investor base and even lesser known companies approach the money and capital markets. ICRA strongly believe that quality and authenticity of information are derivatives of an organisations research base. We have dedicated teams for Monetary, Fiscal, Industry and Sector research, and a panel of Advisors to enhance our in-house capabilities. Our research base enables us to maintain the highest standards of quality and credibility. Rating Services Credit Rating Line of Credit Rating (Basel-II) Corporate Governance Rating Stakeholder Value and Governance Rating Rating of Claims Paying Ability of Insurance Companies Project Finance Rating Performance and Credit Rating of Small-Scale Enterprises in India Rating of Parallel Marketers of LPG/SKO
Grading Services
Grading of Initial Public Offers Grading of Microfinance Institutions Grading of Construction Entities Grading of Real Estate Developers and Projects Grading of Healthcare Entities Grading of Maritime Training Institutes
Credit Rating An ICRA Rating is a symbolic indicator of ICRAs current opinion on the relative capability of the corporate entity concerned to timely service debts and obligations, with reference to the instrument Rated. The Rating is based on an objective analysis of the information and clarifications obtained from the entity, as also other sources considered reliable by ICRA. The independence and professional approach of ICRA ensure reliable, consistent and unbiased Ratings. Ratings allow investors to factor credit risk in their investment decision. ICRA Rates long-term, medium-term, and short-term debt instruments.
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ICRA offers its Credit Rating services to a wide range of issuers including: Manufacturing companies Banks, Insurance companies, and financial institutions Infrastructure sector companies Service companies Municipal and other local bodies State governments Non-banking finance companies Small and medium sector entities
Line of Credit Rating (Basel II) The Line of Credit Rating service from ICRA entails evaluating the capability of an issuer to timely meet its debt obligations against a specific line of credit, in the light of the relevant terms, conditions and covenants. ICRA considers all relevant factors that have a bearing on the future cash generation and debt servicing ability of the issuer. These factors include: industry characteristics, regulations, competitive position of the issuer, operational efficiency, management quality, commitment to new projects and other associate companies, and funding policies of the issuer. A detailed analysis of past financial statements is made to assess performance under real world business dynamics. Estimates of future earnings over the next three to five years under various sensitivity scenarios are drawn up and evaluated against the claims and obligations that would require servicing. Primarily, it is the relative comfort on the level and quality of the issuers cash flows to service obligations that determines its Rating.
3.2.3 CIBIL Rating CIBILs Consumer Bureau banks upon its vast and dynamic information repository of the India market to provide its members with comprehensive risk management tools pertaining to individual borrowers. The objective is to minimise defaults and maximise credit penetration and portfolio quality. The software for the Consumer Credit Bureau is developed and licensed by TransUnion, one of the largest consumer credit bureaus in the world and CIBILs equity and technical partner. CIBILs risk management offerings assist and empower its members to make objective decisions at every stage of the customer lifecycle- Acquisition, Portfolio management, Collections etc. Rapid industrialisation. An expanding economy. Growing aspirations. Increased incomes. Improved lifestyles. Availability of high quality products and services. An expanding market.
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These factors have created an atmosphere conducive to rapid credit off take. While the demand for credit has risen exponentially, there has been a parallel increase in competition, and credit delinquencies. In such an environment, risk assessment is of critical importance. Not only, in deciding on what business to book and the speed at which a credit grantor does so, but also in determining the appropriate pricing. Comprehensive credit information, which provides details pertaining to credit facilities already availed of by a borrower as well as his payment track record, has become the need of the hour. The answer took shape when the Credit Information Bureau (India) Limited (CIBIL) was incorporated in 2000. CIBILs aim is to fulfill the need of credit granting institutions for comprehensive credit information by collecting, collating and disseminating credit information pertaining to both commercial and consumer borrowers, to a closed user group of Members. Banks, Financial Institutions, Non Banking Financial Companies, Housing Finance Companies and Credit Card Companies use CIBILs services. Data sharing is based on the Principle of Reciprocity, which means that only Members who have submitted all their credit data, may access Credit Information Reports from CIBIL. The relationship between CIBIL and its Members is that of close interdependence. The establishment of CIBIL is an effort made by the Government of India and the Reserve Bank of India to improve the functionality and stability of the Indian financial system by containing NPAs while improving credit grantors portfolio quality. CIBIL provides a vital service, which allows its Members to make informed, objective and faster credit decisions. Members of CIBILBanks, Financial Institutions, State Financial Corporations, Non-Banking Financial Companies, Housing Finance Companies and Credit Card Companies are Members of CIBIL. CIBIL FunctioningFor credit grantors to gain a complete picture of the payment history of a credit applicant, they must be able to gain access to the applicant's complete credit record that may be spread over different institutions. CIBIL collects commercial and consumer credit-related data and collates such data to create and distribute credit reports to Members. Services Offered by CIBIL Consumer Credit Information Report (CIR) Portfolio Review Report CIBIL TransUnion Score
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CIBIL TransUnion Personal Loan Score Bureau Credit Characteristics (BCC) CIBIL Market Insights CIBIL Locate Plus
Consumer Credit Information Report (CIR) This is CIBILs core offering based on the vast information database pertaining to individual borrowers. Consumer Credit Information Report (CIR) is a vital tool used by credit grantors at the time of new customer acquisitions. CIRs provide factual information on credit histories of borrowers enabling institutions to make objective lending decisions. With CIBIL Consumer CIRs credit grantors are equipped to identify risk areas, disburse credit faster and with greater efficiency and grow business profitability. The CIR only provides available factual credit information and does not provide any opinion, indication or comment pertaining to whether credit should or should not be granted. The credit grantors who have received an application for credit will make the credit decision. CIBIL does not grant or deny credit. The CIR includes the following information:
Basic borrower information like: i. ii. Name Address In case of individuals: iii. iv. v. vi. Identification numbers Passport ID Voters ID Date of birth In case of non-individuals vii. viii. ix. D-U-N-S Number (D&B's Data Universal Numbering System) Registration Number Legal Constitution
Records of all the credit facilities availed by the borrower Past payment history Amount overdue Number of inquiries made on that borrower, by different Members Suit-filed status.
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CIR does not contain:

Income / Revenue details Amount(s) deposited with the bank Details of borrowers' assets Value of asset(s) mortgaged Details of investment(s)
3.3 Management of NPAs:

Definition of NPA: An asset, including a leased asset, becomes nonperforming when it ceases to generate income for the bank. A Non Performing Asset is a loan or an advance where: A. Interest and/or instalment of principal remain overdue for a period of more than 90 days in respect of a term loan. B. The account remains out of order in respect of an overdraft/cash credit. C. The bill remains overdue for a period of more than 90 days in the case of bills purchased & discounted. D. The installment of principal or interest theron remains overdue for two crop seasons for short duration crops. E. The instalment of principal or interest theron remains overdue for one crop season for long duration crops. Review & Monitoring: Authorities to review the NPA accounts:Sr No 1 2 Amount of NPA Rs 5 Cr & Above Top 100 accounts below Rs 5 Cr(100 accounts each in the category of Sub Standard, Doubtful, Loss) Fresh NPA with balance of Rs 50 lacs & above Review Authority Board of Directors MCB
Statement to be placed before ACB on Qtrly basis
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Authorities to monitor the NPA accounts:Sr No 1 2 3 4 Amount of NPA Rs 1 Cr to Rs 5 Cr. Rs 25 lacs & above All NPA accounts Overall Monitoring All NPA a/cs, account wise monitoring of NPA Rs 5 Cr & above Authority Field General Manager Zonal Manager Branch Manager H.O Recovery
Cash Recovery: Once an account is classified as NPA, all out efforts should be made. Branch should immediately take the following steps: A. Borrower & all guarantors should be contacted over phone or by through letters or by visiting them with a request to regularize the account. In course of discussion, if it is observed that borrower is having a genuine problem due to temporary mismatch in fund flow or sudden requirements of additional fund which was not brought to the attention of the Bank before the account became an NPA, Branch should take up with the competent authority for restructuring,rehabilation to overcome the temporary crisis/problem. B. If it is found that the account does not merit restructuring/rehabilitation, Branch should enquire with the borrowers & guarantors as to how they propose to settle the account & the time required therefore. In case the Branch is comfortable with the proposed liquidation programme the same should be put up to the Competent Authority expeditiously. C. However if the Branch feels that the irregularity is not of temporary in nature then they should immediately go for taking steps for recovery of Banks dues for regularization/upgradation of the account.
Sources: UCO Bank Manual for NPA UCO Bank Manual for Credit Monitoring www.icra.in www.cibil.com www.indianmoney.com www.investopedia.com
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Chapter -4 Industry Overview & Analysis of Proposal

4.1 Overview of the Textile Industry
4.1.1 Introduction The Indian textile industry is one the largest and oldest sectors in the country and among the most important in the economy in terms of output, investment and employment. The sector employs nearly 35 million people and after agriculture, is the secondhighest employer in the country. Its importance is underlined by the fact that it accounts for around 4% of Gross Domestic Product, 14% of industrial production, 9% of excise collections, 18% of employment in the industrial sector, and 17% of the countrys total exports earnings. With direct linkages to the rural economy and the agriculture sector, it has been estimated that one of every six households in the country depends on this sector, either directly or indirectly, for its livelihood. A strong raw material production base, a vast pool of skilled and unskilled personnel, cheap labour, good export potential and low import content are some of the salient features of the Indian textile industry. This is a traditional, robust, wellestablished industry, enjoying considerable demand in the domestic as well as global markets. India is a traditional textile -producing country with textiles in general, and cotton in particular, being major industries for the country. India is among the worlds top producers of yarns and fabrics, and the export quality of its products is ever increasing. Textile Industry is one of the largest and oldest industries in India. Textile Industry in India is a self-reliant and independent industry and has great diversification and versatility. The textile industry can be broadly classified into two categories1) Organized mill sector 2) Unorganized decentralized sector. The organized sector of the textile industry represents the mills. It could be a spinning mill or a composite mill. Composite mill is one where the spinning, weaving and processing facilities are carried out under one roof. The decentralized sector is engaged mainly in the weaving activity, which makes it heavily dependent on the organized sector for their yarn requirements. This decentralized sector is comprised of the three major segments viz., powerloom, handloom and hosiery. In addition to the above, there are readymade garments, khadi as well as carpet manufacturing units in the decentralized sector. The Indian Textiles Industry has an overwhelming presence in the economic life of the country. Apart from providing one of the basic necessities of life, the textiles industry also plays a pivotal role through its contribution to industrial output, employment generation, and the export earnings of the country. Currently, it contributes about 14 percent to industrial
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production, 4 percent to the GDP, and 17 percent to the country's export earnings. It provides direct employment to over 35 million people. Besides, another 50 million people are engaged in allied activities. The Textiles sector is the second largest provider of employment after agriculture. Thus, the growth and all round development of this industry has a direct bearing on the improvement of the economy of the nation. The Indian textiles industry is extremely varied, with the handspun and handwoven sector at one end of the spectrum, and the capital intensive, sophisticated mill sector at the other. The decentralized powerlooms / hosiery and knitting sector from the largest section of the Textiles Sector. The close linkage of the Industry to agriculture and the ancient culture, and traditions of the country make the Indian textiles sector unique in comparison with the textiles industry of other countries. This also provides the industry with the capacity to produce a variety of products suitable to the different market segments, both within and outside the country. The major sub-sectors that comprise the textiles sector include the organized Cotton/ManMade Fibre Textiles Mill Industry, the Man-Made Fibre / Filament Yarn Industry, the Wool and Woollen Textiles Industry, the Sericulture and Silk Textiles Industry, Handlooms, Handicrafts, the Jute and Jute Textiles Industry, and Textiles Exports. India is the largest producer of Jute, the 2nd largest producer of Silk, the 3rd largest producer of Cotton and Cellulosic Fibre / Yarn and 5th largest producer of Synthetic Fibers/Yarn. India is the largest exporter of yarn in the international market and has a share of 25% in world cotton yarn export market. India contributes for 12% of the worlds production of textile fibers and yarn. Indian textile industry is second largest after China, in terms of spindleage, and has share of 23% of the worlds spindle capacity. India has around 6% of global rotor capacity. The country has the highest loom capacity, including handlooms, and has a share of 61% in world loomage. The Apparel Industry is one of largest foreign revenue contributor and holds 12% of the countrys total export. 4.1.2 SWOT of the Textile Industry: Strengths

Self reliance Manufacturing flexibility Abundance of raw material production Design expertise Availability of cheap labour Growing economy and domestic market Progressive reforms
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Weakness

Highly fragmented High dependence on cotton Lower productivity Declining mill segment Technological obsolescence Non-participants in trade agreements
Opportunities

End of quota regime Shift in domestic market to branded readymade garments Increased disposable income Emerging mall culture and retail expansion
Threats

Stiff competition from developing countries; especially China Pricing pressure Locational disadvantage International labour and environmental laws
4.1.3 Textile Sectors in India: The Man-Made Fiber / Yarn and Powerloom Sector: This part of industry includes fiber and filament yarn manufacturing units. The Power looms sector is decentralized and plays a vital role in Indian Textiles Industry. It produces large variety of cloths to fulfill different needs of the market. It is the largest manufacturer of fabric and produces a wide variety of cloth. The sector contributes around 62% of the total cloth production in the country and provides ample employment opportunities to 4.86 million people. The Cotton / Man-made fibre textile industry is the largest organized industry in the country in terms of employment (nearly 1 million workers) and number of units. Besides, there are a large number of subsidiary industries dependent on this sector, such as those manufacturing machinery, accessories, stores, ancillaries, dyes & chemicals. As on 30.9.2010, there were 1896 cotton/man-made fibre textile mills (non-SSI) in the country with an installed capacity of 38.53 million spindles 5,18,000 rotors and 57,000 looms. Textile production covering man-made fibre, filament yarn and spun yarn is showing increasing trend. Man-made fibre production recorded a marginal fall and filament yarn production recorded a slight increase of about 1.89% during 2010-11 (April - October 2010). The production of spun yarn during April-Oct (2010-11) is showing an increasing trend by 9.17%. The production of cotton yarn during 2010-11 April-Oct (2010-11) recorded an increase of 11% (Provisional). Blended and 100% Non-cotton yarn production recorded an increase of about 4% during 2010-11.
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Cloth production by mill sector showed marginal increase of 3% during April-Oct. (2010-11) (provisional). During the same period cloth production by power loom and hosiery sector showed an increase of 1.7% and 5.30% respectively. However the cloth production in handloom sector showed a decrease of 4.7%. The Cotton Sector: Cotton is one of the major sources of employment and contributes in export in promising manner. This sector provides huge employment opportunities to around 50 million people related activities like Cultivation, Trade, and Processing. Indias Cotton sector is second largest producer of cotton products in the world. The Handloom Sector: The handloom sector plays a very important role in the countrys economy. It is the second largest sector in terms of employment, next only to agriculture. This sector accounts for about 13% of the total cloth produced in the country (excluding wool, silk and Khadi). The Woolen Sector: The Woolen Textile sector is an Organized and Decentralized Sector. The major part of the industry is rural based. India is the 7th largest producer of wool, and has 1.8% share in total world production. The share of apparel grade is 5%, carpet grade is 85%, and coarse grade is 10% of the total production of raw wool. The Industry is highly dependent on import of raw wool material, due to inadequate production. The Jute Sector: Jute Sector plays very important role in Indian Textile Industry. Jute is called Golden fiber and after cotton it is the cheapest fiber available. Indian Jute Industry is the largest producer of raw jute and jute products in the world. India is the second largest exporter of jute goods in world. The Sericulture and Silk Sector: The Silk industry has a unique position in India, and plays important role in Textile Industry and Export. India is the 2nd largest producer of silk in world and contributes 18% of the total world raw silk production. In India Silk is available with varieties such as, Mulberry, Eri, Tasar, and Muga. Sericulture plays vital role in cottage industry in the country. It is the most labor-intensive sector that combines both Agriculture and Industry. The Handicraft Sector: The Indian handicrafts industry is highly labor intensive, cottage based and decentralized industry. It plays a significant & important role in the countrys economy. It provides employment to a vast segment of craft persons in rural & semi urban areas and generates substantial foreign exchange for the country, while preserving its cultural heritage.
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4.1.4 Policy and Regulatory Framework Indian Textile Policy 2000: For the growth and development of the Indian Textile Industry and to make it more vibrant, the Government of India passed the National Textile Policy in 2000, which had the following objectives: To produce and provide good quality cloth in affordable price to fulfil different needs of customers; To increase the share of India in Global Textile Market; To increase the contribution for employment and economic growth of country. Technology Mission on Cotton (TMC), 2000 The scheme was introduced to address concerns around the cotton production and processing sectors and to put the cotton economy on a sound footing. Initially meant to be phased out at the end of the Tenth Five Year Plan (200207), the schemes Mini Mission has been further extended into the Eleventh Plan for two years in order to achieve certain targets. National Jute Policy-2005: The objectives of the policy are to: Enable millions of jute farmers to produce better quality jute fibre for value added diversified jute products and enable them to enhance per hectare yield of raw jute substantially Facilitate the Jute Sector to attain and sustain a pre-eminent global standing in the manufacture and export of jute products; Enable the jute industry to build world class state-of-the-art manufacturing capabilities in conformity with environmental standards, and, for this purpose, to encourage Foreign Direct Investment, as well as research and development in the sector; Sustain and strengthen the traditional knowledge, skills, and capabilities of our weavers and craftspeople engaged in the manufacture of traditional as well as innovative jute products Expand productive employment by enabling the growth of the industry Make Information Technology (IT), an integral part of the entire value chain of jute and the production of jute goods, and thereby facilitate the industry to achieve international standards in terms of quality, design, and marketing; Increase the quantity of exports of jute and jute products by achieving a CAGR of 15% per annum; Involve and ensure the active co-operation and partnership of State Governments, Financial Institutions, Entrepreneurs, and Farmers Organizations in the fulfillment of these objectives.
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Jute Technology Mission (JTM), 2006 The objectives of this programme include: Improving the yield and quality of jute fibre. Strengthening the existing infrastructure for the development and supply of quality seeds Improving the quality of fibre through better methods of retting and extraction technologies Increasing the supply of quality raw material to the jute industry at reasonable prices and developing efficient market linkages for raw jute. Modernising, upgrading technology, improving productivity, diversifying and developing human resourcesfor the jute industry Developing and commercialising innovative technology for the diversified use of jute and allied fibre
Technology Upgradation Fund Scheme (TUFS) The Technology Up gradation Fund Scheme (TUFS) was commissioned in 1999 initially for a period of 5 years with a view to facilitate the modernisation and upgradation of the textiles industry by providing credit at reduced rates to the entrepreneurs both in the organized and the unorganized sector. The Scheme, which has now been extended up to 31.03.2012, has been fine-tuned to catapult the rapid investments in the targeted segments of the textile industry. TUFS has helped in the transition from a quantitatively restricted textiles trade to market driven global merchandise. It has infused an investment climate in the textiles sector and in its operational life span has propelled investment of more than Rs. 2,07,747 crores upto June 2010 The garmenting, technical textiles and processing segments of the textiles industry have great potential to add value and generate employment. The Working Group on Textiles and Jute Industry for the XI Five Year Plan, constituted by the Planning Commission, has set a growth rate of 16% for the sector, projecting an investment of Rs. 150,600 crore in the Plan period. In this context, it was decided to extend the Technology Up gradation Fund Scheme during the Eleventh Plan period, and to reframe some of the financial and operational parameters of the Scheme in respect of new loans. (Initially, the Scheme was upto 31.03.2004. On the overwhelming response of the industry it was extended till 31.03.2007.) In the Tenth Plan Period (2002-07), Rs. 1,270 crore had been earmarked for the scheme. However, the net utilization of funds under this Scheme was Rs. 2044.17 crore. The modified techno-financial parameters of the Scheme will infuse capital investment into the textiles sector, and help it capitalize on the vibrant and expanding global and domestic markets, through technology up gradation, cost effectiveness, quality production, efficiency and global competitiveness. It is estimated that this will ensure a growth rate of 16% in the sector. The modified structure of TUFS focuses on additional capacity building, better
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adoption of technology, and provides for a higher level of assistance to segments that have a larger potential for growth, like garmenting, technical textiles, and processing. The Scheme covers spinning, cotton ginning & pressing, silk, reeling & twisting wool, scouring & combing, synthetic filament yarn texturising, crimping and twisting, manufacturing of viscose filament yarn (VFY) / viscose staple fibre (VSF), weaving/knitting including non-wovens and technical textiles, garments, made-up manufacturing, processing of fibres, yarns, fabrics, garments and made-ups, and the jute sector. Benefits of the scheme: A 5 per cent interest reimbursement of the normal interest charged by the lending agency on rupee term loan, or A 5 per cent exchange fluctuation (interest and repayment) from the base rate on foreign currency loan, or A 15 per cent credit-linked capital subsidy for the small scale industries (SSI) sector, or A 20 per cent credit-linked capital subsidy for the powerloom sector, or A 5 per cent interest reimbursement plus a 10 per cent capital subsidy for specified processing machinery The textile industry segments that are eligible for concessional loans for technology upgrade requirements include: Spinning, cotton ginning and pressing Silk reeling and twisting Wool scouring and combing Synthetic filament yarn texturising, crimping and twisting Manufacturing of viscose filament yarn (VFY) or viscose staple fibre (VSF) Weaving or knitting, including non-wovens and technical textiles Garments, made-up manufacturing Processing of fibre, yarn, fabric, garments and made-ups Jute
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The progress of TUFS is steadily going up which is evident from the data given in the table (Rs. in crore)
Period Received No. of Project applic Cost ations 407 5771 719 6296 472 1900 494 1835 867 3356 986 7941 1086 16194 12336 61063 2408 21254 6113 56542 2384 28005 256 28528 397 210554 Sanctioned No. of applicatio ns 309 616 444 456 884 986 1078 12589 2260 6072 2352 256 28302 Project Cost 5074 4380 1320 1438 3289 7349 15032 66233 19917 55707 27611 397 207747 Amount Disbursed No. of applicatio ns 179 494 401 411 814 801 993 13168 2207 6111 2361 240 28180 Amount Subsidy
1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-11 (Upto June 2010) (P) As on 30.06.2010(P)
2421 2090 630 839 1341 2990 6776 29073 8058 24007 6612 254 85091
746 1863 804 931 856 1757 3962 26605 6854 21826 8140 282 74627
1 70 198.89 202.59 249.06 283.60 485 823.92 1143.37 2632.00 2886
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Textile Workers' Rehabilitation Fund Scheme (TWRFS) The Textile Workers' Rehabilitation Fund Scheme came into force with effect from September, 1986 with the objective to provide interim relief to textile workers rendered unemployed as a consequence of permanent closure of any particular portion or entire textile unit. Assistance under the Scheme is payable to eligible workers only for the purpose of enabling them to settle in another employment. Such assistance is not heritable, transferable or capable of being attached on account of any other liabilities of the worker. The worker's eligibility shall cease if he takes up employment in another registered or licensed undertaking. The rehabilitation assistance will not be curtailed if the worker fixes himself in a self-employment venture. Scheme for Integrated Textile Parks (SITP), 2005 The scheme was introduced to neutralise the weakness caused due to fragmentation in various sub-segments of the textiles value chain and the unavailability of quality infrastructure. Key objectives: 1) Provide world-class infrastructure facilities for setting up textile units 2) Create new textile parks of international standards at potential growth centres The 'Scheme for Integrated Textile Parks (SITP)' is being implemented to facilitate setting up of textile units with appropriate support infrastructure. Industry Associations / Group of
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Entrepreneurs are the main promoters of the Integrated Textiles Park (ITP). Scope of the Scheme The scheme targets industrial clusters/ locations with high growth potential, which require strategic interventions by way of providing world-class infrastructure support. The project cost covers common infrastructure and buildings for production/ support activities, depending on the needs of the ITP. The components of an ITP are: (a) Group A -Land. (b) Group B -Common Infrastructure like compound wall, roads, drainage, water supply, electricity supply including captive power plant, effluent treatment, telecommunication lines etc. (c) Group C -Buildings for common facilities like testing laboratory, design center, training center, trade center/ display center, ware housing facility/ raw material depot, crche, canteen, workers hostel, offices of service providers, labour rest and recreation facilities etc. (d) Group D -Factory buildings for production purposes. (e) Group E -Plant & machinery. Eleventh Five Year Plan (20072012) The Eleventh Five Year Plan (20072012) outlay for the textiles and apparel sector has been fixed at US$ 2.91 billion (INR 140 billion), which is almost four times the outlay decided in the Tenth Plan US$ 0.74 billion (INR 35.8 billion). 4.1.5 EXIM scenario Exports India's textiles and clothing industry is one of the mainstays of the national economy. It is also one of the largest contributing sectors of India's exports worldwide. The Vision Statement for the textiles industry for the 11th Five Year Plan (2007-12), envisages India securing a 7% share in the global textiles trade by 2012. At current prices the Indian textiles industry is pegged at US$ 55 billion, 64% of which services domestic demand. The textiles industry accounts for 14% of industrial production, which is 4% of GDP; employs 35 million people and accounts for nearly 17% share of the country's total exports basket. Textiles and apparel industry exports, valued at US$ 22.05 billion (INR 1,058.64 billion), contributed about 12.5 per cent to the countrys total exports in 20092010.
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Milestones Exports of textiles and clothing products from India have increased steadily over the last few years, particularly after 2004 when textiles exports quota were discontinued.
India's Textiles & Clothing (T&C) export registered robust growth of 25% in 200506, recording a growth of US$ 3.5 billion over 2004-05 in value terms thereby reaching a level of US$ 17.52 billion and the growth continued in 2006-07 with T&C exports of US$19.15 billion recording a increase of 9.28% over previous year and reached USD22.15 billion in 2007-08 denoting an increase of 15.7% but declined by over 5% in 2008-09 with exports of USD 20.94 billion. During 2009-10, the exports of T&C increased by over 5.60% and reached the level of USD 22.42 billion. Thus exports of T&C have denoted an increase of 60.14% in the last five years (2004-05 to 200910). Indian T&C exports is facing various constraints of infrastructure, high power and transaction cost, incidence of state level cess and duties, lack of state-ofthe-art technology etc. Readymade Garments account for almost 45% of the total textiles exports. Apparel and cotton textiles products together contribute nearly 70% of the total textiles exports. The exports basket consists of a wide range of items comprising readymade garments, cotton textiles, handloom textiles, man-made fibre textiles, wool and woolen goods, silk, jute and handicrafts including carpets. India's textiles products, including handlooms and handicrafts, are exported to more than a hundred countries. However, the USA and the EU, account for about two-third of India's textiles exports. The other major export destinations are Canada, U.A.E., Japan, Saudi Arabia, Republic of Korea, Bangladesh, Turkey, etc.
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The export of textiles and clothing aggregated to US$ 22.42 billion in 2009-10. The Government fixed the target for 2010-11 at US$ 25.48 billion. So far during the period AprilSeptember'10, exports of T&C have been achieved at USD 11.26 billion.
Imports Total textiles imports into India in 20092010 were valued at US$ 3.39 billion (INR 162.82 billion).
4.1.6 SMEs in the Textile Industry The phasing out of the international quota system is a major turning point for the Indian textile industry an opportunity and a threat. The textile industry is among the SME intensive sectors in India, largely an outcome of government policies during the early years of Independence. Focusing on promoting domestic employment, large-scale production in the textile industry was curtailed through restrictions on total capacity and level of mechanisation. Several textile items were reserved for the small scale segment. These policies promoted the extensive growth of small scale textile enterprises that were highly labour intensive, though it eroded the competitiveness of the industry and acted as a disincentive for capital investment. These policies -- pursued from the 1950s to the 1970s -- resulted in the dominance of the decentralised powerloom and handloom sectors in the textile industry, which are mainly small and medium scale enterprises. In fact, many of the large textile companies are also conglomerates of medium sized mills. Statistics released by the Ministry of Textiles shows a highly fragmented industry, except in the spinning sub-segment. The organised sector contributes over 95% of spinning, but hardly 5% of weaving fabric. Small Scale Industries (SSIs) perform the bulk of the weaving and processing operations.
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De-reservation of textile products has been a priority area for the government since 1997, which was believed to be the most effective way to foster productivity and efficiency within the sector. All textile items were removed from the reservation list by 2005. These measures were a prerequisite to compete globally in the post-MFA regime. As trade barriers come down and capital mobility increases, large, organised and integrated firms will gain importance in establishing a presence in the global market and to tap opportunities. In the new scenario of a quota-free world, the readymade garments sector will play a crucial role in the economy, in terms of contributing to exports as well as employment generation, considering its inherent labour-intensive nature. In the cloth production segment, the hosiery and mill sectors are likely to be the gainers. Buyer-Driven Network The global textile industry, a buyer-driven network, is dominated by retailers, marketers and manufacturers. In the newly defined business environment for textiles, retailers like Zara, H&M, etc. have redefined the life of fashion trends from the earlier five to six months to around two months. In this scenario of such short shelf-life, the small scale operations of Indian SME apparel manufacturers gives them the flexibility to service custom-made orders at low cost. It is likely that India will become a preferred destination for global manufacturers and retailers as well, and big opportunities for SMEs are forthcoming. Today, apart from the big Indian textile manufacturers like Gokuldas Exports, Alok Industries, Raymonds, Welspun India, Arvind Mills and Madura Garments, several small and medium sized apparel manufacturers have also become significant contributors to the total apparel exports of the country. Cotton knitwear suppliers of Tirupur, hosiery suppliers of Ludhiana and suppliers of home textiles from Tamil Nadu, Kerala and Punjab, among others, have been accepted as high quality and cost effective apparel suppliers in international markets. These regions are also SME dominated textile clusters that have emerged either due to market access, availability of raw material or private initiatives. The textile industry of India operates largely in the form of clusters -- mostly natural clusters -- with roughly 70 textile clusters producing 80% of the countrys total textiles. Based on a UNIDO study conducted on SME clusters in India, some noteworthy textile clusters include:
Panipat, accounting for 75% of the total blankets produced in the country Tirupur, responsible for 80% of the countrys hosiery exports Ludhiana, which accounts for 95% of the countrys woollen knitwear produced. Cluster-based Approach to Development Inspite of some natural advantages such as low costs and flexibility, the SMEs suffer from disadvantages of being in a relatively isolated environment.
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The Government of Indias cluster development initiatives, involving technical assistance, subsidies for technology upgradation and marketing support, have strengthened the competitiveness of the SMEs, which has also consolidated their position in the global value chain. A case in point is the initiative undertaken by the Textile Committee under the Ministry of Textiles, which has undertaken a cluster-based programme for capacity building in textile and clothing SMEs in across 20 clusters in the country. Some key benefits of a cluster based approach for developing SMEs are:

Networking among enterprises Economies of scale Improved bargaining power Technology and skill upgradation Global visibility and being part of the value chain Easier access to finance Greater institutional support.
Among the successes of the Textile Committees cluster development initiatives has been the acquiring of intellectual property rights protection for the Pochampally Ikat tie-and-dye sari, from Andhra Pradesh. It is the first traditional Indian craft to receive this status of XXVIII geographical branding, and is expected to benefit at least 100,000 weavers in the state. The powerloom clusters in Sholapur and Salem are also following suit in acquiring geographical indications protection. Another successful initiative is seen in the Terry Towel cluster of Solapur, where some major interventions were undertaken by the committee such as setting up of a polytechnic institute, acquiring quality certifications for some of the units, setting up an export consortium and establishing networks. The concentration of textile firms in the form of clusters is to a natural advantage for adopting a cluster-based development approach of the textile SME segment. International and domestic experience has proved that this approach has helped firms in attaining competitiveness -- a requisite in todays new market. Linking with the Global Value Chain An inevitable outcome of the opening up of the textile markets is the rationalisation of supplier base by large retail chains such as Wal Mart and Gap. Under such circumstances, it will be difficult for small enterprises to individually meet the requirements of these international buyers. Hence, it will be essential to build value networks through linkages with large players who can win large orders, while smaller players service these orders. This entry into value networks will not only link up small players to the global value chain but also assure a market for their products. Incorporation of textile SMEs as third and fourth tier suppliers will be an effective way of ensuring that they gain from the growing demands
83
of the global market. However, here the role of the government and the large textile companies will be imperative. 4.1.7 Future Outlook Expectations are high, prospects are bright, but capitalising on the new emerging opportunities will be a challenge for textile companies. Some prerequisites to be included in the globally competing textile industry are:

Imbibing global best practices Adopting rapidly changing technologies and efficient processes Innovation Networking and better supply chain management Ability to link up to global value chains.
Strategic Initiatives Business integration -- especially forward integration -- by the larger textile companies has been prominent among Indian companies. Several companies that are engaged in fabric manufacturing, are now keen to enter the readymade garments space. 4.1.8 UCO Bank Outlook on Textile
Domestic Scenario: The unit is engaged in the production of all kinds of hosiery yarns like worsted, fancy, fresh, chenille etc. There exists ample scope in the domestic market as the product is used as input for manufacturing of woollens which are considered both as a necessity as well as a highly fashionable items, the climatic conditions of the country are such that there is winter for about 4 months in most parts of the country and the product is necessity during that 4 months. Demand & Supply: The demand, trend & fashion taste of Ready-Made Garments/Fabrics/hosiery, good greatly influenced by quality yarns at competitive prices. Accordingly the units, particularly located in Ludhiana, having established quality and market and with the latest available technology from world-renowned suppliers have good prospects. The company has the latest technology and also has set up its own dyeing unit to meet the demand of its customers. As such the unit is expected to avail of the available opportunities and to do well. Major constraints and competition: The country is facing stiff competition in woollen garment industry from other countries with the abolishment of quota. The country's quality products are going to be in demand. The rates of the raw material have significantly increased during the current year. Demand /Growth Drivers: Indias presence in the international market is significant in the areas of fabrics and yarn.
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Indias is the largest exporter of yarn in te international market and has a share of 25% in the world cotton yarn exports. India accounts for 12% of the worlds production of textile and yarn In terms of spindleage, the Indian textile industry is ranked second after China, and accounts for 23% of the worlds spindle capacity. Around 6% of global rotor capacity is in India. The country has the highest capacity, including handlooms with a share of 61% in world loomage. The fibre and yarn specific configuration of the textile industry includes almost all types of textile fibres, encompassing natural fibres such as cotton, jute, silk and wool; synthetic/man made fibres such as polyster, viscose, nylon, acrylic and polypropylene(PP) as well as multiple blends of such fibres and filament yarns such as Partially oriented yarn(POY). This type of yarn is dictated by the end product being manufactured. Future Outlook / Potential: There exists ample scope in the international market for woollen garments and as the unit manufactures all kinds of hosiery knitting yarns used to manufacture woollens the demand for the unit products is not going to be affected. Prospect of the company: The company has, recently completed expansion project by availing MTL of Rs 400.00 lacs from UCO BANK to increase the operations of the company. Overall Industry Risk Perception Short Term Medium Term Long Term
Average Average Average
The costs of textile industry in North India (Ludhiana) have been growing due to lack of labour and acute power shortage.
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4.2 - Genus Texspin: Company and Financial Data

NOTE: Name of the Organisation & its directors has as per the directions of UCO Bank
4.2.1 Company Overview Establishment: Genus Woollen Mills was established on 1st July, 1982 to start business of manufacturing of hosiery yarn in Ludhiana. It was converted into Pvt. Ltd. company in 2007 as Genus Texspin Pvt. Ltd. taking over the assets & liabilities of Partnership firm Genus Woollen Mills w.e.f. 01.04.2008. The company becomes Public Ltd. from Pvt. Ltd. w.e.f. 31.07.2008. Ownership: The company is primarily managed Sh. Sanjay Sharma and Sh. Ajay Sharma who have experience in yarn manufacturing for several years. The company has recently inducted one additional director Mr Gautam Sharma who is 22 years of age. All the Directors look after the day to day working of the company.
Business The unit is engaged in the business of manufacturing of all kinds of hosiery yarns i.e. worsted, fancy, fresh, chenille & feather etc. these yarns are used to knit sweater which are used as wearing apparel. Present Market status The company is engaged in manufacturing and trading of hosiery yarns. However market share of the firm cannot be ascertained as the sector is unorganized.
Banking relationship: The party is dealing with UCO bank since the companys inception in 1982. The dealings of the account are satisfactory as per banks expectations. Share Holding Pattern as on: Authorized capital- 9, 01, 00,000.00 Issued/subscribed/Paid up capital 9, 01, 00,000.00 4.2.2 Account Profile: a) Borrower: Genus Texspin Limited b) Constitution: Public Limited company c) Date of incorporation: 01.04.1982 d) Group / House: Super-Not a recognized group e) Nature of industry / activity: Manufacturing & Spinning of Hosiery Yarn
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f) Location: Industrial Area, Ludhiana g) Details of the Directors/Partners:
Name
Age
Designation
% Share holding 50% 50% -
Other directorships partnerships Super Tex Mart Ltd. Super Tex Mart Ltd. Super Tex Mart Ltd.
Sh. Sanjay Gupta Sh. Ajay Gupta Sh. Gautam Gupta
45 43 22
Director Director Director
h) Asset Classification: Standard i) Credit Rating: A as per audited BS dt 31.03.2010 as done by Credit Monitoring Dept. Zonal Office. LBB by ICRA (External Rating) j) Track record of the promoters / directors with reference to Defaulter list of RBI / ECGC: The names similar to the directors of the company Mr. Sanjay Sharma, Ajay Sharma and Gautam Sharma appeared in the RBI Defaulter List as of 31.12.2010 and the latest ECGC SAL List. Bank ensured that they are not the same persons by obtaining an affidavit from the directors stating that they are not the same persons. k) Does the companys name appear in RBI Defaulter list: No l) Does the name of group company appear in RBI willful Defaulter list: No m) Does the bank have any unsatisfactory dealing with any account connected with the company or its directors: No 4.2.3 Shareholding Pattern:
Name of the Promoters/Major Share No. of shares holders Promoters Holding Promoters 9010000
Amt. in Rs. lacs.
% Holding
901.00
100%
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Chapter -4 Industry Overview & Analysis of Proposal Related Parties/body corporates Out of above Other Closely Held Companies Total Promoters/groups Non-Promoters Holding Others: Private Corporate bodies Grand Total 9010000 901.00 100% 9010000 901.00 100%
Top Ten Shareholders: Shares Held By Sanjay Sharma Ajay Sharma Total No. of Shares 4505000 4505000 9010000 % of Shares 50% 50% 100%
4.2.4 Financial Overview 4.2.4.1 Financial Indicators

PAST 2 YEARS ACTUALS 31.03.09 31.03.10 Estimates for 2009-10 accepted at the time of last assessment Current year Next Year
31.03.11
31.03.12
(Audited) a) i. Authorized Capital ii. Paid-up Capital b) Net Worth ( Revaluation Reserve) 901.00 684.72
(Audited)
(Estimates)
(Projected)
901.00 763.41
901.00 932.31
901.00 903.80
901.00 1072.75
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Chapter -4 Industry Overview & Analysis of Proposal c ) Tangible Net Worth(excluding Revaluation Reserve) c1) Adjusted TNW( Net of investments in group/subsidiaries) c2) TNW (treating unsecured loan from Promoters as quasi equity) d) Long Term Secured Loans e) Long Term unsecured Loans 927.74 679.57 758.84 927.74 679.57 758.84 1810.17 1441.12 1636.86 1777.25 1946.20 899.81 1069.34 899.81 1069.34
964.89
1077.69
733.49
932.97
783.76
756.40
744.26
882.43
744.27
744.27
f ) Net Fixed Assets including Capital workin-progress g) Capital work-inProgress h) Non current assets i) Inventories j) Receivables k) Other Current Assets l) Total Current Assets m)other Current Liabilities excl. BB( incl. TL inst. Due within 1 year) n) Bank Borrowings (BB) o)Total Current liabilities p) Net Working Capital
2242.01
2120.92
1982.25
1981.90
1757.35
733.54 247.01 195.05 1175.60 198.29
1240.26 381.41 514.34 2136.01 417.25
22.99 1344.72 330.00 336.96 2011.68 323.26
1147.63 500.00 508.92 2156.55 411.41
1151.64 550.00 713.86 2415.50 425.48
818.46 1016.75 158.85
1258.88 1676.13 459.88
1150.00 1473.26 538.42
1150.00 1561.41 595.14
1150.00 1575.48 840.02
89
Chapter -4 Industry Overview & Analysis of Proposal q) Current ratio r)TL inst. Due within 1 year s) Current Ratio (without T/L instl. Due within 1 yr. as CL 1.16 1.27 157.42 1.37 157.42 1.38 128.49 1.53 116.85
1.16
1.16
1.23
1.28
1.43
t) Debt-Equity Ratio i) Considering all outside Liab( TOL/TNW). ii) Considering Term liab. only iv) TOL/TNW( treating unsecured loan from promoters as quasi equity) u) Net Sales v) Operating Profit/(Loss) w)Other income x) Profit before interest ,tax and depreciation (PBDIT) y) Depreciation z) Interest aa) Tax bb) Profit after tax(PAT) cc) Cash accruals dd) Increase in Net sales (%) ee) % of operating profit to Net Sales 274.79
3.33
4.03 2.53
4.61 2.40 1.74
3.60 1.86
2.90 1.43
1.22 1.38 4073.73 35.08 1.83 5939.10 300.38 1.02 570.00 593.81 684.01 676.53 6000.00 120.60 1.52 11200.00 421.99 1.30 11500.00 451.98
239.73 156.91 104.29 -226.14 13.59 27.26
268.60 208.51 14.20 76.07 347.29 45.79
263.92 209.29 39.80 80.80 344.72 47.34
262.02 212.46 69.15 140.39 402.41 88.58
224.55 199.82 83.22 168.95 393.49 2.68
8.60
12.29
7.61
7.34
90
Chapter -4 Industry Overview & Analysis of Proposal gg) PAT to Net Sales (%) hh) Interest as % to Net Sales ii) Return on Capital Employed. (PBDIT/TA) (%) jj) Interest Cover (Times) kk) Fixed assets to Secured Term Liabilities -5.55 3.85 1.32 3.51 1.35 3.49 1.25 1.90 1.47 1.74
-2.15
7.47
7.85
9.46
9.83
1.75 2.32
2.73 1.97
2.84 2.70
3.22 2.12
3.39 2.24
Break up of other Current assets: (Rs. In Lacs) Items Loans and advances ( staff & others) Loans and advances ( suppliers) Fixed deposits with bank Cash & bank balances TDS Others Total ( A) 2008-09 22.96 56.67 19.84 95.58 195.05 2009-10 224.48 44.57 51.95 193.34 514.34 2010-11 30.00 100.00 218.81 160.11 508.92 2011-12 30.00 100.00 418.75 165.11 713.86
Sources & application of fund (Rs. in Lacs) 31.03.09 Audit Long term sources Long term application Long term Surplus / (deficit) Short term sources 2406.01 2247.16 158.85 31.03.10 Audit 2585.37 2125.49 459.88 31.03.11 Est. 2600.78 1760.76 840.02
1016.75
1676.13
1575.48
91
Short term application Short term surplus/(deficit)
1175.60 -158.85
2136.01 -459.88
2415.50 -840.02
Current Year Performance Up to dated 31.12.2010 Particulars As of 31.12.2010 Paid up capital Sales Profit after Tax Change in share holding pattern, if any 901.00 9795.00 704.19 Nil
Current years estimates 901.00 11200.00 140.39 Nil
Amount in Lacs % achievement of current years estimates 100% 87.45% 75.66% Nil
Comments of the auditor in the statement of accounts of the company as of last audited BS ( if any which might have impact on the functioning of the company) No adverse comments in the B/S
Financial Brief Rupees in Lacs

Past Three Years Audited 31.03.2009 Actual TNW TOL/TNW CURRENT RATIO NET SALES or REVENUE OPERATING PROFIT PBDIT 680.00 4.03 1.16 4074.00 31.03.2010 Actual 759.00 4.61 1.27 5939.00 31.03.2011 Estimates 900.00 3.60 1.38 11200.00 31.03.2012 Provisional 1069.00 2.90 1.53 11500.00
35.00 275.00
300.00 570.00
422.00 684.00
452.00 677.00
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Chapter -4 Industry Overview & Analysis of Proposal NET PROFIT (PAT) ROCE - % (PAT + INTT/TNW+ SEC.TL+UNS.TL+BB)) -226.00 78.00 140.00 169.00
-2.15
7.47
9.46
9.83
4.2.4.2 Review Of Financial Position And Working Results: Financial Strengths & Weaknesses (in terms of DE, Current ratio etc.) Net Worth: The Company was constituted as limited company from Pvt. Ltd company with authorized capital of Rs.901.00 Lacs on 31.07.2008. The net worth of the company as on 31.03.2009 was Rs 684.72 lacs on account of loss of Rs. 226.14 lacs. The net worth increased to Rs. 763.41 lacs in the year ending 31.03.2010 with the retention of profit. The company had projected TNW of Rs927.74 lacs for the year 2009-10 at the time of last assessment which could not be achieved due to losses in 2008-09. Now the company has projected the net worth at Rs. 903.80 lacs and 1072.75 lacs as on 31.03.2011 and 31.03.2012 respectively with the retention in the profit. Term Debt equity comes to 2.40 as on 31.03.2010 while TOL/TNW is 4.61 as per Audited Balance Sheet. The TOL/TNW accepted at the time of last assessment was 3.33 and the party has now projected it at 3.60. Though TOL / TNW is on the higher side, but it is only 1.83 if quasi capital is taken into consideration. Current ratio of the company is 1.16 and 1.27 for the years 2009 and 2010 respectively and the current ratio at the time of last assessment was 1.23 and now the party has projected current ratio at 1.38 for the current year which is within the acceptable norms. Growth in operations The turnover of the company for FY 2008-09 was Rs 4073.00 lacs it increased to Rs 5939.00 lacs in 2009-10 and further estimated to be Rs 11200.00 lacs during the year 2010-11. The company has already achieved the turnover of Rs.9794.00 lacs up to Dec 2010 against the projected net sales of Rs 11200.00 lacs for the year 2010-11 Thus the company has already achieved 87% of the projected sales and it appears that the projected sales will be achieved. Growth in Profitability The Company has shown a net profit of Rs 76.00 lacs during the year 2009-10 while company registered a net loss of Rs 226.00 lacs during the year 2008-09 due to global slow down. The company has projected to achieve a net profit of Rs 140.00 lacs during the 2010-1. Liquidity: The current ratio of the unit was 1.16 as of 31.03.2009 and 31.03.2010 without including the term loan installment payable within one year, which is slightly below the accepted level. The
93
projected current ratio for current & following year are 1.38 & 1.53 respectively with the retention of profits and is within the acceptable norms.. The NWC as of 31.03.2009 is Rs158.85 lacs and it increased to Rs. 459.88 lacs as on 31.03.2010. The party had projected NCW at the time of last assessment at Rs. 538.42 lacs for the year ending 31.03.2010. Now the party is projecting the NWC to improve to Rs. 595.14 lacs as on 31.03.2011 and 840.02 as on 31.03.2012.
4.2.4.3 Banking And Financing Details Rupees in lacs Existing Financing Pattern Names of the existing lenders: Dealing with our bank since Name of the leader bank in case of consortium Date of last appraisal by the leader bank Date of last review by the leader bank Date of last consortium meeting Sole For working capital 1982 NA NA NA NA For Term Loan 2006 NA NA NA NA
4.2.5 Proposal: The present proposal is for renewal cum enhancement of existing working capital limits, with total fund based from Rs.1693.00 lacs to Rs.1593.00 lacs and total non fund based from Rs.500.00 lacs to Rs.900.00 lacs, increasing thereby the total exposure from Rs.2171.00 lacs to Rs.2471.00 lacs. Special Covenants:
1)
Memorandum of entry in regard to creation of mortgage charge on immovable property/assets should be on record of the branch. All the charges are to be registered with R.O.C within 30 days of the creation of the charge. The borrower shall execute all necessary legally enforceable loan documents, as per banks guidelines. Documents will be approved and vetted by banks /lenders legal counsels at borrowers cost. ROC search would be conducted for verifying that there are no prior charges (s) on the companys assets in favor of other Bank(s) and /or FIs except existing bankers of the company as mentioned in the proposal. If any other security or collateral securities offered/to be offered to any other term lender participating in the project then the same should be extended to our bank for our credit limits on pro rata sharing basis.
2)
3)
94
Chapter -4 Industry Overview & Analysis of Proposal 4)
5)
6)
Company to furnish undertaking to the effect that none of their directors and promoters are appearing ECGC specific approval list, RBI caution list, RBI defaulters list. & none of its directors including promoter director has defaulted in the payment of the dues of any bank. A Director with identical name appearing in the defaulters list should submit an affidavit (to be signed before the executive Magistrate) confirming that he is not the same person whose name is appearing in the defaulters list. The Company will pass resolution under Sec. 293 (1)(d) of the Company Act 1956. A confirmation under Section 292(5) of the companies Act would be obtained to the effect that the powers of the directors in respect of borrowing has not been restricted / withdrawn in the General Body Meeting. For creation of FIRST Pari passu charge over fixed assets necessary resolution under sec 293(1)(a) will be passed in the General Body Meeting. Certified True copies of the Resolution will be submitted to the Branch Total borrowing of the company will be restricted to the credit requirement detailed in the project report. For entering into any other borrowing arrangements, company has to obtain permission from the bank. The company has to furnish the details of existing borrowing, (fund based as well as nonfund based) with addresses of the lenders. The Company should submit written confirmation from all the existing lenders that all the loan accounts with them are standard and regular Company to furnish the status of the project at quarterly interval along with the documentary evidence backed by certificate of the Chartered Accountant certifying therein amount spend on the expansion project/end use of fund for verification of the Bank. The company should display a board in a prominent place in the factory premises indicating that the assets/stocks are hypothecated to our bank. Bank shall have the right to down sell their loans to any other bank / financial institutions operating in India. Borrower(s) and/or Guarantor should give their consent for disclosure of credit information to CIBIL/RBI in terms of directions issued by RBI The Borrower(s) should undertakes that they should not induct a person, who is a Director on the Board of a Company which has been identified as a willful defaulter and that in case, such person is found to be on the Board of the Borrower company, the Borrower would take expeditious and effective steps for removal of the person from its Board. The aforesaid undertaking may be obtained by way of separate letter/ duly executed by borrower on nonjudicial stamp paper of requisite value.
7)
8)
9)
10)
11)
12)
Other Covenants: The bank will have the right to examine at all times, the companys books of accounts and to 1. have the companys Project sites inspected from time to time, by Officer(s) of the Bank and/or qualified auditors or concurrent auditors appointed by the Bank and/or technical experts and/or management consultants or other persons of the Banks choice. Cost of such inspections will be borne by the company.
95
2.
3.
4.
5.
During the currency of the banks credit facilities, the company will not, without the banks prior permission in writing a) Effect any change in the companys capital structure. b) Formulate any scheme of amalgamation or re-construction or restructuring of any kind. c) Invest by way of share capital in, or lend or advance funds to, or place deposits with any other concern: (normal trade credit or security deposits in the normal course of business or advance to employees, can, however, be extended). d) Undertake guarantee obligations on behalf of any other company, firm or person. e) Declare dividends for any year except out of profits relating to that year after making all due necessary provisions and provided further that no default had occurred in any repayment obligations. Monies brought in by principal share holders/directors/depositors will not be allowed to f) be withdrawn without the Banks permission. g) The company should not make any major change in their management set up without the banks permission. h) Pay consideration/commission to the guarantors whose guarantees have been stipulated/furnished for the credit limits sanctioned by the Bank. Create any further charge, lien or encumbrance over the assets and properties of the i) company charged to the bank in favor of any other Banks, Financial Institution, Company, Firm or Person. Sell, assign mortgage or otherwise dispose off any of the fixed assets charged to the j) bank and k) Undertake any activity other than that for which the facilities has been sanctioned. The Company will route its entire dealings with our bank and will not make any j) financial arrangement (term loan/WC) with any other Bank without our banks prior consent The Company shall keep the Bank informed of happening of any event likely to have a substantial effect on their profits or business. If, for instance, the monthly collections are substantially less than what had been indicated to the bank, the company should inform the bank accordingly with the reasons thereof and the remedial steps taken. The company should maintain separate books and records which should correctly reflect their financial position and scope of operations and should submit to the bank at regular intervals such statements as may be prescribed by the bank in terms of RBI instructions issued from time to time. The company shall keep bank advised of any circumstances adversely affecting the financial position of their subsidiaries/group companies or companies in which it has invested, including any action taken by any creditor against the said companies legally or otherwise.
96
6.
7.
The bank will have the option of appointing its nominee on the board of directors of the company to look after its interest. The directors normal fees and expenses will be defrayed by the company. Such director shall not be required to hold qualification shares and tenor of such directors will be as decided by the bank. When the option is exercised by the bank, the company shall submit sufficiently in advance, agenda papers relating to meeting of the board of the directors or any committees thereof and forward duly certified copies of the proceeding of such meetings. The bank will have right to appoint a nominee to attend any meetings of shareholders; where the right is exercised, the agenda papers and proceedings should be sent to bank sufficiently in advance. The credit facility should be utilize for the specific purpose for which the same has been sanctioned and if bank has reason to believe that the company has violated or apprehends that the company are about to violate the said condition, the bank will have the option to exercise its right to recall the entire loan or any part thereof at once. A copy of the process note is enclosed and is to be treated as an integral part of this sanction. Please confirm that the information incorporated in the note is in conformity with the information supplied by you. Branch to recover processing charges as per extant guidelines. The borrower shall pay penal interest for irregularities, default in submission of statements/ audited accounts, non compliance of security obligations etc. as per banks policy subject to change from time to time at the discretion of bank. Every borrower should furnish a declaration (where the borrower is an individual) he is not a director or specified near relation of director of a banking company; (where the borrower is a partnership firm) none of partners is a director or specified near relation of a director of a banking company; and (where the borrower is a joint stock company) none of its directors is a director or specified near relation of a director of a banking company and none of its director is a specified near relation of a senior officer of the bank (Scale IV and above) All documents to be executed as per the resolution passed at the Board Meeting of the company All the sale proceeds should be routed through CC Accounts The Credit report on partners of the firm and guarantors of the limit will, inter alia, include-Passport No. if any, PAN/GIR No. if any, name & address of sons and daughters, spouse of the sureties, present residential address (specify self owned/rented or other wise), office address and telephone No., details of commercial/residential properties owned by the securities, copy of latest I.Tax Return acknowledge by ITO, their personal balance sheet at of 31.03.10 and relationship with the promoter of the firm. Branch to prepare the same and should submit a copy to our office
9 10
11
12 13 14
4.2.5.1 Assessment of Working capital Requirements (Fund Based) A) Financial Parameters
97
Current Ratio TNW (Rs Lacs) (without quasi equity) (with quasi equity) Debt Equity Ratio (TOL/TNW) Debt Equity Ratio (TOL/TNW) Operating Profit/Sales % (after interest) NWC (Rs Lacs)
31-03-2009 31-03-2010 31-03-2011 (Audited) (Audited) (Provisional) 1.16 1.16 1.28 679 1441.12 4.03 1.75 758.84 1507.68 4.61 1.89 899.81 1648.07 3.6 1.67
0.86 158.85
5.06 459.88
3.77 595.14
B) Assumptions Rupees in Lacs Actual 31.03.2009 a) Sales Gross Sales - Net b) Cost of Production c) Cost of Sales (Incl. Depn.) d) Raw Materials Consumption e) % Cost of Production/Sales f) % Cost of Sales/Sales g) % Raw material consumption to cost of production 4073.73 4073.73 3671.48 3963.19 3188.00 Actual 31.03.2010 5939.10 5939.10 5591.35 5478.04 4607.74 Estimated 31.03.2011 11200.00 11200.00 10679.40 10610.09 9685.48 Projections 31.03.2012 11500.00 11500.00 10882.93 10880.09 9960.75
90.13
94.14
95.35
94.63
97.29 86.83
92.24 82.14
94.73 90.69
94.61 91.53
98
C) Level Of Holdings : (Months) Actual 31.03.2010 Raw Material Indigenous Imported Consumable, Spares & stores Work-in-process Finished Goods Receivables Other Current Assets %of OCA/CA Sundry Creditors Other Current Liabilities (other than BB) 0.85 43.05 0.40 80.57 0.38 94.64 1.96 0.33 0.66 1.03 8.02% Provisional 31.03.2011 0.63 0.28 0.42 0.63 7.34% Estimates 31.03.2012 0.61 0.27 0.41 0.68 5.07%
D) Break up Other Current Assets: Break Up of Other Current assets is given : Particulars 2008-09 Actual Cash & bank Balances Fixed Deposits with banks Investments in Govt. Securities Loans & Advances Others 19.84 56.67 2009-10 Actual 51.95 44.57 2010-11 Estimated 218.81 100.00 (Rs in Lacs.) 2011-12 Projections 418.75 100.00 -
22.96 95.58
224.48 193.34
30.11 160.11
30.11 165.11
Total
195.05
514.34
508.92
713.86
99
E) Break up of other Current Liabilities (Rs. In Lacs) Items Sundry Creditors for purchase Sundry creditors for expenses Adv. From customers Prov. for Income tax Other Statutory Lib. Other Liabilities Total ( B) 198.29 417.25 411.41 425.48 2008-09 140.02 26.54 31.73 2009-10 374.20 30.53 12.52 2010-11 325.00 11.42 5.84 69.15 2011-12 325.00 11.42 5.84 83.22
(F ) Computation Of Working Capital Actual Audited ( 31.03.10) Current Assets Raw Materials Work in progress Consumable Spares/Stores Finished goods Receivables Advances to suppliers Cash & Bank Balance Other Current assets Total Current assets (CA) Sundry Creditors Less : Others current Liabilities 753.32 186.47 300.47 381.41 224.48 96.52 193.34 2136.01 374.20 43.05 1718.76 506.39 271.46 369.78 500.00 30.00 318.81 160.11 2156.55 325.00 86.41 1745.14 507.56 271.46 372.62 550.00 30.00 518.75 165.11 2415.50 325.00 100.48 1990.02 Rupees in Lacs Provisional Projected ( 31.03.11) ( 31.03.12)
Working Capital Gap
100
(G) Computation of Permissible Bank Finance: in Lacs 31.03.2010 Actual 1718.76 534.00 31.03.11 Estimated 1745.14 539.14
Rupees
1. Working Capital Gap (WCG) 2. Minimum stipulated NWC (25% of CAexcept export receivables) 3. Actual/Projected NWC 459.88 595.14 4. Item (1) Item (2) 1184.76 1206.00 5. Item (1) Item (3) 1258.88 1150.00 6. Permissible Bank Finance 1184.76 1150.00* 7. Excess over bank borrowing representing NIL Nil shortfall in NWC 8. UCO Bank share in assessed Fund based 100% WC limit proposed for Fy 2010-11 The branch has recommended for sanction of total working capital limit of Rs. 1150.00 which shall be split up as under: CC (Hyp) : Rs. 400.00 lacs (reduced from existing level of Rs. 500.00 lacs) CC (BD) : Rs. 250.00 lacs (increased from existing level of Rs. 250.00 lacs) EPC : Rs. 500.00 lacs (renewal at the same level)
31.03.12 Projected 1990.02 603.88 840.02 1386.14 1150.00 1150.00 Nil
lacs
Assumptions: Justification of Sales Projections The turnover of the company for FY 2008-09 was Rs 4073.00 lacs it increased to Rs 5939.00 lacs in 2009-10 and further estimated to be Rs 11200.00 lacs during the year 2010-11. The company has already achieved the turnover of Rs.9794.00 lacs against the projected net sales of Rs 11200.00 lacs for the year 2010-11 and the party has projected sales of Rs. 11500.00 lacs. Justification of Holding Levels Raw Materials: Norms for raw material are kept at 1.84 months as the company has to store various types of Acrylic fiber, Nylon/ Polyster Yarn, filament yarns for manufacturing different counts of Worsted Yarn, Chennile yarns, of various counts like 2/32,2/28,1/23,1/16,3/16 etc. Now the company projects the holding level of 0.61 months it may be due to easy availability of the raw material.
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Work -in -Process:- Keeping in view the manufacturing process along with strict quality checking systems, the level of WIP is projected to reduce from present level of 0.33 month to 0.27 months and the same is considered acceptable. Finished Goods: - The finished goods consists Worsted Yarn, Chennile yarns, of various counts like 2/32, 2/28, 1/23, 1/16, 3/16 etc. The company has to maintain adequate stocks of all yarns of all counts. Therefore the company is holding finished goods level of 0.66 Months and now the company projects to hold the finished goods for 0.41 months and same is being considered acceptable. S. Debtors:- The products of the company are already established in the market and the company is offering an average credit period ranging from 45 days to 60 days (which varies from customer to customer/yarn to yarn) i.e. an overall average period of 30 days. The same is considered reasonable and need based but now the party wants to further restrict is debtors and has projected the holding level at 0.68 months. Creditors: - As per prevailing market practices, raw material is procured either on cash payment basis or against LC. The creditor level is assessed at 0.85 months which seems reasonable. Now the company wants to further reduce its creditors to 0.38 months in order to avail cash discounts.
All the proposed levels are reasonable and need based and accordingly recommended for acceptance. The working capital limits worked out on that basis are reasonable and need based. Export Initiatives of the company: The company is getting good response from overseas market and has order in hand about 600.00 lacs approx. The company has achieved export sales of Rs 800.00 lacs upto 30.09.2010 against the targeted export sales of 1600.00 lacs for the year ending 2011
4.2.5.2 Proposal for Sanction Rupees in Lacs Nature of facility Existing Proposed
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Term loan
TL-1
39.00
39.00 - To be reviewed at run down balance
TL-2
182.00
182.00 - To be reviewed at run down balance
FLC/ILC (as sub limit of term loan for purchase/import of capital goods/machinery etc for the proposed project of the Company) Working capital fund based (CC/WCDL /EPC /FBP) For existing/proposed activity- (under multiple/consortium/sole)
Nil
Nil
CC HYP 500.00 B.D. EPC LCBP 150.00 500.00 300.00
CC HYP 400.00 Revised B.D. EPC Level LCBP 250.00 Revised 500.00 Existing
200.00 Revised
Working capital non fund based (BGPerformance / financial) For existing /proposed activity- (under multiple/consortium/sole) Working capital non fund based (ILC/FLC) -For existing / proposed activityTotal fund based Total non fund based Total exposure
25.00
25.00 (existing level)
475.00
875.00 (Revised)
1671.00 500.00 2171.00
1571.00 900.00 2471.00
CC Hyp Cash Credit Hypothecation
PROPOSAL FOR Approval /Ratification
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Approval is required for
For review of Term Loans at run down balance. For renewal of EPC at the existing level of Rs.500.00 lacs and renewal cum reduction of CC (Hyp) from the existing level of Rs. 500.00 lacs to Rs. 400.00 lacs and renewal cum enhancement of CC (BD) limit from Rs. 150.00 lacs to 250 lacs. Reduction of LCBD Limit from Rs.300 lacs to Rs.200.00 lacs. Renewal of Bank Guarantee of Rs.25.00 lacs at existing level and renewal cum enhancement in ILC/FLC Limit from existing level of Rs.475.00 lacs to Rs.875.00 lacs.
Ratification is required for
-Nil-
4.2.5.3 Security SECURITY Term loan Primary Proposed (Rs. In lacs) Nature
Value
1st Pari-passu mortgage & hypo. As on 31.03.2010 Charge over the land building, plant & machinery and other immovable & Rs. 2121.00 lacs. movable fixed assets of the existing & expansion project of the company -UCO Bank share (both existing & future)
100%
For Fund based WC ( primary)-
Hypo. Charge on current assets stock and book debts On exclusive basis
Valuing Rs 2136.00 lacs as on 31.03.2010 On exclusive basis (UCO Bank share 100 %)
WC-NON FUND BASED(BG)
Extension of charge on the current & fixed assets as above Counter Guarantee Cash Margin 25%
Residual value after meeting DP& margin-
UCO banks share 100%
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NON FUND BASED(ILC/ FLC)
Extension of charge on the current & fixed assets as above
Residual value after meeting DP& margin-
Documents to title of goods Cash margin (10 %)
our banks share 100%
Collateral securities for total credit exposure: Nature Value
Security
1) Property/land measuring 3115 Sq. yards owned by Sh. Equitable Sanjay Gupta & Sh. Ajay Gupta. It is plot in a residential mortgage colony 2) Property/land measuring 967 sqyds owned by Sh. Equitable Sanjay Gupta & Sh. Ajay Gupta This property is a mortgage residential plot. 3) Property / land measuring 1342.5 Sq. yards owned by Equitable Sh. Sanjay Gupta & Sh. Ajay Gupta sons of Sh. Ram Lal mortgage Gupta. Residential Plot Rs. 575.00 lacs
Rs. 67.10 lacs
4) Extension Charge over property
Hypothecation Rs. 46.00 lacs
The properties mentioned at point 1 and 2 are one property having two different registries and companied value of the property is Rs. 575.00 lacs.
Collateral security for fund based and NFB working capital: 2nd Hypothecation/ mortgage charge on land & Building, Plant & Machinery and other movable and immovable fixed assets of the company at present and added in future during the currency of bank advance.
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Personal guarantee/ corporate guarantee Personal guarantee
Name 1. Sh. Sanjay Gupta 2. Sh. Ajay Gupta 3. Sh. Gautam Gupta N.A
Net Worth (Rs. In lacs) as on 31.03.2010 3405.00 3232.00 47.00
Corporate Guarantee
The bank obtains latest Personal Balance Sheet & Income Tax Returns of the Directors along with latest address Details of immovable properties owned by the directors are obtained before disbursement of enhanced facility. This is done by verifying the ownership from the original documents and spot verification will also be done. CIBIL data of the Directors is verified and it is ensured that nothing averse has been noticed and no account is shown as overdue.
Guarantee from ECGC
To be covered under Both WTPCG & WTPSG of ECGC
To be continued
Whole Turnover Packing Credit Guarantee (WTPCG)/Whole Turnover Post Shipment Guarantee (WTPSG) to banks to cover their advances against export bills. 4.2.5.4 Exposure : BORROWER Existing Domestic Credit Overseas Exposure Investments Total Excess Over Bank Norms Excess Over RBI Norms 2171.00 Nil Nil 2171.00 Proposed 2471.00 Nil Nil 2471.00 Existing 4671.00 Nil Nil 4671.00 Nil Nil GROUP Proposed 4971.00 Nil Nil 4971.00 Nil Nil
EXPOSURE In Lacs
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Financing Pattern (Rs. in Lacs) Financing Pattern Sharing Pattern Sole EXISTING under TOTAL UCO BANK 221.00 PROPOSED under Percentage TOTA L 100 221.00 UCO BANK 221.00 Percentage
For Term Loan For Working Capital Fund Based
221.00
100
1450.00
1450.00
100
1350.0 0
1350.0 0
100
Non Fund Based
500.00
500.00
100 900.00 900.00 2471.0 0
100
Total
2171.00
2171.00
100
2471.0 0
100
4.2.5.5 Pricing Pricing Credit Rating Existing A as per audited B/S dt 31.03.09 as per Branch Proposed A as per audited B/S dt 31.03.10 as per Branch
Interest Base rate + 5.80% for CC BPLR for CC - Base rate + 6.30 % for TL BPLR for TL Prepayment charges Nil
Base Rate+4.25% for CC* Base Rate+ 4.25% for TL Nil
Processing As Applicable charges/upfront fees / Commission charges /Lead bank charges /syndication fees BPLR - Benchmark Prime Lending Rate
As applicable
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RBI has recommended that the BPLR (benchmark prime lending rate) system be replaced by a base rate system below which no lending can be done. *Justification for the Concessional Rate of Interest/Commission/other concessions Proposed The company is dealing with UCO Bank since 1982 under sole banking arrangements. The dealings of the company are quite satisfactory. The Company is enjoying credit facilities at the concessional ROI at base rate + 4.00% p.a.
4.2.6 Exposure of Other Banks (Rs in Lacs) Name of the Bank /FI Sanctioned limit Term Loan WC Fund based WC Non fund based
Balance Outstanding AS ON 01.03.2011* Term WC WC Non Loan Fund fund based based -
SIDBI
TL-1 75.00 NIL TL-2 75.00 8.00 TL-3 313.00 182.00 TL-4 240.00 172.00 Total 703.00 362.00 * the branch ensures that the Term Loans from SIDBI are regular and standard. 4.2.7 Group Credit 4.2.7.1 Detail of Group
Super Tex Mart Limited, Ludhiana The term loan of the company was restructured twice, first immediately after one year of sanction of the term loan in the year 2008 due to delay in implementation of project due to delay in tie up of equity with M/S Sinochamp Corporation Ltd.,Hong Kong and 2nd time in the year 2009 due to global slowdown. Due to global slowdown in textile sector , the company has made some changes in the project and decided to install 1920 rotors instead of 16800 spindles which have again delayed of commencement of repayment of installments of term loan was extended .The company is making regular repayment as per restructured terms and there is no irregularity in the account. The term loan account was restructured by all the other consortium member banks i.e. SBI and PNB, Group Promoters: Sh. Sanjay Gupta Sh. Ajay Gupta Sh. Gautam Gupta
108
Group Companies Details about Group/associate concerns (Operative/active companies):Name Activity Bankers Standard of asset/ opinion of banks Standard
Super Tex Mart Ltd.
Mfg. of Yarns
SBI, PNB, UCO
Name of the group company
Fund based
Non fund based
Total
Balance Outstanding as on 25.03.2011 1498.27 862.00 2360.27
Super Tex Mart Ltd. Working capital limits Term Loan Total
1600.00 900.00 2500.00
1600.00 900.00 2500.00
4.2.7.2 Salient Financials of Group Companies (based on past audited BS): (Rs. in lacs) Companies Years Sales PAT TNW DE Current Bankers/ /Firms ratio ratio limit enjoyed Super Tex 2007-08 16569.00 852.00 6759.00 1.77 1.33 SBI Mart Ltd 2008-09 31231.00 -404.00 7320.00 2.09 1.23 SBI-5200.00 PNB-2000.00 UCO- 1600.00 SBI-5200.00 PNB-1800.00 UCO- 1600.00 Allahabad bank- 800.00 OBC-200.00
2009-10
36706.00
749.00
8069.00
2.56
1.32
Comments on group financials: Sales of the company have increased by 90% in the year 2008-09 and 18% in the year 200910. The company has earned profit of Rs.749.00 lacs for the year 2009-10 as compare loss
109
during 2008-09. The current ratio has increased from 1.23 to 1.32 and company earned cash profit of Rs. 2125.00 lacs during the year 2009-10 as compare 684.00 lacs during 2008-09.
4.2.8 Assessment of Proposal 4.2.8.1 Assessment of Quasi Credit (Non-Fund Based) Requirements: 1) BANK GUARANTEES (Performance/Financial): PURPOSE: For custom requirements etc Tenor including claim period: 1-3 years Margin proposed: 25% Assessment of requirement of Bank Guarantee: a) Outstanding BGs: b) Cancellation envisaged 4.00 lacs : 0.00 NIL : : 21.00 lacs 25.00 lacs 25.00 lacs
c) Requirement incidental to regular operation : d) Requirement pertaining to contingent events e) Requirement of BG (a-b)+c+d
f) Our share in the above BG Limit proposed : 100% The branch has recommended the renewal of the BG at the same level. 2) LETTER OF CREDIT (ILC/FLC): Rs 875.00 lacs PURPOSE: FLC for import of raw material ILC -- for purchase of inland raw material USANCE PERIOD MARGIN : : 15% 90 days
Assessment of requirement of LC limit For procurement of raw materials/Stores/spares Total Purchase : Rs.9985.00 lacs
110
a) Annual Purchase Estimated Through ILC/FLC : Rs. 5000.00 lacs b) Lead time : Days 10 days c) Credit/usance : Days 90 days (including lead time) d) Total (b+c) : Days 100 days e) LC required : Rs.1370.00 lacs. ILC/FLC requested : Rs 875.00 lacs. f) UCO Banks share proposed: 100%
Financing Pattern of working capital (Under sole banking arrangements) (Rs. in lacs)
Name of the Bank /FI
Existing Fund based Share % Non fund based Share %
Proposed Fund based Share % Non fund based 900.00 900.00 Share %
UCO Bank TOTAL
1671.00 1671.00
100 100
500.00 500.00
100 100
1571.00 1571.00
100 100
100 100
Assessment of Term Loan Requirements: No fresh term loan is required. However review of the existing term loans at run down balance is recommended. TL-1 - Rs.38.00 lacs. TL-2 - Rs.182.00 lacs 4.2.9 Banks Comments on the Account: 4.2.9.1 Risk assessment for existing/proposed WC facility Areas of risks Risks perceived Mitigating factors Industry / Activity a) Threats from existing /new The company is in line of business for last risks entrants in the industry. more than 25 yrs and having good market b) Increase in prices of raw for its products. material The price of raw material are increasing c) Marketing of additional .The price of finished products will also production be increased proportionately. Company is increasing its export sales and therefore additional products will be
111
sold in local as well as foreign market. Borrower risks Security risks Other than Normal Credit risk if any. Non-availability of collateral security Regulatory risksOthersAverage Risk Company offered Collateral security valuing Rs 688.00 lacs besides charge on the current/ fixed assets of the company. Normal risk
Other risks
4.2.9.2 Policy Compliance:
Compliance with loan policy guidelines for new exposure Parameters Credit Rating Requirement Compliance audited BS dt
At least B+ with more than 2/3rd A as per marks in management rating 31.03.2010.
Industry Credit Information Report from the existing Bankers (For take over/ new accounts) Take over norms - For take over account Promoters contribution DSCR Current Ratio TOL/TNW 25% (minimum) Should reveal satisfactory conduct & Asset classification as standard. NA
NA
NA
1.50(Min.) Min. 1.17 3.5:1(maximum) Term debt equity incl. proposed borrowing should not exceed 3:1
NA 1.27 4.61*
Prudential limit
Exposure Single/individual-Rs. Grouplacs
lacs
NA
112
*The TOL/TNW is higher than the accepted level but if we consider unsecured loans as quasi capital than it comes to 1.83 which is within acceptable norms.
4.2.9.3 Recommendation M/S Genus Texspin Ltd is engaged in the production of all kinds of hosiery yarns like worsted, fancy, fresh, chennille etc. since 1982.The Company is selling the product in the local and overseas market. The branch has informed that the prices of the raw material are rising day by day. Over the years the turnover of the company is showing an upward trend and is able to achieve its projected targets. The ratios are within banks acceptable norms and the account are backed by security which is industrial land & building in urban area, the value will appreciate.
In light of what was studied I felt that bank was right in recommending for renewal cum enhancement of CC limits and review of TL of the following fund based/non fund facility(s) in favour of M/s Genus Texspin Ltd.
Sources: Annual report 2010-11- Ministry of Textiles, Govt. Of India Textile Industry Report- Dun & Bradstreet India Textiles & Apparels, November 2010, IBEF
UCO Bank Proposal of Genus Texspin
Business Standard, June 2011
113
Chapter-5 Conclusion & Recommendations
Chapter 5 Conclusion & Recommendations

5.1 Conclusion & Learning
Credit Management is one the most important aspects of the banking industry, as the financial survival of the banks depends on a sound and stable Credit Policy. UCO Bank gave me an opportunity to study and understand the different facets of credit management and their importance. This practical insight into the functioning of the banking industry was an enriching experience as I got to understand the various factors analysed and considered when the bank takes an exposure in a particular venture. UCO Bank provided me with an in depth knowledge of its loan policy including various factors that they consider while evaluating the credit worthiness of their customers. It enabled me to understand how the bank evaluates the loan proposal for different customers while adhering to various Government policies and RBI directives. This training also helped me understand the role of external credit rating agencies in todays business environment and how such agencies have become indispensible. The project allocated to me was regarding the Evaluation of Loan Proposal of an existing client of UCO Bank in the textile industry. The company in question has been associated with UCO Bank for several years and had recently requested the bank for modification and enhancement of certain credit facilities extended to it. Analysis and study of this proposal helped me understand the parameters on which the bank will base its judgements and how the companys past performance will impact the banks decisions. Finally, the study of this proposal also provided me a broad outlook of the Textile Industry & the steps government is putting in place to promote this sector.
5.2 Recommendations
The opportunity to undergo my internship at UCO Bank provided me a great learning experience and I would always remain indebted to the staff of UCO Bank for their kind support. In light of my time spent at UCO Bank I would like to suggest the following recommendations to the bank: 1) The Credit Scoring Process can be achieved in a more efficient manner by developing software (or a fixed Excel Format) for evaluation of the financials of a company. This would save the staff of the bank a lot of time as calculating and evaluating so many ratios is a time consuming process. 2) The bank can also look to incorporate other Credit Rating Models like Moodys Credit Rating Model, Altmans Z Score Model in case of ambiguity. The rating for the given proposal was done using Altmans Z Score Model and was found to be in accordance with banks rating. As Genus Texspin is not a publically listed company, thus Altmans Z Score for a private firm is used to calculate its financial health.
114
Z-score estimated for private firm Z Score Bankruptcy Model: Z' = 0.717T1 + 0.847T2 + 3.107T3 + 0.420T4 + 0.998T5 T1 = (Current Assets-Current Liabilities) / Total Assets T2 = Retained Earnings / Total Assets T3 = Earnings Before Interest and Taxes / Total Assets T4 = Book Value of Equity / Total Liabilities T5 = Sales/ Total Assets Zones of Discrimination: Z' > 2.9 -Safe Zone 1.23 < Z' < 2. 9 -Grey Zone Z' < 1.23 -Distress Zone (Values in Rs Lacs) 2008-09 Current Assets Current Liabilities Total Assets Retained Earnings EBIT Book Value of Equity Sales Total Liabilities NOTE: Total Assets = Net Fixed Assets + Total Current Assets + Non Current Assets Retained Earnings: Profit & Loss Surplus EBIT = PBDIT Depreciation 1175.60 1016.75 3417.6 0 35.06 679.56 4073.73 2738.04 2009-10 2136.01 1676.13 4256.93 0 301.4 758.85 5939.10 3498.08 2010-11(Estimates) 2156.55 1561.41 4138.45 2.8 421.99 896.80 11200.00 3238.65
115
Book Value of Equity = Total Assets Total Liabilities
For 2008-09 Z = .717[(158.85)/3417.6] + .847 (0/3417.6) + 3.107 (35.06/3417.6) + .420 (679.56/2738.04) + .998 (195.73/84.28) = .0333 + 0 + 0.0319 + .2482 + 1.1896 = 1.5030 Hence, so no definite prediction can be made for the financial future of Genus Texspin over the next two years based on Altmans Z Score.
For 2009-10: Z = .717[(459.88)/4256.93] + .847 (0/4256.93) + 3.107 (301.4/4256.93) + .420 (758.85/3498.08) + .998 (11200/4256.93) = .0775 + 0 + .22 + 0.09 + 2.6257 = 3.0132 Hence, According to Altmans Z Score Genus Texspin is predicted to be in good financial health. This Z score result is in coherence with UCO Bank rating of A given to Venus Texspin on 31st March, 2010 3) I also believe that the Bank can take active steps to move towards an online repository of data. This online repository will not only enable the staff of the bank to access vast amounts of data of clients very quickly but will help to eliminate the time lag it takes to move such data between the hierarchy of the bank (i.e. Branch Office, Regional Office and Head Office). Doing this also help to eliminate the carbon footprint of the bank by reducing the amount of paper the bank uses. 4) Technology has become a strategic and integral part of banking, driving banks to acquire and implement world class systems that enable them to provide products and services in large volumes at a competitive cost. Thus, the bank would benefit immensely from upgrading its IT infrastructure. This would enhance the efficiency of the bank staff. This could be complemented with the help of a dedicated computer support team which would ensure quick resolution of any IT related issues.
116
Glossary of Terms
Glossary of Terms 1. ALCO Asset Liability Management Committee 2. B/G- Bank Guarantee 3. BB Bank Borrowings 4. BD Bills Discounting 5. BPLR Benchmark Prime Lending Rate 6. CA Current Assets 7. CC Hypo Cash Credit Hypothecation 8. CE Capital Employed 9. CIBIL- Credit Information Bureau India Limited 10. CIR Credit Information Report 11. CL Current Liabilities 12. CPs Commercial Papers 13. DA LC Documents against acceptance of Letter of Credit 14. DD Demand Draft 15. DSCR Debt Service Coverage Ratio 16. EBIT Earnings before Interest & Tax 17. ECGC Export Credit Guarantee Corporation 18. EPC - Export Packing Credit 19. EMTD Equitable Mortgage Title Deed 20. FBP Foreign Bills Purchased 21. FDR Fixed Deposits Receipts 22. FI Financial Institution 23. FLC Foreign Letter of Credit 24. GP Gross Profit 25. HO Head Office 26. ILC Inland Letter of Credit 27. LC Letter of Credit 28. KYC Know Your Customer 29. MSME Micro, Small & Medium Enterprises 30. NOC No Objection Certificate 31. NPA Non Performing Assets 32. NWC Net Working Capital 33. PBDIT Profit before depreciation, interest & tax 34. PDIR Priority Disassembly & Inspection Report 35. PSR Profit Sharing Ratio 36. PSVR Post Site Visit Report 37. R.O.C Registrar of Companies 38. RM Raw Materials 39. TCL Total Current Liabilities 40. TL Term Loan 41. TOL Total Outstanding Liabilities 42. TNW Tangible Net Worth 43. WC Working Capital
117
Bibliography
Bibliography
1) UCO Bank Loan Policy Document 2) UCO Bank Credit Monitoring Manual 3) UCO Bank NPA Manual 4) CRISIL Report UCO Bank 5) Ministry of Textile Annual Report 2010-11 6) Textile Industry Report- Dun & Bradstreet India 7) Textiles & Apparels, November 2010, IBEF 8) UCO Bank Website 9) CIBIL Website 10) ICRA Website 11) www.investopedia.com 12) www.indianmoney.com 13) www.wikipedia.org
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Credit Appraisal in Textile Sector

SUMMER INTERNSHIP PROJECT

Gunpreet Singh University Business School

Signature of Company Mentor:

Chapter -1 Objectives & Background

Chapter -1 Objectives & Background 1.1 Project Overview

Chapter -1 Objectives & Background

1.2 Objectives of the Project

1.3 UCO Bank

Chapter -1 Objectives & Background

Chapter -1 Objectives & Background

Chapter -1 Objectives & Background

Chapter -1 Objectives & Background

Chapter -1 Objectives & Background

1.3.9 Annual Results

Chapter -1 Objectives & Background

Sources: UCO Bank CRISIL Company Report www.ucobank.com

Chapter -2 Loan Policy Overview

Chapter -2 UCO Bank Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

2.7.4 Pricing of New Products:

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview

Chapter -2 Loan Policy Overview