Uco Bank

A REPORT
ON

CREDIT APPRAISAL
AT
UCO BANK

A REPORT
ON

CREDIT APPRAISAL
AT
The above quote is what describes my situation the best about my experience at UCO
BANK (FGM Office, Sector 17 B, Chandigarh). I was given the opportunity which
does not comes easily, the opportunity to learn in the Credit Department of a Public
Sector Bank. This opportunity was given by Mr. B Venkat Ramana (FGM, UCO
BANK, Chandigarh). I will fall short of Adjectives to thank him for this opportunity
he showered me upon.

I deeply acknowledge the guidance and support of Mr. Rajiv Gupta (Senior Manager,
Credit Department, Zonal Office, UCO Bank, Chandigarh). He was extremely patient
to my every query and replied me every time I had a doubt in understanding the
appraisal process of UCO BANK. He helped me to understand the basic process of
appraisal instead of his very busy schedule. Without him this training would have
been incomplete. This project has been possible due to the things I learnt from him.

I would like to Thank Mr. Jai Bhushan(Manager, Priority Sector) and Ms Neha
Goel(Manager, Credit Monitoring) for their valuable inputs that made me understand
the smallest of the details of the sanction process of the loans applied by applicants in
the SME sector.
I would also like to sincerely thank Ms. Veena Pirta (Senior Manager, HR) for giving
me the insights about the banking structure of UCO Bank and also providing me
valuable information for the successful completion of the report.

JAIRAJ SINGH SANDHU

TABLE OF CONTENTS

Authorization

Acknowledgement

1. Introduction of Project
2. Objective
3. Methodology
4. Limitations & Scope
5. Economic Industry Analysis
6. Company Analysis
7. Financial analysis of UCO Bank
8. Loan Policy Document of MSE Sector
9. Master Circular of Reserve Bank of India
10. Project Specefic Analysis (Case study 1 & 2)
11. Recommendations
12. Conclusions
13. Outcomes and Learnings

INTRODUCTION

Finance is the bridge between the present and the future whether be it the mobilization of
savings or their efficient, effective and equitable allocation for investment, it is the success
with which the financial system performs its functions that sets the pace for the achievement
of broader national objectives.

The financial system is a set of inter related activities/services working together to achieve
some predetermined purpose or goal. It includes different markets, the institutions,
instruments, services and mechanism which influence the generation of savings, investment
capital formation and growth. Financial system is possibly the most important institutional
and functional vehicle for economic transformation. Supervision, control and regulation are
very essential for the system to function efficiently. Thus, financial management is an
integral part of the system. The organized financial system comprises of an impressive
network of banks, other financial and investment institutions and a range of financial
instruments, which together function in fairly developed capital and money markets.

Corporate financing is the most vital aspect of banking as it steers investment made by
corporate, which eventually is related to economic growth of an economy. One important
feature of such financing is the analysis of associated credit risk. Credit Appraisal is the line
of activities carried out by financial institutions before extending credit to corporate as it is
necessary to appraise the credibility of the borrower in order to mitigate the risk.

The purpose of this project includes the understanding and practically implementing the
process of credit appraisal carried out by the financial institution which is an essential aspect
of modern financial system.

1.1 Background:

Credit is the provision of resources (such as granting a loan) by one party to another party
where that second party does not reimburse the first party immediately, thereby generating a
debt, and instead arranges either to repay or return those resources (or material(s) of equal
value) at a later date. The first party is called a creditor, also known as a lender, while the
second party is called a debtor, also known as a borrower.

Credit defaults were the prime reason for the occurrence of 2008-09 financial crisis in the
USA. In the current scenario there have been increasing incidents of companys declaring
bankruptcy as they make default in paying back the credit extended to them. Such is the
scenario with Euro Crisis as Greece and other European countries are running huge debts and
they are not able to generate revenue to settle those debts.

There is no guarantee to ensure that a loan does not run into problems; however if proper
credit evaluation techniques and monitoring are implemented then naturally the loan loss
probability / problems will be minimized, which should be the objective of every lending
officer.

Credit Appraisal is the process of appraising the credit worthiness of a borrower. It is carried
out by financial institutions who act as Lenders in the financial market. The 3 C of credit are
crucial & relevant to all borrowers/ lending which must be kept in mind while assessing any
credit proposal. This project focuses on the credit appraisal process carried out by the banks,
while extending credit to its corporate borrowers, with special reference to UCO
Bank.

1.2 Objective:

The main objectives of the project are:

To understand in depth the types and functioning of credit lending by banks

To understand the need of specific lending policy adopted by banks

To understand and practically implement the techniques of credit appraisal within

1.3Methodology:

The methodology adopted for the project is mainly divided into 3 parts as follows:

Training:

The onsite training is very essential for any activity carried out in real time business
environment. It introduces the person to the environment and working customs of the specific
organisation. Initially the project started with the training provided by the mentor on various
credit facilities extended by the bank and how various techniques are used for the appraisal.
The specified format of process is maintained at the bank which is important to be followed
and training helps the person to be comfortable with the same.

Implementation:

Practical implementation of any activity gives firsthand experience to the person who is
trained for the same. Only training does not yield desired results as it gives theoretical
experience. The bank has provided an opportunity to carry out the whole process of credit
appraisal practically with fresh credit proposals under their guidance so that the detailed
understanding of the process can be achieved.

Analysis:

The analysis of the process is the last part as it is used to put all the things learned while
training and implementation in place and collectively reach to the conclusion about the
process.

Primary Sources of Information:

Training and discussion with the credit officers working with UCO Bank.

Study of Credit Appraisal reports

Secondary Sources of Information:

Lending Policy documents and internal circulars of the bank
Research papers and PDF files prepared by the officials

1.4 Scope & Limitation:

Scope:

Basic level of understanding of the banking industry

Learning about different credit facilities extended by the bank

Learning about techniques used by bank for credit analysis

Firsthand experience of client interaction

Limitation:

Time constraint is the main limitation as few weeks are used in understanding the
industry and training
Information constraint as certain information is strictly confidential for the
organisation

ECONOMIC INDUSTRY ANALYSIS

Banking Industry Analysis:

Financial banking is the science of managing money and other assets pertaining to a specific
business. The Banking industry plays a dynamic role in the economic development of a
country. The growth story of an economy depends on the robustness of its banking industry.
Banks act as the store as well as the powerhouse of the countrys wealth.

2.1 Genesis of Banking in India:

Indian banking industry has its ancestry traced to British India. The Bank of Bengal,
established in 1806, was the first to be incorporated as a bank on the Indian soil. Later
followed Bank of Bombay, established in 1840, and the Bank of Madras, established in 1843
with the rights to issue currency. All three banks, called as Presidency Banks, were
incorporated as joint stock companies. This marked the beginning of the most important
sector in India i.e. Banking and Finance Sector. All three banks were amalgamated to form the
Imperial Bank of India, which started operations on January 27, 1921. It carried out limited
central banking functions until the establishment of RBI, the bank equivalent of Fed in India.

With the passage of Reserve Bank of India Act in 1934, Reserve Bank of India (RBI) was
constituted as an apex bank without major government ownership. Later Banking Regulations
Act was passed in 1949 which lead the Reserve Bank of India to be under government control.
Under the act, RBI got wide ranging powers for supervision & control of bank along with
vested licensing powers & the authority to conduct inspections.

RBI was empowered in 1960, to force compulsory merger of weak banks with the strong
ones. As a result the total number of banks was thus reduced from 566 in 1951 to 85 in 1969.
In July 1969, government nationalized 14 banks having deposits of Rs.50 crores & above.
Again in 1980, the government acquired 6 more banks with deposits of more than Rs.200
crores. This process of nationalization of banks was to make them play the role of catalytic
agents for economic growth.

With the famous LPG policy adoption by India in 1990s, the private sector banks came into

Indian market which elevated the banking standards and practices in India. This step fuelled

the competition between banks and steered the economic growth of the country. Today the

Indian banking industry is known for its robustness all over the world.

2.2 Structure of Industry:

The structure of Indian Banking Industry is as follows:

Fig. 1 Indian Banking Industry Structure

The banking system, largely, comprises of scheduled banks (banks that are listed under the
Second Schedule of the RBI Act, 1934). Unscheduled banks form a very small component
(function in the form of Local Area Bank). Scheduled banks are further classified into
commercial and cooperative banks, with the basic difference in their holding pattern.
Cooperative banks are cooperative credit institutions that are registered under the Cooperative
Societies Act and work according to the cooperative principles of mutual assistance.

2.3 Major players in the industry:

The major players in the industry are as follows:

Type of Commercial Banks Major Shareholders Major Players
Public Sector Banks The Government of India SBI, PNB, Bank of Baroda,

Bank of India, Canara Bank,
Union Bank of India, etc.
Private Sector Banks Private Individuals or groups HDFC Bank, Axis Bank, Yes

Bank, Kotak Mahindra Bank,
etc.
Foreign Banks Foreign Entities Standard Chartered Bank,

HSBC Bank, Deutsche Bank,
Citi Bank, etc.
Table 1 Major players of the Indian banking industry

The Breakup of scheduled banks share for deposits and credits is as follows :

Deposits
Nationalized
Banks
Credit
Nationalize
d Banks

4.60%
2.90%

4.80%
State Bank
of India and
Associates

New Private
Sector
Banks

4.80%

2.50%

5.20%
State Bank
of India and
Associates

New Private
Sector
Banks
13.70%

21.80%

52.20%

Old Private
Sector
Banks

Foreign
Banks
13.80%

22.10%

51.60%
Old Private
Sector
Banks

Foreign
Banks

Regional
Rural Banks
Regional
Rural Banks

Fig. 2 Break Up of Share of scheduled commercial banks for Deposits and Credit
17

2.4 The working of the industry:

Fig. 3 The working of industry in a nut shell

The Banking Industry is back bone of the economy of any country and in India it is highly
regulated by RBI. The core operating income of a bank is interest income (comprises 75-85%
in the total income of almost all Indian Banks). Besides interest income, a bank also generates
fee-based income in the form of commissions and exchange, income from treasury operations
and other income from other banking activities. The main components of cost and income of a
bank are as follows:

Main Cost Components Main Income Components
Interest paid on deposits

Interest paid on bonds issued by
banks and borrowing made by the
bank
Provisioning cost for NPAs

Employee cost
Interest earned on lending

Fee Income, brokerages and

Commission

Income from treasury operations

Selling of investments
Table 2 Cost and Income Components of a bank

The business of a bank can be broadly segmented into following activities:

Segmented Activities
Retail Banking Loans to Individuals include Housing Loan, Education

Loan, Auto Loan, and Personal Loan.
Whole Sale Banking Loans to small, medium and large Corporate
Treasury Operations Investment in bonds, equity, commodities, mutual funds,

derivatives; trading and forex business
Other Activities Hire Purchase, Leasing, Merchant banking, etc.
Table 3 Business segmentation of a bank
Following are some important terms associated with banking business:

Terms Description
Cash Reserve Ratio This is the percentage of net total of deposit a bank is

supposed to maintain in form of cash with RBI. It is essential
to control to liquidity in the economy.

Currently 4.75%
Statutory Liquidity Ratio It is the minimum percentage of deposits that the bank is

supposed to maintain in form of gold, cash and/or other form
of approved securities. It is essential to control the credit
growth in the economy.

Currently- 24%
Bank Rate The rate at which the central bank lends money to other

banks and financial Institutions.
Currently- 9.00%
Base Rate It is the minimum rate of interest the bank is allowed to

charge to its customers. The interest rate can be above this

rate but not below certainly.
Repo Rate- Reverse Repo

Rate
Repo rate is the rate at which the RBI lends short term money

to the banks against securities and Reverse Repo is the rate at
which the banks keep their short term excess liquidity with
RBI.

Currently Repo Rate- 8.00%
Reverse Repo Rate-7.00%
Table 4 Key Terms in banking industry

2.5 Macro Economic View :

Going into 2012, the global economy appears to be in a continuing phase of multi-speed
growth. Most recent assessments indicate that the euro area is entering into a mild recession,
while growth and employment conditions in the US are improving. Growth in emerging
markets, especially China and India, is slowing beyond what was anticipated but these two
economies are still likely to provide some support for global recovery. In sum, in spite of a dip
in growth, the world economy is unlikely to lapse into another recession.

Global financial market stress eased significantly during Q1 of 2012 after the ECB made a
large liquidity injection. However, stability and structural improvements in the euro area still
remain the unfinished agenda. The recovery and financial stability can still be derailed by
global inflation engendered by liquidity infusion and high crude oil prices.

Early indicators suggest that growth may have bottomed out in Q3 of 2011-12 but recovery
may be slow during 2012-13. Lower global demand, domestic policy uncertainties and the
cumulative impact of monetary tightening lowered the growth rate to below seven per cent
over the last two quarters. Industrial growth remains subdued due to supply-side bottlenecks,
particularly in the mining sector, and moderation in investment demand. The pace of new loan
sanctions has also decreased significantly over the past couple of quarters as corporate have
postponed their capacity expansion plans in the wake of an overall slowdown and rising
global uncertainty. With measures being taken to remove supply-side bottlenecks, progress on
fiscal consolidation could create conditions for a more favourable situation.
The growth slowdown has been driven by a sharp fall in investment, some moderation in
private consumption and fall in net external demand. The drag from investment is likely to
continue in the near term. Consultations with industry and banks suggested that new project
investment continue to be sluggish. However, if increased capital outlays in the latest budget are
speedily translated into government capital expenditure, it could crowd in private
investment.

Inflation has moderated in recent months to under 7 per cent, in line with the Reserve Banks
projections. However, the path of inflation in 2012-13 could remain sticky with high oil
prices, large suppressed inflation, exchange rate pass-through, impact of tax hikes, wage
pressure and structural impediments to supply response.
In 2009-10 when Inflation touched new high in the country, the RBI chose to adopt anti
inflationary policies by increasing Repo-Reverse Repo Rates and CRR. It has lead to decrease
in money supply in the country. Tight Monetary policies controlled the inflation to certain
extent but it had adverse effect on the economic growth as the country registered low growth
than expected. The anti inflationary policies were continued to till October, 2011. The growth
for Q3 of 2011-12 dropped to just 6.1%. Later, declining inflation and decelerating growth
raised concerns and thus RBI went ahead with loosening the policy. There was a reduction of
125 basis points in CRR for the period January-March 2012. Moreover, the Repo and Reverse
Repo rates were also decreased by 100 basis points. But alongside RBI will have to keep an
eye on inflation tendencies as the loosening in monetary policy may lead to inflationary
pressures in the economy.
According to CRISIL research estimates the aggregate credit growth in 2012-13 is expected to
be at 17%.

COMPANY ANALYSIS
HISTORY:
UCO Bank is a commercial bank established in 1943. The idea to establish the
bank was first conceived by G.D. Birla, the famous industrialist, after the historic
'Quit India Movement' in 1942. The idea was culminated on the 6th of January 1943,
when The United Commercial Bank Ltd. was born with its Registered and Head
Office at Kolkata. A commercial bank and a Government of India Undertaking, it
comprises of government representatives as well as renowned professionals like
accountants, management experts, economists, businessmen, and so on, in its Board
of Directors. United Commercial Bank has stretched out to of all segments of the
economy - be it agriculture, industry, trade and commerce.

Along with 13 other major commercial banks of India, United Commercial
Bank was nationalized on 19th July, 1969, by the Government of India. Thereafter
the Bank expanded rapidly. To keep pace with the developing scenario and expansion
of business, the Bank undertook an exercise in organizational restructuring in the year
1972. Under the act of Indian Parliament, in 1985, its name changed from United
Commercial Bank to the present name, UCO Bank. As of 2005, the bank has 2000
Service Units spread all over India. A distinctive feature of UCO bank is its
introduction of 'NO HOLIDAY' branches. These bank branches work on all the 365
days of a year. With the age of global banking, UCO bank has also changed to be
adept with the newest technology, boasting of specialized computerized branches in
both India and overseas.
4.1 Heritage
The idea of a truly Indian bank was first conceived of by Mr. G.D Birla, the
doyen of Indian Industrial renaissance, after the historic "Quit India" movement in
1942. Soon this nascent idea came into reality and, on the 6th of January 1943, The
United Commercial Bank Ltd. was born with its Registered and Head Office at
Kolkata. The very first Board of Directors was represented by eminent personalities
of the country drawn from all walks of life, and this all-India character of the Bank
has been assiduously maintained till this day not only in the composition of its Board
but also in the geographical spread of its 1700 odd branches in the country as well as
in its overseas centers in Singapore and Hong Kong.
Having traversed periods of expansion and consolidation, the Bank was
nationalized by the Government of India on the 19th July 1969 whereupon 100 per
cent ownership was taken over by the government in UNITED COMMERCIAL
BANK. This historic event brought about a sea-change in the entire fabric of the
bank's thinking and activities, commensurate with the government's socio-political
approach of mass banking as against class banking hitherto practiced. Branch
expansion started at a fast pace, particularly in rural areas, and the bank achieved
several unique distinctions in Priority Sector lending and other social upliftment
activities. To keep pace with the developing scenario and expansion of business, the
Bank undertook an exercise in organizational restructuring in the year 1972. This
resulted into more functional specialization, decentralization of administration and
emphasis on development of personnel skill and attitude. Side by side, whole hearted
commitment into the government's poverty alleviation programmes continued and the
convenorship of State Level Bankers' Committee (SLBC) was entrusted on the Bank
for Orissa and Himachal Pradesh in 1983.
The year 1985 opened a new chapter for the Bank as the name of the Bank
changed to UCO BANK by an Act of Parliament. The customer friendly and socially
committed character, however, remained even with this change in name which has,
over the years, been regarded as one of the well known and vibrant banks in the
country. Today, with all its inner strengths, UCO Bank has come a long way to
symbolize friendliness for customers and efficiency in its banking business. Truly,
UCO Bank HONOURS YOUR TRUST.
4.2 Vision Statement
To emerge as the most trusted, admired and sought-after world class financial
institution and to be the most preferred destination for every customer and investor
and a place of pride for its employees.
4.4 Mission Statement
To be a Top-class Bank to achieve sustained growth of business and
profitability, fulfilling socio-economic obligations, excellence in customer service;
through up gradation of skills of staff and their effective participation making use of
state-of-the-art technology.
Global banking has changed rapidly and UCO Bank has worked hard to adapt
to these changes. The bank looks forward to the future with excitement and a
commitment to bring greater benefits to you.
UCO Bank, with years of dedicated service to the Nation through active
financial participation in all segments of the economy - Agriculture, Industry, Trade
& Commerce, Service Sector, Infrastructure Sector etc., is keeping pace with the
changing environment. With a countrywide network of more than 2000 service units
which includes specialised and computerised branches in India and overseas, UCO
Bank has marched into the 21st Century matched with dynamism and growth!

4.5Strengths
Country-wide presence
Overseas Presence with Profitable Overseas Operations
Strong Capital Base
High Proportion of Long Term Liabilities
A Well Diversified Asset Portfolio
A Large and Diversified Client Base
Fully Computerised Branches at Major Centres
Branch representation in Top 100 Centres (as per deposits) in the country

4.6Organisation Structure
Headquartered in Kolkata, the Bank has 35 Regional Offices spread all over
India. Branches located in a geographical area report to the Regional Office having
jurisdiction over that area. These Regional Offices are headed by Senior Executives
ranging upto the rank of General Manager, depending on size of business and
importance of location. The Regional Offices report to General Managers functioning
at Head Office in Kolkata.

FINANCIAL ANALYSIS OF UCO BANK WITH HELP OF RATIOS:
Investment Valuation Ratios:
Investment Valuation Ratios

Mar
'12
Mar
'11
Mar
'10
Mar
'09
Mar
'08
Face Value 10 10 10 10 10
Dividend Per Share 3 3 1.5 1 1
Operating Profit Per Share
(Rs)
22.67 14.99 17.01 12.04 3.08
Net Operating Profit Per Share
(Rs)
225.29 185.53 182.05 159.93 85.98
Free Reserves Per Share (Rs) 55.4 47.6 32.56 22.63 13
Bonus in Equity Capital -- -- -- -- --

0
50
100
150
200
250
March '12 March '11 March '10 March '09 March '08
Face Value
Dividend per Share
Operating Profit per Share
Net Operating per Share
Free Reserves per share
PROFITABILITY RATIOS:
Profitability Ratios Mar
12
Mar
11
Mar
10
Mar
09
Mar
08
Interest Spread 4.2 4.11 3.72 3.43 3.29
Adjusted Cash Margin(%) 7.7 8.15 10.44 7.01 6.72
Net Profit Margin 7.2 7.48 9.72 6.1 5.75
Return on Long Term
Fund(%)
149.91 125.65 178.21 203.74 220.99
Return on Net Worth(%) 17.6 17.61 28.02 19.95 16.58
Adjusted Return on Net
Worth(%)
17.59 17.61 28.02 19.95 16.58
Return on Assets Excluding
Revaluations
94.72 82 65.74 50.88 31.08
Return on Assets Including
Revaluations
102.16 89.18 73.91 59.29 36.61

MANAGEMENT EFFICIENCY RATIOS:

Management Efficiency Ratios Mar
12
Mar
11
Mar
10
Mar
09
Mar
08
Interest Income / Total Funds 8.73 7.77 8.06 8.76 8.39
Net Interest Income / Total
Funds
2.48 2.75 2.26 2.3 2.26
Non Interest Income / Total
Funds
0.24 0.31 0.32 0.35 0.36
Interest Expended / Total 6.26 5.02 5.81 6.46 6.13
0
50
100
150
200
250
Interest Spread
Adjusted Cash Margin(%)
Net Profit Margin
Return on Long Term
Fund(%)
Return on Net Worth(%)
Adjusted Return on Net
Worth(%)
Return on Assets Excluding
Revaluations
Funds
Operating Expense / Total
Funds
1.6 2.12 1.5 1.64 1.96
Profit Before Provisions / Total
Funds
1.07 0.88 1.02 0.93 0.57
Net Profit / Total Funds 0.65 0.6 0.82 0.56 0.5
Loans Turnover 0.14 0.13 0.13 0.14 0.13
Total Income / Capital
Employed(%)
8.97 8.07 8.39 9.11 8.75
Interest Expended / Capital
Employed(%)
6.26 5.02 5.81 6.46 6.13
Total Assets Turnover Ratios 0.09 0.08 0.08 0.09 0.08
Asset Turnover Ratio 8.97 7.69 7.14 6.56 5.67

PROFIT & LOSS A/C RATIOS:

0
1
2
3
4
5
6
7
8
9
10
Management Efficiency
Ratios
Interest Income / Total
Funds
Net Interest Income / Total
Funds
Non Interest Income / Total
Funds
Interest Expended / Total
Funds
Funds
Profit Before Provisions /
Total Funds
Net Profit / Total Funds
Profit And Loss Account
Ratios
Mar
12
Mar
11
Mar
10
Mar
09
Mar
08
Interest Expended / Interest
Earned
73.33 66.19 75.6 79.75 77.14
Other Income / Total Income 2.64 3.82 3.86 3.83 4.07
Income
17.8 26.23 17.92 18.04 22.42
Selling Distribution Cost 0.16 0.18 0.18 0.21 0.16
BALANCE SHEET RATIOS:
Balance Sheet Ratios Mar
12
Mar
11
Mar
10
Mar
09
Mar
08
Capital Adequacy Ratio 12.35 13.71 13.21 11.93 10.09
Advances / Loans Funds(%) 72.75 70.91 71.44 74.82 73.96

0
10
20
30
40
50
60
70
80
90
Profit And Loss Account
Ratios
Interest Expended / Interest
Earned
Other Income / Total Income
Income
Selling Distribution Cost
Composition

DEBT COVERAGE RATIOS:
Debt Coverage Ratios Mar
12
Mar
11
Mar
10
Mar
09
Mar
08
Credit Deposit Ratio 71.71 67.83 67.96 68.78 70.51
Investment Deposit Ratio 29.64 32.29 32.75 29.78 30.24
Cash Deposit Ratio 6.09 6.59 6.21 6.82 6.56
Total Debt to Owners Fund 24.75 28.59 34.21 36.11 32.16
Financial Charges Coverage
Ratio
0.18 0.19 0.19 1.16 1.11
Financial Charges Coverage 1.11 1.13 1.15 1.1 1.1

0
10
20
30
40
50
60
70
80
Capital Adequacy Ratio
Advances / Loans Funds(%)

LEVERAGE RATIOS:
Leverage Ratios Mar
12
Mar
11
Mar
10
Mar
09
Mar
08
Current Ratio 0.03 0.02 0.02 0.02 0.02
Quick Ratio 25.73 21.65 26.89 14.25 11.91

0
10
20
30
40
50
60
70
80
Credit Deposit Ratio
Investment Deposit Ratio
Cash Deposit Ratio
Total Debt to Owners Fund
Ratio
Ratio Post Tax
0
5
10
15
20
25
30
March '12 March '11 March "10 March '09 March '08
Current Ratio
Quick Ratio
Loan Policy Document for Micro & Small Enterprises Sector
BANKS POLICY IN RESPECT OF LENDING TO MICRO AND SMALL ENTERPRISES
SECTOR
1. PREAMBLE :
Worldwide, the Micro and Small Enterprises (MSEs) have been accepted as the engine of economic
growth and for promoting equitable development. In India too, the MSEs play a pivotal role in the
overall industrial economy of the country. It is estimated that in terms of value, the sector accounts
for about 39% of the manufacturing output and around 33% of the total export of the country.
Further, in recent years the MSE sector has consistently registered higher growth rate compared to
the overall industrial sector. The major advantage of the sector is its employment potential at low
capital cost.
The Government of India has been making concerted efforts for the promotion and development of
MSE sector which enabled the MSE sector to grow at a higher pace than the overall industrial
sector. To facilitate the development of this sector as also enhance their competitiveness, the
Government has enacted the Micro, Small and Medium Enterprises Development (MSMED) Act,
2006, which is in force from 2nd October, 2006 which is a turning point for the development of
Indian Industry, as it addresses and streamlines entire frame work along with key governance &
operational issues being faced by the SMEs.
One of the major policy initiatives of the Government has been inclusion of the MSE sector under
priority sector lending. It has been done so because credit is one of the critical inputs for the
sustained growth of the MSE sector. The MSE sector has been receiving direct assistance from the
commercial banks mostly for meeting working capital requirements.
The SME segment is broadly classified as under:
Particulars Investment in Plant & Machineries
of Manufacturing Enterprises
Investment in Equipments of
Service Sector Enterprises
Micro
Enterprises
Upto Rs.25.00 lakh Upto Rs.10.00 lakh
Small
Enterprises
Above Rs.25.00 lakh and upto
Rs.500.00 lakh
Above Rs.10.00 lakh and upto
Rs.200.00 lakh
2. Definitions:
2.1 Small (Manufacturing) Enterprises:
Enterprise engaged in the manufacture/production or preservation of goods and whose investment in
plat and machinery (original cost excluding land and building and the items specified by the
Ministry of Small Scale Industries vide its notification No. S.O. 1722(E) dated October 5, 2006 as
furnished in Annex I) does not exceed Rs.5.00 crore.
2.2 Small (Service) Enterprises:
Enterprise engaged in the providing/rendering of services and whose investment in equipment
(original cost excluding land and building and furniture, fittings and other not directly related to the
service rendered or as may be under the Micro, Small and Medium Enterprises Development
(MSMED) Act, 2006) does not exceed Rs.2.00 crore.
2.3 Micro (Manufacturing) Enterprises:
Enterprise engaged in the manufacture/production or preservation of goods and whose investment in
plant and machinery (original cost excluding land and building and such items as in 1.1.1) does not
exceed Rs.25.00 lakh, irrespective of the location of the unit.
2.4 Micro (Service) Enterprises:
Enterprise engaged in the providing/rendering of services and whose investment in equipment
(original cost excluding land and building and furniture, fittings and such items as in 1.1.2) does not
exceed Rs. 10.00 lakh.
3. OBJECTIVES :
The MSE Loan Policy is framed with the following objectives :
To ensure availability of adequate and timely credit to MSE sector.
To devise an organizational structure at all levels for handling MSE credit portfolio in a more
focused manner.
To improve flow of credit to MSE Sector so as to double the credit to the Sector in 5 years.
To provide guidelines to the branches to dispense credit to MSE Sector on liberalized terms.
4. SCOPE OF POLICY :
Broad guidelines on lending to MSE Sector
Identifying Thrust Industries
Composition of MSE Sector
Pricing Policy
5. TARGETS FOR MSE SECTOR:
Banks are advised to fix their own target in order to achieve a minimum 20% YOY growth
over the MSE advances as of March, 2005 with an objective to double flow of credit to SME
sector by the year, 2009-10.
Sub-targets for lending to Micro Enterprises within the Small Enterprises, which are included
under Priority Sector lending, are as under :
1. 40% of total advances to Small Enterprises Sector should go to Micro
(Manufacturing_ enterprises having investment in Plant and Machinery upto Rs.5.00
lakh and Micro (Service) Enterprises having investment in equipment upto Rs.2.00
lakh;
2. 20% of total advances to Small Enterprises Sector should go to
Micro"(Manufacturing) Enterprises with investment in Plant and Machinery above
Rs.5.00 lakh and upto Rs.25.00 lakh, and Micro (Service) Enterprises with
investment in equipment above Rs.2.00 lakh and upto Rs.10.00 lakh.

(Thus, 60% of Small Enterprises advances should go to Micro Enterprises).
6. COMMON GUIDELINES/INSTRUCTIONS FOR LENDING TO MSE SECTOR
6.1 Processing of Applications:
i. Loan Application :
The existing Common loan Application-cum-Appraisal Format applicable to all loans irrespective of
limit will be applicable for financing to MSE sector.
ii. Issue of Acknowledgement of Loan Applications :
Each branch will issue an acknowledgement for loan applications received from the borrowers
towards financing under this sector and maintain the record of the same.
iii. Disposal of Applications :
In case of Loans upto Rs.25000/- : Within 2 weeks
In case of Loans above Rs.25000/- : Within 4 weeks
(Provided the loan applications are complete in all respects and are accompanied by a check list
enclosed to the application form).
iv. Register of Receipt/Sanction/Rejection of Applications :
1. A register should be maintained at branch wherein the date of receipt, sanction/disbursement,
rejection with reasons, should be recorded. The register should be made available to facilitate
verification by the Banks officials including Zonal Manager during visit to the branch.
2. Branch Manager may reject application (except in respect of SC/ST). In the case of proposals
from SC/ST, rejection should be done at a level higher than Branch Manager.
3. The reason for rejection will be communicated to the borrower in line with stipulation
mentioned in the Fair Practice Lenders Code.
6.2. Types of Loans
MSE Units may be granted a variety of Credit facilities for their different needs which will include
the following:
1. Term Loan/ Demand Loan/ Deferred Payment guarantee
For acquisition of capital goods (excluding second hand), fixed assets, vehicles, Plant & machinery,
purchase of land, construction of buildings etc. There is no provision in the Policy for allowing term
loan against purchase of second hand machinery.
2. Working Capital by way of Cash Credit, Overdraft etc for:
i. Purchase of raw material, components, stores and maintenance of stock of these items at minimum
level and stock in process and finished goods.
ii. Finance against receivables including receipted challans/invoices
iii. Meeting marketing expenses where the units have to incur large-scale expenditure towards
marketing of their products.
3. Bills Purchase/Discounting under L/C or outside L/C
4. Export Credit facilities like Packing Credit,FBP/UFBP.
5. Letter of Credit on sight/usance basis for purchase of raw material/ capital goods.
6. Bank Guarantee for performance, advance Payment, Tender Money , Security Deposit,
Guarantees for getting orders , for procurement of raw materials etc.
6.3. Margin
For Term Loan For Working Capital
In case of factory land &
building, overall margin of 20%
25% uniform margin on stocks and
receivables. For export credit margin
may be stipulated @10%
In case of Plant & Machineries
and Equipment margin is
proposed at 20%

6.4. Collateral Free Advances covered under CGTMSE:
Presently, the Banks guidelines for providing collateral free loans are as under:
i. Collateral Free Loan up to Rs.5.00 Lakh to Micro & Small
Enterprises.
ii. As per the Special Stimulus Package, it has been decided by the Bank
to dispense with collateral security including third party guarantee for
loans to MSE Sector up to a limit of Rs. 100.00 Lakh, subject to
satisfying the following criteria in case of existing borrowers as also in
case of takeover accounts.
1. Consistent growth in sales for last 3 years.
2. Continuous profit for last 3 years.
3. Credit rating of A or equivalent and above and no slippage in credit rating during last 3
years.
4. The units assets (fixed as also current) are charged to the Bank and Promoters/Directors
personal guarantee are available.
5. Asset coverage ratio of more than 1:5.
6. Other take-over norms are complied with.
The category-wise maximum extent of cover under CGTMSE is as under:
Category Maximum extent of Guarantee whose credit facility is
Upto Rs.5 lakh Above Rs. 5 lakh
upto Rs.50 lakh
Above Rs. 50 lakh
upto Rs.100 lakh
Micro Enterprises 85% of the
amount in default
subject to a
maximum of Rs.
4.25 lakh
75% of the
amount in default
subject to a
maximum of Rs.
37.50 lakh
Rs 37.50lakh plus 50%
of amount in default
above Rs.50 lakh
subject of overall
ceiling of Rs 62.50
lakh.
Women Entrepreneurs/
Units located in North
Eastern Region(including
Sikkim)
80% of the amount in default subject
to a maximum of Rs.40 lakh.
Rs.40 lakh plus 50% of
the amount in default
above Rs.50 lakh
subject to overall
ceilinh of Rs.65 lakh.
Composite Loans:
As per RBI guidelines, credit assistance to artisans, village and cottage Industries and other
MSE units up to Rs.100.00 Lakh for equipment finance or working capital or both should be
considered as composite term loan.
This will enable majority of Micro & Small Enterprises to avail loans from a single window
eliminating the need for borrowing term loan from SFCs and working capital from Banks.
This will also facilitate to sign one set of documents only instead of signing facility-wise
separate documents.
6.5 Credit Rating
(i) The RBI has directed to Banks to take steps to rationalize the cost of loans to MSE sector by
adopting a transparent rating system.
(ii) The rating of account may be done under In-House Module or Rating from outside rating
Agencies.
(a) In-House Rating Modules :- In case of MSE accounts with aggregate limit over Rs. 25 lacs and
unto Rs. 1 crore, the accounts are to be rated as per existing norms for general advances. The
purpose of rating is for ascertaining the quality of the asset and not for deciding the rate of Interest.
For aggregate exposure above Rs. 1 crore, the rate of Interest is decided as per credit Rating.
(b) Rating from outside rating Agencies :- Our Bank has entered into MOU with SMERA, Fitch
Ratings India (P) Ltd., Dun & Brad Street and ICRA Ltd. for getting the SME borrowers rated by
them. The National Small Industries Corporation (NSIC) has been appointed as nodal agency which
provides subsidy to the units obtaining credit rating from any of the empanelled agencies to the
Micro and Small Enterprises (manufacturing sector, i.e earlier SSI units). The Credit rating awarded
by Rating Agencies under NSIC Subsidy Scheme is conclusive for borrower as well as lender. The
good rated borrowal accounts will get concession in applicable Rate of Interest unto 1% depending
upon the grade/rating awarded by Rating Agencies.
6.6 Interest Rate:
INTEREST RATES:
Total Funded Exposure up to Rs. 5.00 Lakh BPLR-3.50% = 9.00% (Minimum)
TFE of more than Rs.5.00 Lakh to Rs.25.00 Lakh BPLR-1.50% = 11.00% (Minimum)
TFE of more than Rs.25.00 Lakh to Rs.1.00 Crore BPLR-0.50% = 12.00% (Minimum)
TFE of more than Rs. 1.00 Crore As per credit rating
The credit rating module of our Bank for MSEs will be as per Loan Policy document of our Bank.
As a part of the Special package announced by the IBA for the MSME Sector, our Bank has reduced
the interest rates for borrowing by Micro Enterprises by 100 basis points i.e. 1% for all existing and
new loans with effect from 17.12.2008. Similarly interest rates for borrowing by Small and Medium
Enterprises with fund based exposures unto Rs.10 crores has reduced by 50 basis points i.e. 0.50%
for all existing and new loans w.e.f. 17.12.2008. The benefits of this special package will be
applicable till further instruction.
7. Penal Interest:
Penal interest @ 1% to be charged for the period of default in repayment, non-submission of
financial statements, non-compliance of terms and conditions etc. as per extant guidelines of the
Bank.
8. Processing Charges for Micro & Small Enterprises
Amount of
Advance

Processing Charges for advances
other than from Loan & DPG
Processing Charges For
Term Loan & DPG
a) Fresh sanctions
Upto Rs.25000/- NIL NIL
Above Rs.25000/- Rs.350/-per lac Min. Rs.350/- 1.1236%of the sanctioned
limit Min. Rs.600/-
b) Renewal
/Review of limit

Upto Rs.25000/- NIL NIL
Above Rs.25000/- Rs.350/-per lac Min. Rs.350/- Rs.120/-per lac Min.Rs.250/-
Max. Rs.55000/-
9. Methodology for calculation of Bank Finance
1. Working Capital Loan
i. Working Capital Credit limits to Micro, Small and Medium Enterprises in individual
cases up to Rs.2.00 Crore(Manufacturing Sector) and up to Rs 1.00 Crore(Service
sector) will be computed as per existing guidelines on the basis of minimum 20% of
their projected annual turnover(turnover method).However in cases of borrower
applying for working capital limit lower than the working capital computed on the
basis of turnover method shall be assessed as per actual requirement.
ii. For assessment of the working capital requirement of the borrowers falling within the
band of above Rs.2.00 crores and below Rs.10.00 crore (Manufacturing sector) and
above Rs.1.00 crore and below Rs.10.00 crore (service sector) the traditional method
of computing MPBF as per second method of lending will continue. If any of the
borrower falling in this band intends to shift to cash budget system, the same may
be accepted.
2. Term Loan
i) In case of term loan, Debt Equity Ratio (DER) should not normally be above 3:1.
ii) However, in case of capital intensive industries, the same may be considered 5:1
iii) In case of Term Loan, minimum Average DSCR of 1.50:1 will be considered as reasonable
requirement for any New connection. Relaxation may however be considered on merit of the case by
the sanctioning authority not below the rand of Zonal Head.
iv) Moratorium period depending on requirement of the project/proposal will be considered.
3. The Technical feasibility the economic, financial, commercial viability, Managerial
competence, environment viability and bank-ability of the proposal with reference to
risk will be assessed.
4. Other benchmark financial ratios like Current Ratios, Tenure etc. will be in line with
the Banks Loan Policy.
10. Financing under cluster based approach:
i. The cluster based approach should be given a thrust area.
ii. The cluster financing approach reduces the cost of transition to the entrepreneurs.
iii. The Zonal Office/ branches will give due importance for financing of MSME sector in the
identified Special Credit Delivery branches and Branches situated near to clusters.
11. Discretionary authority
As per Loan Policy Document of the Bank.
12. Repayment Schedule
Repayment schedule should be fixed taking into account the sustenance requirements, surplus
generating capacity, the break-even point, the life of the asset, etc., and not in an ad hoc manner.
The maximum door to door tenor should not exceed 60 months excluding the moratorium period.
In respect of composite loan the repayment schedule may be fixed for term loan component only.
Moratorium period of 6 months to 1 year may be allowed taking into consideration the nature of the
project and also commencement of commercial production.
13. Mode of Disbursement of Loan
The disbursement of the loan amount for Plant & Machinery, Equipment and other fixed assets will
be made in favour of the supplier through Demand Draft/ Pay Order. Branches will continue to
ensure the end use verification on monthly/quarterly basis.
14. Monitoring
Policy directives for monitoring of accounts covering documentation, supervision and control over
accounts, special watch/potential NPAs etc., are as per Credit Monitoring Policy 2007-08 of the
Bank and any amendment thereof.
Where ever the lending to MSE sector is eligible to be covered under CGTMSE, it will be the
responsibility of the respective branch head and the concerned officials at Zonal Office to ensure
that the respective accounts are duly covered under CGTMSE and the Guarantee Fee and the Annual
Service Fee is paid to CGTMSE in time.
It is to be ensured that any loan sanctioned to MSE up to a limit of Rs. 5 lac will be without any
collateral and or third party guarantee. However all those accounts are invariably be covered under
CGTMSE Scheme. Any deviation from this policy will attract accountability to the sanctioning
authority.
The Priority Sector Department of the Bank will ensure proper implementation of this Policy in the
Bank.
15. Review of the Scheme
In case any modification/changes are warranted in this Policy, the Chairman and Managing
Director/Executive Directors of the Bank will be approved the same and the same will be got vetted
by the Credit Risk Management Committee (CRMC) and the Board of Directors of the Bank before
its circulation among our Branches/Offices.
16. Our SME Products:
i. Laghu Udyami Credit Card
ii. Artisan Credit Card
iii. Prime Minister Employment Generation Programme (PMEGP)
iv. Collateral Free Loans under Credit Guarantee Trust Fund for Micro &
Small Enterprises (CGTMSE)
v. Loans under Technology Upgradation Fund Scheme for Textile Units
(TUFS Scheme)
vi. Swarozgar Credit Card Scheme
vii. Uco Shilpa Udyog
viii. Uco Vishwakarma Yojna
ix. Uco Mahila Shilpa Udyog Scheme
x. Composite Loans to MSE Units
xi. Scheme for financing Handloom Weavers Group (HWGs)
xii. Loans under Credit Linked Capital Subsidy Scheme for Technology
Upgradation.
xiii. Uco Channel Scheme
xiv. Scheme for Food Processing Industries

MASTER CIRCULAR BY RESERVE BANK OF INDIA ON PRIORITY SECTOR

Master Circular on Priority Sector Lending

1. Introduction on Priority Sector Lending

1.1 At a meeting of the National Credit Council held in July 1968, it was
emphasised that commercial banks should increase their involvement in the
financing of priority sectors, viz., agriculture and small scale industries. The
description of the priority sectors was later formalised in 1972 on the basis of the
report submitted by the Informal Study Group on Statistics relating to advances to
the Priority Sectors constituted by the Reserve Bank in May 1971. On the basis of this
report, the Reserve Bank prescribed a modified return for reporting priority sector
advances and certain guidelines were issued in this connection indicating the scope
of the items to be included under the various categories of priority sector. Although
initially there was no specific target fixed in respect of priority sector lending, in
November 1974 the banks were advised to raise the share of these sectors in their
aggregate advances to the level of
33 1/3 per cent by March 1979.

1.2 The need for Primary (urban) Co-operative Banks (UCBs) for providing credit
to priority sectors had been examined by the Standing Advisory Committee
for UCBs constituted by Reserve Bank in May 1983. The recommendations
of the committee were accepted by Reserve Bank and accordingly the targets for
lending to priority sector and weaker sections by the UCBs were stipulated.

1.3 On the basis of the recommendations made in September 2005 by the Internal
Working Group (Chairman : Shri C. S. Murthy), set up in Reserve Bank to
examine, review and recommend changes, if any, in the existing policy on priority
sector lending including the segments constituting the priority sector, targets and
sub-targets, etc. and the comments / suggestions received thereon from banks,
financial institutions, public and the Indian Banks' Association (IBA), it has been
decided to include only those sectors as part of the priority sector, that impact large
sections of the population, the weaker

sections and the sectors which are employment-intensive such as agriculture, and tiny
and small enterprises. Accordingly, the broad categories of priority sector for UCBs
will be as under:

2. Categories of Priority Sector

2.1 Agriculture (Direct and Indirect Finance): Direct finance to agriculture shall
include short, medium and long term loans given for agriculture and allied activities
(dairy, fishery, piggery, poultry, bee-keeping, etc.) directly to individual
farmers without limit for taking up agriculture / allied activities. Direct finance may
be limited to regular members and not to nominal members or to agencies like
primary agriculture credit societies (PACS), primary land development banks
etc. Indirect finance to agriculture shall include loans given for agriculture and allied
activities as specified in para 5 appended.

Loans granted to agriculture and allied activities irrespective of whether the finance
is for export activities or domestic activities, are eligible to be classified as priority
sector. The export credit granted for agriculture and allied activities may be
reported separately under heading "Export Credit to Agriculture Sector" in
statement II.

2.2 Small Enterprises (Direct and Indirect Finance) : Direct finance to small
enterprises shall include all loans given to micro and small
(manufacturing) enterprises engaged in manufacture / production, processing or
preservation of goods, and micro and small (service) enterprises engaged in providing
or rendering of services, and whose investment in plant and machinery and
equipment (original cost excluding land and building and such items as mentioned
therein) respectively, does not exceed the amounts specified in Section I,
appended. The micro and small (service) enterprises shall include small road and
water transport operators, small business, professional & self-employed persons,
and all other service enterprises, as per the definition given in para 5. Indirect finance
to small enterprises shall include finance to any person providing inputs to or
marketing the output of artisans,

village and cottage industries, handlooms and to cooperatives of producers in this
sector.

Loans granted to micro and small enterprises (MSE) (manufacturing and
services) are eligible for classification under priority sector provided such
enterprises satisfy the definition of MSE sector as contained in MSMED Act
2006, irrespective of whether the finance is for export activities or domestic
activities. The export credit granted to MSEs may be reported separately as "Export
Credit to Micro and Small Enterprises Sector" in statement II.

2.3 Micro Credit : Provision of credit and other financial services and
products of amounts not exceeding Rs.50,000 per borrower or the maximum
permissible limit on unsecured advances whichever is lower

2.4 Education Loans : Education loans include loans and advances granted to only
individuals for educational purposes up to Rs.10 lakh for studies in India and Rs.20
lakh for studies abroad, and do not include those granted to institutions;

2.5 Housing Loans: Loans up to Rs.20 lakh (Rs.25 lakh for housing loans
sanctioned on or after April 1, 2011) to individuals for purchase / construction of
dwelling unit per family*, (excluding loans granted by banks to their own
employees) and loans given for repairs to the damaged dwelling units of
families up to Rs.1 lakh in rural and semi-urban areas and up to Rs.2 lakh in urban
and metropolitan areas.

* Family for this purpose means and includes the spouse of the member and the children, parents,
brothers and sisters of the member who are dependent on such member, but shall not include legally
separated spouse.

2.6 Loans to Self Help Groups (SHG) / Joint Liability Groups (JLGs): Loans
to SHGs / JLGs for agricultural and allied activities would be considered as priority
sector advance. Further, other loans to SHGs / JLGs up to Rs.
50,000 would be considered as Micro Credit and hence treated as priority

Targets and Sub-Targets set under Priority Sector Lending
Total Priority Sector
advances
40 per cent of Adjusted Bank Credit (ABC) or credit
equivalent amount of Off-Balance Sheet Exposure,
whichever is higher.
Agriculture
Advances

No target.
Small Enterprise
advances
Advances to small enterprises sector will be reckoned
in computing performance under the overall priority
sector target of 40 per cent of ABC or credit
equivalent amount of Off-Balance Sheet Exposure,
whichever is higher.
Micro enterprises
within Small
(i)

40 per cent of total advances to small enterprises

sector advances. Lending to SHGs, which qualify as loans to priority sector, would
also be treated as part of lending to weaker sections.

3. Targets / Sub-targets

3.1 The targets under priority sector lending would be linked to Adjusted Bank
Credit (ABC) (total loans and advance plus investments made by UCBs in non-SLR
bonds) or Credit Equivalent amount of Off-Balance Sheet Exposures (OBE),
whichever is higher, as on March 31 of the previous year. Existing investments, as
on August 30, 2007, made by banks in non-SLR bonds held in HTM category
will not be taken into account for calculation of ABC. However, fresh investments
by banks in non-SLR bonds will be taken into account for the purpose. For the
purpose of calculation of credit equivalent of off-balance sheet exposures, banks
may use current exposure method. Inter-bank exposures will not be taken into
account for the purpose of priority sector lending targets / sub-targets.

3.2 The targets and sub-targets set under priority sector lending for UCBs are
furnished below:

sector should go to micro (manufacturing)

Enterprises sector
enterprises having investment in plant and
machinery up to Rs.5 lakh and micro (service)
enterprises having investment in equipment up to Rs.2
lakh;
(ii) 20 per cent of total advances to small enterprises
sector should go to micro (manufacturing)
enterprises with investment in plant and
machinery above Rs.5 lakh and up to Rs.25 lakh, and
micro (service) enterprises with investment in
equipment above Rs.2 lakh and up to Rs.10 lakh.
(Thus, 60 per cent of small enterprises advances
should go to the micro enterprises).
Advances to weaker
sections
Of the stipulated target for priority sector advances, at least
25% (or 10% of the ABC or credit equivalent amount of
Off-Balance Sheet Exposure, whichever is higher) should
be given to weaker sections.
Advances to
Minorities
Within the overall target for priority sector lending and the
sub-target of 25 per cent for the weaker sections, sufficient
care may be taken to ensure that the minority
communities also receive an equitable
portion of the credit.

3.3 Salary Earners' Banks: The stipulation regarding priority sector lending is not
applicable to the Salary Earners' Banks.

3.4 Credit Flow to Minorities: UCBs should initiate steps to enhance /
augment flow of credit under priority sector to artisans and craftsmen as also to
vegetable vendors, cart pullers, cobblers, etc. belonging to minority
communities. The minority communities notified in this regard are Sikhs,
Muslims, Christians, Zoroastrians and Buddhists. Within the overall target for
priority sector lending and the sub- target of 25 per cent for the weaker
sections, sufficient care may be taken to ensure that the minority communities also
receive an equitable portion of the credit.

4. Reporting / Monitoring under Priority Sector

4.1 UCBs should take effective steps to achieve the above recommended targets
and monitor the priority sector lending, keeping in view the quantitative as well as
qualitative aspects.

4.2 In order to ensure that due emphasis is given to lending under priority sector,
it is considered desirable that the performance is reviewed periodically. For this
purpose, apart from the usual reviews, which the banks are periodically
undertaking, specific reviews by the Board of Directors of the respective
banks may be made on half-yearly basis. Accordingly, a
memorandum may be submitted to the Board of Directors at half-yearly
intervals i.e. as on September 30 and March 31 of each year giving a detailed critical
account of the performance of the bank during the period showing increase /
decrease over the previous half-year (Statement I).

4.3 Further, annual review of the performance under priority sector advances as on
March 31 may also be placed before the Board (Statement II-part A) by
15th of the following financial year. A copy of the annual review (Statement II, part
A to E) complete in all respect as on March 31 may be forwarded to the concerned
Regional Office of the Reserve Bank with the Board's observations, indicating the
steps taken / proposed to be taken for improving the bank's performance. The
report should reach the Regional Office within a period 15 days from the end of the
period to which it relates.

4.4 The banks should submit Statement III (part A and B) as on March 31 within
15 days thereafter showing the position of direct loan and advances to agriculture
and allied activities to the concerned Regional Office of this department under
whose jurisdiction they function.

4.5 The reporting formats together with their periodicity are summarized as under
:

Returns Contents Periodicity
Statement I Memorandum to be submitted to
Board
Half yearly returns put up to
Board of UCBs

Statement II -
Part A

Priority Sector Advances
detailed sector wise data.
Yearly returns to be submitted to
the Board and RBI's
Regional Office.
Statement II - Priority Sector Advances- Yearly returns to be submitted

Part B State wise data - Outstanding to RBI's Regional Office
Statement II -
Part C
Priority Sector Advances -
State wise data - Disbursal
during current year
-do-
Statement II -
Part D
Priority Sector Advances to
Minorities - state wise.
-do-
Statement II -
Part E
Priority Sector Advances to
Minorities in identified district
-do-
Statement III -
Part A
Advances to Agriculture and
allied activities (Direct
Finance) - State wise
-do-
Statement III -
Part B
Recovery of Agriculture
(Direct Finance) - State wise
-do-

4.6 In order to facilitate compilation of the relative figures, banks may
maintain a register to indicate all the items of priority sector advances and also another
register for weaker section advances showing particulars, with separate folios to
each activity so that the total of advances to priority sector and weaker sections
under each activity and to each type of beneficiary may be available at any given
point of time. The proforma of these registers may be on the lines of the annual return
to be submitted to RBI.

5. The detailed guidelines in this regard are given as under :

1. Agriculture

Direct Finance
1.1 Finance to individual farmers for Agriculture and Allied
Activities (dairy, fishery, piggery, poultry, bee-keeping, etc.)

1.1.1 Short-term loans for raising crops, i.e. for crop loans. This will
include traditional / non-traditional plantations and horticulture.
1.1.2 Advances up to Rs.10 lakh against pledge / hypothecation of
agricultural produce (including warehouse receipts) for a
period not exceeding 12 months, irrespective of whether the
farmers were given crop loans for raising the produce or not.
1.1.3 Working capital and term loans for financing production and
investment requirements for agriculture and allied activities.
1.1.4 Loans to small and marginal farmers for purchase of land for
agricultural purposes.
1.1.5 Loans to distressed farmers indebted to non-institutional
lenders, against appropriate collateral

1.1.6 Loans granted for pre-harvest and post-harvest activities such as
spraying, weeding, harvesting, grading, sorting, processing and
transporting undertaken by individuals, in rural areas.
1.2 Finance to others [such as corporates, partnership firms and
institutions] for Agriculture and Allied Activities (dairy, fishery,
piggery, poultry, bee-keeping, etc.)
1.2.1 Loans granted for pre-harvest and post harvest activities such as
spraying, weeding, harvesting, grading, sorting and
transporting.
1.2.2 Finance upto an aggregate amount of Rs one crore per
borrower for the purposes listed at 1.1.1,1.1.2,1.1.3, and 1.2.1
above.
1.2.3 One-third of loans in excess of Rs one crore in aggregate per
borrower for agriculture and allied activities.

Indirect Finance
1.3 Finance for Agriculture and Allied Activities
1.3.1 1.3.1 Two-third of loans to entities covered under 1.2
above in excess of Rs one crore in aggregate per borrower
for agriculture and allied activities.

1.3.2

1.3.2 Loans to food and agro-based processing units with
investments in plant and machinery up to Rs.10 crore,
undertaken by those other than 1.1.6 above.
1.3.3 (i) Credit for purchase and distribution of fertilizers,
pesticides, seeds, etc.

(ii) Loans up to Rs.40 lakh granted for purchase and
distribution of inputs for the allied activities such as cattle feed,
poultry feed, etc.
1.3.4 Finance for setting up of Agriclinics and Agribusiness
Centres.
1.3.5 Finance by scheduled UCBs to NBFCs for hire-purchase
schemes for distribution of agricultural machinery and
implements.
1.3.6 Existing investments as on March 31, 2007, made by banks in
special bonds issued by NABARD with the objective of
financing exclusively agriculture / allied activities may be
classified as indirect finance to agriculture till the date of
maturity of such bonds or March 31, 2010, whichever is
earlier. Fresh investments in such special bonds made
subsequent to March 31, 2007 will, however, not be eligible for
such classification.
1.3.7 Loans for construction and running of storage facilities
(warehouse, market yards, godowns, and silos), including cold
storage units designed to store agriculture produce /

products, irrespective of their location.
If the storage unit is registered as SSI unit / micro or small
enterprise, the loans granted to such units may be classified under
advances to Small Enterprises sector.
1.3.8 Advances to Custom Service Units managed by individuals,
institutions or organisations who maintain a fleet of tractors,
bulldozers, well-boring equipment, threshers, combines, etc., and
undertake work for farmers on contract basis.
1.3.9 Finance extended to dealers in drip irrigation / sprinkler
irrigation system / agricultural machinery, irrespective of their
location, subject to the following conditions :
(a) The dealer should be dealing exclusively in such items or if
dealing in other products, should be maintaining separate and
distinct records in respect of such items.
(b) A ceiling of up to Rs.30 lakh per dealer should be
observed.
1.3.10 Loans already disbursed and outstanding as on the date of this
circular to State Electricity Boards (SEBs) and power
distribution corporations / companies, emerging out of
bifurcation / restructuring of SEBs, for reimbursing the
expenditure already incurred by them for providing low
tension connection from step-down point to individual
farmers for energising their wells and for Systems
Improvement Scheme under Special Project Agriculture (SI-
SPA), are eligible for classification as indirect finance till the
dates of their maturity / repayment or March 31, 2010,
whichever is earlier. Fresh advances will, however, not be
eligible for classification as indirect finance to agriculture.
1.3.11 Loans to National Co-operative Development Corporation
(NCDC) for onlending to the co-operative sector for purposes
coming under the priority sector will be treated as indirect
finance to agriculture till March 31, 2010.
1.3.12 Loans granted by scheduled UCBs to Non-Banking Financial
Companies (NBFCs) for on-lending to individual farmers.
1.3.13 Loans granted to NGOs / MFIs provided they have been
admitted as members for on-lending to individual farmers.

2. Small Enterprises

2.1

2.1.1
DIRECT FINANCE IN SMALL SECTOR ENTERPRISES WILL
CREDIT TO:
Manufaturing Enterprises:
building and the items specified by the Ministry of Small
Scale Industries vide its notification no. S.O. 1722 (E) dated
October 5, 2006] does not exceed Rs.5 crore.
(b) Micro (manufacturing) Enterprises
Enterprises engaged in the manufacture / production,
processing or preservation of goods and whose investment in
plant and machinery [original cost excluding land and building
and such items as in 2.1.1 (a)] does not exceed Rs.25 lakh,
irrespective of the location of the unit.
2.1.2 Service Enterprises
(a) Small (service) Enterprises
Enterprises engaged in providing / rendering of services and
whose investment in equipment (original cost excluding land and
building and furniture, fittings and other items not directly
related to the service rendered or as may be notified under the
MSMED Act, 2006) does not exceed Rs.2 crore.
(b) Micro (service) Enterprises
Enterprises engaged in providing / rendering of services and
whose investment in equipment [original cost excluding land and
building and furniture, fittings and such items as in 2.1.2 (a)] does
not exceed Rs.10 lakh.
(c) The small and micro (service) enterprises shall include
small road & water transport operators, small business,
professional & self-employed persons, and all other service
enterprises. Loans granted in respect of the following
activities are also included under Micro and Small (Service)
Enterprises within the priority sector subject to the
enterprises satisfying the definition of Micro and Small
(Service) Enterprises in respect of their investment in
equipment (original cost excluding land and building and
furniture, fitting and other items not directly related to the
service rendered or as may be notified under the MSMED Act
2006 i.e., not exceeding Rs 10 lakh and Rs 2 cr
respectively) :
(i) Consultancy Services including Management Services
(ii) Composite Broker Services in Risk and Insurance
Management
(iii) Third Party Administration (TPA) services for Medical
Insurance Claims of Policy holders
(iv) Seed Grading Services
(v) Training cum Incubator centre
(vi) Educational Institutions
(vii) Training Institutes
(viii) Retail Trade
(ix) Practice of Law i.e., legal services
(x) Trading in medical instruments (brand new)

(xi) Placement and Management Consultancy Services and
(xii) Advertising agency and Training Centres
Note : Loans granted for Retail Trade (i.e., advances
granted to retail traders dealing in essential commodities (fair
price shops), consumer cooperative stores; and
advances granted to private retail traders with credit limits not
exceeding Rs 20 lakh would be part of the Small (Service)
Enterprise.
2.1.3 Khadi and Village Industries Sector (KVI)
All advances granted to units in the KVI sector, irrespective of
their size of operations, location and amount of original
investment in plant and machinery. Such advances will be
eligible for consideration under the sub-target (60 per cent) of
the small enterprises segment within the priority sector.

Indirect Finance
2.2 Indirect finance to the small (manufacturing as well as service)
enterprises sector will include credit to :
2.2.1 Persons involved in assisting the decentralized sector in the
supply of inputs to and marketing of outputs of artisans, village and
cottage industries.
2.2.3 Loans granted by scheduled UCBs to NBFCs for on-lending to
small and micro enterprises (manufacturing as well as service

3. Micro Credit

3.1 Loans of amounts not exceeding Rs.50,000 per borrower or the maximum
permissible limit on unsecured advance whichever is lower.
3.2 Loans to poor indebted to informal sector Loans to distressed persons (other
than farmers) to prepay their debt to non institutional lenders, against appropriate
collateral , would be eligible for classification under priority sector.

4. State Sponsored Organizations for Scheduled Castes / Scheduled
Tribes

Advances sanctioned to State Sponsored Organisations for Scheduled Castes / Scheduled
Tribes for the specific purpose of purchase and supply of inputs to and / or the marketing
of the outputs of the beneficiaries of these organisations.

5. Education

5.1 Educational loans granted to individuals for educational purposes up to Rs.10 lakh
for studies in India and Rs.20 lakh for studies abroad. Loans granted to institutions will not
be eligible to be classified as priority sector advances.
5.2 Loans granted by scheduled UCBs to NBFCs for on-lending to individuals for
educational purposes up to Rs. 10 lakh for studies in India and Rs.20 lakh for studies
abroad

6. Housing

6.1 Loans up to Rs.20 lakh (Rs.25 lakh for housing loans sanctioned on or
after April 1, 2011), irrespective of location, to individuals for purchase /
construction of a dwelling unit per family, excluding loans granted by banks
to their own employees.
6.2 Loans given for repairs to the damaged dwelling units of families up to
Rs.1 lakh in rural and semi-urban areas and up to Rs.2 lakh in urban and
metropolitan areas.
6.3 Assistance given to any governmental agency for construction of
dwelling units or for slum clearance and rehabilitation of slum dwellers,
subject to a ceiling of Rs.5 lakh of loan amount per dwelling unit.
6.4 Assistance given to a non-governmental agency approved by the NHB
for the purpose of refinance for construction / reconstruction of dwelling
units or for slum clearance and rehabilitation of slum dwellers,
subject to a ceiling of loan component of Rs.5 lakh per dwelling unit.
6.5 Investments made by UCBs in bonds issued by NHB / HUDCO on or after
April 1, 2007 shall not be eligible for classification under priority sector
lending.

7. Loans to Self Help Groups (SHG) / Joint Liability Groups (JLGs):

Loans to SHGs / JLGs for agricultural and allied activities would be considered as
priority sector advance. Further, other loans to SHGs / JLGs up to Rs. 50,000 would
be considered as Micro Credit and hence
treated as priority sector advances.

8. Weaker Sections

The weaker sections under priority sector shall include the following:
(a) Small and marginal farmers with land holding of 5 acres and less, and
landless labourers, tenant farmers and share croppers;
(b) Artisans, village and cottage industries where individual credit limits do
not exceed Rs.50, 000;

(c) Scheduled Castes , Scheduled Tribes and Women
(d) Loans to distressed poor to prepay their debt to informal sector, against
appropriate collateral
(e) Education loans to persons having monthly income not exceeding
Rs.5000/-
(f) Persons from minority communities as may be notified by
Government of India from time to time. In States, where one of the
minority communities notified is, in fact, in majority, item (f) will cover only
other notified minorities. These States / Union Territories are Jammu &
Kashmir, Punjab, Sikkim, Mizoram, Nagaland and Lakshadweep.
(g) Lending to SHGs, which qualify as loans to priority sector, would also
be treated as part of lending to weaker sections.

Note : Although no specific target for lending to agriculture both direct and indirect has been
prescribed for UCBs, the classification mentioned herein should be used for monitoring the credit
flow and reporting purposes

PROJECT SPECIFIC ANALYSIS
CASE STUDY- 1
NOTE FOR DEPUTY ZONAL HEAD II FOR SANCTION OF FRESH PROPOSAL
Date: 21.05.2012
Reg: FRESH ADVANCE TO M/S ABC Poultries (Layers)

Borrower M/s ABC Poultries
Branch Naraingarh
Constitution Proprietorship Firm
Date of Incorporation New Unit
Sector Priority Sector-Agriculture
Target Classification Agriculture: Poultry
Activity Layer Farming; Proposed Capacity: 30,000 layers
Location Village:Kurali,Teh:Bilaspur,Distt:Yamunanagar
Controlling Office Village:Kurali,Teh:Bilaspur,Distt:Yamunanagar
Name of the Proprietor Sh.H Lal

DEFAULT DETAILS
NO YES WITH DETAILS
Does the company/ firms name appear in RBI Defaulter
list?
No
Does the name of group company/ firm appear in RBI
Defaulter list?
NO
Does the name of any director of the company/ firm
appear in RBI Defaulter list / ECCG Specific approval
list?
No
Does the bank have any unsatisfactory dealing with any
account connected with the company/ firm or its directors?
No

Dealing with Bank Since New Customer
Asset Classification NA
NBC Clearance Yes ,ZNBC clearance obtained vide CZO/CAD/ZNBC/35/02 dated
25.02.2012

Existing Financial Arrangement None
Limits Requested:
Term loan: Rs. 70.00 lacs
Working Capital CC limit: RS. 25.00 lacs
Limit considered for finance:
Brief History:-

M/s ABC Poultries is a proprietorship firm, proposes to set up a poultry farm with a capacity of 30000 birds in
Village-Kurali, The-Bilaspur, Distt-Yamunanagar .The proprietor of the firm is Mr.Hira Lal S/o Sh. Balak
Ram.The proprietor plans to construct the farm premises on a part of land owned by his mother. The total cost of
project as per the project report is Rs.127.84 lacs.The proprietor will be contributing his own capital of Rs.32.84
lacs. For the rest of the requirement , the prop. has approached our bank for a Term loan requirement of Rs.70.00
lacs and working capital requirement of 25.00 lacs. The proprietor has got training of 7 days from Central
Poultry Development Organisation, Chandigarh.

Security :-

a) Primary Security:
Hypothecation of shed, animals, feed, fodder, dairy products machinery and all such tools used,stored and to be
stored at the dairy farm.

b) Collateral Security:
Description of the Property Owner Valuation/Legal opinion
1. Regd. Mortgage of Agricultural land
measuring 12 Kanals-3 Marlas detailed as
under :-
a.) Land measuring 1K-3M, comprised in
khewat 83, khtauni 97, Khasra No.10//15/1
measuring 3 Kanal to the extent of 23/60
share,
b.) Land measuring 2K-16 M comprised in
khewat 168 min khtauni 197 Khasra No.
11/1/2(6-0) to the extent of 56/120 share,
c.) Land measuring 0K-7M, comprised in
khewat 191 khtauni 147, khasra no.
10//5/2(4-16), 16/1(4-19) kita 2 measuring
9K-15M to the extent of 76/195 share,
d.) Land measuring 3K-11M, comprised in
khewat no.237 khtauni 289 Khasra
No.10//6(7-8), 15/4(2-0), 11//1/1 (2-0) Kita
3 measuring 11K-08M to the extent of
71/228 share,
e.) Land measuring 0K-10M, comprised in
Smt.S Devi w/o Sh.B
Ram R/o Rasidpur,
Tehsil-Naraingarh,
Distt.Ambala.
1.Valuation: Distress value
is Rs.41.00 lacs as per the
valuation report of M/s Ace
Architects dated 30.03.2012

2.Legal opinion:
Legal opinion Submitted by
Advocate Ashok Kumar
Saini dated 17.04.2012

khewat no. 285, khtaino no. 347, Khasra
no. 10//15/2 measuring 1K-09M to the
extent of 10/29 share.
Situated at Vill.Kurali, H.B No.284,
Tehsil-Bilaspur, Distt.Yamuna Nagar as
per Jamabandi for the year 2007-08 &
mutation No.680,690.

2. Equitable mortgage of Building/Land
measuring 5 Kanal-14Marla comprised in
Khewat 118 min Khtauni 177, Khasra
no.16//6/1 as per Khud Kasgt Hissedar
situated at village Majra HB No.
60,Tehsil-Naraingarh, Distt.Ambala, as
per Jamabandi for the year 2009-10.
Sh.B Ram S/o Sh.Tula
Ram ( share),
Sh.Subhash Chand,
Ramesh Pal,Satish
Kumar,Heera Lal,
Sukhdev , Ss/o Sh.
Balak Ram S/o Sh.Tula
Ram share R/o
Vill.Rasidpur,Tehsil-
Naraingarh,Distt-
Ambala
valuation report of M/s Ace
Architects dated 30.03.2012

2.Legal opinion:
Advocate Ashok Kumar
Saini dated 17.04.2012

Stipulations:

1. Branch must satisfy itself that during the intervening period there has been no charge or
attachments on the property created.
2. After creation of charge through registered mortgage over the properties, the same to be got
recorded in revenue record and certified copy of the mutation after entering charge should be kept
with the documents.
3. Branch to obtain all documents as mentioned in the legal opinion.
4. Before disbursement, Branch to confirm that there are no other encumbrances on the applicants
TOTAL land for any advance for the same purpose and obtain an undertaking from the borrower
regarding the same.
5. Branch to get equitable mortgage registered as per Haryana Registration act with the revenue
authorities.
6. Branch to fully ascertain the value of the land and that it covers the advance adequately; ownership
and encumbrances of the said land/property. Procedure regarding acceptance of properties for the
purpose of creation of charge by way of mortgage as outlined in Bank's manual of Instructions Vol.

No.7, page No. 18 (Agr. & Priority Sector) to be strictly followed.
7. Branch to create charge on the property as per instructions contained in Manual of Instruction, Vol.
6, Chapter 12, strictly.
8. Branch to obtain certificate from Advocate regarding genuineness of the title deed of the property.
9. Branch Manager to verify the valuation, marketability and ownership of property offered as
collateral security and report to be kept with documents. EMTD to be created as per HO guidelines.
10. Branch to obtain comparison report from the Branch Manager of Jatwar Branch, who will compare
the original title deed of the property with the certified copy of the title deed, to be obtained from
Sub-registrar office, as per Head Office extant guidelines.
11. Branch to ensure that title deeds obtained for registered mortgage in respect of the captioned
properties are not laminated and coloured photocopies.
12. Under Central Registry Rules it is mandatory for the branches to file information in relation to
mortgage by deposit of title deeds with the Central Registry through Mrs Shashi Garg , Nodal
Officer, Zonal Office Chandigarh. The time limit for registration with Central Registry is within 30
days from the date of creation of mortgage( The provision is applicable for the mortgage created on
or after 31.03.2011. Branch to ensure to obtain a revised valuation report of the above property
wherein longitude and latitude of the property must be incorporated as poer Zonal Office circular
No. CZO/CR-MON/2011-12/125 dated 10.05.2011.

Guarantee :
Name of the Guarantor Net Worth(As per the Net Means statement duly verified
by the branch)(Rs. In Lacs)
i) Hira Lal 47.10
ii) Ramesh Pal 40.75
iii) Satish 39.50
iv) Sukhdev 40.70
v) Subhash 40.30
vi) Balak Ram 86.00
vii) Shakuntala Devi 40.75
*CIBIL report of proprietor as well as all the guarantors was obtained and all reports were found
satisfactory. Branch to recover the CIBIL charges from the party.

PROJECT COST ASSESMENT:

A.) Land Already Owned
(Rs. In Lacs)
B.)

Building

Area(Sq.
Ft)
Rate/ Sq
Ft.
Total
Requirement Margin(40%)
Eligible Bank
Finance
b1.) Layer Shed
27000
120 32.4 12.96 19.44

(30000
layers@
0.90 sq ft
/layer)
b2.)
Chick Cum Grower
Shed
6000 120 7.2 2.88 4.32
(10000
birds
@0.60 sq
ft/ bird)
b3.) Feed Mill 1400 250 3.5 1.4 2.1
b4.) Egg Store 300 250 0.75 0.3 0.45
b5.) Office 300 450 1.35 0.54 0.81
b6.) Labour Quarters 1200 200 2.4 0.96 1.44
b7.) Water Tank for tubewell 4 1.6 2.4
b8.) Boundary Fencing,Land Leveling 3 1.2 1.8

C.) Machinery cum Equipments
Margin(25%
)
c1.) Layer Cage and other items 22.5 5.625 16.875
c2.) (30000 cages @ Rs.75/ cage)

Chick Cage(10000 cages@ Rs
60.00/ cage)
6 1.5 4.5

D.) Misc. Assets
Margin(25%
)
d1.) Furnitures & Fixtures etc. 0.85 0.2125 0.6375
d2.) D.G.Set 1 0.25 0.75
d3.) Feed Mill Machine 2.5 0.625 1.875
d4.) Weighing Scale 0.5 0.125 0.375

Total 87.95 30.18 57.77 57.00

Term Loan Assesment:

The firm plans to start the unit with purchase of layers instead of chicks to start functioning at the earliest. From
the next year onwards chicks will be purchased. Thus, this cost of purchase of layers is a one time cost but the
party has included it in its working capital requirement which does not seems plausible as it is a one time . Hence,
it has been considered as Term Loan requirement. Thus the Term Loan Requirement of the firm comes out to be
as under: - (Rs. In Lacs)
Particular Cost Borrowers Margin Eligible Bank Finance
Term Loan Requirement 87.95 30.18 57.00
Cost of Layers to be
Bought(30000*40)
12.00 2.40 (25%) 11.60
Total Term Loan
Requirement
99.95 32.58 68.60 68.00

Term Loan Requested for finance Rs.70.00 lacs

Term Loan Considered for finance Rs.68.00 lacs

WORKING CAPITAL ASSESSMENT:
PARTICULARS Amt in Rs. lac
i) Cost of 2 batches of chicks of 10000 birds @ Rs. 25/- 5.00
ii) Cost of Feed for 1.5 months
(Annual cost of feed = 105.34 lacs)

13.16
iii) Cost of medicine, Vaccination for 1.5 months 2.50
Total 21.66
Less:Borrower's own contribution (Margin: 20.00%) 4.33
Cash Credit Limit From Bank 17.3317.00

Balance Sheet: (Rs. I n Lacs)
PARTICULARS 13-Mar 14-Mar 15-Mar 16-Mar
(a) LIABILITIES
CAPITAL ACCOUNT
Opening Balance 31.53 44.36 53.33
Additions 32.84 - - -
Add Net Profit 0.37 14.50 10.77 18.89
Sub-total 33.21 46.04 55.13 72.23
Less Drawings 1.68 1.68 1.80 1.80

Net Capital 31.53 44.36 53.33 70.43
SECURED LOANS
Bank Term Loan 70.48 62.95 54.39 44.64
Bank CC Limit 25.00 25.00 25.00 25.00
Unsecured Loans (from
friends & relatives) - - - -
Sundry Creditors & other
provisions 2.72 4.19 4.39 4.54
TOTAL LI ABI LI TI ES 129.74 136.51 137.12 144.62
(b) ASSETS
Fixed Assets
Gross Block - 81.65 72.22 63.91
Additions 92.38 - - -
Less Depreciation 10.73 9.43 8.30 7.31
Net Block 81.65 72.22 63.91 56.60
Current Assets
Stock of Birds 14.50 14.50 14.50 14.50
Feed and other Material &
Medicines 15.77 16.81 17.64 18.23
Debtors 4.68 7.07 7.07 7.55
Funds For Expansion - 20.00 30.00 40.00
Cash & Bank Balance 9.16 5.63 3.81 7.63
Total Current assets 44.11 64.01 73.02 87.91
Miscellaneous Expenses
Purchase cost of Layers
deferred 3.60 - - -
Preliminary Expenses 0.36 0.27 0.18 0.09

TOTAL ASSETS 129.74 136.51 137.12 144.62

SALIENT FINANCIAL INDICATORS:

Particulars 2012-13 2013-14 2014-15 2015-16
a) Paid-up Capital 31.53 44.36 53.33 70.43
b) Net Worth 31.53 44.36 53.33 70.43
c) Tangible Net Worth 31.53 44.36 53.33 70.43
d) Long Term Secured Loans 70.48 62.95 54.39 44.64
e) Long Term unsecured Loans 0.00 0.00 0.00 0.00
f) Net Fixed Assets 81.66 72.22 63.92 56.60
h) Non currents assets 3.96 0.27 0.18 0.09
i) Inventories 30.27 31.31 32.14 32.73
j) Receivables 4.68 7.07 7.07 7.55
k) Other Current Assets 9.16 25.63 33.81 47.63
l) Total Current Assets 44.11 64.01 73.02 87.91
m) Current Liabilities 2.72 4.19 4.39 4.54
n) Bank Borrowings 25.00 25.00 25.00 25.00
o) Net Working Capital 16.39 34.82 43.63 58.37
p) Current Ratio (with T/L instl.due within 1
yr. as CL) 1.33 1.60 1.82 2.18
q) Current Ratio (without T/L
instl.due within 1 yr. as CL) 1.59 2.19 2.48 1.59
r) Debt-Equity Ratio
Considering all outside Liab. 3.11 2.08 1.57 1.05
- Considering Term Liab. Only 2.24 1.42 1.02 0.63

TURNOVER: The unit has proposed sales of Rs. 171.07 lacs in the first year of production. As the firm will
establish itself in the first year and will operate at its beginning capacity , low turnover is expected. The turnover
is further projected to increase from second year onwards as the firm begins operating at its near optimum
capacity with 30,000 layers. The turnover is projected at Rs.258.21lacs in the FY 2013-14 and FY 2014-15. The
sales are further increasing to Rs 275.76 lacs in the FY 2015-16 and are remaining at almost same level in further
years as the capacity of the firm remains at same level without much expansion.

PROFITABILITY :

1. In the first year of operation the gross profit of the firm comes out to be Rs.18.13 lacs, however , due to low
operating efficiency in the first year and interest cost ,the firm is showing a profit of merely Rs. 0.39 lacs
s) Gross Sales 171.07 258.21 258.21 275.76
t) Net Sales Domestic 171.07 258.21 258.21 275.76
u) Operating Profit / (Loss) 0.59 18.87 13.57 25.21
w) Profit before interest, tax and depreciation
(PBDIT) 18.13 39.77 32.27 41.70
x) Depreciation 10.73 9.43 8.30 7.31
y) Interest 7.01 11.72 10.68 9.50
z) Tax 0.00 4.10 2.50 5.99
aa) Profit after tax (PAT) 0.39 14.52 10.79 18.90
bb) Cash accruals 11.12 23.95 19.09 18.00
cc) Increase in Net Sales (%) -- 50.94% 0.00% 6.80%
dd) % of Gross Profit to Net Sales 11.41% 16.56% 13.94% 16.83%
ee) PAT to Net Sales (%) 0.23% 5.62% 4.18% 6.85%
ff) Interest as % to Net Sales 4.10% 4.54% 4.14% 3.45%
gg) Return on Capital Employed (%) 5.83% 19.83% 16.18% 20.28%
hh) Interest Cover (Time) 2.59 3.39 3.02 4.39
ii) Fixed assets to Secured Term Liabilities 1.16 1.15 1.18 1.27

however the cash accruals of Rs.11.00 lacs of the firm are sufficient to meet the installment of Term Loan of
Rs. 5.00 lacs.As the firm starts operating at near optimum capacity from second year onwards the profitability
of the firm is improving with net profit at Rs.14.52 lacs in the FY 2013-14 and Rs.10.79 lacs in the third year.
This slight decrease in Net profit is due to increased feed consumption in the third year,however, after that the
Net profit is is showing an increasing trend mainly due to increase in sales and reduction in interest expense
of the Term Loan.PAT/Net Sales of the firm in the FY12, FY13 and FY14 is 0.23%, 5.62% and 4.18% resp.
and showing an increasing trend in the further years .So, the firm is profitable in its operations in years to
come.
2. Average DSCR is 1.69 and it shows that the project has the ability to repay the term loan installments.
3. Return on capital employed is ranging from 5.83 %( for 1
st
year) to 20.28% in the fourth year which may be
taken as satisfactory.

LIQUIDITY : Current Ratio in the first & second year is 1.59 & 2.19 resp. which is within acceptable norms.
After considering term loan installments as current liability current ratio in first year comes out to be 1.33 and
1.60 in the second year. The current ratio is well above banks benchmark of 1.33.Current ratio is showing an
improving trend every year. Hence,liquidity position of the firm is good.

Solvency :-

Debt equity ratio of the firm is 3.11 in the first year and 2.08 in the second year which is well within banks
benchmark of 3.50.Debt equity ratio considering term liabilities only is 2.24 and 1.42 in the first and second year
respectively which is also under acceptable norms.Debt equity ratio is further improving every year with
repayment of term loan installment

Net Worth:-

The Net worth of the firm is improving every year with retention of profit in the firm as well as increasing
operational efficiency of the firm.Net worth in the FY 2012-13 is Rs. 31.53 lacs and Rs.44.36 lacs the FY2013-
14. Net worth is showing an increasing trend in the coming years also.

CALCULATION OF DSCR:
2013 2014 2015 2016
SERVICE

PAT 0.39 14.52 10.79 18.90
DEP 10.73 9.43 8.30 7.31
INTEREST TL 5.51 8.72 7.68 6.5
TOTAL 16.63 32.67 26.77 32.71
DEBT
INSTALLMENT TL 5.1 10.2 10.2 10.2
INTEREST TL 5.51 8.72 7.68 6.5
TOTAL 10.61 18.92 17.88 16.7

DSCR 1.57 1.73 1.50 1.96
Average 1.69

Average DSCR comes out to be 1.69 which shows that the firm has the capacity to service its debt
obligations easily.
REPAYMENT
Term loan: To be repaid in 84 months including 6months of moratorium
period,starting from June 2012. Interest to serviced during
moratorium.
Working Capital: On demand
Rate of Interest Base Rate+2.00& i.e 12.50%
Processing charges As per extant guidelines

RECOMMENDATION

1. The proposal falls under Priority Sector (Direct Agriculture) routed through our Naraingarh Branch.The
proprietor wants to lay the required equipment /machinery for 30000 commercial birds(Poultry Farm). To
fund the proposed cost of project, the firm has decided to approach bank for financial assistance in shape of
Term Loan Rs. 70.00 Lac for proposed building, equipment/machinery & brooding of birds besides working
capital facilities Rs.25.00 lacs against hypothecation of stocks & debtors. However, as per the appraisal the
requirement of the Term loan has been assessed at Rs.68.00 lacs and for the working capital at Rs.17.00 lacs .

2. The unit will be run by the proprietor himself with all the necessities like water, electricity and veterinary
facilities being readily available. There is huge demand for eggs is in Delhi, NCR area. Hence, the
marketability of the eggs is quite satisfactory.

3. The advance will be primarily secured by Regd. Mortgage of Agricultural land measuring 12 Kanals-3
Marlas standing in the name of the mother of proprietor Sh.Hira Lal S/o Sh. Balak Ram. The property is
valued at Rs.41.0 lacs as per the valuation report of M/s Ace Architects dated 30.03.2012 and also Equitable
mortgage of Building/Land measuring 5 Kanal-14Marla valued at Rs.167.16 lacs as per the valuation report
of M/s Ace Architects dated 30.03.2012.

4. Proposed net profit is increasing throughout and term loan instalments can be repaid easily, Current and Debt
Equity Ratio are satisfactory. Net Profit/Net sales are increasing throughout. Interest coverage Ratio is by and
large satisfactory. .

5. Term loan of Rs.68.00 lacs will be repayable in 84 equal monthly installments of Principal along with interest
accrued thereon including 6 months of moratorium period starting from June 2012. Term Loan is to be
disbursed by way of Manager Cheque/Draft favouring the supplier keeping a proportionate margin of at every
state of disbursement.

6. Cash Credit Limit of Rs.17.00 lacs to be allowed only after completion of construction activities and ensuring
that the unit is ready.

In view of above and branch recommendation vide their ST-46 dated 21.04.2012 following limits may be
considered for financing.

Facility Limit Requested
(Rs. in lacs)
Limit considered
for finance
(Rs. in lacs)
Term Loan 70.00

68.00
W.C. Limit 25.00 17.00
TOTAL 95.00 85.00

NOTE FOR DEPUTY ZONAL HEAD II FOR SANCTION OF FRESH PROPOSAL
Date: 04.06.2012
Reg: FRESH ADVANCE TO M/S A Poultries (Broiler)

Name Of Borrower M/S A Poultry (Broiler)
Branch Ismailabad
Constitution Proprietorship Firm
Date of Incorporation New Unit
Sector Priority Sector-Agriculture
Target Classification Agriculture: Poultry
Activity Broiler Farming; Proposed Capacity: 15000 birds
Location Vill-D.majra, Distt-Kurukshetra, Haryana
Controlling Office Vill-D.majra, Distt-Kurukshetra, Haryana
Name of the Proprietor Sh.B Singh S/o Sh.Harnam Singh

DEFAULT DETAILS
NO YES WITH DETAILS
Does the company/ firms name appear in RBI Defaulter
list?
No
Does the name of group company/ firm appear in RBI
Defaulter list?
NO
Does the name of any director of the company/ firm
appear in RBI Defaulter list / ECCG Specific approval
list?
No
Does the bank have any unsatisfactory dealing with any
account connected with the company/ firm or its directors?
No

Dealing with bank since New Customer
Asset Classification NA
NBC Clearance Yes ,ZNBC clearance obtained vide CZO/CAD/ZNBC/09/05 dated
05.05.2012
Existing Financial Arrangement None

Limits Requested:
Working Capital CC limit: RS. 10.00
lacs
Limit considered for finance:
Brief History:-

M/S A Poultry Farm is a Proprietary concern established in Year 2010.The firm is currently operating with a
small no. of 4000 birds.The proprietor now proposes to expand his business and plans to set up Poultry Farm of
15000 commercial Layers birds capacity. The firm has been promoted by Mr. Baldev Singh S/O Sh Harnam
Singh to execute the proposed farm. Proprietor owned a land measuring 10 Kanals 7 marla at village-Duniya
Majra,Distt-Kurukshetra on which the proposed Poultry unit is to be set up.The land is stated to be ideally suitable
for commercial layers poultry farm. The Proprietor proposes to construct the farm at an elevated and well
ventilated sheds and to lay the required equipment /machinery for 15000 commercial birds The applicant can
utilize the land as per requirement of poultry farming out of the total land holding situated at the village. Hence
proposed firm has adequate space for the proposed activity like poultry shed ,feed godown ,labour quarters, Gen
set room and office block. To fund the proposed cost of project, the firm has decided to approach bank for
financial assistance in shape of Term Loan Rs. 17.00 Lac for proposed building ,equipment/machinery &
brooding of birds besides working capital facilities Rs.10.00 lacs against hypothecation of stocks & debtors. The
firm will start construction in the beginning FY 2012-13 and will begin operating later after the site
construction.The firm will operate at its beginning capacity in first year and will start operating at its optimum
capacity in the later years.

Security :-

a) Primary Security:
Hypothecation of stock of birds, feed, medicines, chemicals and eggs etc shed, machinery and all such tools used,
stored and to be stored at the Pooultry farm and Charge on all assets created out of banks finance like poultry
shed/house, poultry cages, fixture, fitting and pipes generator set, pump set motors, water tank, containers, chicks,
layers and gunny bags etc.

b) Collateral Security:
Description of the Property Owner Valuation/Legal opinion
Regd. Mortgage of Agriculture land measuring
10K-7M detailed as below:

a) Land measuring 5K-6M being 64/291 share
out of land measuring 24K-5M comprised in
Khewat No. 12/12, Khatoni No18, Rect
Sh B Singh S/O Sh
Harnam Singh r/o Vill.
Dunia Majra, Tehsil-
Pehowa & Distt-
Kurukshetra
valuation report of M/s
Modern Designs dated
08.11.2011

No.30, Khasra No25(8-0), Rect No.34,
Khasra No.10(7-7), Rect No. 35, Khasra No.
4/2(0-18), 5(8-0), Kittas-4
b) Land measuring 2K-13M being 80/651 share
out of land measuring 21K-14M comprised
in Khewat No.175/173,Khatoni No.264,Rect
No.31, Khasra No.21(8-0), 22(8-0), 23/2(5-
14), Kittas-3
c) Land measuring 1K-7M being 27/242 share
out of land measuring 12K-2M comprised
in Khewat No.176/174 , Khatoni No.265,
Rect No.31, Khsra No.17(1-12), 18 (8-0),
23/1 (2-10), Kittas-3
d) Land measuring IK-IM being 1/9 share out
of land measuring 9K-12M comprised in
Khewat No.177/175, Khatoni No.266, Rect
No.31, Khasra No. 19(8-0),20/1(1-12),
Kittas-2

2.Legal opinion:
Advocate Lovkesh Machhal
vide his report datd
27.04.2012

Stipulations:

13. The map for the construction is to be duly attested/verified by the panchayat and the same is to be
kept in record and branch to ensure the construction of the poposed unit strictly as per the map
provided by the party.
14. Branch must satisfy itself that during the intervening period there has been no charge or
attachments on the property created.
15. After creation of charge through registered mortgage over the properties, the same to be got
recorded in revenue record and certified copy of the mutation after entering charge should be kept
with the documents.
16. Branch to obtain all documents as mentioned in the legal opinion.
17. Before disbursement, Branch to confirm that there are no other encumbrances on the applicants
TOTAL land for any advance for the same purpose and obtain an undertaking from the borrower
regarding the same.
18. Branch to get equitable mortgage registered as per Haryana Registration act with the revenue
authorities.
19. Branch to fully ascertain the value of the land and that it covers the advance adequately; ownership
and encumbrances of the said land/property. Procedure regarding acceptance of properties for the
purpose of creation of charge by way of mortgage as outlined in Bank's manual of Instructions Vol.
No.7, page No. 18 (Agr. & Priority Sector) to be strictly followed.
20. Branch to create charge on the property as per instructions contained in Manual of Instruction, Vol.
6, Chapter 12, strictly.
21. Branch to obtain certificate from Advocate regarding genuineness of the title deed of the property.
22. Branch Manager to verify the valuation, marketability and ownership of property offered as
collateral security and report to be kept with documents. EMTD to be created as per HO guidelines.
23. Branch to obtain comparison report from the Branch Manager of Jatwar Branch, who will compare
the original title deed of the property with the certified copy of the title deed, to be obtained from

A.) TERM LOAN REQUIREMENT - for 15000 layers
Amount (Rs. in lac)
PARTICULAR MARGIN ELIGIBLE
BANK FINANCE
Cost of Land Self owned
Cost of Construction of Building 21.50 8.60 (40%) 12.90
Cost of Plant & Machinery 2.00 0.50(25%) 1.50
Total Requirement 23.50 9.50 14.40
Term Loan Requested from Bank 17.00
Term Loan considered for finance 14.40 14.00 Lacs

Sub-registrar office, as per Head Office extant guidelines.
24. Branch to ensure that title deeds obtained for registered mortgage in respect of the captioned
properties are not laminated and coloured photocopies.
25. Under Central Registry Rules it is mandatory for the branches to file information in relation to
mortgage by deposit of title deeds with the Central Registry Nodal Branch Ambala Cantt. The time
limit for registration with Central Registry is within 30 days from the date of creation of mortgage(
The provision is applicable for the mortgage created on or after 31.03.2011. Branch to ensure to
obtain a revised valuation report of the above property wherein longitude and latitude of the
property must be incorporated as poer Zonal Office circular No. CZO/CR-MON/2011-12/125 dated
10.05.201

Guarantee :
The advance will be guaranteed by the Proprietor and Guarantor as mentioned below:-
i) Sh. B Singh S/o Sh.Harnam Singh r/o Vill-D.majra, Distt-Kurukshetra, Haryana having estimated worth
of Rs.62.01 lac as per CR dated 09.01.2012.
ii) Sh. S Singh S/O Sh. Tajinder Singh r/o D.majra, Distt-Kurukshetra, Haryana having estimated worth of
Rs. 54.48 lac as per CR dated 09.01.2012
*CIBIL report of proprietor as well as all the guarantors is to be pulled by the branch and the
charges for the same are to be recovered from the party.

B.) Assessment of Working Capital Requirement :

Particulars Chicks Kg./Per Rate Amount(Rs. In
Lacs)
Purchase cost of one batch of chicks 15000 27.00 4.05
Feed cost of one batch of chicks for
growing period(45 days)
15000 4.00 16.00 9.60
Stock of Medicines 15000 3.00 0.45
Other Stock 0.20
Total Requirement 14.30
Less: Own Contribution(30.06%) 4.30
Cash Credit Limit Required from
Bank
10.00

PROJ ECTED BALANCE SHEET
( Rs. In Lacs)

PARTICULARS
12-13 13-14 14-15 15-16
(a) LIABILITIES
CAPITAL ACCOUNT

Partners Capital A/c
10.80 11.70 13.10 15.29
Add Profits 2.10 2.81 3.59 4.39

Sub-total
12.90 14.51 16.69 19.68
Less Drawings
1.20 1.40 1.40 1.60
TNW
11.70 13.10 15.29 18.08
SECURED LOANS

Bank Term Loan
16.23 14.53 12.59 10.39
Bank CC Limit
10.00 10.00 10.00 10.00
Unsecured Loans (from friends & relatives)
- - - -
Sundry Creditors & other provisions
0.20 0.40 0.58 0.77
TOTAL LI ABI LI TI ES
38.12 38.03 38.46 39.25

(b) ASSETS

Fixed Assets
23.50 21.15 19.04 17.13
Add:Additions
- - - -
Gross Block
23.50 21.15 19.04 17.13
Less:Depreciation
2.35 2.12 1.90 1.71
Net Block
21.15 19.04 17.13 15.42
Current Assets

Stock(Chicks,Medicine,feed)
14.30 15.02 15.77 16.55
Debtors
1.50 2.00 2.50 3.00
Cash & Bank Balance
1.17 1.98 3.07 4.27
Total Current assets
16.97 19 21.34 23.82
TOTAL ASSETS
38.12 38.03 38.47 39.24

SALIENT FINANCIAL INDICATORS :
(Rs. In Lacs)
31.03.13 31.03.14 31.03.15 31.03.16
a) Paid-up Capital 11.70 13.10 15.29 18.08
b) Net Worth 11.70 13.10 15.29 18.08
c) Tangible Net Worth 11.70 13.10 15.29 18.08
d) Long Term Secured Loans 16.23 14.53 12.59 10.39
e) Long Term unsecured Loans 0.00 0.00 0.00 0.00
f) Net Fixed Assets including 21.15 19.03 17.14 15.43
h) Non currents assets 0.00 0.00 0.00 0.00
i) Inventories 14.30 15.02 15.77 16.55
j) Receivables 1.50 2.00 2.50 3.00
k) Other Current Assets 1.17 1.98 3.07 4.27
l) Total Current Assets 16.97 19.00 21.34 23.82
m) Current Liabilities 0.20 0.40 0.58 0.77
n) Bank Borrowings 10.00 10.00 10.00 10.00
o) Net Working Capital 6.77 8.60 10.76 13.05
p) Current Ratio (with T/L instl.due within
1 yr. as CL) 1.47 1.46 1.61 1.78
q) Current Ratio (without T/L
instl.due within 1 yr. as CL) 1.66 1.83 2.02 1.59
r) Debt-Equity Ratio
Considering all outside Liab. 2.26 1.90 1.52 1.17
-Considering Term Liab. Only 1.39 1.11 0.82 0.57
s) Gross Sales 75.58 79.35 83.32 87.49
t) Net Sales Domestic 75.58 79.35 83.32 87.49

u) Operating Profit / (Loss) 2.10 2.90 3.76 4.67
v) Other income 0.00 0.00 0.00 0.00
w) Profit before interest, tax and
depreciation (PBDIT) 6.74 6.93 7.34 7.59
x) Depreciation 2.35 2.12 1.90 1.71
y) Interest 3.49 3.31 3.08 2.81
z) Tax 0.00 0.10 0.18 0.27
aa) Profit after tax (PAT) 0.90 1.40 2.18 2.80
bb) Cash accruals 3.25 3.52 4.08 18.00
cc) Increase in Net Sales (%) -- 4.99% 5.00% 5.00%
dd) % of Gross Profit to Net Sales 12.87% 12.87% 12.85% 12.87%
ee) PAT to Net Sales (%) 1.19% 1.76% 2.62% 3.20%
ff) Interest as % to Net Sales 4.62% 4.17% 3.70% 3.21%
gg) Return on Capital Employed (%) 11.57% 12.52% 13.89% 14.58%
hh) Interest Cover (Time) 1.93 2.09 2.38 2.70
ii) Fixed assets to Secured Term Liabilities 1.30 1.31 1.36 1.49

TURNOVER: The 1
st
year of operation is considered as FY 2011-12, although during this year the firm will
establish itself after constuction . During the 1
st
year of operation, the turnover has been estimated at Rs. 75.58
lacs as the firm operates at its initial capacity and it is projected increase to Rs 79.35 lacs in FY2013-14.Turnover
is further projected to increase to Rs.83.32 lacs in the FY 2014-15. However, in the remaining years sales is
almost constant because the number of eggs produced will remain by and large constant when the size of farm
remain the same.

PROFITABILITY:
1. Net Profit in the first FY 2012-13 comes to 0.90 Lacs and PAT/Sales comes to 1.19% . PAT in the next year
is projected to increase to 1.40 in the next year. PAT/Sales is projected at 1.76 % during 2013-14 with
increase in turnover as only variable expenditure will increase and firm will be operating at its beginning
capacity. However in following years as the firm starts operating at its near optimum capacity, Net profit as

well as PAT/Net Sales are projected to increase due to increase in turnover .However, Net profit and profit
margin are projected to remain almost same in the following years.
2. Return on capital employed(ROCE) in the first and second year is projected at 11.57 % and 2.52% resp.
ROCE is showing an increasing trend due to increased profitability of the firm in remaining years.
3. Fixed assets to secured term loan liabilities is 1.30 in the first year of operations and subsequently is showing
an increasing trend. This increases to large extent in the last year because of repayment of term loan. This
ratio is satisfactory.
4. Average DSCR is 1.38 which shows party can repay the loan installments easily and this ratio can be taken as
satisfactory.

LIQUIDITY : Current ratio is 1.66 as on 31.03.2013 and 1.83 as on 31.03.2014 which is well above banks
benchmark of 1.33. Even after considering TL installments as CL it comes to 1.47 as on 31.03.2013 and 1.46 as
on 31.03.2014 which is also within acceptable norms.
SOLVENCY : The debt equity ratio considering all outside liabilities of the firm is 2.26 in the first and 1.90 in
the second year which is within banks acceptable norms. Debt equity ratio considering term liabilities only is
1.39 in the first year and 1.11 in the second year. In the years to come also the ratio is declining and which can be
taken as satisfactory.

REPAYMENT: Repayment of term loan will be made in a period of 7 Years with moratorium period of 6
months and to be repaid in 84 monthly installments. Interest on term loan will be serviced as and when it became
due. Repayment of CC limit will be on demand.

PROJECTED DEBT SERVICE COVERAGE RATIO (Amt in lac)

DSCR
12-13 13-14 14-15 15-16 16-17 17-18
Services
Net profit after tax 0.90 1.40 2.18 2.80 3.57 4.34
Intt. on Term Loan 2.19 2.01 1.78 1.51 1.21 0.86
Depreciation 2.35 2.12 1.90 1.71 1.54 1.39
Total 5.44 5.53 5.86 6.02 6.32 6.59
Debt
Intt. on Term Loan 2.19 2.01 1.78 1.51 1.21 0.86
Installment of Term Loan 1.32 2.64 2.64 2.64 2.64 2.64
Total 3.51 4.65 4.42 4.15 3.85 3.50
DSCR 1.55 1.19 1.33 1.45 1.64 1.88
Average DSCR 1.50

Average DSCR comes out to be 1.50 which shows that the firm has the capacity to service its debt
obligations easily.

REPAYMENT
Term loan: To be repaid in 84 installments of principal starting from Dec
2012(Moratorium period of six months starting from June 2012).
Interest to serviced as and when accrued including moratorium
period and after starting of installment of principal.
Working Capital: On demand
Rate of Interest Interest shall be charged at Base Rate+2.00 (spread) & i.e
12.50%p.a,with monthly rests. Effective Rate of interest shall go on
changing with changes in Base Rate.(As per H.O Circular No.
CHO/RM/03/2012-13 dated 30.04.2012)
Processing charges As per extant guidelines

Branch to obtain an affidavit from the party explicitly mentioning the following points:-

1.) Only healthy broilers are to be bought for running the unit.
2.) Adequate fresh feed and plentiful disinfected water is to be ensured at all time.
3.) Overcrowding of birds in cages is to be avoided and adequate space is to be provided to the birds.
4.) All the birds are to vaccinated regularly.
5.) Veterinary facility should be handy and birds are to be checked regularly.
6.) Any dead/infected bird is to be removed immediately from the shed and is to be sent to laboratory
for examination or buried suitably away from the poultry sheds.
Also, branch to ensure that the birds and other assets are to be insured .

RECOMMENDATIONS:-

7. The proposal falls under Priority Sector (Direct Agriculture) routed through our Ismailabad Branch, which is
situated in an agricultural dominated area. The firm is currently operating with 4000 birds. The proprietor
now wants to expand his business and lay the required equipment /machinery for 15000 commercial
birds(Poultry Farm). To fund the proposed cost of project, the firm has decided to approach bank for financial
assistance in shape of Term Loan Rs. 17.00 Lac for proposed building, equipment/machinery & brooding of
birds besides working capital facilities Rs.10.00 lacs against hypothecation of stocks & debtors.
8. Registered mortgage of Agricultural land measuring 10K-7M.The said land stands in the name of Sh
Baldev Singh S/O Sh Harnam Singh r/o Vill. Dunia Majra, Tehsil-Pehowa & Distt-Kurukshetra as per legal
opinion of advocate Sh Lovkesh Machhal vide his report datd 13.01.2012. The market Value of the
property as per the valuation report of valuers The Modern Design dated 08.11.2011 is Rs.30.98 lacs
9. Proposed net profit is increasing throughout and term loan installments can be repaid easily, Current and Debt
Equity Ratio are satisfactory. Net Profit/Net sales are increasing throughout. Interest coverage Ratio is by and
large satisfactory. Turnover is kept stagnant after second year as there is no further plan to increase in size of
farm.
10. Term loan of Rs.17.00 lacs will be repayable in 78 equally monthly installments along with interest accrued
thereon commencing after the the moratorium period of six months . Term Loan is to be disbursed by way of
Manager Cheque/Draft favouring the supplier keeping a proportionate margin of at every state of
disbursement. The party will bring in the shortfalls that will occur because of less sanction of term loan out of
his own sources.
11. Cash Credit Limit of Rs.10.00 lacs to be allowed only after completion of construction activities and ensuring
that the unit is ready.

In view of above and branch recommendation vide their ST-46 dated 16.01.2012 following limits may be
considered for financing.

Facility Limit Requested
(Rs. in lacs)
Limit considered
for finance
(Rs. in lacs)
Term Loan 17.00

14.00
W.C. Limit 10.00 10.00
TOTAL 27.00 24.00

Recommendations:

1) Though the appraisal process is time consuming but as a growing organization the
Bank should focus on the speed of appraisal. I have found that it takes usually a longer
time than what it should take to sanction an application. I feel due to this the bank might
be losing valuable customers.

2) The applications of appraisals being forwarded by the respective branches to the
Zonal office should be more clearly processed at the branch level for a better rate of
appraisals per week.

3) Often due to the lack of clarity in the applications sent from branches the process of
appraisal takes a usually longer time. The process note sent by branches should be more
detailed and in a proper format.

Conclusion

The credit appraisal, process of appraising credit worthiness of borrowers, for corporate credit
has been devised in a very systematic manner at UCO Bank. As it is extremely important
for the lender bank to assess the risk associated from all the aspects, there are clear guidelines
laid down for the credit analyst or officer so as to how he should go ahead with the assessment.
The important phases of the process are as under:

1. Borrower Profile Analysis

2. Financial Statement Analysis

3. Analysis of Requested Credit Facility

4. Security Analysis

5. Control & Monitoring Analysis

Above stated phases include assessment of every aspect related to credit facility request
ranging from borrowers individual analysis to companys operating, financial and market
analysis. This process gives the credit officer inside out knowledge about the company, its
financial status, ability to sustain in market, ability to make timely repayment and credit risk
associated with the company. At the end of the process an officer can reach to the conclusion on
whether the requested facility is eligible for sanction or not. On the basis of conclusion the officer
can make wise decision so that the risk associated is minimal and bank can generate business
while the corporate can prosper by enjoying these facilities; thereby boosting the countrys
economic development.

Outcomes and Learning from SIP

Summer Internship Program is devised with a view of allowing the students to get the real feel
of corporate world by applying the concepts learnt into practical world. Internship at UCO Bank
on Credit Appraisal Process was a very informative and enriching experience.

The program has been vital medium for meeting the aforementioned objectives of the project.

The thorough understanding of all types of credit facilities i.e. Fund Based Cash
Credit, Term Loan and Working Capital Limits and Non-Fund Based Letter of
Credit and Bank Guarantee, was achieved. Detailed information on all types of
facilities and functions of these facilities has provided thorough knowledge on how
these facilities are availed and used by corporate, which are essential for their
prosperity in the nature of activity they carry out.
The process of credit appraisal is highly cumbersome and the officer is required to have
in depth knowledge of technical, financial and legal aspects related to banks and business
activities. The banks nowadays follow specific guidelines and lending policies while
assessing and sanctioning credit to any corporate entity. There have been examples of
world renowned banks indulging in troubles due to lack of specific loan policy in the
era of deregulation. One such example was of The Bank of America. During the
program the understanding on why the loan policy documents are needed and should be
strictly followed was achieved.
While working as an intern the thorough knowledge with technical knowhow of credit
appraisal process and intricacies involved in it, was gained. The practical
implementation on the fresh proposals was the best experience of the academic life as it
allowed to apply the concepts and knowledge, imparted by Educational Institute, to the
practical world along with interaction with corporate clients, which was very helpful to
understand operating and financial aspects of the business. The opportunity to enter into
credit analysts shoe was an enriching experience in terms of skills and knowledge
regarding the corporate lending sector of Banking Industry.

Uco Bank

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