CREDIT APPRAISAL REPORT

THE PUBLIC BANK LIMITED

SME LOAN

Submitted To:
Mr. Narendra K. Bista
Faculty: Banking Lending and Procedures
Uniglobe College, Kathmandu

Submitted By:
Rabindra Rajbhandari
MBA 5th Trimester
Roll no. 15, Section- A
Uniglobe College, Kathmandu

CREDIT APPRAISAL

THE PUBLIC BANK LOAN (TPBL)

SME Credit-Hetauda Branch
Date: May 31, 2015

Borrowing Entity
RR Soap Industries
Ward No 8, HID, Hetauda
Ph: 057-523524 (O) Tel: 9841684600(M)
Contact Person: Mr. Rabindra Rajbhandari( Proprietor)
Group Name: None

Last Review

Next Review
April 29 2014

New Loan
Risk Grade: Good

Legal Status
Proprietorship Firm
Registration No. 1789
PAN: 303864756
Proprietor: Mr. Rabindra Rajbhandari
Business Activity
Soap Industry
Loan Purpose Code
9.4
Loan Sector/Security Code
5.1.1, 5.2
Interest Code
WCTO

Purpose of Submission
To Provide overdraft facilities of NPR 1.5 million.
CIB Status
Obtained. The firm, its proprietor and guarantors were not found in
black/defaulters list.
Account No.
To be opened
Waiver & Deviations
As per TPBL SME Product Paper, loan processing fee is 1% on loan
amount. However, we recommended charge NPR 10,000.00 flat
considering potentiality of customer and the commitment to provide
more business in future.
Amount in NPR 000
Facility

Purpose and Other

Details

Interest/Commission/Fees

Limit

Outstanding

Proposed
Inc./ Dec.

Total

Supported /Approved

.
Roshan Budathoki
Branch Manager
Supported

Sujan Marahatta
Head, Credit Risk Management

Supported

Kalpana Thapa
Head, SME
Supported / Approved

Supported / Approved

Rajan Ghimire
Chief Credit Officer

Rajani Acharya
Act.Chief Executive Officer

Proposal

Purpose
The proposal has been prepared to seek approval for the renewal of TPB overdraft loan
facility of NPR 1,000,000.00 (Rupees One Million Only) and enhancement on same by NPR
500,000.00 (Five Hundred Thousands Only), total of NPR 1,500,000 on account of M/s RR
Soap Industries for the period of one year to meet the working capital requirement of the
company. The applicable interest rate on the proposed facility will be 12.00 % p.a. along with
the service charge of 1% of the proposed loan amount.
Justification
The proprietor of RR Soap Industries (Mr. Rabindra Rajbhandari) has requested us to provide
OD facility of NPR 1.5 million to meet his working capital requirement. RR Soap Industries
has its own full-fledged facilities that produces and manufactures various packaged laundry
soaps and detergents cakes and also manufacture and brand laundry soaps which are sold in
unpacked form to satisfy the demand of the rural segment. Being one of the few registered
soap manufacturer in Nepal, the company is able to cover a good share of market in Nepal
with high quality and reasonable price. As the firm is situated at the Industrial area of Hetauda
where other various manufacturing companies are operating as well, the company has no
problem in producing and distributing soap products. The firm has taken a step forward and
wants to produce detergents as well while due to increased demand, the firm needs to produce
more of the finished products.
Hence, the firm is in need of working capital to meet the above objective which justifies the
facility. The repayment shall be made from the sales proceeds.
2071/72(Pro)
Total Current Assets
Total Current Liabilities
Working Capital need

FY 2070/71 (Actual)

FY 2071/72(Actual)

NPR 1202K
NPR 416K
NPR 786K

NPR 1,801K
NPR 505K
NPR 1,296K

FY
NPR 2,243K
NPR 259K
NPR 1,984K

Overdraft
OD facility shall be provided for financing its working capital requirements. The facility will
enable the firm to build adequate level of stocks, finance receivables and meet various direct
and indirect expenses. RR Soaps mainly produces and manufactures various packaged
laundry soaps and detergents cakes and also manufacture and brand laundry soaps which are
sold in unpacked form distributes all over Nepal. The market for local soaps has increased
recently as people have become aware of sanitation and more of them want to promote local
products if the product is worthy. The firms stocks include basically different raw materials,
work-in-progress and finished soaps and chemicals.
Repayment
The captioned firm seems able to serve the debts from the cash flow generated from its
business operations. The financials suggest that the company will be able to meet its financial
obligations on time. Further, the company has maintained good level of stock & sales.
Security
The proposed facility shall be secured by mortgage of Land having Kitta No. 294, Area: 0-01-3.04(R-A-P-D) and Kitta No. 352, Area: 0-2-2-2.95(R-A-P-D) located at Ward No. 08,
HID, Hetauda Sub-Metropolitan City having distress value of NPR 2.04 million. (Tobe
Mortgaged).Valuator Mr. Rajesh Tiwari from SR Engineering Consultancy Pvt.Ltd.
Our working capital financing shall be secured by the primary collateral current assets (stocks
and book debts) worth NPR 2,200K (EV- 1,540K). Beside this, we shall also obtain Personal
Guarantee of Mr. Rabindra Rajbhandari for NPR 1.5 million (To be obtained).

Customer

Customers Name: M/s RR Soap Industris

Loan Sector: 4.3.1 Mnufacturing
Nature of Business
Soap Industry
Relationship start date: Existing
Basel II Classification
Claims on regulatory Retail Portfolio
Base for Classification:
SME loan adequately secured by mortgaged on property and total exposure is less than
10 million.

Registration details

Dept./Office

Government of Nepal, Ministry of Finance, Inland Revenue Department

Date

2071/11/10

Number

1789

PAN No.

303864756

VAT No.

NA

Income Tax Clearance Till

Business operation since (if other than
registration date)
Registered Address

2071

HID, Hetauda, Makwanpur

Business Address
Contact Details
Office Telephone Nos.
Residence Tel. Nos.
Cell No.
Fax No
E-mail address

Key Contact Person: Mr. Rabindra Rajbhandari/

proprietor
057-523524
9841684600
-

Existing Review Date:

21/11/2014

Next Review Date: 21/11/2015

Risk Grading
As per NRB Directive
(Please Tick )

Pass /Substandard /Doubtful /Bad Debt

BOD Details

( ) Obtained ( ) Not Obtained ( ) NA

Board Resolution

( ) Obtained ( ) Not Obtained ( ) NA

Updated shareholder
register

() Obtained ( ) Not Obtained ( ) NA

Authorized, Issued &

paid up capital
EGM/ AGM Report*
Sister Concern (s)

( ) Obtained ( ) Not Obtained () NA

Name N/A

Shareholding patterns:
Name
Mr. Rabindra Rajbhandari

Share %
100%

Name

Nature /Line of Business

Share%

Background

Units Background:
RR Soap Industries is a sole proprietorship firm registered under Local Government Act 2055,
Hetauda Sub- Metropolitan City Office on 2071/05/03, having registration number 1789. Mr.
Rabindra Rajbhandari is the sole proprietor of the firm.

Business
The factory manufactures varieties of packaged laundry soaps and detergents cakes and also
manufacture and brand laundry soaps which are sold in unpacked form to satisfy the demand
of the rural segment. The key buyers are general people, hotels, restaurants and hospitals. The
firm utilizes local raw materials and sale finished products into local market all around Nepal
as per the needs of the customers. The firms stocks include basically different raw materials,
work-in-progress and finished soaps and chemicals. The firm has status in the market as a
progressive industry with quality products in reasonable prices as well as efficient distribution
channels.
Location
The firm is situated in a Hetauda industrial area, Ward no. 08, Hetauda Sub-Metropolitan City.
The road excess to the property is by 10ft wide motor able pitched road. As the location is
mainly popular industries, the industry has a bright future prospect. There are only hand full
of registered soap producers with advanced facilities in Nepal.
Management
The Key person of this business is Mr. Rabindra Rajbhandari (Proprietor). At present the
client is doing business from their own equity. Mr. Rajbhandari has experience in the soap
industry over 12 years in various soap manufacturers working in various positions. After he
became mentally ready and confident enough to start his own soap industry gaining a good
sense of market and its business activities, he started his own firm. His family will also help
him in his business.
Family tree
The family of Mr. Rabindra Rajbhandari is quite a gentle fellow. His family tree is as follows.
Mr. Rabindra Rajbhandari
(Proprietor)

F
Mr. Rabindra Rajbhandari is not married yet. His brothers though have their own
corresponding families and are reputed in their own work and field. His mother/ father are
farmers.
Banking Relationship
The relationship with the client is old. He has maintained his personal account in our branch.
He is a loyal and creditworthy costumer in our branch. He has an average deposit of NPR
339,000. He has outstanding overdraft loan of NPR 890,000.He has been regular in his debt
payments, both interest and principal. According to CIB report he has also not taken any
credit with other banks and also has no blacklist record.

Past Financials
(NPR 000)

Particulars
Sales
Net Profit
Net worth
Current Ratio
Leverage (Debt/Equity)
Total Debt Ratio (Total Debt/Net worth)
Inventory turnover
Debtors turnover
Gross Profit Margin
Net Profit Margin

2070/71
Audited
1,053
283
1,931
2.90
0.39
0.42
101
43
35%
26.87%

2071/72
Audited
2599
769
2,700
3.42
0.48
0.53
123
67
38%
29.58%

Sales/Profitability
The data shows the sale of the firm is in increasing trend every fiscal year. The firm has
achieved sales turnover of NPR 1,053K during FY 2070/71 and NPR 2599K in fiscal year
2071/72. The main reason of increasing in sales is due to increasing demand of varieties of
local soaps of the same brand in the market and the ability and marketing of the firm that has
enabled the brand to be chosen by the customers. The firms sales market is general public,
hotel, hospitals etc. all over Nepal and since the investment environment is suitable, the
demand has been ever increasing. Besides that the company binds its customers with its
promise of quality within reasonable prices. Similarly, gross and net profit margin of the firm
was 38% and 29.58% respectively this year that guarantees improved performance and bright
prospect of the company and its products.
Liquidity
Current ratio of the firm is also in acceptable range over the period i.e. 2.90 and 3.42 during
the fiscal year 2070/71 and 2071/72 respectively. It indicates sound liquidity position of firm
to discharge its short-term obligation as when needed. Stocks include basically different kind
of soap chemicals, raw, work-in-progress and finished goods.
Leverage
The firm is considering as moderate risk taker entity. A leverage ratio of around 0.5 seems
satisfactory as the firm is able to take advantage of low cost debt. In the fiscal year 2070/71,
leverage of 0.42 seems satisfactory .As the firm is planning to increase its operation and the
working capital requirement has also increased, the firm has an increased debt ratios this
fiscal year. The firm doesnt enjoy any loan from other banks/financial institutions. The firm
is able to increase its profit every year which directly impact over its net worth. Higher net
worth shows better status of the firm.
Inventory Turnover
The stocking period of the unit has been observed 101 and 123 days in FY 2070/71and
2071/72 respectively which is acceptable considering the nature of business. If the firm

doesnt keep much stock, they will lose their customers. Similarly, debt realization period is
67 days in FY 2071/72, which is ok.
Financial Projections
Financial projections are based on the data given by the firm.

(NPR 000)

Particulars
Sales
Net Profit
Net worth
Current Ratio
Leverage (Debt/Equity)
Inventory turnover
Debtors turnover
Gross Profit Margin
Net Profit Margin

2072/73
Projected
3,260
957
2,977
3.52
0.51
91
55
43.33%
29.36%

Sales & Profitability

The firms business is good and established and has a high demand in the market so that the
unit expects to achieve above mentioned increased sales volume in projected year. The
projection of sales and profitability of the unit have been made on the following grounds:
1. The firm will get new customers and retain its existing customers as before.
2. The firm shall explore new parties in the market.
3. The demand of soaps and related products is positively related with the increasing size
of population.
4. With the increased sales volume and efficient control over direct expenses and other
operating expenses, the firm shall achieve targeted profit margins.
5. The people have become aware about sanitation and want local product varieties from
the same brand.
6. People have become conscious about the quality of the sanitation products and the
quality of the RR Soaps is popular.
Net Worth
It is projected that the consolidated net worth figure of the units shall be NPR 2.977 million in
FY 2072/73. Net worth comprises of paid up capital, proprietors fund and retained earnings.
They will be able to strengthen the capital base as the profits are bound to grow over the
years. Thus, Net worth will be in satisfactory level.

Leverage (Total Debt/Net worth)

The leverage ratio of the unit is expected to be 0.51 in the projected year 2071/72. It is
assumed that the unit shall utilize the bank loan at a maximum level to expand its business
volume. But considering the experience of the Proprietors in the line of business, and
creditworthiness in the market, the risk exposed to the bank is within acceptable range.
Liquidity
The current ratio is expected to be within the standard norm indicating that they shall utilize
the bank loan to maintain adequate level of stocks and finance debts as per the market
demand.
Inventory/Debtors Turnover
It is expected that the average stock holding period and debt realization period of the unit
shall be 91days and 55 days respectively in the projected year 2069/070. This is acceptable
considering nature of business. If the firm doesnt keep much stock, they will lose their
customers However, it shall be decreased in coming years. With the growing competition
caused by entry of new players in the market, the firm is forced to provide some credit period
to its customers. However the credit turnover ratio in the projected year is less than previous
fiscal year which is satisfactory level.
Cash Flow

Particulars

2070/71

NPR 000
2071/72
Fiscal Years

2072/73

Sources of Funds
Net Profit before Interest & Taxes
345

870

1215

210
1080
180
97
277

276
1491
237

Taxes
Total Financial Charges

156
501
102
55
157

Closing Cash Balance after Financial Charges

344

803

1110

+ Non Cash Expenses (Depreciation, Write Off)

Funds from Operation
Interest

144
381

The cash flow of the firm is positive, which is due to the increasing net profits of these firms
over the years. With the increase in sales in coming years, the cash flow position of the firms
will be further strengthened.

Justification of Proposed Limits & Working Capital Assessment

NPR 000

Particulars
Days

2067/068
Audited
Amount

Day
s
123
67

2068/069
Audited
Amount

Inventory
Debtors/Receivables
Other Current Assets

101
43

752
422
28

Total Current Assets

144

1,202

190

90

389
27

68

439
66

57

201
58

63

416

50

505

28

259

Less:
Trade Creditors
Other
Current
Liabilities
Total
Current
Liabilities
Working Capital Need
Banking Lines
Net Working Capital
% of Bank Finance

786
0
786
0.00%

1,098
668
35

Da
ys
91
55

2069/070
Projected
Amount

1801 146

1,296
1000
296
77.16%

Overdraft facility shall be provided for financing the working capital requirement of the unit.
The facilities will enable firm to build adequate level of stocks, finance receivables and meet
various direct and indirect expenses.
The working capital assessment shows that the firm is in need of working capital because
usages of funds are higher than sources of funds. The net working capital requirement of the
unit for the projected year 2071/72 is
NPR 1,984 million and bank financing of NPR 1.5 million is 75.60% of the net working
capital requirement. It is within the acceptable level.
Outlook & Prognosis

RR Soaps Industries mainly deals with the production of soaps and related products. RR Soap
Industries is a sole proprietorship firm registered under Local Government Act 2055, Hetauda
Sub- Metropolitan City Office on 2071/05/03, having registration number 1789. Mr. Rabindra
Rajbhandari is the sole proprietor of the firm. The factory manufactures varieties of packaged
laundry soaps and detergents cakes and also manufacture and brand laundry soaps which are
sold in unpacked form to satisfy the demand of the rural segment. The key buyers are general
people, hotels, restaurants and hospitals. The firm utilizes local raw materials and sale
finished products into local market all around Nepal as per the needs of the customers. The
increased awareness about sanitation among Nepalese people and importance of locals goods

1,469
1,088
110
2667

1,984
1,500
484
75.60%

has resulted in the high demand of the RR Soaps products. Moreover, the product also goes to
the rural areas where the brands are more popular. The recent trade of hospitals, hotels and
restaurants for the package agreement for these kids of products is also a good prospect for
the industry. The firm has status in the market as a progressive industry with quality products
in reasonable prices as well as efficient distribution channels. In view of above, we expect the
firm shall achieve regular sales growth as above. Hence, the project is viable and under
bankable risks.
The firm is situated in a Hetauda industrial area, Ward no. 08, Hetauda Sub-Metropolitan City.
The road excess to the property is by 10 ft wide motor able pitched road. As the location is
mainly popular industries, the industry has a bright future prospect. There are only hand full
of registered soap producers with advanced facilities in Nepal.
As per our visit at the site, the proposed fixed properties are located in industrial area of
Hetauda Sub-Metropolitan City, Kitta No. 294, Area: 0-0-1-3.04(R-A-P-D) and Kitta No. 352,
Area: 0-2-2-2.95(R-A-P-D) located at Ward No. 08, HID, Hetauda Sub-Metropolitan City
having distress value of NPR 2.04 million. (To be Mortgaged).Valuator Mr. Rajesh Tiwari
from SR Engineering Consultancy Pvt. Ltd. Even in the distress situation, we can liquidate
them to pay back the loan the property is accessible by 10ft wide motor able pitched road. The
property lies around 1390 m meter north from the HID CHowk and boundary of the land is
clear and distinct.
The facility shall be secured by hypothecation of stocks and receivables of the firm for NPR
1,200K and NPR 1,000K respectively. Beside this, we shall also obtain Personal Guarantee of
Mr. Bishnu Prasad Kharel (Proprietor), Mrs. Mina Regmi (Proprietor wife) for NPR 1,500K.
SWOT/Risk Analysis
Strengths

Mr. Rajbhandari is a skilled and experienced person in the field of Soaps industries
having been worked in the Soap industries for more than 12 years.
The general public are more aware about sanitation than ever and hence the use of
sanitary products has increased.
The hotels, restaurants and hospitals have a good long term agreement with the RR
Soap Industries.
The client has been able to capture satisfactory level and will capture a large share of
market with increase product line.
The products are easily accessible even in the rural areas.
RR Soaps operational and financial performances are satisfactory and smooth.
Investment friendly environment with reduced interest rates.

Weakness
The nature of the business requires maintaining huge stocks.
Less capital to increase stock.

Not able to capture the demand of the market.

Opportunity
Demand is increasing day by day which increases the margin of profitability.
Investment friendly environment.
Reduced interest rates and easy availability of loans.
Threat

The threat is mainly from competitors with more players will getting in the business.
Poor purchasing power of people caused by slow economic growth of the country.
Load shedding.
Political turbulence and workers strikes.

Risks/Mitigation
1. Supplier Risk
The firm imports its instruments from foreign and buys daily consuming items and
raw materials from local market and they have maintained good relation with their
suppliers.
2. Competition
The market is very competitive due to the presence of various players in the market.
There are other active players in the market who has really been threat to the firm with
the target of the same market share. However those do not have the same source
distributor network as the client possess. The client is planning to add more enhance
the productions capacities and expand the product varieties due to its popularity.

3. Management Risk
The firm is registered in the name of Mr. Rabindra and the proprietor handle entire
management of the firm. Mr. Rajbhandari himself manages the accounting and
administrative work of the firm and is supported by his family.

4. Financial Risk
The business of this unit is running well and no adverse situation is visualized in short
term. Further, the proprietor has the capacity to repay the loan in distress situation by
from other sources by selling off his other fixed assets.

5. Political Situation

It is expected that the present political turmoil in the country shall be resolved soon and there
will be favorable environment for the growth of business.

6. Successor Risk: At present the firm is handling by Mr. Rabindra Kumar Shrestha
(Proprietor). He is unmarried yet but has placed the name of his nephew as his
successor.
Control Mechanism
Drawdown of overdraft facility shall be restricted to 70% of net working capital requirement of the
firm.
2. The firm shall submit stock and receivable statement on quarterly basis.
3. It shall submit the financial statement on yearly basis.
4. Site visit/stock inspection shall be carried out on half yearly basis.
Earning & Profitability
Expected Earning for next one year.
1.

NPR 000

Facility

Gross Income

Interest on OD
Loan Processing Fee
Total

Cost of Fund
8%

Net Income

180

120

60

10

NA

10

190

120

70

Assumption
1. Cost of fund of 8% p.a.
Other Remarks

None
Waiver & Deviations

As per TPBL SME Product Paper, loan processing fee is 1.50% on loan amount. However, we
recommended charge NPR 10,000.00 flat considering potentiality of customer and the
commitment to provide more business in future.
Summary, Recommendations & Certification

Based on above analyses, deliberations and comments, it is recommended for providing

overdraft facility to the client for a period of one year.
I confirm that this credit proposal is in compliance with all relevant policies and guidelines
laid down by Nepal Rastra Bank and KBL credit policy.

Roshan Budathoki