FINANCING WORKING CAPITALAT PUNJAB NATIONAL BANK SUBMITTED TO: SUBMITTED BY: INDUSTRY GUIDE: MR. DEEPAK KUMAR, TRAINING MANAGER, PUNJAB NATIONAL BANK FACULTY GUIDE: DR. ANSHUL VERMA, ASSOCIATE PROFESSOR (FINANCE), BIMTECH SAURABH KUMAR ROLL NO. - 11DM181 PGDM- C BATCH- 2011-13 SUMMER PROJECT CERTIFICATE This is to certify that Mr. Saurabh Kumar has successfully completed the project on “Financing Working Capital” at Punjab National Bank, Circle Office Patna as part of the requirement of the fulfillment of course curriculum for the award of the Post Graduate Diploma in Management (Finance) under my guidance. This is his original work to the best of my knowledge. Date: June 25, 2012 Signature ________________ (Dr. Anshul Verma) Associate Professor (Finance) Birla Institute of Management Technology BIMTECH SEAL 2|Page (Greater Noida) LETTER OF TRANSMITTAL Birla Institute of Management Technology Plot no. 5, Knowledge Park-II Institutional Area Greater Noida – 201306 Uttar Pradesh, India Date: June 24, 2012 Mr. Deepak Kumar Training Manager Zonal Training Centre Circle Office Patna Dear Sir, RE: Summer Internship Report 2012 Attached herewith is a copy of my summer-project report entitled “Financing Working Capital” which I am submitting in order to mark the completion of my 8-week summer project at your organization. This report was prepared by me using the best of practices and summarizes the work performed on the project and is being submitted in partial fulfillment of the requirements for award of Post Graduate Diploma in Management. I would like to mention that the overall experience with the organization was very good, which helped me to know how is the work carried out in real practice. The eight weeks of practical exposure which I got through your esteemed organization helped me to know the details about the development of the corporate campaign in real practice which will be beneficial for me in future and was very different from the theories which I have learnt up till now. I feel honored that I got an opportunity to work with Punjab National Bank. Towards the end, I would like to say that this was only possible because of the support of yours as well as the other managers and healthy working environment. I hope I did justice to the project and add some value to your organization. Suggestions/comments are highly solicited. Yours truly, Saurabh Kumar 3|Page ACKNOWLEDGEMENT The satiation and euphoria that accompany the successful completion of the project would be incomplete without the mention of the people who made it possible. The researcher takes this opportunit y to express his sincere gratitude to m y industry guide Mr. Deepak Kumar (Training Manager, Punjab National Bank ) for their valuable guidance, support and encouraging words during the entire project duration. The researcher would like to extend his gratitude towards Mr. Reetesh Patel (Senior Manager, Punjab National Bank ) and Mr. Rajesh Kumar (Chief Manager, Buddha colony branch) without whom the imagination of completing this project was very difficult. The researcher would like to express his profound sense of gratitude to Dr. Anshul Verma, m y facult y guide, who has always given me motivat ional boost to go and perform. The researcher would further like to thank him for his persistence to listen to m y prob lems and to give apt solutions. Saurabh Kumar 4|Page New Delhi TABLE OF CONTENTS SERIAL NUMBER CONTENTS PAGE NUMBER 1 EXECUTIVE SUMMARY 7 2 METHODOLOGY 8 3 COMPANY PROFILE 9 4 INTRODUCTION OF WORKING CAPITAL 13 5 WORKING CAPITAL FINANCE 16 6 METHODS OF ASSESSMENT OF WORKING CAPITAL 20 7 CASE STUDY 24 8 RECOMMENDATION AND CONCLUSION 33 REFRENCES 34 5|Page ANNEXTURES 35 ANNEXTURE A 35 ANNEXTURE B 48 ANNEXTURE C 49 ANNEXTURE D 51 LIST OF TABLES SERIAL NUMBER 1 CONTENTS Performance highlights of the Bank PAGE NUMBER 11 2 Advances (Sectoral) 11 3 Summary of working capital finance instruments 17 LIST OF FIGURES SERIAL NUMBER 1 2 6|Page CONTENTS Working capital Working capital cycle PAGE NUMBER 14 15 . I studied the various types of facilities offered by the bank under Project Finance. The objective of the project is to study and analyze the various aspects and methods of financing working capital loan. the study includes a snapshot of such evaluation for both working capital & term loan appraisal. This study covers the process Punjab National Bank follows to assess the credit worthiness of its clients and grant the finance for the working capital. After evaluating a number of facilities sanctioned by the bank. which is used by the bank to evaluate the credit risk of the bank and accordingly charge the rate of interest to the clients. generated by feeding in both the quantitative and qualitative data of the client. Patna. the bank calculates the credit risk score of the client by using software called PNB Trac.1. Before granting finance. including both Fund based facilities like term loan and Cash credit and Non Fund based facilities like Bank Guarantee and Letter of Credit and also the procedure followed by the bank before granting the finance to its borrowers which includes the calculation of the credit risk undertaken by the bank. 7|Page . EXECUTIVE SUMMARY The study gives an insight of summer internship undertaken in the circle office of Punjab National Bank. 8|Page . It does so by paying equal attention to both quantitative as well as qualitative data. norms in order to arrive at figures required for the borrower and facilities applied for. (done by bank’s representative and I gathered knowledge about the issues from the experience they gained from their discussions with the promoters of the company) Verification of data and preparation of revised project report and projections submitted by the company. Visit to factory site for physical verification of progress made by the company.(performed by bank’s representative and I gathered first hand information from him) Study of various bank circulars and govt.2. The methodology that was adopted while appraisal of the project is described as below: Collection of data from borrowing party. METHODOLOGY The project makes use of ample amount of data to arrive at the conclusion. transparent governance structure. COMPANY PROFILE Punjab National Bank (PNB) was registered on May 19. 9|Page . life and non-life insurance. PNB has continued to retain its leadership position amongst the nationalized banks. the bank has also entered the credit card. Besides being ranked as one of India's top service brands. bullion business. Gold coins & asset management business. Apart from offering banking products. etc.3. The bank has 6009 ATMs and around 169 lakh card holders. The bank enjoys strong fundamentals. debit card. 1894 under the Indian Companies Act with its office in Anarkali Bazaar. Corporate Social Responsibility (CSR) practices. With over 60 million satisfied customers and more than 5670 offices including 6 overseas branches. best use of technology and good human resource management. Lahore. large franchise value and good brand image. PNB has remained fully committed to its guiding principles of sound and prudent banking. PNB has earned many awards and accolades during the year in appreciation of excellence in services. 363 crore. its ratio of Priority Sector Credit to Adjusted Net Bank Credit at 40. PNB is ranked as the 2nd largest bank in the country after SBI in terms of branch network. better asset liability management.7% & Agriculture Credit to Adjusted Net Bank Credit at 19. Operating and Net profit in the year 2011-12.60 Mar’11) while the Book value per share improved to Rs 777.96% Mar’11). The Earning per Share improved to Rs 154. the Bank achieved a net profit of Rs 4884 crores. The Bank has also issued 40.28% and 3. Punjab National Bank continues to maintain its frontline position in the Indian banking industry. The impressive operational and financial performance has been brought about by Bank’s focus on customer based business with thrust on CASA deposits. Retail. improved margin management.8 lacs Kisan Credit Cards (KCC) till March 31.42 (Rs 632.35% respectively. the Bank has the Gross and Net NPA ratio of 2. Assets. total Business. 2012. In particular. Deposit. The performance highlights of the bank in terms of business and profit are shown below: 10 | P a g e . with 36. Bank has a strong capital base with capital adequacy ratio of 12.73. Advances. The Bank has been able to maintain its stakeholders’ interest by posting a healthy Net Interest Margin (NIM) of 3.93% and 1. PNB has achieved significant growth in business which at the end of March 2012 amounted to Rs 6. thrust on recovery and increased efficiency in core operations of the Bank.63% as on Mar’12 as per Basel II with Tier I and Tier II capital ratio at 9.52% respectively. During the FY 2011-12.02 (Rs 140.48 Mar’11). the bank has retained its NUMBER ONE position among the nationalized banks in terms of number of branches.34% was also higher than the stipulated requirement of 40% & 18% respectively.20% share of CASA to domestic deposits.84% in Mar’12 (3. business and many other parameters. As on March’12. During the FY 201112. SME & Agri Advances and with more inclusive approach to banking.Since its humble beginning in 1895 with the distinction of being the first Swadeshi Bank to have been started with Indian capital. 3 Total Business 364463 435931 555005 673363 21.6 9.2 Net Profit 3091 3905 4433 4884 10.4 20.b Car/Vechicle 6.1 8851 68.7 3.6 2 21.pnbindia.a MSME manufacturing 5.2 11. In Crore Parameters Mar‟09 Mar‟10 Mar‟11 Mar‟12 YOY Growth % Operating Profit 5690 7326 9056 10614 17. (%) 53894 22.1 0.1 Source: www.a Housing 6.9 26.2 Deposit 209760 249330 312899 379588 21.9 35.9 41.5 1991 876 2708 706 1588 13875 16. In Crore SI.6 11816 1626 10179 8955 3839 44563 12373 2178 11459 10382 4936 47660 13808 2502 12887 9661 5427 58437 5.3 Source: www.c Other retail loans 7 Commercial real estate Of which lease rental 8 Services & others FY Mar'11 Dec'11 FY Mar'12 243998 12904 231094 4421 226673 265884 19778 246106 5424 240682 297892 21755 276137 5186 270951 35462 114072 26848 87224 23621 38306 118324 29912 88412 26009 45917 128162 32391 97771 29196 16.b Dom. Of which 4 Aggriculture & allied 5 Industry 5.3 Advance 154703 186601 242107 293775 21.Table 1: Performance highlights of the bank Rs.3 100 44278 19.a Food credit 3.5 765 17.9 4.b Large Industry 6 Retail Loans Of which 6.3 10.Non food Amt.com/financials Table 2: Advances (Sectoral) Rs.5 12.com/financials 11 | P a g e % shareVariation in over 11 to 12 Gr.pnbindia.8 10455 14090 5543 8547 5575 29.9 47.6 7.8 23.5 .6 45043 19.9 53.Non food gross adv.4 31. Parameters 1 Global gross advances 2 Overseas advances 3 Domestic gross advances 3. Best Bank Award among Large Bank for “IT for internal effectiveness” from IDRBT. MSME National Awards: One award for excellent performance in lending under PMEGP scheme in North Zone and the other award at national level for excellence in lending Interest Subsidy Eligibility Certificate (ISEC) scheme of KVIC. instituted by Federation of Indian Chambers of Commerce and Industry (FICCI) and Indian Banks’ Association (IBA). Most Socially Responsible Bank Award 2011 by Business World & Pricewaterhouse Coppers (PwC). Bank’s Overseas Branch. SKOCH Financial Inclusion Award 2012 for its Jana Mitra Rickshaw Scheme. Golden Peacock National Training Award 2011 by institute of Directors. Golden Peacock Award for HR Excellence instituted by Institute of Directors. DIFC. „Technology Adoption‟ Award in public sector bank category instituted by Dun & Bradstreet and Polaris Software. India Pride Award in Corporate Social Responsibility (CSR) for the year 2011 by Dainik Bhaskar. Dubai has received „Business Super Achiever Award‟ under individual category from Asian Leadership Awards in addition to the Asian most preferred branch (Banking & Finance) Award.Recent Awards and Accolades: Conferred with the Best Bank Award 2011 amongst all the banks in India by Business India Prestigious „Most Productive Public Sector Bank‟ Award 2011. Global HR Excellence Award under the category “Organization with Innovative HR Practices” instituted by ASIA PACIFIC HRM CONGRESS. 12 | P a g e . stock in process. Introduction to Working Capital Working capital refers to that part of the firm’s capital which is required for financing shortterm or current assets such as cash. 13 | P a g e . debtors & inventories. marketable securities. For proper working a manufacturing unit needs a specific level of current assets such as raw material. thus. So the working capital means the funds invested in current assets. receivables and other current assets such as cash in hand/ bank and advances etc. invested in current assts keep revolving fast and are being constantly converted in to cash and this cash flows out again in exchange for other current assets. gross working capital. it is also known as revolving or circulating capital or short term capital. Funds. Hence. factors affecting the requirements of working capital and role of banker in assessment of right amount of working capital. net working capital.4. Working capital for any unit means the total amount of circulating funds required for meeting day to day requirements of the unit. This topic explains the concept of working capital cycle. finished goods. Thus. between the lender and the borrower. The loan is generally provided at a cost. the borrower initially receives or borrows an amount of money. a loan entails the redistribution of financial assets over time. and is obligated to pay back or repay an equal amount of money to the lender at a later time. the money is paid back in regular installments. which can also place the borrower under additional restrictions known as loan covenants. In a loan. referred to as interest on the debt.Figure 1: Working Capital How can we distinguish it with the term loan? A loan is a type of debt. 14 | P a g e . called the principal. in an annuity. which provides an incentive for the lender to engage in the loan. Acting as a provider of loans is one of the principal tasks for financial institutions. in practice any material object might be lent. Although this article focuses on monetary loans. In a legal loan. from the lender. For other institutions. Like all debt instruments. each installment is the same amount. issuing of debt contracts such as bonds is a typical source of funding. or partial repayments. each of these obligations and restrictions is enforced by contract. Typically. When net working capital is negative. Gross working capital means the total funds required for financing the total current assets. Such situation may also arise due to losses. the need of the hour is for raising long term sources. Net Working capital means the difference of current assets and liabilities. net working capital denotes the portion of gross working capital contributed from long term sources. Gross Working Capital = Current Assets Net Working Capital = Current Assets − Current Liabilities In other words. it implies that the short term funds have been diverted / used for long term uses and the unit is facing a liquidity crunch. finished goods and receivables. In such a situation. As per practice of Indian banks.Working Capital Cycle: The working capital cycle or operating cycle of a manufacturing unit means the time taken for converting cash into cash via raw material. net working capital should normally be 25% of total current assets which will give a current ratio of 1. Figure 2: Working Capital Cycle Payment Creditors Cash Collection Debtors Sales Finished Goods Supply Raw Material s Production Work in progress Gross Working Capital and Net Working capital: Working capital may also be explained as Gross working capital and Net working capital.33 to the unit. stock in process. 15 | P a g e . Forms of Working Capital Financing: Working capital finance comes in many forms. working capital can represent a broader view of a firm’s capital needs that includes both current assets and other non fixed asset investments related to its operations. When the returns for these “soft costs” investments are not immediate but rather are reaped over time through increased sales or profits. activities that require funds to hire personnel rather than acquiring accounting assets. For example. Thus. each of which has a unique term and offers different sets of advantages and disadvantages to the borrower. Working Capital Finance The term capital has several meaning in business and economic development finance. a firm may need funds to redesign its products or formulate a new marketing strategy. accounts receivable.5. working capital is defined as firm’s short term current assets and current liabilities. are described below: Line of credit Account receivable financing Factoring Inventory financing Term loan The following table will give a fair idea about these five major forms of working capital finance: 16 | P a g e . A second broader meaning of working capital is the company’s overall non fixed asset investments. Net working capital represents the excess of current assets over current liabilities and is an indicator of firm’s ability to meet its short term financial obligation. inventory. Businesses often need to finance activities that do not involve assets measured on the balance sheet. and other items listed as current assets on the firm’s balance sheet. In accounting and financial statement analysis. In this context. then the company needs to finance them. working capital refers to the firm’s investment in two types of assets. working capital means a business’s investment in short-term assets needed to operate over a normal business cycle. This meaning corresponds to the required investment in cash. From financing perspective. The five major forms of debts. which are used to finance working capital. In one instance. working capital financing concerns how a firm finances its current assets. Loan amount based on a percentage of inventory value. Compensating balance may be required. Working Capital Finance is broadly categorized under two heads: 1) Fund Based. Medium-term loan. Collection collection risk. Factor bears a collection fee. Loan secured by inventory. There are four types of fund based financing: Demand loan Term loan Cash-credit advance Overdraft 17 | P a g e . Firms draw on Annual repayment. amount can be advanced with an interest charge. Can be fully amortized based on a fixed schedule. These are the facilities for which the bank provides funding and assistance to actually purchase business assets or to meet business expenses. Loan balance paid down with AR collection. Accounts receivable assigned to lender as sales occur.Table 3: Summary of working capital finance instruments Finance instrument Line of Credit Account Loan Receivable Factoring Inventory Financing Term Loan Description Key terms Maximum loan limit Can be secured or unsecured. established. or a balloon loan. Typical term is three to seven years. Sale of accounts receivable to Company paid based on a third party collector average collection period less (Factor). loan as needed up to limit. Lender receives security interest in inventory and may take physical control. percentage of accounts receivable. Principal Loan amount tied to collateral repaid over several years value. Release of inventory with loan repayment. (AR) Loan secured by accounts Loan amount based on receivable. The bank can retain the possession of goods pledged with it till the debt (principal amount) together with interest and other expenses are repaid. the possession of goods offered as security passes into the hands of the bank. Mortgages are taken as an additional security for working capital credit by banks. A 18 | P a g e . On the other hand. It can be of two types: (i) Particular lien and (ii) General lien. The mortgage interest in the property is terminated as soon as the debt is paid. In the case of default the bank has the legal right to sell the property to realise the amount of debt. In case of non-payment of loan the bank may either. or after giving due notice. These are the facilities for which the bank can issue letters of credit or can give a guarantee on behalf of the customer to the suppliers. Lien – Lien means right of the lender to retain property belonging to the borrower until he repays the debt. It is a charge against property for the amount of debt where neither ownership nor possession is passed to the creditor. the latter person is said to have a charge on the property and all the provisions of simple mortgage will apply to such a charge. Different ways of non fund based financing are: Letter of credit(LC)/Letter of guarantee Bank guarantee Performance guarantee Finance guarantee Deferred payment guarantee SECURITY REQUIRED IN BANK FINANCE: Banks generally do not provide working capital finance without adequate security. . General lien is applicable till all dues of the lender are paid. Government Departments for the procurement of goods and services on credit. sell the goods. Mortgage – Mortgage is the transfer of a legal or equitable interest in a specific immovable property for the payment of a debt. while the lender enjoys the full legal title. Pledge – A pledge is bailment of goods as security for the repayment of a debt or fulfillment of a promise. Charge – Where immovable property of one person is made security for the payment of money to another and the transaction does not amount to mortgage. generally inventories. the possession of the property may remain with the borrower. Sue for the sale of goods pledged. Particular lien is a right to retain property until the claim associated with the property is fully paid. The nature and extent of security offered play an important role in influencing the decision of the bank to advance working capital finance. The bank provides credit on the basis of following modes of security: Hypothecation – Under this mode of security.2) Non Fund Based. In case of mortgage. the banks provide working capital finance to the borrower against the security of movable property. Banks usually enjoy general lien. Under this mode. Sue the borrower for the amount due. 19 | P a g e . It is only security for payment. So both the situations are to be avoided. A portion of it is to be financed from long term sources called the liquid surplus or net working capital (NWC). That is why the technique of calculation of right amount of working capital assumes significance. For financing of working capital. a banker should be able to calculate right amount of working capital needed by the unit being financed. Excess maintenance of working capital may result in idle resources and high interest cost whereas less amount of working capital may mean disruption in the working.charge may be created by the act of parties or by the operation of law. It shall mean right amount of financing which will result in higher profitability for the unit and safety of funds of the bank. The remaining is normally financed by the bank in the form of working capital limits. Role of Banker: The unit should have sufficient amount of working capital. PBF = [(F-E) OR (F-G)].L) H. This method talks about MPBF. W.A C. 3) CASH BUDGETING METHOD: It is mainly used for service sector companies Like BPO. whichever is maximum. Total Charge C. A. 2. Bank Finance in the form of Working Capital = Cash Inflow –Cash Outflow 20 | P a g e . Accepted Projected sales Required W.(25% of A) Stipulated Margin(5% 0f A) Actual NWC(C. Chargeable C. KPO.A. In this method WC assessed as under.C. 3.A B. This is also known as Financing Working Capital Gap. NWC Required (25% of C) G. And it eliminates traditional requirement of Stock and Debtors for assessment. 5. Software companies etc.C.6.C Gap(C-D) F. while financing we should assess that the operating cycle of the firm /company is approximately 8 month.A D. Other C.L) Permissible bank fiancé [(B-C) or (B-D) whichever is less] 2) TRADITIONAL METHOD/TONDON II METHOD: It is applicable where NAYAK COMMITTEE/TURNOVER METHOD is not applicable. Methods of Assessment of Working Capital 1) NAYAK COMMITTEE/TURNOVER METHOD 2) TRADITIONAL METHOD/ TONDON II METHOD 3) CASH BUDGETING METHOD 1) TURNOVER METHOD: It provide 5 crore to SME and 2 crore for general advances. Projected NWC/ Actual NWC (C. 4. As per Nayak method or turnover method PBF as assessed under: 1. Other C.A-C.L E. Consequently. the difference in PMM between Formulae 1 and 2 may be provided as a Working Capital Term Loan repayable in installments over a period of time. Various committees such as the Tandon Committee and the Chore Committee were constituted and studied the problem at length. A directed credit approach was adopted by the Reserve Bank of ensuring the flow of credit to the priority sectors for fulfillment of the growth objectives laid down by the planners. Standard Formulae for determination of Working Capital: The issue of computation of working capital requirement has aroused considerable debate and attention in this country over the past few decades. In cases of sick units where the promoter is unable to bring in PMM to the extent required under Formula 2. Work-in-progress. The current liabilities (CL) in the form of credit availed by the business from its creditors or on its manufacturing expenses are deducted from the current assets (CA) to arrive at the Working Capital Requirement (WCR). Formula 2 is generally adopted in case of bank financing. Finished goods and Receivables is estimated as a multiple of the average daily turnover.e. The quantum of current assets (CA) in the form of Raw Materials. The multiple for each of the current assets is determined generally based on the industry norms. 21 | P a g e .e.e. PMM (to be brought in by the promoter) As per Formula 1: PMM = 25% of [CA – CL] and thereby PBF = 75% of [CA – CL] As per Formula 2: PMM = 25% of CA and thereby PBF = 75% [CA] – CL As is apparent Formula 2 requires a higher level of PMM as compared to Formula 1. the quantum of bank credit required for achieving the requisite growth in Industry was to be assessed.Steps involved in arriving at the level of Working Capital Requirement: Based on the level of activity decided and the unit cost and sales price projections. Working Capital assessment on the formula prescribed by the Tandon Committee: Working Capital Requirement (WCR) = [Current assets i. CL] Permissible Bank Financing [PBF} = WCR – Promoter’s Margin Money i. CA (as per industry norms) – Current Liabilities i. Norms were fixed regarding the quantum of various current assets for different industries (as multiples of the average daily output) and the Maximum Permissible Bank Financing (MPBF) was capped at a certain percentage of the working capital requirement thus arrived at. the banks calculate at the annual sales and cost of production. in case of units which are non-capital intensive such as hotels. However. 1 crore crores b. Applicability: In case of SSIs. relative bargaining of the enterprise and other reasons. However. the RBI permitted banks to evolve their own norms for assessment of the Working Capital requirements of their clients. The uniformity thus reduces the scope for accusation of bias. Further. Consequently. the “One Size fits all” theory ensured that banks never needed to develop credit appraisal skills and lent to all and sundry based on their seeming adherence to norms on paper. it was not possible to act on it due to the norms. etc. banks often assess requirements both on the Nayak Committee norms as well as the working cycle norms and take the lower of the two figures. Even though the banker could understand the problem. with working capital requirement of less than Rs. 20% of the total fund requirement that has been estimated at 25% of the projected annual turnover) The formula driven computation of working capital requirement have been subjected to much debate over the past few decades. In 1997. the strongest argument against the MPBF based lending has been that it does not take into account the variations arising out of location. 22 | P a g e . The advantage of such computation has been that it removes discretion from the officials of banks (which are largely from the Public Sector).e. Eligibility and Norms for bank financing of SSIs as per Nayak Committee: a.5 In case of other industries. which could vary its need for working capital. The PR Nayak Committee that was appointed to devise norms for assessing the working capital requirement of small-scale industries arrived at simplified norm pegging the Working Capital bank financing at 20% of the projected annual turnover. high level of variability due to dependence on local factors. Banks today are capable of undertaking better assessment of the requirements and welcome the idea of offering higher limits (larger exposures) to established clients if required in order to retain their business in the face of competition from other banks. The method has also been criticized as being more appropriate for the era where credit was rationed out. Quantum of Working Capital bank financing: 20% of the projected annual turnover c. etc. with working capital requirement of less than Rs. Subject to a Promoter bringing in a margin of: 5% of the projected annual turnover (i. poor financial strength.Working Capital and Small Scale Industries: Small scale industries have a distinct set of characteristics such as low bargaining power leading to problems of receivables and lower credit on purchases. it has been rightly argued that the industry norms on different current assets cannot be adopted. However the reluctance to provide the cash budgets thereby revealing additional information to the banks. takes into account the company specific factors and is based on mutual discussion between the banker and the borrower thereby increasing its acceptability. 10 crores). Consequently Cash Budget method is currently prevalent mainly in case of seasonal industries. The peak cash deficit is ascertained from the cash budgets. Cash flow system is extremely relevant in case of the seasonal industries to assess the peak credit requirement and in case of large companies (working capital requirements above Rs. The reason for this has been that Cash flow factors in the past trends. Finally. a growing company will always be playing “catch-up” and its Permissible Bank Financing will be lagging its cash requirements by at least one year. Responsiveness to sudden surges in demand/ seasonality/ other short term boom conditions is non-existent.Cash flow based computation of Working Capital: Cash flow is the most realistic means of assessing the operations of an enterprise. This means: The borrowing unit is putting its money upfront and the Drawing Power is a form of reimbursement. Also. construction sector as well as other entities whose operations are linked to projects. Cash flow based computation of working capital requirement has been recommended by the RBI for assessment of working capital requirement permitting the banks to evolve their own norms for such assessment. Drawing up cash flow statements (monthly or quarterly) for the past few years clearly indicate the seasonal and secular trend in utilization of working capital. has led to even larger companies shying away from Cash Budget method of assessing Working Capital. 23 | P a g e . Bank financing based on cash budgets works well and is a good step form for the system: A big failure in the working capital system hitherto followed by our banks has been that the Drawing Power (within the PBF limit) is based on post facto stock statements and these are reset typically on a monthly basis. The promoter’s share (margin money) for such requirement maybe mutually arrived at by the banker and the borrower with the balance requirement forming the Bank financed part of Working Capital. The projections drawn up by the entrepreneur may then be jointly discussed with the banker as modified in light of the past performance and the banker’s opinions. putting a burden on the company to finance this at exorbitant rates from private financiers. large companies have adopted cash budgeting systems for managing their cash flows and hence such a system does not impose additional requirements on the corporate. 00 Total Non Fund Based Limits (Not to exceed) 300.00 Letter of Credit (Inland / Foreign) 300.00 lacs.00) Fund Based Limits (Not to exceed) 2. Working Capital Facilities 1.00 . with total limits not to exceed Rs. Fund Based Limits 80.00 .00 Non Fund Based Limits Bank Guarantee 100.Cash Credit 500.00 Interchangeability between fund based and non fund based limits. Total Limits (A + B) 24 | P a g e 880.00) .Bill Discounting (300. C. In Lacs A. 800. Term Loan B. 500.Packing Credit (150.7.00 . CASE STUDY FORM.I UB STAINLESS LIMITED (Formerly WEST COAST SAW PIPES LIMITED) Facilities requested Rs. 06 3998 4407.06 3998 4407.3 76.18 2020.) Raw materials (including stores and other 516.00% 10.81 .08 70 87. Next Yr.5 4855.5 4855.06 352 400 442 484 532 615.88 116.56 5.01 3 Net sales ( item 1 .5 4325.5 4991.21 2559.05 516.53 6566.99 3245 4046 4449.) (a) imported 0 0 400 500 550 605 665.46 128.31 70 87.6 30.Assessment of Working Capital Requirement ASSESSMENT OF WORKING CAPITAL REQUIREMENT FORM II : OPERATING STATEMENT AMOUNT IN Rs: Lacs NAME OF THE UNIT Estimates for the year ending 31st March UB STAINLESS LTD.76 5341.5 ii.25 105.72 3000 3750 4125 4537.32 412 515 566.43 286.06 4398 4849.46 128.00% 10.95 2046.21 iv) Direct labour 16. Next Yr. Expenses vi) Depreciation vii) SUB TOTAL (I TO VI) viii) ADD: Opening stocks-in-process ix) Deduct : Closing stocks-in.11 (Factory wages & salary) v) Other mfg. 31-3-13 31-3-14 31-3-15 31-3-16 12 12 12 12 12 IV V VI VII VIII Total 757.5 5339.61 2306. PRO.18 2020.75 4758.38 items used in the process of manuf.11 (a) imported 0 0 0 0 0 0 0 0 (b) Indigenous ii) (b) Indigenous 27.72 5875.00% 10.83% 10.5 4897.25 5490.88 116.5 66. Next Yr.17% 24. Current Yr 31-3-09 31-3-10 31-3-11 12 12 12 GROSS SALES I II III i.76 5341.33 Other Spares 27. ACTUAL ACTUAL Audited Audited EST. Next Yr.72 6461.06 352 400 442 484 532 586 539.65 2554.25 105.76 5341.5 96.85 5969.49 4 % age rise (+) or fall (-) in net sales N/A 241.process x) Cost of Production xi) Add : Opening stock of finished goods xii) Deduct closing stock of finished goods xiii) SUB-TOTAL (Total cost of sales) Sub-total SUB-TOTAL 25 | P a g e 4.46 128. PRO.81 0 0 0 0 0 0 0 0 539. 31-3-12 PRO.31% 52.81 76. No.27 4000 5000 5500 6050 6655 7320.44 198.64 40 50 55 60.22 44.15 685.81 2.5 5426.81 0 0 0 0 0 0 0 0 539.5 96.31 2229.5 4855. PRO.72 5875.5 2 Less excise duty 65.25 105.92 54. of months 1 Other operating/rvenue income PRO.76 5389.42 3531.72 5929.00% compared to previous year (annualised) 5 Cost of Sales i.18 2020.item 2 ) 691.78 3.36 3179.42 4005 5000 5500 6050 6655 7320.72 5875.1 3593 4485 4933.84 51.5 96.13 5 6 7 8 9 10 26.5 623.84 51.08 70 87.77 2361. Next Yr.95 2046.76 5873.11 iii) Power and Fuel 20.88 116.5 732.15 5 0 0 0 0 0 Formerly WEST COAST SAW PIPES LTD. Export sales 0 0 0 0 0 0 0 0 126.55 73.06 3998 4407.11 60 65 70 80 90 100 613. Domestic sales 630.72 2600 3250 3575 3932.43 286.36 3179.36 3179.47 754. 53 237.69 0 0 0 0 0 0 8.02 274.2 12 0 0 0 0 0 0 0 0 ( c) Balances written back 0.51 10.56 105.4 0 0 0 0 0 0 Add other non-operating income (a) Interest received (b) Commission Sub-total ( income ) (ii) Deduct other non-operating expenses (a) Preliminary Expenses (b) Deffered Tax Provision ( c) Fringe benefit tax (d) Exchange fluctuations Sub-total ( expenses ) (iii) Net of other non-operating income/exp 12 Profit before tax/loss[10+11(iii)] 13 Provision for taxes 14 Net profit/loss ( 12-13 ) 15 (a) Equity dividend paid (paid+BS Prov) -51.83 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 59.94 293 322 357.88 18.35 54.01 397.09 402.42 132.69 18.42 132.09 331.59 201. 7 Sub total (5+6) 8 9 10 11 (i) 71.34 34.2 12 0 0 0 0 0 0 0 0 58.81 454.94 225 176.02 274.00% 100.89 8 8 10 10 11.00% 100.01 -19.81 Operating profit before interest (3-6) 80.52 54.85 8 8 10 10 11.22 8.6 Selling.00% 100.42 132.94 225 176.4 0 0 0 0 0 0 0.99 122.2 12 18.42 3364.81 385.09 343.97 0 0 0 0 0 0 (d) Others 0.8 90.06 4192 4611.94 217 245 283.68 228.43 6.00% 100.00% .00% 100.8 100.94 162.06 185 194 204 214 225 236 610.59 201.44 193.68 0 0 0 0 78.2 202.24 35 76 77 74 71 69 Operating profit after interest (8-9) 69.55 8 8 10 10 11.72 6111.68 7.59 201.43 152.94 225 255 293.53 237.76 5566.68 Interest 11.00% 100.8 (b) Dividend Rate c) Transfer to General Reserve d) Deffered Tax Liability 16 Retained profit ( 14-15 ) 17 Retained profit/Net profit (% age) 26 | P a g e 18.2 202.5 5069.00% 100.83 2198. general & administration exp.65 178. 58 863 696. Next Yr. discounted & excess borrowing on repayment basis (I) From applicant banks 0 0 500 500 550 550 550 550 (ii) From other banks 0 0 0 0 0 0 0 0 (iii) Of which BP & BD 0 0 0 0 0 0 0 0 SUB TOTAL 0 0 500 500 550 550 550 550 2 Short term borrowings from others 0 0 0 0 0 0 0 0 3 Sundry Creditors (Trade) 413.58 1413 (due within one year) 8 Deposits/instalments of term loans/ DPGs/Debentures(over-due within 1 year) 9 Other current liabilities & provisions (due within 1 Yr) Specify major items SUB-TOTAL (B) 10 TOTAL CURRENT LIABILITIES (1to9) TERM LIABILITIES 11 Debentures (not maturing within 1 year) 0 0 0 0 0 0 0 0 12 Preference shares 0 0 0 0 0 0 0 0 (redeemable after one year) 13 Term loans 8.5 59. PRO. PRO. Year 31-3-09 31-3-10 31-3-11 31-3-12 31-3-13 31-3-14 31-3-15 31-3-16 No.ANALYSIS OF BALANCE SHEET LIABILITIES Name: UB STAINLESS LIMITED (Formerly WEST COAST SAW PIPES LIMITED) Amounts in Rs. Next Yr. PRO.94 919.75 44.94 1469.42 183.52 1208.06 20 30 30 30 30 30 5 Provision for taxes 28.4 30.02 955.52 825.48 663.16 0 178.42 173. Current Yr CURRENT LIABILITIES Audited Next Yr.16 0 0 14 Deferred Payment Credits 0 0 0 0 0 0 0 0 15 Unsecured Loan 0 0 0 0 0 0 0 0 27 | P a g e .1 31.5 20.18 36.82 772.52 16. PRO.28 68.42 80 696.7 98.48 1163.1 60 60 60 60 60 60 6 Dividend payable 0 0 0 0 0 0 0 0 7 Other statutory liabilities 0 0 0 0 0 0 0 0 0 0 30.52 1375.1 380 479 521 573 630 693 4 Advance payments from customers /deposits from dealers 76.31 22.42 183. Next Yr.69 172.22 173.68 16. Lacs 1 ACTUAL ACTUAL PRO.82 1272.92 1416.92 866.42 183. Audited EST. of months 12 12 12 12 12 12 12 12 Short-term borrowings from banks (including bills purchased. Next Yr.52 1208.FORM III . 4 1487.75 44.62 53.67 833.62 53.18 106.1 1410.79 31-3-12 12 14.17 1220.41 83.06 666.05 521.7 168.74 31-3-14 12 23. PRO.33 1109.33 916.73 31-3-13 12 20.23 212.65 31-3-11 12 5.92 1327.16 70 70 18 TOTAL OUTSIDE LIABILITIES (10+17) 705.62 53.3 2519. ASSETS Year 26 27 (I) (ii) 28 (I) (ii) 29 No.27 682.93 1724.2 1109.62 53.) 28 | P a g e ACTUAL ACTUAL Audited Audited Amount in Rs.66 0 1.17 613.18 1332.36 10.2 1285.33 31-3-16 12 79. 31-3-09 12 60.62 53.41 83. PRO. Lacs EST.75 Profit & Loss Account 23a Others (specify) ANALYSIS OF BALANCESHEET Name: UB STAINLESS LIMITED Formerly WEST COAST SAW PIPES LTD.67 1008.41 83. Next Yr.9 1052.1 1539. PRO.41 83.16 Other term liabilities 0 0 70 70 70 70 70 70 17 TOTAL TERM LIABILITIES (11 to 16) 8.72 Deferred Tax Liability -0.58 1483 365 365 365 365 365 365 365 365 NET WORTH 19 Equity share capital 20 Prefrence share capital 0 0 0 0 0 0 0 0 21 Share premium 170 170 170 170 170 170 170 170 22 Other reserve (excluding provisions) 83.08 0 0 0 0 0 0 0 0 PRO.32 0 30.75 25 TOTAL LIABILITIES (18+24) 1200. of months Cash and bank balances Investment (other than long term Investmt Government & other Trustee securities Fixed Deposits with Banks Receivables other than deferred & exports (include bills purchased and Discounted by banks Export receivables(include bills purchased & discounted by banks Installments of deferred Receivables (overdue within one yr.95 1999.23 31-3-15 12 52.68 86.01 31-3-10 12 17. Current Yr Next Yr. Next Yr.27 1253.78 53.17 437.53 3482.41 23 Surplus (+) or deficit (-) in -122.7 1482.41 83.6 1503.41 83.03 3264.62 24 NET WORTH 495.54 1935.28 138.9 2768 2991.41 83. Next Yr.26 884.44 2216. .37 815.62 53. Next Yr. PRO.9 0 100 0 100 0 125 0 125 0 140 0 150 143. 91 670.91 600.91 580.91 2375.29 1.09 2.75 60 3.8 471.62 286.75 1999.45 155.81 2152. goodwill.91 630.89 1424.89 159.15 1.37 76.53 1724.48 21.06 0.7 3.) Deposits (c.75 0 0 290.75 0 0 TOTAL CURRENT ASSETS (26 to 33) 726.12 0.75 60 3.63 75.63 421 484 0 15 0 15 60 60 103.) 193.5 20 15 15 15 15 15 2.39 1.03 1487.75 0 0 450.75 60 3.91 523.68 1.04 1.07 0.94 2579.4 0 107.75 60 3.27 0 1935.2 0 2768 1285.09 1175 574.91 600.4 0 2991.75 0 0 600.03 1616.56 1.54 1.09 1095 494.95 0 3482.04 0.63 1094.5 348 400 0 12.51 509 586 0 18 0 18 60 60 63.08 690 823 906.99 1.66 717.37 0 112.33 0 4.25 225.21 1954.09 1395 764.09 1335 664.86 1.91 550.62 0 290.84 452.9 1109.77 1.5 0 0 20 0 0 15 0 0 15 0 0 15 0 0 15 0 0 15 0 0 2.13 582. Deferred receivables (maturity> 1 year Others (Receivables over six months) Non-consumables stores & spares Other non-current assets including dues from Directors TOTAL OTHER NON-CURR.75 382 442 0 14 0 14 60 60 63.5 0 12.75 60 3.51 682.08 0.55 1.44 3.75 0 0 410.02 0.4 0 5.) Advance recoverable (b.15 959 1.93 0 3264.04 FIXED ASSETS Gross Block (Land & Building machinery.51 112.75 0 0 496.33 0 74.) (d.2 0 2519.75 0 0 328 50 278 352 0 10 0 10 0 80 73.27 776.66 2.43 0 4.3 884.91 940 359. bad/ doubtful exp not provided etc TOTAL ASSETS(34+37+41+42) TNW (24-42) NET WORKING CAPITAL (17+24)-(37+41+42) tally with 34-10 CURRENT RATIO (34/10) TOL/TNW (18/44) Total term liabilities/tangible net worth(17/44) 29 | P a g e . ASSETS Intangible assets (patents.54 495.42 181.57 245.19 221.75 40 0 546.75 68.74 0.19 1204.01 0.51 91.19 463 532 0 16 0 16 60 60 63.48 21.82 299.09 975 424.5 20 15 15 15 15 15 0 1200.26 0 2216. prelim expenses.75 70 3.5 62.5 60 60 63.19 0.44 682.44 2837.19 83.75 29.29 1390.48 0 0 21. work-in-process) Depreciation to date NET BLOCK OTHER NON-CURRENT ASSETS Investment/book debts/advances/ deposits which are not current assets a) Investment in subsidiary Co/ Asso.06 0 5.76 0.01 1109.75 995.77 823.39 1.30 (I) (ii) (iii) (iv) 31 32 33 34 35 36 37 38 (I) (ii) (iii) (iv) 39 40 41 42 43 44 45 46 47 48 Inventory: Raw materials(including stores & other items used in the process of manufacturing (a) Imported (b) Indigenous Stock-In-Process Finished goods Other Consumable Spares (a) Imported (b) Indigenous) Advance Recoverable in cash or in kind Advance payment of taxes Other Current assets Specify major items (a. b) Others Advances to supplier of capital goods/cont. 75 3.75 3.9 100 100 125 125 140 150 521.08 690 823 906.06 666.74 23.63 1094.73 20.75 3. PRO.33 79.75 3.67 833. Next Yr.62 278 348 382 421 463 509 (b) Indigenous 286.51 Fixed Deposits with Banks Receivables other than deferred & exports (include bills purchased and Discounted by banks Export receivables(include bills purchased & discounted by banks Installments of deferred receivables (overdue within one yr.19 91. PRO.) Advance recoverable 3.75 63.23 52.75 995.) Deposits 0 0 0 0 40 0 0 (c.75 496.33 1109. Audited EST.5 14 15 16 18 (a) Imported 0 0 60 60 60 60 60 Advance Recoverable in cash or in kind (b) Indigenous) 107.51 (a) Imported 290.4 10 12.45 73.06 352 400 442 484 532 586 Stock-In-Process 0 0 0 0 0 0 0 Finished goods 5.75 Other Current assets Specify major items 155.67 1008.75 75.33 916.) Inventory: 290. Year 31-3-10 31-3-11 31-3-12 31-3-13 31-3-14 31-3-15 31-3-16 No. PRO.5 68.75 63.19 1204. CURRENT ASSETS 17.7 70 60 60 60 60 60 (a. of months 12 12 12 12 12 12 12 A.) 0 0 0 0 0 0 0 30 | P a g e .75 3.75 3.4 10 12.5 14 15 16 18 Other Consumable Spares 0 0 0 0 0 0 0 5.32 Cash and bank balances Investment (other than long term Investmt 0 0 0 0 0 0 0 Government & other Trustee securities 1.62 328 410. PRO.89 80 60 60 60 60 60 Advance payment of taxes 159.5 450. Current Yr Next Yr. Next Yr.75 103.79 14.75 (b. Lacs ACTUAL PRO.FORM IV COMPARATIVE STATEMENT OF CURRENTS ASSETS AND CURRENT LIABILITIES Name: UB STAINLESS LIMITED ( formerly WEST COAST SAW PIPES LIMITED) Amounts in Rs.63 546.75 63.65 5.17 1220.08 0 0 0 0 0 0 0 582.75 63.19 600.51 items used in the process of manufacturing Raw materials(including stores & other 0 50 62.63 83. Next Yr. Next Yr. Audited EST.42 183.(d. PRO.58 863 B.42 183. Next Yr. discounted & excess borrowing on repayment basis Advance payments from customers (due within one year) Deposits/instalments of term loans/ DPGs/Debentures(over-due within 1 year) Other current liabilities & provisions (due within 1 Yr) Specify major items TOTAL CURRENT LIABILITIES 31 | P a g e .42 80 1208. Next Yr.92 866.52 825.94 919.21 1954.91 2375.82 772.06 20 30 30 30 30 30 Provision for taxes 59.) TOTAL CURRENT ASSETS 1390.66 Amount in Rs.1 60 60 60 60 60 60 Dividend payable 0 0 0 0 0 0 0 Other statutory liabilities 0 0 0 0 0 0 0 0 30.5 20. Next Yr.22 173.1 380 479 521 573 630 693 /deposits from dealers 22. PRO.94 2579.81 2152. Current Yr Next Yr.48 663.52 16. Year 31-3-10 31-3-11 31-3-12 31-3-13 31-3-14 31-3-15 31-3-16 No.16 0 172. PRO.1 31. CURRENT LIABILITIES Short-term borrowings from banks (including bills purchased.03 1616. Lacs ACTUAL PRO.44 2837. PRO.42 183. Next Yr.42 173. of months 12 12 12 12 12 12 12 From applicant banks 0 500 500 550 550 550 550 From other banks 0 0 0 0 0 0 0 Of which BP & BD 0 0 0 0 0 0 0 SUB TOTAL 0 500 500 550 550 550 550 Short term borrowings from others 0 0 0 0 0 0 0 Sundry Creditors (Trade) 955.4 30. 96 548.48 663.) 5.Actual/projected NWC 29.00 1265. Next Yr.99 0.00 500.00 0.00 550.77 181.58 863.Total Current Assets 2.29 776.00 1659.86 1424.99 1509.29 1326.29 886.00 500.96 enting shortfall of NWC(4-5) Thus the Maximum Permissible Bank Finance (MPBF) for the year 2010-11 and 2011-12 is Rs.21 1954.Total current assets 726.Other current liabilities 3.00 0.3 minus Item-5 22.66 6.39 238.00 550.MPBF (item 10 or 11 whichever is lower) -151.34 693.23 593.00 550.89 1480.OCL(other than bank borrowing) 3. stipulated net working capital 1954.00 9.52 825.03 1616.25 414.29 776.80 -165. 32 | P a g e . 500 Lacs.03 1616.70 538.00 1.48 663.00 550.91 2375.72 995.00 1659.81 2152.16 714.00 1109.94 2579.77 181.00 550.00 29.96 500.80 -165.00 550.57 331.91 2375.82 772.Actual/projected NWC 29.00 550. PRO.99 644.00 500.57 347.00 550.51 404. PRO.Excess borrowing repres enting shortfall of NWC(4-5) SECOND METHOD OF LENDING (25% of TCA excluding export rec.39 1182.00 550.33 136.94 919.99 959.Working capital gap(1-2) 696.86 1424.44 45.Excess borrowing repres -151.) 8.00 550.00 500.67 5.44 2837.77 181. Next Yr.52 825.92 866.55 952.00 1109.66 7.92 866.80 -165.Min.00 550.Working Capital Gap(1-2 726.05 488.39 682.10 295.Item.86 1974.00 550.99 959.99 1509.55 452.59 788.75 1244.00 500.66 4.86 1974.24 0.55 452. PRO.66 (25% of WCG excluding export rec.Item.Item-3 minus Item-4 7.00 29.MPBF (item 10 or 11 whichever is lower) 9.00 0.00 8.76 915.01 1015.Min.97 493.82 772.00 0. Year 31-Mar-09 31-Mar-10 31-Mar-11 31-Mar-12 31-Mar-13 31-Mar-14 31-Mar-15 31-Mar-16 1. Next Yr. stipulated net working capital 181.52 1208.3 minus Item-5 -151.24 1131.00 550. PRO.66 696.29 1326.00 500.29 1390. Next Yr.94 919.00 550.00 550.55 952. Next Yr.77 181.FORM V COMPUTATION OF MAXIMUM PERMISSIBLE BANK FINANCE FOR WORKING CAPITAL Name: UB STAINLESS LIMITED (formerly WEST COAST SAW PIPES LIMITED) FIRST METHOD OF LENDING ACTUAL ACTUAL EST.58 863.94 2579.42 4.66 6.00 550.21 2. FIRST METHOD OF LENDING Audited Audited Current Yr PRO.52 1208.39 682.29 1390.81 2152.39 1182.44 2837.00 500.86 709.Item-3 minus Item-4 7.75 377. 2. 1. Provisional documents upto the last quarter. Certified copy of the TITLE DEED.e. I have realized that most of the delay in the process is due to the delay in collection of documents from the customer end. DSCR & Debt – equity ratio to appraise the project financially. Valuation report should be submitted by the customers issued by Bank approved Valuer or Advocate. Audited CMA data for the last 3 years. And the customer should be aware of all the papers that would be required for the project appraisal. CONCLUSIONS & RECOMMENDATIONS After studying and evaluating the various aspects of the credit decisions taken up by Punjab National Bank through the interviews with manager and the bank’s circulars. For example : If any SME organization is applying for the Working Capital enhancement or renewal or for the term loan. If the company is applying for the loan over the Collateral Security then some documents like Copy of the Title deed. Projected data should be submitted. 33 | P a g e . Therefore initially at the point of contact with the customers. The study presents an example of a project related to manufacturing industry. there should be a checklist form provided to the customers for the various loans that the customers have applied for. It was found that the bank relies mainly on its internal credit rating. to be in accordance with the banking industry PNB should also modify its appraisal process to include the same. then the financial of the company i. After analyzing the process. it is clear that the bank is following a sound process.8. But most of the banks have started checking the Internal Rate of Return of the project before doing its pricing. So. NEC ( Non-Encumbrance Certificate). tutor2u.pnbindia.REFRENCES PNB Intranet Portal PNB Circular PNB website: www.com/financial Working Capital Finance Chapter – 5 by Seidman Working Capital Finance by Banks and its Regulations by Reema Srivastava www.in Pnbindia.net/working capital 34 | P a g e . Standard Credit Risk Rating based on ABS 31. if any) AALast PMS Score. if applicable NIL Customer ID No.a) b) Name of the Borrower and Constitution Address of Regd. Score :71 (Previous and current with scores and reasons RATING: for degradation.00 lacs from the existing Rs 44.03.2011.ANNEXTURES ANNEXTURE A: M/S DURGA MAA PROPOSAL BOARD NOTE Date of proposal 14.2011 Whether fresh/renewal/ enhancement/ In-principle Enhancement Asset Classification as on ………….07.00 lacs 1.2010 Enhancement of existing Cash Credit(Hyp) Limit to Rs 150. GAA000172 Activity Code NA Whether sensitive sector – Real estate/Capital No market along with applicable risk weight Date of last sanction & Sanctioning Authority 03..09. Office 35 | P a g e M/S DURGA MAA . a) NIL Directors/Partners/Proprietors Proprietor. the reasons for considering the proposal.9334254775. if any e) Whether Memorandum of Association permits the Activity & Powers for borrowings NA f) Shareholding Pattern Proprietary Concern g) Whether the profile of the borrower. 36 | P a g e to NO YES . c) If any of them. If yes.Patna c) Works/Factory d) Date of incorporation/ establishment 2006 e) Dealing with PNB since 12. e.2006 f) Business Activity Installed Capacity 2. in RBI’s NO Caution advices/ECGC Caution list/Willful defaulters' list.09. related Directors/ Sr. Officers of PNB d) Management Change since last NIL sanction.Gandhi maidan./Associate Firms has been verified through CIBIL database/other credit information bureaus If No – please give reasons. Address. SAMIR KUMAR (Name. its Director/Partners/Promoters and its Group Cos. DO (Product)/ Distributor of CEMENT Branch Office/CO 3..9931692445 mail ID of main Directors/Key persons) b) Whether any of them. Mobile No. in lacs) Proposed Existing Fund Based CC(H)/CC (Book Debt) Inland Bills limit FOBP/FOUBP/FABC Others Fund Based Ceiling Non Fund Based ILC/FLC ILG/ FLG Non Fund Based Ceiling Term Loan Limit of credit exposure on account of all derivative products TOTAL COMMITMENT 44.00 Details of limits from other Banks/FIs/Consortium/Multiple Banking as on: NIL (Rs. Facilities Recommended: Nature (Rs. A NIL Existing FB NFB Share % FB NFB Proposed FB NFB Share % FB NFB Details of Group Companies/Allied/Associate firms and the facilities sanctioned to them: Name of the Company FB NFB Name of Dealing Bank Classification Account 6.If Yes – please give details.00 150. 4. In lacs) Name of the Bank 6.00 44.. B Comments on conduct of these accounts with our bank/other banks: N/A 37 | P a g e of .00 150. 00 1.3.14 6.2011 Latest data up to the last quarter of current financial year(31.03.55 5.2009 31.15 1.00 1.03.00 1.48 Audited 277.21 Comments on Financial Indicators 7.04 9.18 20.00 6.77 5.00 73.42 4. A (i) Financial Position of the borrower (All amounts in Rs Lacs) ) 31.15 0.03 0.17 38.55 0.56 1.00 0.2009 31.67 Audited 663.55 Reserves & Surplus 0 0 0 10.7 1.2012) Gross Sales Other Income Operating Profit/Loss Profit before tax Profit after tax Cash profit/ (Loss) Block Assets Depreciation Net Assets Secured Loan Unsecured Loan Paid up capital Reserves and Surplus excluding 38 | P a g e Audited 103. (Rs.13 6.57 4.12 0.35 Profit before Tax 2.00 87 0 .04 0.21 6.82 0.42 2.27 0.14 11.2010 31.18 0.14 2.42 4.55 Profit After Tax 2.18 20.84 160 0 10.55 Tangible Net worth Block Assets 1.42 4.65 652.65 0.11 0.12 277.00 0.00 73.13 4.88 17.14 6.32 Secured/Unsecured Loans 6.88 9. C Key Financial Figures (Audited) of Group/Allied/Associate concerns (for the last 3 years).6.80 0.00 20.03.14 6.00 0.3.3.80 0 Sales 103.2010 31.00 73.73 0.03.38 18.17 4.55 Projected 993.5 38.2011 Paid Up Capital 10.44 5.85 2. in lacs) 31.12 0.35 0. 10 31.18 15.The increase has been on account of the fact that the firm has been able to add on to the Distribution of Other companies.43 NA 4.03.18 20.Retention of Profits and fresh additions of capital has ensured that the capital has improved.03.11 31.10 31.55 lacs (2011) from 10.00 0 10.80 3.A(ii) 0.21 NA 1.00 0 0.03.03.00 73.00 0.65 663.82 lack in 2012.34 4.00 0.82 The Sales Revenue of the company has increased to Rs 663.09 31.03.03.84 Comments on Financial Indicators CAPITAL: 31. Influx of additional Working capital has enabled the firm to 39 | P a g e . expenditure not written off Accumulated losses Deferred Tax Liability/Asset Tangible Net Worth Net Working Capital Current Ratio Debt Equity Ratio Operating Profit/Sales 7.00 0.00 0.00 0.55 87.93 2.revaluation reserves Misc.12 lack in 2009.47 56.12 The capital of Audited Audited Audited Projection the company Capital 10.00 0.20 2.09 31. SALES 31.35 993.55 87 9. It is projected to further improve to Rs 87.Y 2012.24 69.It is further projected to touch Rs 993.35 (2011)lack from Rs103.00 0 0.03.12 277.00 73.03.00 lack as on close of F.11 31.18 lacs in 2009.75 NA 3.12 Audited Audited Audited Projection Sales 103.00 has increased to Rs 73.39 NA 1.18 20. However it Has always remained much above the accepted level.55 lacs in 2011 from Rs 4.03. 40 | P a g e .2011 7. Debentures. CURRENT RATIO 31.03.It is projected to increase to Rs 38.12 PROFIT Audited Audited Audited Projection The operating profit of the Profit 4.67 18.11 31.The margins of the firm has Increased along with the increase in sales.03. Units or diversion of funds outside the business etc.03.48 11.R 2. A Primary Security.43 account of the increases in Current Liability .55 38. 7.14 lacs in 2012 .10 31.03.C Details of Liabilities not accounted for/Contingent liabilities NIL 7. B Details of investment in Shares.03. 31.03.75 3.21 1.03. E Status/details of adverse comments by Auditors of the borrowing unit NIL Position of assessment of income tax/sales tax/wealth tax of the borrowing concern/ partners/proprietor Up to 31. NIL 7.09 31. D 7.11 31.E) on the financial position of the borrowing NIL 8.09 31.12 The Current account of the Audited Audited Audited Projection Firm has fluctuated on C.Improve stock position and consolidate its position in the market.39 1.B to 7.48 lacs in 2009.03. F unit Overall likely impact of (7.10 31.14 firm has increased to Rs 18. 11.50 Present 61.70 IPs Previous 34.09.50 12.09. C Total Commitments by Guarantor(s): Rs 150.09. Neelam Kumari‟s net means has increased on account of additions in I.08 Jyoti Devi 18.00 Lacs 8. if any) Security Area in Owners Value Basis Date Description Sq M or hip Last Prese Realizab for Sq Ft sancti nt le value valuati on on book value 41 | P a g e Whet her existi ng/ fresh .50 7.2011 Comments on changes. if any.00.2011 12. B Guarantee/Guarantors Name of Guarantor Neelam Kumari NMs Previous 34.2011 12.15 17.11.00 12.2009 20.2009 20.P 8.00 CR Date Previous Present 12. D Collateral Security (Including details of changes in IPs as security from last sanction.11.i) Working capital facility::Hypothecation of Stock in trade ii) Term Loan facility 8.50 12.2009 20.70 7.50 Present 117.00 Ram Naresh Sharma 17. Patna 9.Taji 360.1690.Patna Khata No3.Patna As per Sale Deed No: 15222.Plot 1668.00 Value’ s Report 27.00 Value’ s Report 27.2009.2006.06.50 Value’ s Report Exist ing Neelam Kumari w/o Sameer Kumar 34.PS Mal Salami.00 12.201 1 Fres h Sameer Kumar s/o Ramad har Sngh Sameer Kumar s/o Ramad har Sngh Ram Naresh Sharma NA 40.06.dtd 26.97 37.Mauja Manpur Bairia. 30 2722 1327 Neelam Kumari w/o Sameer Kumar Neelam Kumari w/o Sameer Kumar NA 16.Gopalpur .Plot 1690.06.P.Tauji 360.00 Value’ s Report 27.Tauji 5753. 1878.Patna As per Sale Deed 13017.MAuja Manpur Bairia.00 21.33 46.Beu r.201 1 Fres h NA 24.00 12.50 34.Thana 93.Plot 386Tauji No: 302.201 1 Fres h 7.50 7.201 1 Fres h NA 51.12.Patna Khata No:658.18 15.06.S.Tauji 5071.Than a 33.Patna Khata No:658.50 Value‟ s Report Exist ing Jyoti Devi 12. In lacs) Irregularity along with Position of Account as on Nature 42 | P a g e Limit VS DP .Plt No: 672.Vacant plot Khata 17.Mauja Kamarji. Ward No: 55.50 7.Dtd 13.50 34.Paha ripar.00 Value‟ s Report Exist ing Balance (Rs.Mauja Chilbili.5 Value’ s Report 27.12. 18 2722 1769.Beur. routing of sale proceeds. There has been no returning. 10.42 69.Cash Credit 44.29% Comments.26 reasons NIL* *Drawing above the sanctioned limit of Rs 44. The firm has been regular in submitting the Financial Data/statements. RBI Inspectors. overdrawing The conduct of the account has been satisfactory .00 permitted by the Chief Manager Incumbent) within his vested powers. The amount/frequency of irregularity in the account during the review period should be mentioned.00 Lac Interest/Commission Earned 365438 (Rs. Comment on Preventive Monitoring Score Trends.59 50. Concurrent Auditors. to meet out the emergency situations. 10. The account has been never irregular.D Summary of irregularities pointed out by Bank’s Inspectors. of cheques returned with amount involved due to financial reasons during the review period should be mentioned. Statutory Auditors. B Review of the Account (Appendix C to be enclosed) 10. The firm has routed 100% of the sale proceeds through the Cash Credit account during the Financial year 2010-2011 Regularity in submission of financial statement/QMS/Stock Statement. a Conduct of the Account Availment of limit.00 99. The same has been sanctioned by the Incumbent within his vested powers. honoring of commitment in non fund based facilities(details of LC/LG devolved/invoked with amount). C Value of the Account Period 20102011 Nature of Limit Cash Credit Amount 44. Credit Audit & Review Division (CA&RD). The information regarding no. observations of Stock Audit Report. Routing of proportionate business in consortium.There has been limited overdrawing. In lacs) Yield (%) 8. (and status of rectification of these irregularities) NIL 43 | P a g e . if any 10. To meet the future growth potential they have applied for revision of limits to Rs 150.00 lacs during the period. borrowers' diversification. Powers .The Working Capital Limit has increased to R 44 lacs from Rs 8. Present Proposal Enhancement of C/C (hypo) to Rs 150. The firm is a Whole sale Distributor of Various big time Cement Companies. Brief History (Should also include comments on industry scenario and industry outlook. management.93 58.00 Assessment of Fund Based Limits as per simplified turnover method PBF will be computed at 25% of estimated turnover accepted for PBF net of margin The margin will be computed higher of 5% of estimated turnover or projected NWC. as the case may be i) Assessment of Fund Based Limits as per second method of lending Item Chargeable current assets Other current assets Total current assets Other current liabilities Working capital gap Net Working Capital at 25% of Total Current Assets less Export Receivables Projected net working capital Permissible bank finance ii) Current Year’s Estimates Accepted for the year 232.The Firm has been dealing with PNB since its inception in 2006. Over a period of time the firm was able to increase its sales and as a result of the same the need for higher Working Capital forced them to Shift to the Current Branch wherein the Higher Authority was vested with more.00 lacs from existing Rs 44. modernization programme. risk perception including environmental and social risk along with proposed mitigations) The applicant firm is a Proprietary concern of Shri Sameer Kumar Singh s/o Ramadhar singh.00 lacs 12.11.50 69.00 2.Previously the firm had its credit limits with PNBTransport Nagar Patna. production and marketing. Since the bank finance is only intended to support need based requirement of a borrower if the available N WC (net long term surplus funds) is more than 5 44 | P a g e . expansion.00 lacs Brief of the proposal a) b) Justification for working capital sanction as per simplified method or traditional method of lending.05 4.12 229.93 160.05 234. 75 lacs 48.93 lacs 171. performance/ 45 | P a g e (Rs in Crore) FLC (Imported) .per cent of the turnover the former should be reckoned for assessing the extent of bank finan ce Since the applicant is within the stipulated credit limit the MPBF as per Nayak Committee is as follows. 7. 5.93 will be met by bor rowing from Bank (RS 150.35.82 lacs The actual working capital gap of Rs 229.00 lacs ) and existing NWC (RS 69. 3.93 lacs) Additional funding of Rs 10.00 lacs 241. Projected Sales for t he period 2011-2012 WCG @ 25% of sales Margin @ 5 % of Sales NWC MPBF 967.lacs 69. 8.e.00 lac s will be brought in over the couple of months. ILC (Indigenous) Total purchases during the year Purchases proposed against LC (FOB/CIF Value) RM requirement against LC per month Usance Period in months Lead Period in month Total period in months LC requirement (3 X 6) LC recommended BANK GUARANTEE: NIL Nature & amount of limit sanctioned Outstanding as on Name of the beneficiary / ies in whose favour guarantees to be issued Nature of the guarantee limit required i. c) Justification of non-fund based facilities (A) Assessment of Non Fund Based Limits LETTER OF CREDIT: NIL Particulars 1. 6. 2. 4. 00 lacs by Enhancement from Rs 44. DSCR and IRR. 14.Credit Risk Rating. Break-Even. Margin proposed Security Justification for the proposed limit d) 13.The improvement has been on account of higher TNW (on account of fresh infusion of capital). Higher Profitability and higher NWC. If the Cement Prices get regulated by the Govt then took the Earnings will be adversely effected. Recommendations: Recommended for Sanction of Cash Credit (Hypothecation) limit of Rs 150. 46 | P a g e .00 lacs with terms and conditions as per annexure. Summary of merits/justifications for considering the proposal. Other Issues 15.00 lacs with AA.50 % as applicable to Trading account Above Rs 50. b) Rate of Interest applicable as well as proposed TR. Justification for term loan/DPG: NIL Purpose Summary of cost of project and means of finance Summary of profitability. The Construction activity both in the private sector (Building of Multistoried Apartments) and in the Public Sector (Construction of Roads and Bridges) will ensure a continuous high growth chart for the firm 16.I will be BR+4. with comments thereon: Status of various statutory approvals and clearances Implementation schedule/Draw down schedule Proposed repayment schedule Present status of project (physical as well as financial) a) Comments on Credit Risk Rating Report (Reasons for down gradation be mentioned) Credit Risk Rating of the Firm has improved from BB to AA.financial/ Bid Bond etc. The borrowing firm is an established Distributor of Cement in the city with long time experience in the trade. if any The Revenue earning will be effected if Construction activities slow down.O. c) Risk perception. Under risk perception comments about generation of employment. sales. 50.e.SIGNATURE OF APPRAISING AUTHORITY ORDERS OF THE SANCTIONING AUTHORITY Sanctioned Cash Credit (Hypothecation) limit of Rs 1. etc. The following Annexure be enclosed with the proposal: Profit & Loss Account and Balance Sheet/Fund Flow Statement for last three years.e. the observations of stock audit reports along with comments are furnished. Key financial indicators for associate/ group/allied/subsidiary companies should include Gross Sales. PBT and TNW. location of unit in Restrictive Area (i. 00. etc. Credit Risk Rating Report. social development aspects.00 lacs as per recommendation and as per Terms and conditions annexed. social disorder/ unrest. and net profit: Latest Data for the current financial year. CHIEF MANAGER Date: General Instructions If account is eligible for stock audit. backward area development incentives. availability of pollution control certificate. Historic Monuments. Activity is Prohibitive or not. 47 | P a g e .00 (Rupees One Crore Fifty Lac only) by enhancement from Rs 44.) be given. Key financial figures i. Terms & conditions proposed. near to Residential. paid up capital.000. changes in regulatory policies of Local/State/Central Govt. 48 OR E.5 11.L.ANNEXTURE B: CALCULATING MBPF THROUGH NAYAK COMMITTEE/TURNOVER METHOD “BIHAR PRECISION FORGINES” SALES PURCHASE GROSS POFIT NET PROFIT C.6 1.95 2.34 1.45 21.25 14.65 1.77 11.1 105 145 26.13 A.77 28.11 45.68 67.8 14.25 7.PROJECTED SALE B. C. NWC whichever is higher MPBF (C – E) 48 | P a g e . ACCEPTED SALE C.28 44.25 36.25 14. Less : 5%of Accepted sale 5.45 21.45 10.77 2012 2013 105 155.32 14.53 155.5 23.48 21.R NWC TNW DER 31st March 31st March 2012 2013 105 68. 25% OF ACCEPTED SALE (W/C requirement) D.06 59.A C.68 18.1 98. 15) 0.07 49 | P a g e .21 (.25 % + the rating.3 4) MINI STIPULATED NWC (25% OF C.11 288.28 72.Recommendation: As when we go through the case we got to know that in 2013 his sales certainly go up and it let to increase the NP. And in this case the company asks for cash credit of Rs. ANNEXTURE C: CALCULATING MBPF THROUGH TONDON II COMMITTEE/TRADITIONAL METHOD SHEETAL GARMENTS SHEETALS GARMENTS ACTUAL 2011 105. The basic rate of charging is 10.32 ESTIMATE 2012 1) TOTAL C.A 2) OTHER LIABILITIES (EXCEPT BORROWING) (.06) 3.45 3) WORKING CAPITAL GAP 105. So according to me it’s a profitable approach to the bank that they provide cash credit to BIHAR PRECISION FORGIEN and they have charges the rate of interest by rating method.A) 26.10 lacs cash credit.90+2.49+. Rating can be done by analyzing Balance sheet and trading. They have taken a Land on Mortgage for this Cash Credit.16+.00 lacs but the bank provided these organization Rs. P/L a/c in the software of the banks. where they find the rate of interest to be charged.12 . 5) NWC (ACTUAL/PROJECTED) 6) ITEMS 3 MINUS ITEM 4 105.180 Lacs.45) 78.21) 108.L TO TCA% 0.22 7) ITEM 3 MINUS ITEM 5 0 180 8) PBF (LOWER 0F 6 AND ITEM 7) 0 180 9) NWC TO TCA % 99.18 13) INVESTMENT TO NET SALES PER DAY NA NA 14) RECEIVABLE TO GROSS SALES (DAY) 0 0 15) SUNDRY CREDITOR TO PURCHASE (DAYS) 0 0 Thus Maximum Permissible Bank Finance for Sheetal Garments is Rs.8 37.12 10) BANK FINANCE TO TCA % 74.83 216.75183.2 1.3 (291.11 (105.85 74.32.11 11) SUNDRY CREDITOR TO TCA 0 0 12) OTHER C. 50 | P a g e . Large corporate: 5 crore and above 5.50 UPTO 77.00 PNB A+ ABOVE 62. RATING SCALE SCORE OBTAINED RATING DESCRIPTION MINIMUM RISK 51 | P a g e ABOVE 80 PNB AAA ABOVE 77. New Entrepreneur: 6. Small Loan II : This is for a limit greater than 20 lacs TO 50 lacs 3. Mid corporate loans: For 50 lacs to 5 crores.00 UPTO 62.50 UPTO 67. Small loan: For a loan above 2 lacs to 20 lacs 2.50 PNB AA ABOVE 70.Annexure D: ONLINE CREDIT RISK RATING SYSTEM/PNB TRACThis a system developed by PNB for categorizing the risking BOND in the loan ACCOUNT there are various tool for rating the account in this pnb track system.5 UPTO 80 PNB AA+ ABOVE 72.50 UPTO 70.50 PNB A ABOVE 60.50 PNB A- MARGINAL RISK MODEST RISK . 4.50 PNB AA- ABOVE 67. which is as under procedure 1. NBFC Risk rating is done through our model for categorizing the risk to linking with price (rate of interest).00 UPTO 72. 00 PNB B+ ABOVE 42.00 UPTO 42.50 UPTO 57.00 AND BELOW PNB D CAUTION AVERAGE RISK 52 | P a g e MARGINALLY ACCEPTABLE RISK .50 UPTO 60.50 PNB B- ABOVE 30.00 PNB C HIGH RISK 30.ABOVE 57.50 PNB B ABOVE 40.50 UPTO 47.00 UPTO 52.00 UPTO 40.50 PNB BB ABOVE 50.00 PNBBB+ ABOVE 52.50 UPTO 50.50 PNB BB- ABOVE 47.