Project Appraisal PNB

Credit Appraisal & Risk Rating.
Summer Internship Project Report

On
Project Appraisal & Credit Rating at Punjab National Bank
By
Ravi Jaiswal
A0101910168
MBA Class of 2012

Under the Supervision of
Mr. Yogesh Mehra
Assistant Professor
Department of Finance
In Partial Fulfillment of the Requirements for the Degree of Master of
Business Administration
At
AMITY BUSINESS SCHOOL

AMITY UNIVERSITY UTTAR PRADESH
SECTOR 125, NOIDA - 201303, UTTAR PRADESH, INDIA
2011
Amity Business School, Noida.
Page 0
DECLARATION
Title of Project Report: Project Appraisal & Credit Rating at Punjab National Bank
I declare
(a)That the work presented for assessment in this Summer Internship Report is my
own, that it has not previously been presented for another assessment and that my
debts (for words, data, arguments and ideas) have been appropriately acknowledged
(b)That the work conforms to the guidelines for presentation and style set out in the
relevant documentation.
Date: -August-2011
Ravi Jaiswal
A0101910168
MBA Class of 2012
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CERTIFICATE
I Prof. Yogesh Mehra hereby certify that Ravi Jaiswal student of Masters
Of Business Administration at Amity Business School, Amity University
Uttar Pradesh has completed the Project Report on PROJECT APPRAISAL AND
CREDIT RATING, under my guidance.
Yogesh Mehra
Asst. Professor
Department of Finance
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ACKNOWLEDGEMENT
Every work involves efforts and inputs of various kinds and people. I am thankful to
all those people who have been helpful enough to me to the extent of their being
instrumental in the completion and accomplishment of the project entitled Credit
Appraisal and Risk Rating at Punjab National Bank. Kolkata.
I sincerely acknowledge with deep sense of gratitude to my project guide and mentor
Mr. Anirban Pal, Manager (Financial Analyst), PNB Large Corporate Branch,
and Mr. Yogesh Mehra Sir (Finance Department) for enhancing my understanding
of the subject and enabling me to appreciate finer nuances of the subject.
I would also like to express my deepest gratitude to Mr.Naren Dutta, Senior
manager, Circle Office, Kolkata & Mr. Biswajit Kaul, (Manager, HR) as he found
me credible enough to work for PNB and selected me for challenging project.
Lastly I would also like to thanks the entire Credit Department for their help and
guidance, without which the completion of this project would have been extremely
difficult.
Ravi Jaiswal
A0101910168
MBA in Finance & Marketing
Amity Business School,
Amity University, Noida
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EXECUTIVE SUMMARY
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This project was undertaken at the Punjab National Bank Large Corporate Branch,
Kolkata, at the Credit Department. Financial requirements for Project Finance and
Working Capital purposes are taken care of at the Credit Department. Companies that
intend to seek credit facilities approach the bank. Primarily, credit is required for
following purposes:
a. Working capital finance
b. Term loan for mega projects
Project Financing discipline includes understanding the rationale for project
financing, how to prepare the financial plan, assess the risks, design the financing
mix, and raise the funds. In addition, one must understand some project financing
plans have succeeded while others have failed. A knowledge-base is required
regarding the design of contractual arrangements to support project financing; issues
for the host government legislative provisions, public/private infrastructure
partnerships, public/private financing structures; credit requirements of lenders, and
how to determine the project's borrowing capacity; how to analyze cash flow
projections and use them to measure expected rates of return; tax and accounting
considerations; and analytical techniques to validate the project's feasibility
Project finance is different from traditional forms of finance because the credit risk
associated with the borrower is not as important as in an ordinary loan transaction;
what is most important is the identification, analysis, allocation and management of
every risk associated with the project.
The purpose of this project is to explain, in a brief and general way, the manner in
which risks are approached by financiers in a project finance transaction. Such risk
minimization lies at the heart of project finance. Efficient management of credit
portfolio is of utmost importance as it has a tremendous impact on the Banks assets
quality & profitability. The ongoing financial reforms have no doubt provided
unparallel opportunities to banks for growth, but have simultaneously exposed them
to various risks, which need to be effectively managed.
The concept of Credit Management is undergoing radical changes. Credit Risk in all
exposures calls for precise measuring and monitoring for taking considered credit
decisions with suitable risk mitigants, risk premium, etc. Credit portfolio should be
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well diversified in various promising sectors with a cautious approach to be adopted
in risky segments. Also, lending continues to be a primary function in banking. In the
liberalized Indian economy, clientele have a wide choice. External Commercial
Borrowings and the domestic capital markets compete with banks. In another
dimension, retail lending- both personal advances and SME advances- competes with
corporate lending for funds and for human resources. But lending by nature cannot be
an aggressive selling activity, disregarding the risks involved. Bank has to be
competitive without compromising on the basic integrity of lending. The quality of
the Banks credit portfolio has a direct and deep impact on the Banks profitability.
The study has been conducted with the purpose of getting in-depth knowledge about
the credit appraisal and credit risk management procedure in the organization for the
above said first two purposes.
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TABLE OF CONTENTS
Chapter 1: Introduction............................................................................................10
Introduction to Banking Sector and PNB]..........................................13
Chapter 2: Research Methodology..........................................................................30
Chapter 3: Literature Review..................................................................................32
Chapter 4: Data Analysis and Findings
Project/Credit Appraisal..................................................................36
Credit Risk Management...................................................................52
Post Sanction Supervision & Follow up of Loan.............................59
PNBs Loan Policy.............................................................................63
Chapter 5: Conclusions and Recommendation.....................................................69
Conclusions........................................................................................70
Findings..............................................................................................72
Recommendation...............................................................................73
Limitations..........................................................................................74
Reference............................................................................................75
APPENDIX: CASE STUDY....................................................................................76
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List of Table:
1. Profit, Advance, Deposit & Total Business of PNB .....................................27
2. Desired Level of DER for Project Financing under Different Industries and
Authorities to Relax the same ....................................................................45
3. Credit Risk Management Model................................................................... 54
4. Grading of Borrower Under rating system .....................................................56
5. Project Cost ..................................................................................................78
6. Means of Finance ...........................................................................................78
7. List Of Approved Mines of ABC.......................................................... 96-97
8. Assumption For Financial Evaluation........................................................ 98
9. Financial Statement Of the Company.........................................................99
10. Projected Production By ABC Beneficiated And Pelletization Unit............ 100
11. Projected Revenue................................................................................. 100
12. Variable Cost
i. Raw Material .............................................................................101
ii. Utilities ........................................................................................101
iii.
Consumables ................................................................................101
13. Fixed Cost
i. Manpower Cost .........................................................................102
ii. Depreciation................................................................................. 102
iii.
Interest ( long term loan) .............................................................103
14. Working Capital Estimation .............................................................103-104
15. Interest (Working Capital loan) ..............................................................104
16. Estimated P&L A/c of ABC.............................................................. 104-05
17. Estimated Balance Sheet of ABC .....................................................105-106
18. Cash Flow........................................................................................ 106-07
19. DSCR (Debt Service Coverage ratio)........................................................108
20. Sensitivity analysis ............................................................................... 108
List of Figure:
1. Organizational structure & Hierarchy........................................................... 28
2. Credit Appraisal Process at PNB ................................................................66
3. Value Chain of Steel.................................................................................... 82
4. Actual and projected Demand of Iron Ore(Globally)......................................84
5. Global Crude Ore Deposit .......................................................................84
6. Top Producer of Iron ore .........................................................................85
7. Global Prices of Iron Ore ........................................................................86
8. Domestic Demand, Supply & Export of Iron Ore ......................................88
9. Projected Demand & Supply Scenario in India ..........................................89
10. Global Demand of Pellets....................................................................... .90
11. Global Iron Ore Pellets Price ....................................................................91
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12. Import & Export of Iron Ore Pellets ........................................................93
13. Domestic Pricing Of Iron Ore Pellets ........................................................94
14. Implementation Schedule .......................................................................109
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CHAPTER- 1
INTRODUCTION
Corporate credit appraisal is a fundamental business practice which assesses the

potentialities of a corporation in terms of financial capabilities to honour debts and
other securities. A critical role of credit rating is, in its very basic essence, to ensure
that the borrower has good potential to repay debts and as such determine the level of
confidence a lender has with the borrower. Ideally, several instrumental fundamentals
are used to assess the credit worthiness of corporate credit appraisal and they include,
amongst others, financial history of a corporation, its assets and liabilities and its
projected future performance.
Scholars generally agrees that the methodologies used by credit rating companies
influences, to a large extent, the credit sphere with such fundamentals such as loan
performance, creditworthiness and, generally, economic performance coming into a
complex interplay, a phenomenon which greatly influences the general performance
of national and, to an extent, the global economy. Without a viable and effective credit
appraisal framework, chances are that there will be a credit crunch and general
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economic turmoil such as the one being witnessed in the US and all over the globe. In
fact the current crises being witnessed in the United States is partly as a result of
inadequate rating methods used by the credit rating agencies.
To effectively understand the subject matter, it is necessary, indeed mandatory that the
methods used by credit rating companies be investigated, an undertaking that will
help in shedding more light to the causes of the current crisis.
Before going further it is necessary to understand the need and basic framework of the
project. Therefore this chapter provides an introduction to the topic, objective of the
project, reasons for selecting the project and the basic structure and framework how
the project proceeds.
Reasons for selecting the project

Whenever an individual or a company uses a credit that means they are borrowing
money that they promise to repay with in a pre-decided period. In order to assess the
repaying capability i.e. to evaluate their credit worthiness banks use various
techniques that differ with the different types of credit facilities provided by the bank.
In the current scenario where it is seen that big companies and financial institutions
have been bankrupted just because of credit default so Credit Appraisal has become
an important aspect in the banking sector and is gaining prime importance.
It is the incident of credit defaults that has given rise to the financial crisis of 2008-09.
But in India the credit default is comparatively less that other countries such as US.
One of the reasons leading to this may be good appraisal techniques used by banks
and financial institutions in India. Eventually the importance of this project is mainly
to understand the credit appraisal techniques used by the banks with special reference
to Punjab National Bank.
Objective of the project

To study broad contours of management of credit, the loan policy, credit appraisal for
business units i.e. for working capital loan or Term Loan
To understand the basis of credit risk rating and its significance
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To utilize the above learning and appraise the creditworthiness organizations those
approach PUNJAB NATIONAL BANK for credit. This would entail undertaking of
the following procedures:
i. Management Evaluation
ii. Business / Industry Evaluation
iii. Technical Evaluation
iv. Legal Evaluation
v. Financial Evaluation
vi. Credit Risk Rating
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INTRODUCTION TO BANKING SECTOR AND PNB
A snapshot of the banking industry:

The last decade has seen many positive developments in the Indian banking sector.
The growth in the Indian Banking Industry has been more qualitative than quantitative
and it is expected to remain the same in the coming years. Based on the projections
made in the "India Vision 2020" prepared by the Planning Commission, the report
forecasts that the pace of expansion in the balance-sheets of banks is likely to
decelerate. The total assets of all scheduled commercial banks by end-March 2010 is
estimated at Rs 40,90,000 crores. That will comprise about 65 per cent of GDP at
current market prices as compared to 67 per cent in 2002-03. Bank assets are expected
to grow at an annual composite rate of 13.4 per cent during the rest of the decade as
against the growth rate of 16.7 per cent that existed between 1994-95 and 2002-03. It
is expected that there will be large additions to the capital base and reserves on the
liability side.
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The Indian Banking Industry can be categorized into non-scheduled banks and
scheduled banks. Scheduled banks constitute of commercial banks and co-operative
banks. There are about 67,000 branches of Scheduled banks spread across India. As
far as the present scenario is concerned the Banking Industry in India is going through
a transitional phase.
The Public Sector Banks (PSBs), which are the base of the Banking sector in India
account for more than 78 per cent of the total banking industry assets. Unfortunately
they are burdened with excessive Non Performing assets (NPAs), massive manpower
and lack of modern technology. On the other hand the Private Sector Banks are
making tremendous progress. They are leaders in Internet banking, mobile banking,
phone banking, ATMs. As far as foreign banks are concerned they are likely to
succeed in the Indian Banking Industry. Currently, banking in India is generally fairly
mature in terms of supply, product range and reach-even though reaching rural India
still remains a challenge for the private sector and foreign banks.
In terms of quality of assets and capital adequacy, Indian banks are considered to have
clean, strong and transparent balance sheets relative to other banks in comparable
economies in its region. The Reserve Bank of India is an autonomous body, with
minimal pressure from the government. The stated policy of the Bank on the Indian
Rupee is to manage volatility but without any fixed exchange rate-and this has mostly
been true. With the growth in the Indian economy expected to be strong for quite
some time-especially in its services sector-the demand for banking services, especially
retail banking, mortgages and investment services are expected to be strong. One may
also expect M&As, takeovers, and asset sales.
In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its
stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an
investor has been allowed to hold more than 5% in a private sector bank since the RBI
announced norms in 2005 that any stake exceeding 5% in the private sector banks
would need to be vetted by them.
Currently, India has 88 scheduled commercial banks (SCBs) - 28 public sector banks
(that is with the Government of India holding a stake), 29 private banks (these do not
have government stake; they may be publicly listed and traded on stock exchanges)
and 31 foreign banks. They have a combined network of over 53,000 branches and
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17,000 ATMs. According to a report by ICRA Limited, a rating agency, the public
sector banks hold over 75 percent of total assets of the banking industry, with the
private and foreign banks holding 18.2% and 6.5% respectively.
The policy makers, which comprise the Reserve Bank of India (RBI), Ministry of
Finance and related government and financial sector regulatory entities, have made
several notable efforts to improve regulation in the sector. The sector now compares
favorably with banking sectors in the region on metrics like growth, profitability and
non-performing assets (NPAs). Indian banks have compared favorably on growth,
asset quality and profitability with other regional banks over the last few years. The
banking index has grown at a compounded annual rate of over 51 per cent since April
2001 as compared to a 27 per cent growth in the market index for the same period.
The interplay between policy and regulatory interventions and management strategies
will determine the performance of Indian banking over the next few years.
Management success will be determined on three fronts:
i. Fundamentally upgrading organizational capability to stay in tune with the changing
market
ii. Adopting value-creating M&A as an avenue for growth
iii. Continually innovating to develop new business models to access untapped
opportunities
Reforms in the banking sector:
The first phase of financial reforms resulted in the nationalization of 14 major banks
in 1969 and resulted in a shift from Class banking to Mass banking. This in turn
resulted in a significant growth in the geographical coverage of banks. Every bank has
to earmark a minimum percentage of their loan portfolio to sectors identified as
priority sectors. The manufacturing sector also grew during the 1970s in protected
environs and the banking sector was a critical source. The next wave of reforms saw
the nationalization of 6 more commercial banks in 1980. Since then the number
scheduled commercial banks increased four-fold and the number of banks branches
increased eight-fold.
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After the second phase of financial sector reforms and liberalization of the sector in
the early nineties, the Public Sector Banks (PSB) s found it extremely difficult to
complete with the new private sector banks and the foreign banks. The new private
sector banks first made their appearance after the guidelines permitting them were
issued in January 1993. Eight new private sector banks are presently in operation.
This banks due to their late start have access to state-of-the-art technology, which in
turn helps them to save on manpower costs and provide better services.
During the year 2000, the State Bank of India (SBI) and its 7 associates accounted for
a 25% share in deposits and 28.1% share in credit. The 20 nationalized banks
accounted for 53.5% of the deposits and 47.5% of credit during the same period. The
share of foreign banks ( numbering 42 ), regional rural banks and other scheduled
commercial banks accounted for 5.7%, 3.9% and 12.2% respectively in deposits and
8.41%, 3.14% and 12.85% respectively in credit during the year 2000.
Classification of banking Industry:

The Indian banking industry, which is governed by the Banking Regulation Act of
India, 1949 can be broadly classified into two major categories, non-scheduled banks
and scheduled banks. Scheduled banks comprise commercial banks and the cooperative banks. In terms of ownership, commercial banks can be further grouped into
nationalized banks, the State Bank of India and its group banks, regional rural banks
and private sector banks (the old / new domestic and foreign). These banks have over
67,000 branches spread across the country. The Indian banking industry is a mix of
the public sector, private sector and foreign banks. The private sector banks are again
spilt into old banks and new banks.
Banking System in India
Reserve bank of India (Controlling Authority)
Page 16
Development Financial institutions
IFCI
IDBI
ICICI
Commercial
Banks
Banks
NABARD
NHB
Regional Rural
Banks
IRBI
EXIM Bank
Land Development
Banks
Public Sector Banks
SBI Groups
SIDBI
Co-operative
Banks
Private Sector Banks
Nationalized Banks
Indian Banks
Foreign Bank
INDUSTRY ANALYSIS
Competitive forces model in the banking industry
(PORTERS FIVE-FORCE MODEL)
Prof. Michael Porters competitive forces Model applies to each and every company
as well as industry. This model with regards to the Banking Industry is presented
below.
(2)
(5)
Organizing
power
of the supplier is
high. With the new
financial
instruments
Amity
Business
School,
they are asking higher
return
on
the
investments.
Potential Entrants is
(1)
high as development
financial institutions
as
Rivalry
among
well
as
private
and
existing
firms
has
foreign
banks
have
increased
with
entered in a big way.New
liberalization.
Noida.
Page 17
products and improved
customer services is the
focus.
(4)
Bargaining power of
buyers is high as
corporate can raise
funds easily due to
high competition.
(3)
Threat
from
substitute is high due
to
competition
from
NBFCs and insurance
companies as they offer
a high rate of interest
1. Rivalry among existing firms

With the process of liberalization, competition among the existing banks has
increased. Each bank is coming up with new products to attract the customers and
tailor made loans are provided. The quality of services provided by banks has
improved drastically.
2. Potential Entrants
Previously the Development Financial Institutions mainly provided project finance
and development activities. But they now entered into retail banking which has
resulted into stiff competition among the exiting players.
3. Threats from Substitutes
Banks face threats from Non-Banking Financial Companies. NBFCs offer a higher
rate of interest.
4. Bargaining Power of Buyers
Corporate can raise their funds through primary market or by issue of GDRs, FCCBs.
As a result they have a higher bargaining power. Even in the case of personal finance,
the buyers have a high bargaining power. This is mainly because of competition.
5. Bargaining Power of Suppliers
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With the advent of new financial instruments providing a higher rate of returns to the
investors, the investments in deposits is not growing in a phased manner. The
suppliers demand a higher return for the investments.
Overall Analysis
The key issue is how can banks leverage their strengths to have a better future. Since
the availability of funds is more and deployment of funds is less, banks should evolve
new products and services to the customers. There should be a rational thinking in
sanctioning loans, which will bring down the NPAs. As there is a expected revival in
the Indian economy Banks have a major role to play. Funding corporate at a low cost
of capital is a special requisite.
SWOT ANALYSIS OF BANKING INDUSTRY

The banking sector is also taken as a proxy for the economy as a whole. The
performance of bank should therefore, reflect Trends in the Indian Economy. Due
to the reforms in the financial sector, banking industry has changed drastically with
the opportunities to the work with, new accounting standards new entrants and
information technology. The deregulation of the interest rate, participation of banks in
project financing has changed in the environment of banks.
The performance of banking industry is done through SWOT Analysis. It mainly
helps to know the strengths and Weakness of the industry and to improve will be
known through converting the opportunities into strengths. It also helps for the
competitive environment among the banks.
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a) STRENGTHS
1. Availability of Funds
There are seven lakh crore wroth of deposits available in the banking system. Because
of the recession in the economy and volatility in capital markets, consumers prefer to
deposit their money in banks. This is mainly because of liquidity for investors.
2. Banking network
After nationalization, banks have expanded their branches in the country, which has
helped banks build large networks in the rural and urban areas. Private banks allowed
to operate but they mainly concentrate in metropolis.
3. Large Customer Base
This is mainly attributed to the large network of the banking sector. Depositers in
rural areas prefer banks because of the failure of the NBFCs.
4. Low Cost of Capital
Corporate prefers borrowing money from banks because of low cost of capital.
Middle income people who want money for personal financing can look to banks as
they offer at very low rates of interests. Consumer credit forms the major source of
financing by banks.
b) WEAKNESS
1. Loan Deployment
Because of the recession in the economy the banks have idle resources to the tune of
3.3 lakh crores. Corporate lending has reduced drastically
2. Powerful Unions
Nationalization of banks had a positive outcome in helping the Indian Economy as a
whole. But this had also proved detrimental in the form of strong unions, which have
a major influence in decision-making. They are against automation.
3. Priority Sector Lending
To uplift the society, priority sector lending was brought in during nationalization.
This is good for the economy but banks have failed to manage the asset quality and
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their intensions were more towards fulfilling government norms. As a result lending
was done for non-productive purposes.
4. High Non-Performing Assets
Non-Performing Assets (NPAs) have become a matter of concern in the banking
industry. This is because of change in the total outstanding advances, which has to be
reduced to meet the international standards.
c) OPPORTUNITIES
1. Universal Banking
Banks have moved along the valve chain to provide their customers more products
and services. For example: - SBI is into SBI home finance, SBI Capital Markets, SBI
Bonds etc.
2. Differential Interest Rates
As RBI control over bank reduces, they will have greater flexibility to fix their own
interest rates which depends on the profitability of the banks.
3. High Household Savings
Household savings has been increasing drastically. Investment in financial assets has
also increased. Banks should use this opportunity for raising funds.
4. Overseas Markets
Banks should tape the overseas market, as the cost of capital is very low.
5. Interest Banking
The advance in information technology has made banking easier. Business can
effectively carried out through internet banking.
d) THREATS
1. NBFCs, Capital Markets and Mutual funds
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There is a huge investment of household savings. The investments in NBFCs deposits,
Capital Market Instruments and Mutual Funds are increasing. Normally these
instruments offer better return to investors.
2. Change in the Government Policy
The change in the government policy has proved to be a threat to the banking sector.
3. Inflation
The interest rates go down with a fall in inflation. Thus, the investors will shift his
investments to the other profitable sectors.
4. Recession
Due to the recession in the business cycle the economy functions poorly and this has
proved to be a threat to the banking sector. The market oriented economy and
globalization has resulted into competition for market share. The spread in the
banking sector is very narrow. To meet the competition the banks has to grow at a
faster rates and reduce the overheads. They can introduce the new products and
develop the existing services.
PUNJAB NATIONAL BANK

PUNJAB NATIONAL BANK IN A GLANCE
unjab National Bank (PNB) was established in 1895 in Anarkali

bazaar at Lahore, undivided India, Punjab National Bank (PNB) has the
distinction of being the first Indian bank to have been started solely
with Indian capital. The bank was nationalized in July 1969 along with
13 other banks. From its modest beginning, the bank has grown in size and stature to
become a front-line banking institution in India at present. Today, the Bank is the
second
largest government-owned commercial
bank in India with
about
5017
branches and 65 circle offices across 764 cities. It serves over 60 million customers.
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The bank has been ranked 248th biggest bank in the world by the Bankers Almanac,
London. The bank's total assets for financial year 2007 were about US$60 billion. It
has Strong correspondent banking relationships with more than 217 international
banks of the world. More than 50 renowned international banks maintain their Rupee
Accounts with PNB. PNB has a banking subsidiary in the UK, as well as branches
in Hong Kong, Dubai and Kabul, and representative offices in Almaty, Dubai, Oslo,
and Shanghai. PNB's founders included several leaders of the Swadeshi movement
such as Dyal Singh Majithia and Lala HarKishen Lal Lala Lalchand, Shri Kali
Prosanna Roy, Shri E.C. Jessawala, Shri Prabhu Dayal, Bakshi Jaishi Ram, and Lala
Dholan Dass. Lala Lajpat Rai was actively associated with the management of the
Bank in its early years.
HISTORY
1895: PNB commenced its operations in Lahore.

1904: PNB established branches in Karachi and Peshawar.
1940: PNB absorbed Bhagwan Dass Bank, a scheduled bank located
in Delhi circle.
1947: Partition of India and Pakistan at Independence. PNB lost its premises
in Lahore, but continued to operate in Pakistan.

1951: PNB acquired the 39 branches of Bharat Bank (est. 1942); Bharat Bank
became Bharat Nidhi Ltd.

1961: PNB acquired Universal Bank of India.
1963:
The
Government
of Burma nationalized
in Rangoon (Yangon).
1965: After the Indo-Pak war the government of Pakistan seized all the offices
PNB's
branch
in Pakistan of Indian banks, including PNB's head office, which may have
moved to Karachi. PNB also had one or more branches in East
Pakistan Bangladesh.
1960s: PNB amalgamated Indo Commercial Bank (est. 1933) in a rescue.
1969: The Government of India (GOI) nationalized PNB and 13 other major
commercial banks, on July 19, 1969.

1976 or 1978: PNB opened a branch in London.
1986 The Reserve Bank of India required PNB to transfer its London branch
to State Bank of India after the branch was involved in a fraud scandal.
1988: PNB acquired Hindustan Commercial Bank (est. 1943) in a rescue. The
acquisition added Hindustan's 142 branches to PNB's network.
Page 23
1993: PNB acquired New Bank of India, which the GOI had nationalized in
1980.
1998: PNB set up a representative office in Almaty, Kazakhstan.
2003: PNB took over Nedungadi Bank, the oldest private sector bank
in Kerala. At the time of the merger with PNB, Nedungadi Bank's shares had
zero value, with the result that its shareholders received no payment for their
shares.
PNB also opened a representative office in London
2004: PNB established a branch in Kabul, Afghanistan.
PNB also opened a representative office in Shanghai.
PNB established an alliance with Everest Bank in Nepal that permits migrants
to transfer funds easily between India and Everest Bank's 12 branches in
Nepal.
2005: PNB opened a representative office in Dubai.

2007: PNB established PNBIL - Punjab National Bank (International) - in the
UK, with two offices, one in London, and one in South Hall. Since then it has
opened a third branch in Leicester, and is planning a fourth in Birmingham.

2008: PNB opened a branch in Hong Kong.
2009: PNB opened a representative office in Oslo, Norway, and a second
branch in Hong Kong, this in Kowloon.

2010: PNB received permission to upgrade its representative office in
the Dubai International Financial Centre to a branch.
NEW INITIATIVES
A MoU signed with Indian Army Authorities for opening of salary accounts of
Army Personnel under PNB Rakshak Scheme.

Launched customized offers for LIC Agents, Doctors, Tour & Travel
operators, etc for meeting their specific requirements.

Entered into Rupee Drawing Arrangements (RDA) with 29 Exchange Houses
in Gulf countries and one in Singapore to facilitate remittances from NRIs

Tie up arrangements with TATA AIG and Kotak Mahindra Old Mutual Life
Insurance Ltd. (KLI) offering life Insurance cover to borrowers to provide
value addition to Housing and Education Loan Schemes.

Branches equipped with Retail Loan Appraisal-cum-Approval Software for
speedy processing of loan applications and faster service to retail customers.
Page 24
Soft launch of Corporate Credit Card with Corporate Liability in January
2011.
Introduced a modified Micro Credit- SHGs- Non Govt Sponsored Scheme
for financing of SHGs promoted by Bihar Rural Livelihoods Promotion
Society (JEEVIKA).
Developed web based software called Fixed Assets Management System
(FAMS) to centralize upkeep and maintenance of Bank records of capital
expenditure on fixed assets.
VISION & MISSION

"To be a Leading Global Bank with Pan
India footprints and become a household
VISION
brand in the Indo-Gangetic Plains providing

entire range of financial products and
services under one roof"
"Banking for the unbanked"
MISSION
With over 60 million satisfied customers and more than 5100 offices including 5
overseas branches, PNB has continued to retain its leadership position amongst the
nationalized banks. The bank enjoys strong fundamentals, large franchise value and
good brand image. Besides being ranked as one of India's top service brands, Based
on its sound and prudent banking experience and consistent profit performance, PNB
looks confidently to the future
PNB has achieved significant growth in business which at the end of March 2011
amounted to Rs 5,55,005 crore. PNB is ranked as the 2nd largest bank in the country
after SBI in terms of branch network, business and many other parameters. During the
Page 25

FY 2010-11, with 39.16% share of CASA to domestic deposits, the Bank achieved a
net profit of Rs 4433 crore. Bank has a strong capital base with capital adequacy ratio
of 12.42% as on Mar11 as per Basel II with Tier I and Tier II capital ratio at 8.44%
and 3.98% respectively. As on March11, the Bank has the Gross and Net NPA ratio
of 1.79% and 0.85% respectively. During the FY 2010-11, its ratio of Priority Sector
Credit to Adjusted Net Bank Credit at 40.67% & Agriculture Credit to Adjusted Net
Bank Credit at 19.30% was also higher than the stipulated requirement of 40% & 18%
respectively.
The performance highlights of the bank in terms of business and profit are shown
below:
PARAMETER
OPERATINGPROFIT
NET PROFIT
DEPOSITS
ADVANCES
TOTAL BUSINESS
In crore
MAR,O8
4006
2049
166457
119502
285957
MAR,09
5690
3091
209760
154703
364463
MAR,10
7326
3905
249330
186601
435931
MAR,11
9056
4033
312899
242107
555005
CAGR
26.16
19.76
22.14
25.14
23.40
RECENT AWARDS AND ACCOLADES
Received Gold trophy of SCOPE Meritorious Award for Best Managed Bank,
Financial Institution or Insurance Company for the year 2009-10 by Standing
Conference of Public Enterprises, from the president of India.
PNB adjudged as Top Indian Company under Banks Category by Dun and
Bradstreet Rolta Corporate Award 2010.
Page 26
Golden Peacock Corporate Social Responsibility Award 2011 by Institute of

Directors.
Best Corporate Social Responsibility Practice Award, 2011 by Bombay Stock

Exchange for second year in a row.
BML Munjal Award for Excellence in Learning & Knowledge Development

by Hero Mindmine Institute.
Golden Peacock National Training Award 2011 for the Best Training
Provided by Institute of Directors.
Bagged Second Prize under the category of Best Wind Power Project
Financier 2011 by World Institute of Sustainable Energy.
ORGANIZATIONAL STRUCTURE OF PUNJAB NATIONAL

BANK
Head Office
7, Bhikhaji Cama Place, New
Delhi-110066
Circle Office
Branches
Page 27
HIERARCHY
Chairman
Executive Director
General Manager (GM)
Deputy GM
Assistant GM
Chief Manager
Senior Manager
Manager
Officers
Subordinate clerks
Board of Directors
Sh.K.R. Kamath:- He has been appointed as a chairman and managing
director of Punjab National Bank by Govt. Of India.

Sh. M.V.Tanksale:- Executive Director
Sh. Rakesh sethi:- Executive Director
Smt. Ravneet Kaur:- Govt. of India Nominee Director
Shri Jasbir Singh:- Reserve Bank of India Nominee Director
Shri Vinod Kunar Mishra:- Part-time non-official Director
Shri Tribhuwan Nath Chaturvedi :- Share Holder Director
Shri G R Sundaravadivel:- Share Holder Director
Shri Devinder Kumar Singla: Share Holder Director
Sh. M P Singh:- Workmen Employees Director
Sh. Pradeep Kumar:- Officer Director
Page 28
CHAPTER- 2
Page 29
RESEARCH METHODOLOGY
The methodology being used involves two basic sources of information primary
sources and secondary source.
Primary sources of Information

1. Meetings and discussion with the Chief Manager and the Senior Manager of
both Credit and Credit Risk Management Department
2. Meetings with the clients
Secondary sources of Information
1. Loan Policy and Internal Circulars of the bank
2. Research papers, power point presentations and PDF files prepared by the
bank and its related officials
3. Referring to information provided by CIBIL, Income Tax files, Registrar of
Companies (Ministry of Corporate Affairs), and Auditor reports
Page 30
CHAPTER- 3
LITRATURE REVIEW
Page 31
Product Appraisal And Credit Rating has became an important part almost all Bank
and Financial institute, they find it as an effective tools to have credible Loan
portfolio and prevention of NPA occurrence, thus there have been several research
paper for the very same issue,
Research paper 1- Shyam Sundar Gupta, in his research paper published in June 2009
states the necessities for a an appropriate Project Appraisal and credit rating system,
in his paper he discussed the methodology followed by
PFC (Power Finance
Corporation Ltd) for Project Appraisal and Integrated Project Rating of Thermal
Power Project, in broad sense Project Appraisal is classified into Management
Appraisal here the impact of the company management is taking into consideration
from their past record of success and failure in the industry as experience is an
important factor, In Technical Appraisal, the technical feasibility analysis of the data
pertaining to the technical inputs like availability of the raw materials, power, sanitary
and sewerage services, transportation facility, skilled man power, engineering
facilities, maintenance, local people etc. This feasibility analysis is very important
since its significance lies in planning the exercises, documentation process, and risk
minimization process and to get approval. Financial Appraisal being the most
important part of project appraisal here PFC analyse the financial viability of the
Page 32

project to meet its obligation of interest and instalment, This involves the preparation
of cost estimates, means of financing, financial institutions, financial projections,
break-even point, ratio analysis like debt equity ratio and current ratio, PFC consider
the contribution of the project to the development of the sector; industrial
development, social development, maximizing the growth of employment, etc. All
these factor comes under the Economic Appraisal.
Environment & Commercial Analysis was also taken into consideration to make
sure that the project not violating the environmental norms and the later one to check
the market scenario of future demand and supply.
PFC follows integrated credit rating in which they combine the entity and project
rating done separately; Power Sector entities are evaluated with reference to a set of
qualitative and quantitative factors to arrive at the Aggregate Entity Score. In
addition to the performance parameters, milestones giving weightage to core reform
activities have also been included in the overall grading mechanism. The entities
are ranked on the basis of INTERNAL (70% Weightage) & EXTERNAL
FACTOR (30% Weightage), where Internal factor includes Net Worth,
DSCR, Increase in Capital Expenditure, audited annual accounts etc.
While government support, regulatory act, Subsidy etc. are of external
in nature, the assessment of the score is done through the detail study
of the entity and evaluating the score with the help of some set of
standards as per the model. Some set of parameters are DSCR>1,
Subsidy
by
government,
Payment
mechanism,
PLF>80%,
AT&C
losses<20%, Average cost of supply<1.50 RS. Then the further

allocation is done on pro-rata basis. The rating is based on score out of
100, where 75+ is in Category A+ while less than 25 is in Category C.
Research paper 2- Robert V Oakford 1970, In the process of project appraisal we

analyze the present scenario and data to project the future possibilities, but the future
is unpredictable and it must be taken into consideration during the appraisal
procedure, This has been very well illustrated by Robert V Oakford in his research
paper followed by his book in 1970, he termed it as Sensitivity Analysis taking
pessimistic approach the impact of change of one variable upon the viability of the
project and its profitability, Variable can be Rise in cost of Raw Material, Decrease in
Selling Price or Increase in project Cost, Sensitive Analysis enable the decision maker
Page 33

to make what if analysis but Oakford know the drawback of sensitivity analysis, it
can only analysis the impact of change of one variable to project profitability but not
the interrelation of the variable, that is its consider all other variable being constant
and change to only one variable.
Research paper 3- Unido 2000, in his manual for evaluation of industrial project he
discussed another method for analysing uncertainty, popularly termed as Break Even
Analysis, according to Unido it is the first step toward analysis of uncertainties, under
this meathod an attempt is made to arrive at minimum level of production/sales and
which the firm can run without jeopardizing its financial viability.
Research paper 4-IFAC submitted a paper in June 2008 discussing about the Project
Appraisal Using Discounted Cash Flow and suggested different principal for the
process, basically it emphasise on the opportunity cost of capital simplified as a time
value of money, its explain that project with multiple inflow and outflow of cash over
a period of time can be analysed by its net present value(NPV), the discounting rate
taken for the calculation of the NPV should reflect the systematic risk of the project
and not of an organization, Sometime it is not possible to distinguish between the
systematic risk and unsystematic risk and the required discounting Factor are not
available, even then it is easy to analyze the project by determine the IRR of the
project with its respective cash flow,
Research paper 5- Brian nelson, November 2009, he his research paper at morning
star credit rating methodology, he divide the rating into two part, business Risk and
Financial Risk, in financial risk Cash Flow Cushion ratio is a fundamental indicator
of a firm's future financial health, and is a key component of the Morningstar Credit
Rating. The measure reveals how many times a company's internal cash generation
plus total excess liquid cash will cover its debt-like contractual commitments over the
next 5 years, while in the business risk factor includes Country (10% weightage) and
Company Risk (90% weightage), Country Risk is external risk which includes
Political , legal risk and interest rate etc, here the scoring is given from 1 to 25 where
25 being the best, In business risk scoring are given from 1 to 10 where 10 being the
low risk, scoring are done on Annual Revenue, Product and customer
concentration(Diversification), Stewardship Grade for transparency in company and
Cyclicality of Operations for economic sensitivity.
Page 34
CHAPTER- 4
CREDIT/PROJECT APPRAISAL
Page 35
6.1 INTRODUCTION
Effectiveness of Credit Management in the bank is highlighted by the quality of its
loan portfolio. Every Bank is striving hard to ensure that its credit portfolio is healthy
and that Non Performing Assets are kept at lowest possible level, as both of these
factors have direct impact on its profitability. In the present scenario efficient project
appraisal has assumed a great importance as it can check and prevent induction of
weak accounts to our loan portfolio. All possible steps need to be taken to strengthen
pre sanction appraisal as always Prevention is better than Cure. With the opening up
of the economy rapid changes are taking place in the technology and financial sector
exposing banks to greater risks, which can be broadly classified as under:
INDUSTRY RISK
Government regulations and policies, availability of infrastructure facilities, Industry
Rating, Industry Scenario & Outlook, Technology Up gradation, availability of inputs,
product obsolescence, etc.
Page 36

BUSINESS RISK
Operating efficiency, competition faced from the units engaged in similar products,
demand and supply position, cost of labour, cost of raw material and other inputs,
pricing of product, surplus available, marketing, etc
MANAGEMENT RISK
Background, integrity and market standing/ reputation of promoters, organizational
set up and management hierarchy, expertise/competence of persons holding key
position in the organization, delegation and decentralization of authority, achievement
of targets, track record in execution of project, debt repayment, industry relations etc.
FINANCIAL RISK
Financial strength/standing of the promoters, reliability and reasonableness of
projections, past financial performance, reliability of operational data and financial
ratios, adequacy of provisioning for bad debts, qualifying remarks of
auditors/inspectors etc.
In light of the foregoing risks, the banks appraisal methodology should keep pace with
ever changing economic environment. The appraisal system aims to determine the
credit needs/requirements of the borrower taking into account the financial resources
of the client. The end objective of the appraisal system is to ensure that there is no
under - financing or over - financing.
Following are the aspects, which need to be scrutinized and analyzed while
appraising:
6.2 MARKET ANALYSIS (DEMAND AND POTENTIAL)
The market demand and potential is to be examined for each product item and its
variants/substitutes by taking into account the selling price of the products to be
marketed vis-a-vis prices of the competing products/substitutes, discount structure,
arrangement made for after sale service, competitors' status and their level of
operation with regard to production and products and distribution channels being used
etc. Critical analysis is required regarding size of the market for the product(s) both
local and export, based on the present and expected future demand in relation to
Page 37

supply position of similar products and availability of the other substitutes as also
consumer preferences, practices, attitudes, requirements etc. Further, the buy-back
arrangements under the foreign collaboration, if any, and influence of Government
policies also needs to be considered for projecting the demand. Competition from
imported goods, Government Import Policy and Import duty structure also need to be
evaluated.
6.3 TECHNICAL ASPECT
In a dynamic market, the product, its variants and the product-mix proposed to be
manufactured in terms of its quality, quantity, value, application and current
taste/trend requires thorough investigation.
I.
Location and Site
Based on the assessment of factors of production, markets, Govt. policies and other
factors, Location (which means the broad area) and Site (which signifies specific plot
of land) selected for the Unit with its advantages and disadvantages, if any, should be
such that overall cost is minimized. It is to be seen that site selected has adequate
availability of infrastructure facilities viz. Power, Water, Transport, Communication,
state of information technology etc. and is in agreement with the Govt. policies. The
adequacy of size of land and building for carrying out its present/proposed activity
with enough scope for accommodating future expansion needs to be judged.
II.
Raw Material
The cost of essential/major raw materials and consumables required their past and
future price trends, quality/properties, their availability on a regular basis,
transportation charges, Govt. policies regarding regulation of supplies and prices
require to be examined in detail. Further, cost of indigenous and imported raw
material, firm arrangements for procurement of the same etc. need to be assessed.
III.
Plant & Machinery, Plant Capacity and Manufacturing Process
The selection of Plant and Machinery proposed to be acquired whether indigenous or

imported has to be in agreement with required plant capacity, principal inputs,
investment outlay and production cost as also with the machinery and equipment
already installed in an existing unit, while for the new unit it is to be examined
Page 38

whether these are of proven technology as to its performance. The technology used
should be latest and cost effective enabling the unit to compete in the market.
Purchase of reconditioned/old machinery is to be dealt in terms of laid down
guidelines. Compatibility of plant and machinery, particularly, in respect of imported
technology with quality of raw material is to be kept in view. Also plant and
machinery and other equipments needed for various utility services, their supply
position, specification, price and performance as also suppliers' credentials, and in
case of collaboration, collaborators' present and future support requires critical
analysis. Plant capacity and the concept of economic size has a major bearing on the
present and future plans of the entrepreneur(s) and should be related to the availability
of raw material, product demand, product price and technology.
The selected process of manufacturing indicating the adequacy, availability and
suitability of technology to be used along with plant capacity, manufacturing process
needs to studied in detail with capacities at various stages of production being such
that it facilitates optimum utilization and ensures future expansion/ debottlenecking,
as and when required. It is also to be ensured that arrangements are made for
inspection at intermediate/final stages of production for ensuring quality of goods on
successful commencement of production and completion, wherever required.
6.4 FINANCIAL ASPECT
The aspects which need to be analyzed under this head should include cost of project,
means of financing, cost of production, break-even analysis, financial statements as
also profitability/funds flow projections, financial ratios, sensitivity analysis which
are discussed as under:
1. Cost of Project & Means of Financing
i.
The major cost components of any project are land and building including
transfer, registration and development charges as also plant and machinery,
equipment for auxiliary services, including transportation, insurance, duty,
clearing, loading and unloading charges etc. It also involves consultancy and
know-how expenses which are payable to foreign collaborators or consultants
who are imparting the technical know-how. Recurring annual royalty payment
is not reflected under this head but is accounted for under the profitability
Page 39

statements. Further, preliminary expenses, such as, cost of incorporation of
the Company, its registration, preparation of feasibility report, market surveys,
pre-operative expenses like salary, travelling, start up expenses, mortgage
expenses incurred before commencement of commercial production also form
part of cost of project. Also included in it are capital issue expenses which can
be in the form of brokerage, commission, advertisement, printing, stationery
etc. Finally, provisions for contingencies to meet any unforeseen expenses,
such as, price escalation or any other expense which have been inadvertently
omitted like margin for working capital requirements required to complete the
production cycle, interest during construction period, etc. are also part of
capital cost of project. It is to be ensured while appraising the project that cost
and various estimates given are realistic and there is no under/over estimation.
Further, these cost components should be supported by proper quotations,
specifications and justifications of land, machinery and know-how expenses
etc.
ii.
Besides Banks loan, the project cost is normally financed by bringing capital
by the promoters and shareholders in the form of equity, debentures,
unsecured long term loans and deposits raised from friends and relatives
which are not repayable till repayment of Bank's loan. Resources are raised
for financing project by raising term loans from Institutions/Bankswhich are
repayable over a period of time, deferred term credits secured from suppliers
of machinery which are repayable in installments over a period of time. The
above is an illustrative list, as the promoters have now started raising funds
through Euro-issues, Foreign Currency loans, premium on capital issues, etc.
which are sometimes comparatively cheap means of finance. Subsidies and
development loans provided by the Central/State Government in notified
backward districts to attract entrepreneurs are also means of financing a
project. It is to be ascertained that requirement of finance has been properly
tied-up for unhindered implementation of a project. The financing structure
accepted must be in consonance with generally accepted levels along with
adequate Promoters' stake. The resourcefulness, willingness and capacity of
promoter to contribute the same have also to be investigated.
Page 40

In case of project finance, the promoter/borrower may bring in upfront his
contribution (other than funds to be provided through internal generation) and the
branches should commence its disbursement after the stipulated funds are brought in
by the promoter/borrower. A condition to this effect should be stipulated by the
sanctioning authority in case of project finance, on case to case basis depending upon
the resourcefulness and capacity of the promoter to contribute the same. It should be
ensured that at any point of time, the promoters contribution should not be less than
the proportionate share.
2. Profitability Statement
The profitability statement which is also known as `Income and Expenditure
Statement' is prepared after considering the net sales figure and details of direct
costs/expenses relating to raw material, wages, power, fuel, consumable stores/spares
and other manufacturing expenses to arrive at a figure of gross profit. Thereafter, all
other expenses like salaries, office expenses, packing, selling/distribution, interest,
depreciation and any other overhead expenses and taxes are taken into account to
arrive at the figure of net profit. The projections of profit/loss are prepared for a
period covering the repayment of term loans. The economic appraisal includes
scrutinizing all the items of cost, and examining the assumptions, if any, to ensure that
these are realistic and achievable. There should not be any optimism or pessimism in
working out profitability projections since even a little change in the product-mix
from non-remunerative to remunerative or vice-versa can distort the picture. While
preparing profitability projections, the past trends of performance in an industry and
other environmental factors influencing the cost and revenue items should also be
considered objectively.
Generally speaking, a unit may be considered as financially viable, progressive and
efficient if it is able to earn enough profits not only to service its debts timely but also
for future development/growth.
3. Break-Even Analysis
Analysis of break-even point of a business enterprise would help in knowing the level
of output and sales at which the business enterprise just breaks even i.e. there is
neither profit nor loss. A business earns profit if it operates at a level higher than the
Page 41

break-even level or break-even point. If, on the other hand, production is below this
level, the business would incur loss. The break-even point in an algebraic equation
can be put as under:
BREAK-EVEN
POINT
(VOLOUME OR
UNIT)
BREAK-EVEN
POINT (SALES IN
RUPEES)
TOTAL FIXED COST/(SALES - VARIABLE COST)

(TOTAL FIXED COST x SALES)/(SALES VARIABLE COST)
The fixed costs include all those costs which tend to remain the same up to a certain
level of production while variable costs are those costs which tend to change in
proportion with the volume of production. As regards unit sales price, it is generally
the same for all levels of output.
The break-even analysis can help in making vital decisions relating to fixation of
selling price make or buy decision, maximizing production of the item giving higher
contribution etc. Further, the break-even analysis can help in understanding the impact
of important cost factors, such as, power, raw material, labor, etc. and optimizing
product-mix to improve project profitability.
Fund-Flow Statement
A fund-flow statement is often described as a Statement of Movement of Funds or
where got: where gone statement. It is derived by comparing the successive balance
sheets on two specified dates and finding out the net changes in the various items
appearing in the balance sheets.
A critical analysis of the statement shows the various changes in sources and
applications (uses) of funds to ultimately give the position of net funds available with
the business for repayment of the loans. A projected Fund Flow Statement helps in
answering the under mentioned points.
How much funds will be generated by internal operations/external sources?
How the funds during the period are proposed to be deployed?
Page 42

Is the business likely to face liquidity problems?
Balance Sheet Projections

The financial appraisal also includes study of projected balance sheet which gives the
position of assets and liabilities of a unit at a particular future date. In other words,
the statement helps to analyze as to what an enterprise owns and what it owes at a
particular point of time.
An appraisal of the projected balance sheet data of the unit would be concerned with
whether the projections are realistic looking to various aspects relating to the same
industry.
Financial Ratios
While analyzing the financial aspects of project, it would be advisable to analyze the
important financial ratios over a period of time as it may tell us a lot about a unit's
liquidity position, managements' stake in the business, capacity to service the debts
etc. The financial ratios which are considered important are discussed as under:
DEBT-EQUITY RATIO
DEBT (Term Liabilities)

EQUITY (Share capital, free
reserve, premium on share,
development rebate reserve,
tec. After adjusting loss
balance)
RBI has advised that the banks in their own interest should have clear policy duly
approved by board regarding Debt-Equity Ratio (DER) and the infusion of
equity/funds by promoter should be such that the stipulated lever of DER is
Page 43

maintained at all times. Further, a funding sequence may be adopted so that the
possibility of equity funding by banks is obviated.
The level of DER varies from case to
case depending upon nature of the project, promoters strength, available of colletral
securities etc. apart from the type of industry. In capital intensive industries involving
large capital investment, DER is normally higher then as compared to any other
industries.
Keeping in view the spirit of RBI regulation guidelines, board have
approved the desired level of DER for project financing under different industries and
power vested with various authorities to relax the same as under
Level of DER**
*Large Projects
Power - independent
power producing plants
(Thermal, Hydro, Gas
based)
Competent authority to relax

DER
2.33:1
GE(HO) may relax upto 3.00:1

-ED/CMD may relax upto 4.00:1
-MC to have full powers
2.25:1

Real Estate
1.75:1

Infrastructure (excl.
power) and capital
intensive projects not
specified othervice
2.00:1
Iron & Steel

Page 44

Mid/small projects
No distinction for
various industries/
segments for the
category as projects
financing normally
falls under large
project category
Circle Heads may relax upto

2.50:1
-GE(HO) may relax
upto 3.00:1
2.00:1
*Project with capital cost of Rs. 100 crore & above

** Relaxation in desired level of DER upto 0.50 may be permitted in cases
involving latest technology
NET PROFIT (AFTER TAX) + INTEREST OF TER

2
DEBT SERVICE
COVERAGE
RATIO
INTEREST OF TERM LOAN + INSTALMENT MONEY
The ratio of 1.50 to 2.00 is considered reasonable very high ration may indicate the
need of lower moratorium period/ repayment of loan in shorter schedule..
The ratio provides measure of the ability of enterprise to service its debt i.e interest
and principal payment besides indicating the margin of safety. The ratio may varies
from industries to industries but has to be viewed from circumspection when it is less
then 1.50
TANGIBLE NET WORTH (PAID

UP CAPITAL +RESERVE &
SURPLUS INTENGIBLE
TANGIBLE NET WORTH

3
OUSTSIDE LIABILITIES RATIO
ASSETS
TOTAL OUTSIDE LIABILITIES
(TOATAL LIBILITIES NET
WORTH)
Page 45

This ratio gives the view of borrowers capital structure , if the ratio shows a rising
trends, its means the borrower is relying more on his own funds and less on outside
funds and vice-versa
PROFIT SALES RATIO

(NET PROFIT RATIO)
OPERATING PROFIT(PBT)
SALES
This ratio gives the margin available after meeting cost of manufacturing. It provide a
yardstick to measure the efficiency of production and margin on sales i.e the prising
structure.
LONG TERM DEBT

5
DEBT TO FIXED ASSET RATIO

FIXED ASSETS
This ratio should be less than 1 in most industries because a portion of fixed asset
must be financed with equity. A ratio for less than 1 provides greater cushion to banks.
A complement to debt to Fixed asset Ratio is to compare equity to fixed assets.
CURRENT ASSETS
6
CURRENT RATIO
CURRENT LIABILITIES
Higher the ratio greater the short term liquidity. The ratio is indicative of shortterm
financial position of a business enterprise. It provides margin as well as it is measure
of the business enterprise to payoff the current liabilities as they mature and its
capacity to withstand sudden reserve by the streangth of its liquid position. Ratio
analysis gives indication; their interpretation, however, has to be made with refrence
to overall tendencies and parameter in relation to the project.
INTERNAL RATE OF RETURN

(IRR)
Page 46
NET PRESENT VALUE OF

INFLOW = NET PRESENT
VALUE OF OUTFLOW
IRR is that rate of discount which makes the discounted value of the net cash flow
from a project just equal to the amount which has to be invested to obtain that net
cash flow. In other words, IRR is that rate of discount which gives the project an NPV
equals to zero and cost benefit ratio equals to one.
Sensitivity Analysis
While preparing and appraising projects certain assumptions are made in respect of
certain critical/sensitive variables like selling price/cost price per unit of production,
product-mix, plant capacity utilization, sales etc. which are assigned a `VALUE' after
estimating the range of variation of such variables. The `VALUE' so assumed and
taken into consideration for arriving at the profitability projections is the `MOST
LIKELY VALUE'. Sensitivity Analysis is a systematic approach to reduce the
uncertainties caused by such assumptions made.
The Sensitivity Analysis helps in arriving at profitability of the project wherein
critical or sensitive elements are identified which are assigned different values and the
values assigned are both optimistic and pessimistic such as increasing or reducing the
sale price/sale volume, increasing or reducing the cost of inputs etc. and then the
project viability is ascertained. The critical variables can then be thoroughly examined
by generally selecting the pessimistic options so as to make possible improvements in
the project and make it operational on viable lines even in the adverse circumstances.
6.5 MANAGEMENT & ORGANIZATION ANALYSIS

Appraisal of project would not be complete till it throws enough light on the person(s)
behind the project i.e. management and organization of the unit. It is seen that some
projects may fail not because these are not viable but because of the ineffectiveness of
the management and the organization in controlling various functions like production,
marketing, finance, personnel, etc. The appraisal report should highlight the strengths
and weaknesses of the management by commenting on the background,
qualifications, experience, and capability of the promoter, key management personnel,
Page 47

and effectiveness of the internal control systems, relation with labor, working
conditions, wage structure, and the other assigned essential functions. In case the
promoter(s) have interest, in other concerns as Proprietor or Partner or Director, the
appraisal report should also comment on their performance in such concerns.
A business is more vulnerable if decision making in all the functional areas rests with
a particular person, in other words, `one man show'. Further, the management and the
organization should be conducive to the size and type of business. In case it is not so,
it should be ensured that professional managers are inducted to strengthen the
organization.
6.6 APPRAISAL OF PROJECT - A CHECK LIST

An indicative list of issues which need to be looked into while appraising a project is
given below:
6.6.1 MARKETING
1. Reasonable demand projections keeping in view the size of the market,
consumption level, supply position, export potential, import substitute, etc.
2. Competitors' status and their level of operation with regard to production and
sales.
3. Technology advancement/Foreign Collaborator's Status/Buy-back arrangements
etc.
4. Marketing policies in practice, for promotion of product(s) and distribution
channels being used. Expenses on marketing are done so as to popularize the
product.
Page 48

5. Local/foreign consumer preferences, practices adopted, attitudes, requirements
etc.
6. Influence of Govt. policies, imports and exports in terms of quantity and value.
7. Marketing professionals employed their competence, knowledge and
experience.
6.6.2 TECHNICAL
1. Product and its life cycle, product-mix and their application.
2. Location, its advantages/disadvantages, availability of infrastructural facilities,
Govt. concessions, if any, available there.
3. Plant and machinery with suppliers' credentials and capacity attainable under
normal working condition.
4. Process of manufacturing indicating the choice of technology, position with
regard to its commercialization and availability.
5. Plant and machinery - its availability, specification, price, performance.
6. Govt. clearance/ license, if any, required.
7. Labor/ Manpower, type of skills required and its availability position in the
area.
6.6.3 FINANCIAL
1. Total project cost and how it is being funded/financed.
2. Contingencies and inflation duly factored in project cost.
3. Profitability projections based on realistic capacity utilization and sales forecast
with proper justification. Unrealistic/ambitious sales projections without reference
to past performance and justification to be avoided.
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4. Break-even analysis, fund flow and cash flow projections.
5. Balance sheet projections should be realistic and based on latest available data.
The components of financial ratios should be subjected to close scrutiny.
6. Aspect of support of parent company, wherever applicable, may be taken into
account.
6.6.4 MANAGERIAL
1. Financial standing and resourcefulness of the management.
2. Qualifications and experience of the promoters and key management personnel.
3. Understanding of the project in all of its aspects -financing pattern, technical
knowledge and marketing programmatic.
4. Internal control systems, delegation of adequate powers and entrusting
responsibility at various levels.
5. Other enterprises, if any, wherein the promoters have the interest and how these
are functioning.
6.6.5 ECONOMIC
1. Impact on increase in level of savings and income distribution in society and
standard of living.
2. Project contribution towards creation and rate of increase of employment
opportunity, achieving self sufficiency etc.
3. Project contribution to the development of the region, its impact on
environment and pollution control
CONCLUSION
Page 50

To judge whether the project is viable, i.e. it can generate adequate surplus for
servicing its debts within a reasonable period of time and still left with some funds for
future development. This involves taking an over-all view to analyse the strengths and
weaknesses of the project. It should also be analysed to see whether the management
and organisation can prove effective for successful implementation of the project.
CREDIT RISK MANAGEMENT
Page 51
7.1 Credit Risk

Credit risk means the possibility of loss associated with diminution in the credit
quality of borrowers. In a banks portfolio, losses stem from outright default due to
inability or unwillingness of a customer or counter party to meet, commitments in
relation to lending, trading, settlement and other financial transactions.
7.2 CREDIT RISK MANAGEMENT SYSTEM IN PNB
A comprehensive credit risk management system, which is in place in the bank,
encompasses the following processes:
Identification of Credit Risk
Measurement of Credit Risk
Grading of Credit Risk
Reporting and analysis of rating related data
Control of Credit Risk
Page 52
CREDIT RISK IDENTIFICATION

In order to take informed credit decisions, it is necessary to identify the areas of credit
risk in each borrower as well as each industry. Risk Management Division HO, in
coordination with other HO divisions involved in disbursal of credit and also the risk
management departments of various zonal offices identifies these risks areas and
develops necessary tools and processes to measure and monitor the risk.
CREDIT RISK MEASUREMENT

In order to measure the credit risk in banks portfolio, the bank has developed the
following models:
CREDIT RISK RATING
MODEL
TOTAL LIMIT
FROM PNB
SALES
LARGE CORPORATE
ABOVE 15 CRORE
ABOVE 100 CRORE
MID CORPORATE
5 CRORE to 15
CRORE
25 CRORE to 100 CRORE
SMALL LOANS
50 LAKH to 5 CRORE
UPTO 25 CRORE
SMALL LOANS II
2 LAKH to 50 LAKH
UPTO 25 CRORE
NBFC
ALL NON BANKING FINANCIAL CO.

(IRRESPECTIVE LIMIT)
NEW PROJECT
ABOVE 5 CRORE
COST OF PROJECT UPTO

15 Cr.
NEW BUSINESS
ABOVE 5 CRORE
COST OF PROJECT UPTO

15 Cr.
The credit risk rating models have been developed with a view to provide a standard
system for assigning a credit risk rating to all the borrowers on the basis of the overall
Page 53

credit risk involved in them. Inputs to the models are the financial, management,
business and conduct of account, industry information. The evaluation of a borrower
is done by assessment on various objective/subjective parameters. The model
evaluates the credit risk rating of a borrower on a scale of AAA to D with AAA
indicating minimum risk and D indicating maximum risk.
The credit risk-rating models incorporate therein all possible risk factors, which are
important for determining the credit quality/ rating of a borrower. These risks could
be:
Internal and specific to the company,
Associated with the industry in which the company is operating or
Associated with the entire economy and can influence the repayment capacity and/
or willingness of the company.
Evaluation methodology under rating models

The scores are assigned to each of the parameters on a scale of 0 to 4 with 0 being
very poor and 4 being excellent. The scoring of some of these parameters is subjective
while for some others it is done on the basis of pre-defined objective criteria.
The scores given to the individual parameters multiplied by allocated weights are
then aggregated and a composite score for the company is arrived at, in percentage
terms. Higher the score obtained by a company, the better is its credit rating. Weights
have been assigned to different parameters based on their importance. Weights
assigned to different parameters have been loaded in the software. After
allocating/evaluating scores to all the parameters, the aggregate score is calculated
and displayed by the software.
The overall percentage score obtained is then translated into a rating on a scale from
AAA to D according to a pre-defined range of scores.
Page 54

Wherever a particular parameter is not applicable, no score should be given and the
parameter should be made Not Applicable.For multi-divisional companies, which
are involved in more than one industrial activity, evaluation should be done separately
for each business. However, the management evaluation, conduct of account and
financial evaluation will be done on a common basis. In such cases, for the business
section, each business should be evaluated and scored separately, taking into account
the different industrial activity involved.
The models provided for down gradation of the rating of the borrower by one notch
on the basic of any crucial factor coming to the notice after the date of audited balance
sheet (on which rating is done) and which may affect the operating efficiency
/viability of the unit substantially such as:
I.
II.
Poorer performance to current year as compared to Balance Sheet figure.

Absence of willingness/capability of the promoter to repay the debt as per
III.
agreed term and condition.

Substantial impairment in the value of assets ( including block assets/Loans
IV.
and advances/ investments, inventory/debtors)

Obsolescence of the product or any major changes in Government policies
V.
having substantial impact on the performance of the company.

Effect of any major development, which are not yet cleared, major damages to
plant/stocks, court judgement on environment threats, involvement of
promoters/company in excise/FEMA/tax-evasion, recovery suit/ winding up
petition filed by creditor/FIs/Banks, any civil/criminal proceedings against the
promoter/company, change of management etc.
The credit risk rating of the borrower should be done immediately after the receipt
of audited financial results of the company and should not be linked to the regular
renewal/review exercise.
For the purpose of assigning score under conduct of account in respect of
borrower, which have not been dealing with PNB earlier, the PMs score will not be
available and as such me made NA
The risk management Division (RMD), Head office circulates the industries rating to
be used for all the major industries, on the quarterly basis, Based on the circulars
Page 55

industry rating are updated in the software at RMD HO . the industry, for which the
RMD HO not provided score, shall be assigned neutral industry rating.
GRADING OF BORROWERS UNDER THE RATING SYSTEM

In order to provide a standard definition and benchmarks under the credit risk rating
system, following matrix has been adopted in all the risk rating models.
RATING
CATEGORY
DESCRIPTIO
N
PNB-AAA
Minimum risk
PNB-AA
Marginal risk
PNB-A
Modest risk
PNB-BB
Average risk
PNB-B
Marginal
acceptable risk
PNB-C
PNB-D
High risk
Caution
SCORE
OBTAINED (%)
GRADING
WITHIN RATING
CATEGORY
Above 80.00
77.50 to 80.00
72.50 to 77.50
70.00 to 72.50
67.50 to 70.00
62.50 to 67.50
60.00 to 62.50
57.50 to 60.00
52.50 to 57.50
50.00 to 52.50
47.50 to 50.00
42.50 to 47.50
40.00 to 42.50
30.00 to 40.00
below 30.00
PNB- AAA
PNB- AA+
PNB- AA
PNB- AAPNB- A+
PNB- A
PNB- APNB- BB+
PNB- BB
PNB- BBPNB- B+
PNB- B
PNB- BPNB- C
PNB- D
SYSTEM FOR ASSIGNMENT & APPRAISAL OF RATING

The process of rating and vetting is as under:
LOAN
SANCTIONIN
CREDIT RISK RATING AUTHORITY
G
AUTHORITY
HO
1. CRMD in consultation with branches
Page 56
VETTING/CONFIRMI
NG AUTHORITY
CGM/GM (RMD), HO

2. Large corporate branches and identified
branches
1.ELBs/VLBs/branches.
Circle Office
Branch
DGM/AGM/CM (CRMD)
2.The assistant of CRMD/funtional manager
(Credit) of Circle office may be taken in case of
need.
Officer/Manager, Credit section
An official designated by
the incumbent not
connected with
processing/
recommending of the
concerned loan proposal
In order to adopt internal rating based approaches (IRB) for credit risk, Basel II has
placed certain minimum requirements which inter-alia require, validation of rating
system, process and estimation of all relevant risk components. Banks must regularly
compare realized default rates with estimated probability of default (PD) of each
grade and able to demonstrate to its supervisor (RBI), that the internal validation
process enable it to assess the performance of internal rating and risk estimation
system consistently and meaningfully. In view of above fact, not only rating but
consistent practices in evaluation of credit risk rating as well as evolving and updating
robust data on various risk components is must for adopting IRB approaches.
CONTROLS
The Credit Risk Management process in the bank encompasses the following
management Control techniques which help in mitigating the adverse impacts of
credit risk in its credit portfolio.
i. Credit Approving Authority
a. Credit Committee
b. Linkage of loaning powers with risk rating categories
ii.Prudential Exposure limits
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iii.Risk Based Pricing
vi.Portfolio Management
v.Loan Review Mechanism
vi.Legal documentation
vii.Preventive Monitoring System
viii.Others
a. Use of CIBIL data and RBI defaulters list
b. Diversification of Risks
Page 58
POST SANCITION SUPERVISION

AND FOLLOW UP OF LOANS
System and supervision and follow-up can be defined as the systematic evaluation of
the performance of a borrowal account to ensure that it operates at viable level, if
problems arise, to suggest practical solutions. It helps in keeping a watch on the
conduct and operational/financial performance of the borrowal accounts. Further, it
also helps in detecting signals/symptoms of sickness and deteriorations, if any, taking
place in the conduct of the account for initiating timely corrective actions to check
slippage of accounts to NPA category.
The goals and objectives of monitoring may be classified into fundamental and
supplementary goals. Fundamental goals help a bank to ensure safety of funds lent to
an enterprise while, supplementary goals are directed towards keeping abreast of
problems arising out of changes in both the internal and the external environment for
initiating timely corrective actions. Some of the important goals of monitoring are
listed as under:
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i. To keep a watch on the project during implementation stage so that time & cost
overruns do not occure.
ii. To ensure that the funds released are utilized for the purpose for which these have
been provided and there is no diversion of such funds.
iii. To evaluate operational and financial results, such as production, sales, profit/loss,
flow of funds, etc. and comparing these with the projections/estimates given by the
borrower at the time of sanction of credit facilities.
iv. To ensure that the terms and conditions as stipulated in the sanction have been
complied with.
v. To monitor operations in the account particularly cash credit facilities which
indicate health of the account.
vi. To obtain market report on the borrower, to gather information like
reputation/financial standing etc.
vii. To detect signals and symptoms of sickness or deterioration taking place in
conduct/performance of the account.
viii. To ensure that the unit's management and organizational set-up is effective.
ix. To keep a check on aspects like accumulation of statutory liabilities, creditors,
debtors, raw-material, stocks-in-process, finished goods, etc.
x. To ensure charging of applicable rate of interest/penal interest/ commitment charges
as per bank's guidelines.
2. System of supervision & monitoring of credit as laid down by the Bank needs to be
meticulously followed by the branches/controlling offices which, inter alia, covers the
following:
i.
Conveying of sanction
After the loan is sanctioned , Branch should communicate the term and
condition of sanction to the borrower ina letter as per draft available at
Annexure 1, containing therein the details of facilities sanctioned and
respective term and condition, The borrower/s will convey his/their acceptance
Page 60

of the term and condition as draft letter available at Annexure II . In case of a
company , necessary resolution authorising the signing official(s) to give such
letter, beside execution of document be obtained and kept on record.
ii.
PROFILE OF BORROWERS
Branch should maintain profile name of each borrower separately specifically
mentioning complete name, contact address, telephone no. , activity of
borrower, assets of borrower, guarantors and other obligation, detail of
primary and collateral security as per format available as Annexure III. The
profile should be updated regularly on quarterly basis.
iii.
MAINTENANCE OF LOAN DOCUMENT FILE

In order to maintain safety of loan document, the branch should ensure proper
paging of all loan document. The page no. should be legibly written on upper
right side of each paper/document and the file should be kept in orderly
manner. The document file should be kept in fire proof safe and under proper
custody of the loan Incharge/Incumbent Incharge.
iv.
PREVENTIVE MONITORING SYSTEM (PMS)

PMS is monitoring tool consisting of a number of signals/indicators for
evaluating the health of a borrowal account on a continuous basis. It assigns
numerical score to each signal and capture the conduct of an account based on
past 1 year in a single numerical vale called PMS index score.
v.
QUATERLY REVIEW SHEET

Review sheet is a quarterly statement prepared by the branch and submitted to
the sanctioning authority. Primary responsibility for scrutiny/processing of
Quarterly review sheets (QRS) rest with the sanctioning authority, it enable the
sanctioning authority to form an opinion about the position of the borrowal
account and operational performance of the unit.
vi.
QUATERLY MONITORING SYSTEM (QMS)
Page 61

Bank has prescribed the QMS system for monitoring performance of big
borrowal accounts enjoying aggregate working capital facility of Rs. 1 crore
and above (fund based and non-fund based) from the banking system. QMS
includes the submission of data in an prescribed formats depending upon the
economic activity of the borrower/s
vii.
Inspection and Physical Verification of stocks Stock Audit

Stock audit includes physical verification of stock, stores & spares and
correctness of their valuation, evaluating the sundry debtor and creditor,
policies of the borrower in respect of procurement of raw material and
valuation of inventories, commenting on registration of charge and insurance
of stocks or any other aspect relating to stock which has bearing on bank
finance. Stock Audit is to be conducted Annually from an approved firm of
Charted accountancy.
PNBs LOAN POLICY
Page 62
9.1 OBJECTIVE
The Credit Management & Risk Policy of the bank at the macro level is an
embodiment of the Banks approach to understand, measure and manage the credit
risk and aims at ensuring sustained growth of healthy loan portfolio while dispensing
the credit and managing the risk. This would entail reducing exposures in high risk
areas, emphasizing more on the promising industries / productive sectors/ segments of
the economy, optimizing the return by striking balance between the risk and the return
on assets and striving towards maintaining/improving market share.
9.2 BASIC TENETS OF THE POLICY
All loan facilities considered only after obtaining loan application from the
borrower and compilation of Confidential Report on them and the guarantor.
The borrowers should have the desired background, experience/expertise to
run their business successfully
Page 63
Project for which the finance is granted should be technically feasible and
economically/commercially viable i.e. it should be able to generate enough
surpluses so as to service the debts within a reasonable period of time.
Cost of the project and means of financing the same should be properly
assessed and tied up. Both, under-financing and over- financing can have an
adverse impact on the successful implementation of the project.
Borrowers should be financially sound, enjoy good market reputation and

must have their stake in the business i.e. they should possess adequate liquid
resources to contribute to the margin requirements.

Loans should be sanctioned by the competent sanctioning authority as per the
delegated loaning powers and should be disbursed only after execution of all
the required documents.
Projects financed must be closely monitored during implementation stage to

avoid time and cost overruns and thereafter till the adjustment of the bank's
loan.
The policy sets out minimum or benchmark lending rate, BPLR = 13.5 %
The policy lays down norms for takeover of advances from other banks/
financial institutions
As a matter of policy the bank does not take over any Non-performing Asset
(NPA) from other banks
9.3 METHODS OF LENDING

1. For Working Capital
Simplified method linked with turnover
Simplified method based on turnover for assessing working capital finance
upto Rs.2 crore (upto Rs. 5 crore in case of SSI units)
MPBF System
Existing MPBF system with flexible approach shall be followed for units
requiring working capital finance exceeding the above-mentioned amount
Page 64

Cash Budget System
Cash Budget System shall be followed in Sugar, Tea, Service Sector and Film
Production accounts. It will be our endeavour to introduce the same selectively
in other areas also.
2. Term Loan
In case of infrastructure/mega projects, proper appraisal will be made by
utilizing the services of specialized / Technical officers.
The term loans with remaining maturity period of above 5 years shall not
exceed 50% of the term deposits with remaining maturity period of above 5
years after taking into account the renewal of term deposits as per the past
trend.
9.4 CREDIT APPRAISAL PROCESS AT PNB
Flowchart
Submission of Project Report along with
the Request Letter
Carrying out Due Diligence on the Client
Determining of Interest Rate and

Preparation of Proposal
Preparing Credit Report / Feasibility Report

and Risk Rating
Submission of Proposal to designated

Authority (Circle office)
Submission of Proposal to designated

Authority
Re-verification and analysis of the Proposal
Meeting with the client to clarify the

queries
Vetting of Credit Risk Rating Report
Approval of request made by the client like

Reduction of Interest Rates etc
Page 65
Acknowledgement of Sanction Terms &

Condition by the client
Sanction of Proposal on various Terms &

Conditions
Application to comply with Sanction T&C.

Execution of Loan Documents
Disbursement of Sanctioned Amount from

the branch office
Procedures at Branch
Office Level
Procedures at Circle Office

Level
9.5 PROCESS IN BRIEF

At Punjab National Bank, proposal for financing working capital limits and term
loans can relate to any of the following:
1. New proposal
2. Renewal of existing limits
3. Enhancement of existing limits
Once a proposal is received, financial statements, project report and other important
documents are used to evaluate:
1. Maximum permissible bank finance (in case of WC limit)
2. Techno Economic Feasibility Analysis of the project (includes all the 5 evaluation)
3. Various risks associated, if any
4. Various approvals of issues the borrower seeks (reduction of ROI, processing fee
etc)
5. Risk rating of the borrower
Page 66

6. Reasonableness of estimates/projection in regard to sales, chargeable current assets,
current liabilities (other than bank borrowings) and net working capital
7. Classification of current assets and current liabilities in conformity with the
guidelines issued by the Reserve Bank/HO.
8. Maintenance of minimum current ratio of 1.33:1 (Except where a relaxation is
permitted as in the case of sick/weak units, diamond exporters, etc.).
9. An undertaking by the borrower to submit his annual accounts promptly. Further
annual review is carried out regularly by the bank even where enhancement in credit
limits is not involved,
10. Provisions of Foreign Exchange Management Act, 2000 (FEMA), wherever
applicable are complied with
11. In respect of industries where norms relating to inventory and receivables have
been laid down by Reserve Bank/HO, credit limits should be determined in
accordance with such norms and in other cases in tune with past trends.
12. In cases where deviations from norms/past trends are warranted, it should be
ensured that these are justified and specific comments in this behalf are incorporated
in the notes placed before the competent authority for sanction.
13. Specific guidelines issued by RBI/HO for sanctioning credit limits for financing
certain specific activities such as diamond exports, leasing and hire-purchase, tea,
sugar and computer software industries will continue to be in force.
Page 67
CHAPTER- 5
CONCLUSION & RECOMMENDATIONS
Page 68
5.1 CONCLUSION
The Training at PNB gave a huge learning experience to me and has helped to
enhance my knowledge. During the training I learnt how the theoretical financial
analysis aspects are used in practice during the working capital finance and term loan
assessment. I have realized during my project that a credit analyst must own multidisciplinary talents like financial, technical as well as legal know-how.
The credit appraisal for business loans has been devised in a systematic way. It is a
process of appraising the credit worthiness of loan applicants. Thus it extremely
important for the lender bank to assess the risk associated with credit; thereby ensure
the security for the funds deposited by the depositors. There are clear guidelines on
how the credit analyst or lending officer has to analyze a loan proposal. It includes
phase-wise analysis which consists of 6 phases:
1. Financial statement analysis
2. Working capital and its assessment techniques
3. Techno Economic Feasibility Analysis
4. Credit risk assessment
5. Documentation
Page 69

6. Loan administration
Punjab National Banks adoptions of the Projected Balance Sheet method (CMA) of
assessment procedures are based on sound principles of lending. This method of
assessment has certain flexibility required to avoid any rigid approach to fixing
quantum of finance. The PBS method have been rationalized and simplified to
facilitate complete flexibility in decision-making.
To ensure asset quality, proper risk assessment right at the beginning, is extremely
important. That is why Credit Risk Management system is an essential ingredient of
the Credit Appraisal exercise.
PNB has formulated a Credit Risk Rating model, PNB Trac. It considers important
parameters like profitability, repayment capacity, efficiency of the unit, historical /
industry comparisons etc, depending on the industry. PNB Trac is one of the best
rating models present till date.
Page 70
5.2 FINDINGS
After completing the entire project at Punjab National Bank the following key
findings as mentioned below were observed.
At Punjab National Bank, Circle Office the priority to appraise a proposal was
given new over the existing clients presenting proposals for renewal of loan.
Ratings, as being performed at PNB, are done once a year. Therefore, the
ratings do not take into account short term drastic changes like price level
changes.
The risk rating model is not flexible; the present risk rating model does not
have any mechanism to prioritize certain sectors of the economy. There are
certain sector in the economy where risk spread is low and certain sectors
where spread of risk is high like real estate. Also, there are certain
infrastructural projects which need to be prioritized.

The BPLR system has been replaced by Base Rate system.
Some of the parameters in Business and industry evaluation are based on the
information provided by company, which in some cases may not be sufficient.
No specific guidelines are followed in such cases. Also, some of the
parameters here may be rendered redundant in some cases and may
manipulate the rating needlessly in these cases.

With the deregulation of the financial sector, the ability of the banks to service
the credit requirements of the SME sector depends on the underlying
transaction costs, efficient recovery processes and available security. There is
Page 71

an immediate need for the banking sector to focus on credit and finance
requirements of SMEs.
5.3 RECOMMENDATIONS
The Credit Department at PNB Large Corporate Office Kolkata, works at its full
potential and the staff is highly experienced and has a very strong intuitive sense.
Overall Current Appraisal System is good but the following suggestion can be taken
care off as there is always a chance of improvement.
Direct Interaction with the clients should be improved.

The loan processing time should be reduced.
The documents required for processing the loan should be reduced.
The bank should completely eliminate the file system and go computerization
at every stage as this removes paper work and creates transparency in the
system.
The bank should work on standardizing the processes and systems their
follow.
Care must be taken to ensure that the judgment in appraisal process does not
depend on one single person and a single factor.

Monthly Monitoring system should be followed instead of Quarterly
Monitoring System as document are being submitted electronically
Page 72
5.4 LIMITATION
Like any other study this study too is not free from limitation. The major limitation of
the study is listed below:
1. The major limitation of the study is availability of data as the data are
proprietary and not readily shared for dissemination
2. Study limited to business loans.
3. Study is limited to PNB Kolkata branch.
4. The findings cant be generalized for the varied range of industries of
borrowers.
5. The credit rating process is more of intuition and experience and since the
time period was limited, hence beat effort was made to grasp the process as
much as possible
Page 73
REFRENCESS
Research Paper:
Shyam Sundar Gupta, Project Appraisal and Integrated Project Rating of
Thermal Power Project at Power Finance Corporation Ltd, June 2009

Robert V Oakford ,Capital Budgeting, Sensitivity Analysis,1970
Unido, Project Appraisal of SME, 2000
IFAC, project appraisal using discounted technique, June 2008
Brian nelson, Credit rating methodology, morning star, Nov. 2009
PNB Journals (For internal circulation only)

Credit Management & Risk Policy for the year 2010
Book of Instructions on Loans, March 2010
Loans & Advances Circulars on
BPLR
Project Finance
Industry Rating
Loaning Powers and Guidelines for exercising such powers
www.pnbindia.in
RBI Circulars and Guidelines (www.rbi.org.in)
BASE RATE
Page 74

M.Y.Khan & P.K.Jain, Financial Management, Fifth Edition
(http://books.google.co.in/books?
id=N9V34rWEOGcC&printsec=frontcover#v=onepage&q&f=false)
I.M.Pandey, Financial Management,
Sanjay Mundra, Sanjeevani, Working Capital management, Sixth Edition
Google books, www.book.google.co.in
APPENDIX
Case Study
Page 75
1 BORROWERS PROFILE
Group name
Company name
Address of Regd./Corporate
Office
Constitution
Date of incorporation
Industry/Sector
Business Activity (Product)
Stage
ABC Group
M/s ABC Metaliks Limited (ABC)

Premlata, 39, Shakespeare sarani, Kolkata700017
31St January 2004
Steel and cement manufactures in secondary
sector
Manufacturer of Pig Iron, sponge Iron
Forward and backward integration
BACKGROUND
M/s ABC Metaliks Limited (ABC or the Company or the client) is part of ABC
Group, An established Steel and Cement manufacturer in secondary sector. ABC was
incorporated on 31st January xxxx and has a registered office
at..............................................,
The Company has the following manufacturing facilities located in
Gokulpur, West Bengal: Pig Iron 100000 MTPA

Midnapore, West Bengal: Sponge Iron 180000 MTPA
ABC is currently on a forward integration strategy. Thus the company has rolled out
projects of setting up Steel Smelting shop for manufacturing Billets, ductile Iron Pipe
facility and rolling mill for manufacturing TMT bars. In order to have competitive
benefit the company has also rolled out a backward integration plan which aims at
reducing the manufacturing cost.
Page 76

The Group has recently been approved Iron ore and manganese mines in the state of
Madhya Pradesh. This has further encouraged the company to set up a Benefication
plant of capacity 1 million Ton and Pelletisation plant of 600000 TPA at existing site
of Gokulpur.
BOARD OF DIRECTORS
Name
Key responsibility
Mr. Sajjan
Kumar Patwari.
Overall management
Mr. Sanjay
Kumar Patwari.
Finance, production
and marketing of
sponge iron &
cement
Age
Qualification
Experience
58
Bachelor of
science
More than 30 yr.

experience in steel industry
More than 10 yr,
experience in marketing of
sponge Iron & Cement
32
Mrs. Bhagwati
Devi patwari.
Bachelor of
commerce
15 years of experience in
general management with
the group companies.
55
Project Cost
Description
Land
Land
Development
Building & Civil
Construction
Plant and
Machinery
Miscellaneous
Fixed Assets
Preliminary
Expenses
Margin Money
IDC
Contingency
Total
2010-11
26.40
38.50
2011-12
-
2012-13
-
Total
26.40
38.50
170.10
283.50
113.40
567.00
503
411
914
135
110
245
10
59
30
99
75
45
50
1152
379
176
36
1341
379
221
86
2578
(In millions)
Page 77

The total project cost is estimated at Rs. 2578 million. It is estimated that expenditure
will be spread over 3 year. The mean for finance of the project are provided below.
Mean of finance
Description
Equity
Long Term Debt
Total
2010-11
75
75
2011-12
162
1000
1162
2012-13
621
720
1341
Total
858
1720
2578
Term loan as assumed to carry interest of 12% p.a. The moratorium period will be 2.5
year. Total term loan tenure will be 9 year with repayment period of loan assumed to
be6.5 years after completion of the moratorium period.
Conclusion
The total project cost is estimated by the consultants is Rs. 2578 million.
A debt-Equity ratio of 2:1 is proposed by the company for financing of the
project.
An interest rate of 12% has been considered for raising debt for the lenders.
The equity for the project is Rs. 858 million and debt is Rs. 1720 million.
Feasibility of the project is checked considering three different scenario
i. 10% increase in project cost.
ii. 5% increase in raw material cost
iii.
5% decrease in selling price.
2. CREDIT APPRAISAL FOR ABC

2.1 MANAGERIAL EVALUATION
1.
Market reputation on the promoter / management of the company:
Satisfactory.
Brief Profile of DirectorsMr. ABC, aged 58 years, Promoted the business of Steel and Cement
2.
manufacturer in secondary sector. He has been founder of the company and is

presently the chairman of the company. Bachelor of science by Qualification
and More than 30 yr. experience in steel industry and looks over the overall
management of the company.
Mr. XYZ aged 32 years, son of ABC joined his fathers business after
completing his Graduation. He has now
Page 78

been associated with this business for last 10 years and looks after companies
Finance, production and marketing of sponge iron & cement. He is a active
director of the company.
Mrs. CBA, aged 55 years, W/o of ABC. She has also been associated with the
business for last Fifteen years and Presently Director in the company.
3. Quality of Management (Including Corporate Governance):

Management of the company is well experienced and have more than 30 year
experience in the Steel Industry.
4. Marketing:
The Company is ISO certified with skilled marketing strategy by MR. Sanjay
Kumar Patwari who has an experience of 10 years in the field of marketing for
Sponge Iron and Cement.
5. Client's diversification, expansion, modernization program:
ABC is currently on a forward integration strategy. The company has rolled
out projects of setting up Steel Smelting shop for manufacturing Billets,
ductile Iron Pipe facility and rolling mill for manufacturing TMT bars. In
order to have competitive benefit the company has also rolled out a backward
integration plan which aims at reducing the manufacturing cost.
The Group has recently been
approved Iron ore and manganese mines in the state of Madhya Pradesh. This
has further encouraged the company to set up a Benefication plant of capacity
1 million Ton and Pelletisation plant of 600000 TPA at existing site of
Gokulpur with availability of 20 acre land for each project which is 5 km away
from nation highway(NH6)
Page 79
2.2
2.3 BUSINESS EVALUATION
2.2.1 Comments on industry scenario and industry outlook:
Industry Structure:
The Indian steel industry is broadly divided into two distinct producer groups:
Primary Steel Producer (ISP- Integrated Steel Producer)

Secondary Steel Producer.
ISPs includes large steel producers with high level of backward integration.
ISPs have facilities right from the iron ore(raw Material) mining stage to the
steel production stage.
Secondary producers essentially have mini steel plants and employ Electric
Arc Furnace (EAF) or Induction Furnace (IF) route, which use scrap and
sponge iron or mix of both as a raw material to produce steel. This group also
consists of processors and re-rollers of steel products.
Although, there are 3500 varieties of regular and special steel available, steel
producer can be broadly classified into two basic types according to their
shapes viz. flats and longs. All finished steel products are made from semifinished steel thats comes into form of slabs billets and blooms.
Page 80
Value chain
Steel has wide application into day to day life . various key industries like
construction, transport, communication, agriculture and energy cannot sustain
without steel its uses advance technology to produce right steel for ideal
requirement.
Iron Ore / Pellet &
Blast
Furnace
Pig
Iron
Basic Oxygen
furnace
Billets,
Bloom,
Ingots
HRC &
Scrap
CRC
&
SCRA
Iron Ore / Pellet &
Scrap
Sponge Iron
EAF/Induction
furnace
DR
I
Ferro
alloys
Ingots/ Continuous caster / VOD

Hot rolling
Cold
rolling
Pipe
Mill
Coating
ERW,
Saw
pipes,
Casting
Casts
Coated
sheets
Industry outlook
Page 81
Tube
mills
Seamle
ss
tube/
scrap
Rolling
mills
Bars,
Angles,
Channel
s,
Scrap,
Wire rod
GLOBAL
The consultant note that the iron can be economically be produced by converting iron
ore into briquettes, concentrates, pellets or sinter. In the global market about 24% of
iron ore are converted into pellets.
DOMESTIC
Indian iron ore are fairly rich in ferrous content (about 58%). However Indian iron ore
is brittle in mature and hence had tendency of breaking down into fines during the
making process. It is noted that at present 40% of ore mined in Indian mines are in
form of lumps and balance 60% are fines. These fines are further used to manufacture
pellets or sinter for economical production of iron.
Iron Ore
Global Scenario
During 2009 global demand of iron ore (lumps pellets and sinter) was estimated at
about 1891 million ton. Demand for iron ore grow at compound annual growth rate
(CAGR) of 9.53% per annum. While the demand on 2005 was 1314 million ton per
annum and thus the future market of the iron ore is projected to be 2208 million ton
by 2015 and 2512 million ton by 2020.
Page 82
Demand of iron ore(million ton)
2500
1991 2043
1891 1941
2000
1634
1500
2266 2325
2208
2152
2097
2448
2386
2512
1722
1497
1341
1000
500
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
year
SOURCE: IISI (Brussels), JPC, ABARE
Actual Demand
Projected Demand
Global Supply
During 2009, global crude ore deposit were estimated to be 160300 million ton,
of which 48% is estimated to be iron content. The leaders in global iron ore
distribution are:
Sr. no
1
2
3
4
5
6
7
8
9
10
11
12
13
Country
Ukraine
Russia
China
Australia
Brazil
Kazakhstan
India
USA
Venezuela
Sweden
Iran
Canada
Others
Page 83
Reserve (million ton)

30,000
25,000
22,000
20,000
16,000
8,300
7,000
6,900
4,000
3,500
2,500
1,700
13,400

Source: United States Geological Survey 2010
During 2009, United States Geological Survey 2010 estimated China to be

largest producer of Iron ore with production of 900 million ton. The other top
producers are:
Serial no.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Country
China
Brazil
Australia
India
Russia
Ukraine
South Africa
Iran
Canada
United States
Kazakhstan
Sweden
Venezuela
Mauritania
Other Countries
Total World
Production (million ton.)

900
380
370
260
85
56
53
33
27
26
21
18
16
11
59
2,315
Source: United States Geological Survey 2010
GLOBAL DEMAND SUPPLY GAP

Based on above data it is noted that:
Demand supply scenario of iron ore appears to be balance and thus there
is enough scope for every manufacture.
Moreover, it is unlikely that there will be concern over supply of iron
ore as mining is primarily dependent of demand.
Page 84
GLOBAL PRICES
Based on the analysis of secondary information the iron ore prices are:
(All Figure in US$ per Dry Metric Ton Units)
Source: Bloomberg, Canaccord Adams Estimates and MM estimates)
The price of Iron ore fines and lumps grew at a CAGR of 28% and 27% respectively
During 2005-2009, from the secondary data analysis and figure it is noted that global
prices of iron ore fines, iron ore lumps and iron ore pellets are dependent on
Spot prices of Iron/Steel product

Futures prices of Iron/Steel product
Taxes and policies within the iron ore producing countries
Also year 2010 has been significant as the prices increases rapidly due to excess
demand from Southeast Asian countries.
DOMESTIC SCENARIO
DOMESTIC DEMAND
Domestic Demand of iron ore (lumps, pellets and sinter) stood at 54 million ton
during the year 2005, the demand for iron ore has since then grown at CAGR of 28%
per annum to reach 146 million ton during the year 2009.
Source: Steel statistical Year Book
DOMESTIC SUPPLY
Page 85

As per the survey carried out by Ministry of Mines and Minerals and data published
in 2006, India had iron ore reserve to the tune of 25 billion ton and rank 6th while in
production rank 4th largest producer of Iron Ore in the World.
Source: Government of India, IMM estimates
Thus its been noted that
Production of Iron ore Exceeds domestic Market

India is net exporter of iron ore ( all in form of fines) and the increase in
production has been on account of exports. The following fig. shows
represents the production , domestic use and export (In million ton)
Source: Government of India and Global Iron ore Survey
Projected Demand and Supply Scenario in India
Thus its concluded that there is no gap in demand and supply of iron ore.
IRON ORE PELLETS

GLOBAL DEMAND
During 2009 global demand of iron ore pellets stood to about 445 million ton.
The demand for iron ore pellets grew at CAGR of 7.39% from 2005-2009, the
global demand for pellets are:
Source: Global Iron Ore Survey
GLOBAL SUPPLY
Based on secondary information, the consultants estimate global installed capacity of
pellets to be above 500 million ton during 2010, further, it is estimated that the
average global capacity utilization during 2008 stood at about 88%. Global iron ore
Page 86

pellets industry is highly competitive consisting of large player contributing toward
total supply of iron ore pellets
DEMAND SUPPLY GAP

The existing supply is adequate to meet current demand. However the demand for steel is
rapidly increasing which is expected to exert pressure on requirement for iron ore lumps and
pellets, hence to meet future demand, there is the need to add new capacities. It is believe that
newer capacities are on anvil to cater to the increasing demand of iron ore pellets.
GLOBAL PRICEING
It is believed that price of iron ore pellets across the globe are dependent on;
Future prices of iron / steel products

Global demand for iron/steel products.
Over all demand supply scenario of iron ore lumps, pellets, sinter and fines.
Taxes and policies within the iron ore producing countries
Prices of iron ore pellets is categorized into

i.
ii.
Long term prices- Indicated in the following figure

Short term prices- 20-30% more than long term prices
Source: Bloomberg, Canaccord Adams estimate
Price of Pellets are better than Lumps due to better productivity in
Blast Furnace and sponge Iron plant

The margin of pellets manufacturer remain stable during 2005-09
The pellets manufacturer have been in a position to pass any major
increase in input cost to end user with the lag of 6-8 months
Page 87
DOMESTIC SCENARIO
DOMESTIC DEMAND
It is noted that pellets are a substitute for iron ore lumps. Demand trend
for pellets will be similar to demand trends of domestic iron ore.
In India the iron ore produced is brittle in nature and hence 60% of it is
in form of fines. This iron ore fines are then used for production of
pellets or used in sinter plant at integrated steel plant(ISP)
Presently in Indian almost all iron and steel manufacturers are utilizing
iron ore lumps for steel making. This is due to fact that quality iron ore
is readily available from Indias mines , hence these manufacturer prefer
lumps to pellets
Some of those who uses pellets have captive pelletization capacities and
hence are not purchasing pellets from open markets
However the shortages of iron ore pellets are imported by few of the
manufacturer. As pellets is cheaper then iron ore it forms as a latent
demand for pellets in domestic market.
Domestic Supply
Till the recent times iron ore fines were considered residual waste resulting from
mining operation with less economical value but the conversion of fines into pellets
made it realize its better value, India is net exporter of Iron ore pellets. Its is estimated
that about 0.64 million ton of iron ore pellets were exported during 2008-2009, the
major export destination includes China and Japan followed by South Korea,
Trends of export and import of iron ore pellets are
Source: Government of India

million MT
All Figure in
Page 88

From the above figure it is noted that export in 2007-08 witnessed sharp decline due
to increased domestic demand and global economics crisis that leads to fall in steel
demand. Also in 2009-2010 the export from India fallen sharply owing to export ban
by the state of Karnataka.
Pricing
The prices of iron ore pellets are driven by;
Prices of Iron Ore fines

Overall demand supply scenario of iron ore pellets, sinter and lumps,
Source: Government of India, sector report
Iron ore pellets prices witnessed an increasing trend during 2005-08, primarily
on account of increased demand of iron ore.

Short term prices are generally 20 to 30% more than the long term prices.
During the 1st half of the 2008-09 iron ore pellets price reduced to Rs.
2,200/MT this decline is prices was on the onset of global recession
subsequent to Olympics in China.

Iron ore price in the 1st half of 2009-10 was around Rs. 5,500/MT
Thus there is a great scope of Iron ore pellets in domestic as well as at global market.
2.4TECHNICAL EVALUTION.
1. Land & Building- The Party has proposed to setup the pelletization
factory at the same complex on the adjoining land of the ISP at
kharagpur. The company has already acquired land measuring 20 acre
(80,940 sq Mts) for the project. The land development process already
completed with finalized architectural design.
2. Plant & machinery- The major area of the plant will be covered with
plant and machinery of both Beneficiation and pellets plant, the
Page 89
estimated cost of plant and machinery is around Rs. 914 million

including insurance and installation,
Beneficiation Plant-(P&M)
i.
ii.
iii.
iv.
v.
vi.
Ball mill and double spiral classifier

Hydro cyclone
Spiral Chute concentrator
Magnetic separator & rotary screen
Ceramic vacuum disc filter
Liner vibrating wet screen
Pelletization P&M
i.
Burdering, drying mixing & blending equipment (pelletizing disk, mixer, PCI
ii.
iii.
iv.
v.
vi.
System, pellet distributor etc.)

Roasting & cooling equipment (travelling grate, rotary kiln valves etc.)
Water & air equipment(Pumps, cooling tower, compressor, cranes etc)
Environment Equipment(ESP, Insulation, Multi-cyclone, Bag filter, etc)
Material handling equipment(conveyor elevator screens)
Fuel system
ABC has engaged services of the M/s Jiangsu Mountop group Co. Ltd, China
(JMGCL) for technical advisory and implementation purpose of proposed iron
ore beneficiation and pelletization plant.
3. Raw Material - The major raw material required for the Pellets are
a. Iron Ore fines
b. Bentonite
Iron Ore fines In India Iron Ore are available in different size through open cast
mining and its passed through screening plant to segregate in term of size to remove
impurities. On basis of physical size the ore can be classified into three categories.
Table below compares the different variety of iron ore.
variety
Lumps
Size
>30mm
End user sector

Pig Iron Manufacturer
Natural Pellets
6-30mm
Sponge Iron Manufacturer
Fines
<10mm
Iron Ore pelletisers and pig iron manufacturer
Page 90

with sintering facilities.
Source: Paper Benefits of Beneficiation (Iron Ore) by K.S.raju
Bentonite It is the absorbent aluminum phyllosilicate generally impure clay

consisting mostly of montmorrillonite. Bentonite usually forms from weathering of
volcanic ash, most often in the presence of water. It is used as the binding agent in the
manufacture of iron ore pellets as used in steel making industry.
It is noted that the project will be able to source good quality iron ore fines from states
of Jharkhand, Orissa, and Madhya Pradesh. As the company has approved mines in
these states,
Date of
receipt in the
ministry
19/08/2008
03/09/2008
10/09/2008
10/09/2008
10/09/2008
10/09/2008
10/09/2008
19/09/2008
16/09/2008
10
16/09/2008
11
16/09/2008
12
16/09/2008
13
22/09/2008
14
13/10/2008
15
13/10/2008
16
/2008
17
/2008
18
/2008
S.
No
Name of party
Applicants
Ms. ABC
Metaliks Ltd.
Ms. ABC
Metaliks Ltd.
Ms. ABC
Cement Ltd.
Ms. ABC
Cement Ltd
Ms. ABC
Cement Ltd
Ms. ABC
Cement Ltd
Ms. ABC
Cement Ltd
Ms. ABC
Cement Ltd
Ms. ABC
Cement Ltd
Ms. ABC
Cement Ltd
Ms. ABC
Cement Ltd
Ms. ABC
Metaliks Ltd
Ms. ABC
Cement Ltd
Ms. ABC
Metaliks Ltd
Ms. ABC
Cement Ltd
Ms. ABC
Metaliks Ltd
Ms. ABC
Metaliks Ltd
Ms. ABC
Mineral(s)
Area
Village/Distt.
Manganese
ore
Iron Ore
303.91
Hect.
72.155
Hect.
33.3
Hect.
23.56
Hect.
62.32
Hect.
185.57
Hect.
61,83
Hect.
105 Hect.
Dhansua
BALAGHAT
Chandanpur
CHHATARPUR
Mundwani SIDHI
Manganese
ore, Iron Ore
Manganese
ore, Iron Ore
Manganese
ore, Iron Ore
Iron Ore
Manganese
ore
Iron Ore
Iron Ore
Manganese
ore, Iron Ore
Iron Ore
Iron Ore
Manganese
ore
Manganese
ore, Iron Ore
Manganese
ore, Iron Ore
Manganese
ore, Iron Ore
Iron Ore
Manganese
316.107
Hect.
31.1
Hect.
67.5
Hect.
573.33
Hect.
273 Hect.
395.09
Hect.
18.836
Hect.
677.42
Hect.
22.95
Hect.
125 Hect.
Page 91
Sarda
JABALPUR
Bairdha SIDHI
Bairdha SIDHI
Budbuda
BALAGHAT
Buxwaha
CHHATARPUR
Shahagarg
CHHATARPUR
Bujpura
CHATTRPUR
Pokhra SIDHI
Saletekri
BALAGHAT
Ukwa
BALAGHAT
F. Compt Nos.
1464 etc.
BALAGHAT
Dokri
BALAGHAT
CHHTARPUR
Kurro
JABALPUR
Shankar pipariya
Present Status and

nature of
Concession
Approved
dated:4/08/2009
Approved
dated:17/11/2008
Approved dated:
Approved
dated:17/11/2008
Approved
dated:22/12/2008
Approved
dated:09/01/2009
Approved
dated:22/12/2008
Approved
dated:22/12/2008
Approved
dated:09/01/2009
Approved
dated:09/01/2009
Approved
dated:09/01/2009
Approved
dated:17/06/2009
Approved
dated:23/12/2008
Approved
dated:10/02/2009
Approved
dated:10/02/2009
Approved
dated:10/02/2009
Approved
dated:10/02/2009
Approved
19
/2008
Metaliks Ltd
Ms. ABC
Cement Ltd
ore, Iron Ore

Manganese
ore, Iron Ore
BALAGHATA
159.62
Hect.
Dorali
BALAGHAT
dated:03/07/2009
Approved
dated:26/06/2009
4. Manufacturing Process: Wet beneficiation process is selected for developing

the flow chart and Grate kiln system is adopted for iron ore pelletization.
5. Production Capacity: The plant will start its commercial production from
April of 2013 and the capacity utilization will stabilize gradually as per the
following schedule.
Description
Beneficiation Plant
Capacity
Capacity Utilization
Pelletization Plant
Capacity
Capacity Utilization
Unit
2013-14
2014-15
2015-16
MT
%
792000
70%
792000
80%
792000
90%
MT
%
600000
70%
600000
80%
600000
90%
Source: Mott MacDonald
6. Quality Control: The plant is ISO certified thus there is special attention
given to the quality of the product, thus there is the R&D department of ABC
group which take care and make sure that best available process and technique
is used. Quality control test are being undertaken for raw material and other
products at stages of production. The product shall meet all the specification
requirement of their client.
7. Staff and Labor: The manpower includes both technical and non technical
staff in the field of operation, maintenance utilities, material handling, stores,
administration, sales and marketing and finance and accounting. Skilled labor
are required for the most of the technical activity while unskilled for
maintenance , store and security, the company has already started the
recruitment of staff in the yr 2010-2011.
8. Power: Power source is from WBSEB grid, the nearest substation is roughly
1k.m away from the site, application for power has already been applied and
even the connection for construction phase had been received. The required
power demand during construction phase is 0.7 MW, the total power
requirement during operational phase is as follows
Page 92

Beneficiation plant
Pelletization Plant
8 MW
10 MW
9. Other Infrastructure: the company has all the required facility, as the plant is
situated near the ABC thus all the basic and necessary facility is already
available including Co. own rail line for transportation of raw material into the
factory.
2.4 LEGAL EVALUATION:

The Company has already obtained the various approvals such as sanction of building
plan, Electricity/Power Load Connection, Water Connection, Pollution Control
Clearance.
FINANCIAL EVALUATION:
ASSUMPTION FOR FINANCIAL EVALUATION
Description
Debt Equity ratio
Interest Rate on LT loan
Interest rate on WC loan
Contingency
Income Tax Rate
Depreciation Rate
- Land (SLM)
- Building (SLM)
- P&M (SLM)
Unit
%
%
%
%
Value
2
12%
12%
5%
32.2%
0.0%
3.33%
5.28%
Brief Financial Statements of the company are as follows

Description
Income From Operation
Other Income
Total income
Cost of goods sold
Personnel Cost
Manufacturing, Selling and
administrating expenses
Railways Siding Expenses
Interest and Finance Charges
2009-2010
11,721.2
1,190.1
11,840.2
8,173.02
37.76
2,624.49
2008-2009
6.367.7
123.2
6,490.9
4,050.7
20.83
1,814.44
20.77
229.71
14.76
250.89
Page 93

Depreciation
Total Expenditure
PBT
Tax
PAT
168.08
11,253.86
586.39
13.84
447.91
53.96
6,250.63
285.31
54.15
231.16
Source: ABC
Its seen that the performance of the company has improved in the last two years.
Operational income increased by 82%. Operating profit has improved by 52% though
operation profit margin has fallen from 8.2% to 6.8%. PAT margin has marginally
improved from 3.5% to 3.8%.
The financing is required for setting new plant so no data available for the financial
statement but based on other similar company and market analysis the firm has
projected few facts and figure which is expected to be achieved by the pellet plant.
Although the company ABC is on forward integration which gives an avenue to
consume the pellets internally. However to determine the feasibility of the project the
analysis is done on the basis of standalone project, i.e pellets and some beneficiated
iron ore will be sold in the open market.
REVENUE
The selling price considered for the beneficiated iron ore and iron ore pellets is as
follows.
PRODUCTS
Beneficiated iron ore
Iron Ore pellets
TYPES OF PRICE
Market Price
Market Price
UNIT
Rs./MT
Rs./MT
SELLING PRICE
3,500
5,500
Source: MMEstimates and analysis: CMIE Data base
The selling Price is based on historical trend of price movements during 2009-10
Production
DESCRIPTION
2013-2014
2014-2015
2015-2016
2016-2017
2017-2022
Beneficiated Unit
Production
Add Op: FG
554,400
0
633,600
16,800
712,800
19,200
712800
21,600
712800
21,600
Page 94

Less Cl. FG
Net Production
Captive use
Market Share
% Market Share
Pellets
Production
Add Op: FG
Less Cl. FG
Net Production
Captive use
Market Share
% Market Share
16,800
537,600
432,600
105,000
19%
19,200
631,200
494,400
136,800
22%
21,600
710,400
556,200
154,200
22%
21,600
712,800
556,200
156,600
22%
21,600
712,800
556,200
156,600
22%
420,000
0
19,091
400,909
0
400,909
95%
480,000
19,091
21,818
477,273
0
477,273
99%
540,000
21,818
24,545
537,273
0
537,273
99%
540,000
24,545
24,545
540,000
0
540,000
100%
540,000
24,545
24,545
540,000
0
540,000
100%
2013-2014
2014-2015
2015-2016
2016-2017
2017-2022
367.5
478.8
539.7
548.1
548.1
2,250
2,573
2,625
3,104
2,955
3,495
2,970
3,518
2,970
3,518
Source: MMEstimates
REVENUE GENERATED
DESCRIPTION
Beneficiated Unit
Market Sales
Pellets
Internal Sales
Market Sales
Sales Income
Source: MManalysis:
Cost Stream
Variable cost
1) Raw material- The cost is estimated on the basis of established consumption
norm for major raw material used in beneficiation and pelletization plant
which is indicated in following table
Production Unit
Beneficiation plant
Iron Ore Fines
Flocculants
Pelletization Plant
Beneficiated Iron Ore
Benonite
Coal Fines
Fluxes
Unit
Quantity
Rate(Rs./MT)
MT/MT
MT/MT
1.50
0.02
1,500
1,600
MT/MT
MT/MT
MT/MT
MT/MT
1.03
0.01
0.04
1
INTERNAL
2,500
1,000
50
Source: MMEstimates and analysis: CMIE Data base
Page 95

2) Utilities- The consumption norms and cost of fuel, power, and water at
capacity utilization of 80-90% to manufacturer pellets is followed in the table
below and the same has been considered while projecting operating cost.
Production Unit
Beneficiation plant
Power
Water
Fuel
Pelletization Plant
Power
Water
Fuel
Unit
Quantity
Rate(Rs.)
KWh/T
m cubic/T
KI/T
25
.6
0.001
4
5
25000
KWh/T
m cubic/T
KI/T
35
0.05
0.015
4
5
25000
MManalysis, Industry Norms
3) Consumables-m The consumption norms of consumables as per industry

standards have been considered for cost estimation in beneficiation and
pelletization plant
Consumables
Beneficiation plant
Lubricant
Spares
Pelletization Plant
Lubricant
Spares
Quantity (Ton/Ton)
1
0.01
150
150
1
1
150
150
Source: MMEstimates
4) Repair & Maintenance- The repair and maintenance cost considered

includes
Replacement of sensors
The cost for repair of rollers
Change of drive and replacement of bearings
Regular maintenance charges of cranes and hoists
Oiling and greasing
As per as prevailing industry norms such charges are estimated to be 150/ton and
100/Ton for Beneficiation and Pelletization Plant respectively.
5) Material handling and transportation- the estimated cost is Rs. 100/ton for
both Beneficiation and Pelletization Plant.
Page 96
Rs./MT

Fixed Cost
1. Manpower CostParticulars
General manager
Shift In-charge
Supervisor
Operators
Senior Manager
Maintenance
Engineers
Fitters
Helpers
Assistants
Semi skilled worker
Unskilled worker
Security guard
Peons
Beneficiation
plant
1
4
12
20
1
3
Pelletization
Plant
0
4
10
15
1
3
Total
manpower
1
8
22
35
2
6
Salary
Rate
60000
30000
30000
15000
38000
30000
Annual
salary
7,20,000
3,60,000
3,60,000
1,80,000
4,50,000
3,60,000
6
6
6
20
35
2
3
6
6
6
15
25
-
12
12
12
35
60
2
3
15000
9000
7500
7500
7500
5300
4500
1,80,000
1,08,000
90,000
90,000
90,000
63,000
54,000
ADMINISTRATION, SELLING & DISTRIBUTION AND MISCELLANEOUS

EXPENSES ARE TAKEN 1% Each
Other Exp.
Depreciation:
Particulars
Value
Land
65 million
Buildings
673 million
P&M
1084 million
MFA
290million
CUMULATIVE DEPRECIATION
Rate
0.00%
3.33%
5.28%
7.50%
Depreciation
22million
57million
22million
101 million
Interest:
Long term loan
1011
12%
11-12
12-13
13-14
14-15
15-16
16-17
17-18
18-19
19-20
20-21
12%
12%
12%
12%
12%
12%
12%
12%
12%
12%
Opening Bal.
1000
1720
1720
1455.38
1190.77
926.15
661.54
396.92
132.31
Disbursement
180
Interest
35.76
52.12
52.12
44.10
36.08
28.06
20.05
12.03
4.01
Repayments
35.76
52.12
118.27
110.25
102.24
94.22
86.20
78.18
70.16
Closing Bal.
1180
1720
1654
1389
1125
860
595
331
66
Description
Interest rate
Qtr1(Apr-Jun)
Page 97

Qtr2(July-Sep)
Opening Bal
1180
1720
1653.85
1389.23
1124.62
860
595.38
330.77
66.15
Disbursement
180
Interest
41.21
52.12
50.11
42.10
34.08
26.06
18.04
10.02
2.00
Repayments
41.21
52.12
116.27
108.25
100.23
92.21
84.19
76.18
68.16
Closing Bal.
1360
1720
1588
1323
1058
794
529
265
Opening Bal
1360
1720
Disbursement
500
180
1588
1323
1058
794
529
265
Interest
15.15
46.66
52.12
48.11
40.09
32.07
24.05
16.04
8.02
Repayments
15.15
Closing Bal.
500
46.66
52.12
114.26
106.24
98.23
90.21
82.19
74.17
1540
1720
1522
1257
992
728
463
198
Opening Bal
500
1540
1720
1521.54
1256.92
992.31
727.69
463.08
198.46
Disbursement
Interest
500
180
30.30
52.12
52.12
46.10
38.09
30.07
22.05
14.03
6.01
Repayments
30.30
52.12
52.12
112.26
104.24
96.22
88.20
80.19
72.17
Closing Bal.
1000
1720
1720
1455
1191
926
662
397
132
Qtr3(Oct-Dec)
Qtr4(Jan-Mar)
Source: ABC & MM

estimate
Working capital estimation

The working capital requirement is based on market condition and industry norms,
which is indicated below
Description
Current Assets
Raw material
Stores and Consumables
Work-In-Progress
Finished Goods
Debtors
Current Liabilities
Creditors
Net Current Assets
Working Capital Gap
Margin Money
Bank Borrowings
2013-14
2014-15
2015-16
2016-17
2017-22
287
15
13
148
1052
329
17
15
169
1270
370
20
17
189
1430
370
20
17
189
1439
370
20
17
189
1439
69
1516
1447
379
1068
79
1800
1720
450
1270
89
2025
1936
506
1430
89
2035
1946
509
1437
89
2035
1946
509
1437
Calculating W/C interest

Years
Opening loan
Disbursement ( 3rd Qtr.)
Interest on opening loan
Interest on Disbursement
2013-14
1068
64
2014-15
1068
202
128
12
Page 98
2015-16
1270
160
152.40
9.60
2016-17
1430
7
171.6
0.4
2017-22
1437
172
-

Total Interest On W/C
64
140
162
172
172
Estimated Profit and loss of ABC

Description
Net Sales
Expenses
R.M
Spares &
Consumables
Utilities
Repair &
Maintenance
Material
handling &
transportation
Water disposal
Manpower
Depreciation
Exp. Written off
Add op.WIP
Less cl WIP
Cost of
production
Add op. FG
Less cl. FG
Cost of goods
sold
Administrative
expenses
Selling &
distribution exp.
Miscellaneous
exp.
EBIT
Interest on TL
Interest on WC
PBT
Tax
PAT
Net Profit
13-14 14-15 15-16 16-17 17-18 18-19 19-20 20-21 21-22

2,573 3,104 3,495 3,518 3,518 3,518 3,518 3,518 3,518
1,313
126
1,501
144
1,688
162
1,688
162
1,688
162
1,688
162
1,688
162
1,688
162
1,688
162
286
327
367
367
367
367
367
367
367
42
48
54
54
54
54
54
54
54
63
72
81
81
81
81
81
81
81
1
41
101
13
1,957
1
41
101
13
15
2,232
1
41
101
15
17
2,494
1
41
101
17
17
2,496
1
41
101
17
17
2,496
1
41
101
17
17
2,496
1
41
101
17
17
2,496
1
41
101
17
17
2,496
1
41
101
17
17
2,496
148
148
169
169
189
189
189
189
189
189
189
189
189
189
189
189
189
1,812
2,211
2,473
2,496
2,496
2,496
2,496
2,496
2,496
26
31
35
35
35
35
35
35
35
26
31
35
35
35
35
35
35
35
26
683
208
64
411
77
334
13%
31
799
196
140
463
106
357
12%
35
917
164
162
590
157
433
12%
35
917
132
172
613
173
439
12%
35
917
100
172
644
191
453
13%
35
917
68
172
676
208
468
13%
35
917
36
172
708
224
484
14%
35
917
6
172
738
239
500
14%
35
917
0
172
744
245
499
14%
Page 99
Estimated Balance sheet as for 2010-2016

Description
Shareholder funds
Capital
Reserve
Total
Loan Funds
Secured Loan
Term Loan
W/C Loan
Unsecured Loan
Other Loans
Total
Total Sources
Fixed Assets
Gross Block
Less- Cumulative
depreciation
Investments
Current Assets,
Loan & Advances
Inventories
Debtor
Cash
Less: Current
Liabilities
Creditors
Provisions
Net Current Assets
Miscellaneous Exp.
Total Uses
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
75
75
237
237
858
858
858
334
1,192
858
691
1,549
858
1,124
1,982
75
1,000
1,000
1,000
1,237
1,720
1,720
1,720
2,578
2,788
1,720
1,068
2,788
3,979
2,726
1,455
1,270
2,726
4,274
2,621
1,191
1,430
2,621
4,602
75
75
-
1,186
1,186
-
2,112
2,112
-
2,011
2,112
1,909
2,112
1,808
2,112
203
-
304
-
101
-
50
50
-
464
464
-
2,038
464
1,052
522
69
2,444
530
1,270
645
79
2,883
596
1,430
858
89
69
-
79
-
89
-
50
1,237
465
2,578
1,969
3,979
2,365
4,274
2,794
4,602
75
Estimated Balance sheet as for 2016-2022

Description
Shareholder funds
Capital
Reserve
Total
Loan Funds
Secured Loan
Term Loan
2016-17
2017-18
2018-19
2019-20
2020-21
2021-22
858
1,563
2,421
858
2,016
2,874
858
2,484
3,342
858
2,969
3,826
858
3,468
4,326
858
3,969
4,825
2,363
926
2,099
662
1,834
397
1,569
132
1,437
0
1,437
0
Page 100

W/C Loan
Unsecured Loan
Other Loans
Total
Total Sources
1,437
2,363
4,784
1,437
2,099
4,973
1,437
1,834
5,176
1,437
1,569
5,376
1,437
1,437
5,763
1,437
1,437
6,262
Fixed Assets
Gross Block
Less- Cumulative
depreciation
Investments
Current Assets,
Loan & Advances
Inventories
Debtor
Cash
Less: Current
Liabilities
Creditors
Provisions
Net Current Assets
Miscellaneous Exp.
Total Uses
1,707
2,112
1,605
2,112
1,504
2,112
1,402
2,112
1,301
2,112
1,199
2,112
406
-
507
-
609
-
710
-
811
-
913
-
3,167
596
1,429
1,132
3,457
596
1,429
1,422
3,761
596
1,429
1,727
4,082
596
1,429
2,048
4,551
596
1,429
2,516
5,152
596
1,429
3,117
89
89
3,078
4,784
89
89
3,367
4,973
89
89
3,672
5,176
89
89
3,993
5,396
89
89
4,462
5,763
89
89
5,063
6,262
Financial Evaluation
Initial Cash outflow
Year
2010-11
2011-12
2012-13
Total
Capital
investment
Margin
Money
Total
PVF
Discounted
Value
75
1,112
926
379
75
1,112
1305
1.0000
0.9091
0.8264
-75.00
-1010.92
-1078.45
2164.37
Cash Inflow
Year
PAT
Depreciation
Interest
13-14
14-15
15-16
16-17
17-18
18-19
19-20
334
357
433
439
453
468
484
101
101
101
101
101
101
101
222
260
239
218
192
167
143
Salvage
value/WC
Page 101
Total
PVF
657
718
774
759
746
736
728
0.7513
0.6830
0.6209
0.5645
0.5132
0.4665
0.4241
Discounted
Value
493.6041
490.3940
480.5766
428.4555
382.8472
343.3440
308.7448

20-21
21-22
Total
500
499
101
101
121
116
722
2,295
1199/379
0.3855
0.3505
278.331
804.3975
4010.695
a. NPV = Present value of Inflow Present Value of Out flow

= 4010.695 - 2164.37
= 1846(approx)
b. Profitability Index (P. I) = Present value of Inflow
Present value of Outflow
= 4010.695/2164.370
= 1.853
c.
Payback period = 77 months
d. IRR = Present value of Inflow = Present Value of Out flow

NPV at 20% discounting factor = 330
NPV at 25% discounting factor = -64
IRR = 20% + {330

= (20 + 4.2) %
= 24.20%
(330- (-64)}*5
DSCR
Initial
Cash
Flow
201314
201415
201516
201617
201718
201819
201920
202021
202122
Net Profit
Interest
334.00
208.47
101.42
644.00
356.96
196.44
101.42
655.00
433.14
164.37
101.42
699.00
439.27
132.30
101.42
673.00
452.99
100.23
101.42
655.00
468.12
68.15
101.42
638.00
484.16
36.08
101.42
622.00
499.64
6.01
101.42
607.00
499.49
0.00
101.42
601.00
208.00
-
196.00
264.62
164.00
264.62
132.00
264.62
100.00
264.62
68.00
264.62
36.00
264.62
6.00
132.31
0.00
-
Depreciation
Total
Interest
Repayment
Page 102

Total
208.00
DSCR
3.09
Average DSCR
461.00
429.00
397.00
365.00
333.00
301.00
138.00
1.42
1.63
1.70
1.97
1.79
1.92
2.07
4.39
Detailed sensitivity analysis

Variation
Base situation
Impact of increase in raw material
price by 5%
Impact of Reduction of Selling price
by 5%
Impact of Increase in Project Cost by
10%
NPV
1,846
1,310
Payback period
77 months
84 months
IRR
24.20%
20.34%
DSCR
1.97
1.60
1,354
83 months
20.75%
1.65
1,731
80 months
22.56%
1.86
Implementation Schedule
task Name
201011
Q Q
3
4
Q
1
2011-12
Q Q Q
2
3
4
financial closure
Engineering
Concept Design
Basic engineering
Detailed Engineering
Civil works
Land Acquisition & development
Finalisation of architectural Drawing
Page 103
Q
1
2012-13
Q Q Q
2
3
4
201314

Construction of plant & auxiliary
facilities
Procurement & Erection
Place order for long Lead Equipment
Place order for commodity Item
Receipt of Equipment & Item
Installation of Equipment & Item
Inspection & Commissioning
Inspection before Commissioning
Commissioning production trail run
Commercial Production
Sources: MM & ABC
3 PRESENT PROPOSAL
The Borrower, ABC approached to the Bank for the Sanction of following facilities:
For Sanction of Working Capital Limit of Rs. 1450 million.
For Sanction of Term Loan of Rs. 1720 million.
4 SECURITY
1. Primary
For working capital limits: Hypothecation of Companys present and future
i.
raw material, Stock in process, finished goods, stores and spares and other current
assets and Book Debts.
Page 104
ii.
For Term Loan: For the term loan of 1720 million the following
security are available
Description of security
Land
Buildings
P&M
MFA
Total
iii.
Value
65 million
673 million
1,084 million
290 million
2,112 million
Personal/Corporate guarantor
Name
Mr. ABC
Mr. XYZ
Mrs. CBA
Position in company
Chairman
MD
Director
5 CREDIT RIKS RATING OF ABC PELLETS PLANT

The account was rated under the Large Corporate Model. The following ratings
have been obtained by both: branch office and zone office.
1. FINANCIAL EVALUEATION
i.
Past Financials Its a new Company with no Past records
ii.
Future risk and subjective assessment
Category
Future Risk
Subjective
Assessment
of Financials
Parameter
Impact of contingent liability
Impact of Expansion
Transparency in accounting
Quality of inventory
Comments
There is no scope of contingent liability
This will result in increase of sales
The financial statement are prepared in
accordance of GAAP
The co. has its own mines so quality is
checked and self dependent
Page 105
Rate
4
3
2
4
Reliability of Debtors
The Co. Expect to use the goods in its

forward integration thus reliable
2. BUSINESS EVALUATION
i.
Market position evaluation

Comments
Parameter
Competitive position
Expected sales growth
The demand for pellets increses at

CAGR of 7.39%, and about
500million ton in 2010-11
Input related risk
Rate
3
3
4
Availability of raw
material and other critical
inputs
The Co. has its own approved mines

which is the source of supply for iron
ore fines for the production
Proximity to skilled Labor
The site gokulpur is an industrial

area with many mines and iron
industry thus suppy of skilled labour
is not a problem
4
4
Production related risk
State of technology used
The firm has adopted proven

technology better then its peer, ABC
has engaged services of the M/s
Jiangsu Mountop group Co. Ltd,
China (JMGCL) for technical
advisory
Product related risk

Product range
Firm is mainly engaged in the

processing of iron ore pellets which
is better alternative to produce iron
Product quality
Quality of product is reported to be

better than the peer
Marketing
Distribution network
Firm has a well developed

distribution network
Geographical diversity of
the market
Firm Expected to use the product for

its own sister concern as the Co. is
on Forward Integration Phase
ii.
Industry risk evaluation
Page 106
Industry risk evaluation for iron ore pellets plant.
75%
3. MANAGEMENT EVALUATION
Serial
no.
1
3
4
Comments
Rate
Management set up
The firm has a experience

management, in operation for 30 yrs.
Commitment and sincerity
The management are reliable and

sincere as they also includes
owner(shareholder) of the company
Satisfactory
Management is capable of arranging

funds but with time lag
Parameter
Track record in debt

payment
Financial strength/
flexibility
4. CONDUCT OF ACCOUNT EVALUATION
Parameter
Status of accounts
Operations in account
Submission of financial
data
Comments
No irregularity is observed
Operations in account are healthy
Rate
3
3
Timely submission of data
TOTAL SCORE
Factors
Financial Evaluation
Business & Industry
Evaluation
Management Evaluation
Conduct of Account
% score obtained
85.00
Weight
40%
Weight score
80.00
25%
20
68.75
75.00
20%
15%
13.75
11.25
AGGREGATE SCORE
34
79
Page 107
THIS MEANS THE RATING OF THE BORROWER IS PNB- AA+

Imp: The rating as shown in the above section is not a replication of the original model in any form,
And the values and calculation of scores is for the purpose of understanding the process
The name of the company is changed, and thus published as hypothetical example for future reffrence..
10.6 RECOMMENDATIONS
On examining the request of the Company, the following were observed:
The Management of the company is well experienced.

The Management has been in operation for past 30 years and has been earning
profits continuously.
The company has good track record in dealing with Banks.
The overall financial position of the company is satisfactory.
Keeping in view the increasing profitability and financial position of the company, the
following are recommended
For Sanction Term Loan of Rs. 1720 million being disbursed as per
requirement.
For Sanction Working Capital limit of Rs 1450 million should be granted,
that is to be withdrawn as per as requirement.
Page 108
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Credit Appraisal & Risk Rating.

Summer Internship Project Report

MBA Class of 2012

AMITY BUSINESS SCHOOL

Amity Business School, Noida.

Credit Appraisal & Risk Rating.

Amity Business School, Noida.

Credit Appraisal & Risk Rating.

Amity Business School, Noida.

Credit Appraisal & Risk Rating.

Amity Business School, Noida.

Credit Appraisal & Risk Rating.

Amity Business School, Noida.

Credit Appraisal & Risk Rating.

Credit Appraisal & Risk Rating.

Amity Business School, Noida.

Credit Appraisal & Risk Rating.

APPENDIX: CASE STUDY....................................................................................76

Amity Business School, Noida.

Credit Appraisal & Risk Rating.

Credit Appraisal & Risk Rating.

Amity Business School, Noida.

Credit Appraisal & Risk Rating.

Corporate credit appraisal is a fundamental business practice which assesses the

Credit Appraisal & Risk Rating.

Reasons for selecting the project

Objective of the project

Credit Appraisal & Risk Rating.

Amity Business School, Noida.

Credit Appraisal & Risk Rating.

INTRODUCTION TO BANKING SECTOR AND PNB

A snapshot of the banking industry:

Amity Business School, Noida.

Credit Appraisal & Risk Rating.

Credit Appraisal & Risk Rating.

Amity Business School, Noida.

Credit Appraisal & Risk Rating.

Classification of banking Industry:

Credit Appraisal & Risk Rating.

Development Financial institutions

Public Sector Banks

Private Sector Banks

Credit Appraisal & Risk Rating.

1. Rivalry among existing firms

Amity Business School, Noida.

Credit Appraisal & Risk Rating.

SWOT ANALYSIS OF BANKING INDUSTRY

Amity Business School, Noida.

Credit Appraisal & Risk Rating.

Credit Appraisal & Risk Rating.

1. NBFCs, Capital Markets and Mutual funds

Amity Business School, Noida.

Credit Appraisal & Risk Rating.

PUNJAB NATIONAL BANK

unjab National Bank (PNB) was established in 1895 in Anarkali

largest government-owned commercial

bank in India with

Credit Appraisal & Risk Rating.

1895: PNB commenced its operations in Lahore.

in Lahore, but continued to operate in Pakistan.

became Bharat Nidhi Ltd.

commercial banks, on July 19, 1969.

Amity Business School, Noida.