Credit Saraswat

A Project

On

“Processing of Commercial Credit Proposals”

With reference to Saraswat Co-Operative Bank,

Mumbai

By

SAHIL B MULLA

Roll No: 91

PROJECT SUBMITTED FOR THE PARTIAL FULFILLMENT OF THE

ACADEMIC REQUIREMENT FOR THE MMS PROGRAMME,

NCRD‟s STERLING INSTITUTE OF MANAGEMENT, MUMBAI

June 2009

Under the Guidance of :

Mrs. P S Rege

DGM – Zone 1

Grant Road

Saraswat Co-operative

Bank

Processing of Commercial Credit Proposals

Sterling Institute of Management Studies

ACKNOWLEDGEMENT

Financial Sector is the backbone of any Economy. Banking plays a vital role in

building a nation. It‘s my privilege to do my summer project on this vibrant Banking

Sector. I thank the Management of Saraswat Co-Operative Bank Ltd for permitting

me to undergo the Summer Project Training in their esteemed organization.

It has been a fabulous learning experience for the entire two months at the Zone1

Office at Grant Road of Saraswat Co-Operative Bank Ltd.

I would like to acknowledge and extend my heartfelt gratitude to the following

persons who have made the completion of this project possible.

Firstly I would like to thank ―Saraswat Co-operative Bank Limited‖ for giving me an

opportunity of learning and contributing through this project.

I am grateful to Mr. Anjan Maiti Director, ‗Sterling Institute of Management

Studies‘ for giving me this opportunity.

I acknowledge with special thanks the help of my project guide Mrs. P. S. Rege

(DGM Zone-1) for her valuable guidance and assisting me in completion of the

project. I also thank her for sharing lots of her knowledge and ideas, which were

useful for my project.

I would also, like to express my gratitude to Mr. D. G. Rege (AGM Zone-1) and all

other staff members of Zone1 for enriching me with their valuable knowledge and

also for providing me a conducive environment.



EXECUTIVE SUMMARY

This project titled ―Processing of Commercial Credit Proposal‖ in Saraswat Co-

operative Bank.

While analyzing the credit proposal of the applicants, the applicant firms have to

submit CMA (Credit Monitoring Analysis) for previous as well as following years. In

some cases the firms are also required to submit the details of the partners if involved.

The bank estimates the financial position of the company by using various methods

such as ratio analysis. In ratio analysis various types of ratios are calculated on the

basis of the last three years balance sheet submitted by the company to bank.

Maximum Permissible Bank Finance (MPBF) method is used by the bank for cash

credit facility. Under this method the borrower will contribute 25% of the working

capital gap and the remaining 75% can be financed from the bank borrowings.

In Cash Credit facility the securities are:

1. Hypothecation of stock, debtors.

2. Property to be mortgaged.

Bank provides term loans to the companies for the purchase of machinery,

equipments, etc.

In term loan the securities are:

1. Hypothecation of the bank.

2. Other asset to mortgage.

3. Third party guarantee.



PROCESSING OF COMMERCIAL CREDIT PROPOSALS



Table of Contents

Objective ……………………………………………………………………………06

Research Methodology ……………………………………………………………...07

Economy & Banking Scenario ……………………………………………………...09

Banking Structure in India ………………………………………………………......13

Co-Operative Banking Sector ……………………………………………………….17

Saraswat bank Profile ………………………………………………………………..19

Credit Policy ….……………………………………………………………………...35

Credit Proposal ………….…………………………………………………………...40

Credit Lending Procedure……………………………………………………………42

Types of Credit Proposal …………………………………………………………….45

Ratio …………………………………………………………………………………50

Process of Credit Disbursement ……………………………………………………..59

Documents

Proposal

Case …………………………………….……………………………………………62

Conclusion ……………………………….…………………………………………..72

Recommendations……………………………………………………………………73

Bibliography ...…………………………….…………………………………………76



OBJECTIVE

1. To understand the process of commercial credit proposal

2. To analyse the proposals dealing with Funded and Non-Funded limits

3. To understand the working of Zonal Office of Saraswat Co-operative Bank

4. To study the proposal or renewal note



RESEARCH METHODOLOGY

For processing of Commercial Credit Proposals a proper research methodology is

followed by the bank. On receiving a particular request for credit the information or

the data related is collected.

The Data is of two typres:

1. Primary Data

2. Secondary Data

1. Primary Data

The first hand information or the primary data is being provided by the applicant firm,

which has applied to the bank for a credit facility. The primary data is collected

through a Bank‘s loan application form. The information collected related to

application form are the name of the firm, its establishment date or incorporation date,

background of the firm, History and Bio-data of the directors or the key persons, the

financials for the past three year and the facilities if available from other banks etc.

The information is provided in two sets, one is submitted to Credit Enquiry

Department (CED) and other is with the bank. The proposal if is above Rs.1 crore

then only is sent to CED. The fees charged for processing are as per the banks norms.

2. Secondary Data

The secondary data is mainly obtained after proper acquirement of primary data and

analysis is done based on it. The assessment of the proposals is done by the zonal

head who decides whether it meets the banks requirements. If the applicant firm meets

the necessary requirements then a customer meeting is arranged at factory / office

where the books are verified and the site / factory is visited. All the additional data

required is collected and accordingly the project is subjected to various boards.

The proposal is recommended & sent to respective meeting. The proposal if is below

Rs. 1 crore is subjected to Deputy Managing Director, if above Rs. 1 crore and below

Rs. 7.5 crore is subjected to CENMAC (Central Management Committee) and if

above Rs. 7.5 crore is subjected to the board of directors.



The required data collected from annual report, books and website which shows the

necessary information for processing the proposals is the secondary type of data. The

websites used mainly are as follows:

i. www.mca.gov.in

ii. www.cibil.com

These websites give the information about the Company Identification Number (CIN)

& Directors Identification Number (DIN) and also whether the company is in

existence and how its account is rated.

Data Analysis:

After getting all the necessary information the proposals can be analyzed and this

helps in fulfilling the processing of the proposals. The secondary data is used mostly

to create a primary data, which in turn helps to calculate the necessary ratios and

compare it with previous year and also understand the future projections of the

applicant firm.

Interpretation:

After analysis of the data the results are drawn upon. The calculation of various ratios

and the credit rating based upon it helps in interpretation. This helps the assessing

officers in granting credit facilities to the applicant firm.

http://www.mca.gov.in/

http://www.cibil.com/



INTRODUCTION

ECONOMY & BANKING SCENARIO

Immediately after Independence, the government of India initiated measures to play

an active role in the economic life of the nation. In pursuance of this policy,

government adopted Industrial Policy Resolution in 1948 in which it envisaged a

mixed economy. From now onwards, government decided to play an active role in

different segments of an economy including banking and finance.

The Government of India, in a major step nationalized Reserve Bank of India in 1948.

In 1949, the Banking Regulation Act was enacted which empowered the Reserve

Bank of India (RBI) "to regulate, control, and inspect the banks in India.

Government in order to have firm grip over this sector nationalized the private banks

first in 1969 and later in 1980. With the second dose of nationalization, the GOI

controlled around 91% of the banking business of India. After this, until the 1990s,

the nationalized banks grew at a pace of around 4%, closer to the average growth rate

of the Indian economy.

In the early 1990s the then Narsimha Rao government embarking on a policy of

liberalisation, gave licenses to a small number of private banks, which came to be

known as New Generation tech-savvy banks, which included banks such as Global

Trust Bank, UTI Bank, (now re-named as Axis Bank), ICICI Bank and HDFC Bank.

This almost kick started the banking sector in India, which has seen rapid growth with

strong contribution from all the three sectors of banks, namely, government banks,

private banks and foreign banks.

FDI in Banking Sector

The next stage for the Indian banking has been setup with the proposed relaxation in

the norms for Foreign Direct Investment, where all Foreign Investors in banks may be

given voting rights which could exceed the present cap of 10%, at present it has gone

up to 49% with some restrictions.



Present Situation

In the present situation, banking in India has attained fair amount of maturity in terms

of supply, product range and reach-even though reach in rural India still remains a

challenge for the private sector and foreign banks. In terms of quality of assets and

capital adequacy, Indian banks are considered to have clean, strong and transparent

balance sheets relative to other banks in comparable economies in its region.

Since Indian economy is witnessing strong growth the demand for banking services,

especially retail banking, mortgages and investment services are expected to be

strong. One may also expect M&As, takeovers, and asset sales.

Currently, India has 88 scheduled commercial banks (SCBs) - 28 public sector banks

(that is with the Government of India holding a stake), 29 private banks (these do not

have government stake; they may be publicly listed and traded on stock exchanges)

and 31 foreign banks. They have a combined network of over 53,000 branches and

17,000 ATMs. According to a report by ICRA Limited, a rating agency, the public

sector banks hold over 75 percent of total assets of the banking industry, with the

private and foreign banks holding 18.2% and 6.5% respectively.

The Credit Scenario

The year-on-year aggregate bank deposits stood at 21.2 per cent as on January 2,

2009. Bank credit touched 24 per cent on January 2, 2009 as against 21.4 per cent on

January 4, 2008. The year-on-year growth in non-food bank credit at 23.9 per cent as

on January 2, 2009 was higher than that of 22.0 per cent as on January 4, 2008.

Increase in total flow of resources from the banking sector to the commercial sector

was also higher at 23.4 per cent as compared with 21.7 per cent a year ago. The

incremental credit-deposit ratio rose to 81.4 per cent as on January 2, 2009, as against

63.1 per cent as on January 4, 2008. Also, during 2008-09 so far, the total flow of

resources to the commercial sector from banks stood at US$ 58.83 billion upto

January 2, 2009. Scheduled commercial banks‘ credit to the commercial sector

expanded by 27.0 per cent (y-o-y) as on November 21, 2008, as compared with 23.1

per cent a year ago.

There has been variation in credit expansion across bank groups. Credit expansion as

on January 2, 2009 for public sector banks stood at 28.6 per cent, scheduled



commercial banks (SCBs) including the regional rural banks (RRBs) at 24 per cent,

foreign banks at 6.9 per cent and private sector banks at 11.8 per cent, according to

the Annual Policy for 2008-09 of Reserve Bank of India.

Several measures initiated by the Reserve Bank have resulted in banks reducing their

deposit and lending rates between November 2008 and January 2009. The range for

deposit rates for public sector banks varied from 5.25 to 8.5 per cent, foreign at 5.25

to 7.75 per cent and private sector banks at 4 to 8.75 per cent. In the post-crisis quarter

caused due to collapse of Lehman Brothers, large corporates like Infosys moved their

deposits to State Bank of India (SBI), the country's largest bank. Infosys has revealed

that it transferred deposits of nearly US$ 200.61 million from ICICI Bank to SBI last

year.

Deposits as on January 2, 2009 for public sector banks stood at 24.2 per cent,

scheduled commercial banks (SCBs) including the regional rural banks (RRBs) at

21.2 per cent, foreign banks at 12.1 per cent and private sector banks at 13.4 per cent,

according to the Annual Policy for 2008-09 of the Reserve Bank of India.

The prime lending rates of public sector banks stood at 12 to 12.5 per cent, private

sector banks at 14.75 to 16.75 per cent and foreign banks 14.25 to 15.50 per cent as

on January 2009.

Bank loans rose 18.1 per cent on year-on-year basis as on March 13, the RBI has said

in its Weekly Statistical Supplement released on March 27, 2009. Outstanding loans

rose to US$ 541.82 billion in the two weeks to March 13. The non-food credit rose to

US$ 530.19 billion in the two weeks, while food credit stood at US$ 9.61 billion in

the same period.

Since October 2008, the central bank had cut the cash reserve ratio, or the proportion

of deposits that banks set aside, and the repo rate, or the rate at which it lends to

banks, by 400 basis points each to inject liquidity into the system and activate a lower

interest rate regime. Also, the reverse repo rate has been lowered by 200 basis points

to discourage banks from parking surplus funds with RBI. Till April 7, 2009, the CRR

had further been lowered by 50 basis points, while the repo and reverse repo rates

have been lowered by 150 basis points each. Public sector banks have pruned their



benchmark prime lending rates (BPLRs) by 150-200 basis points. Also, in April 2009,

private sector banks such as Axis and Bank of Rajasthan have reduced their BPLRs

by 50 basis points. Only few foreign banks such as Citibank have pared home loan

rates by 50 basis points to 13.75 per cent.

The rupee depreciated during 2008-09, reflecting varied developments in international

financial markets and portfolio outflows by foreign institutional investors (FIIs). The

rupee exchange rate was between 48.37 to 49.19 against the US dollar and 63.60-

68.09 against the Euro in January 2009.

Government Initiatives

Apart from the bank rate cuts announced in the stimulus packages, cash withdrawals

from bank will not attract tax from April 1, 2009 following abolition of the banking

cash transaction tax (BCTT) in the Union Budget 2008-09. The total collection of

BCTT stood at US$ 120.36 million in 2008-09. Also, inter-ATM usage transaction

became free of charges effective April 1, 2009.



BANKING STRUCTURE IN INDIA

The commercial banking structure in India comprises:

Scheduled Commercial Banks and Unscheduled Banks.

The banks, which are included in the second schedule of Reserve Bank of India (RBI)

Act, 1934 is called scheduled bank. RBI in turn includes only those banks in this

schedule which satisfy the criteria laid down vide section 42 (6) (a) of the Act.

For assessing the performance of the bank, the Reserve Bank of India categorise the

bank as public sector banks, old private sector banks, new private sector banks and

foreign banks

Banking industry in India has evolved lately under the impact of the stimulus

packages announced by the Government. According to the Annual Policy 2008-09 of

the Reserve Bank of India (RBI), the central bank, key monetary aggregates have

witnessed some growth in 2008-09. This is reflected in the changing liquidity

positions arising from domestic and global financial conditions and the policy

initiatives taken by the government. Also, reserve money variations during 2008-09

have largely reflected an increase in currency in circulation and reduction in the cash

reserve ratio (CRR) of banks.

According to a study by Dun & Bradstreet (an international research body)—"India's

Top Banks 2008"—there has been a significant growth in the banking infrastructure.

Taking into account all banks in India, there are overall 56,640 branches or offices,

893,356 employees and 27,088 ATMs. Public sector banks made up a large chunk of

the infrastructure, with 87.7 per cent of all offices, 82 per cent of staff and 60.3 per

cent of all automated teller machines (ATMs).



Hierarchy of Banking Institution in India

A) Commercial Bank:

Among the banking institution in the organized sector, the commercial banks are the

oldest institutions having a wide network of branches. They were established as

corporate bodies with share holdings by private individuals. They were mainly

engaged in financing organized trade, commerce and industry.

1) Public Sector Banks:

Public Sector in Indian banking reached its present position in three stages.

1. The conversion of the existing imperial bank of India into the State Bank of

India in 1955.

2. The nationalization of 14 major commercial banks in 1969.

3. The nationalization of 6 more commercial banks in 1980 and one of them New

Bank of India was later on merged with Punjab National Bank. Thus 27 banks

constitute public sector in Indian commercial banking.

2) Private Sector Bank:

The Narasimham Committee on Financial Sector (1991) recommended the

establishment of Private Banks in India. The Reserve Bank of India provide guidance

for the setting up of new private sector banks have been established mainly by the

financial institution such as a UTI, ICICI, IDBI, HDFC. They improve the image of

new commercial banking system and to win confidence of the depositing public.

B) Regional Rural Banks:

Regional Rural Banks have been established by the Government of India in terms of

the provisions of the Regional Rural Banks Act 1976. They grant loans & advances to

artisans, small entrepreneurs and persons who are engaged in trade, commerce or

industry or other productive activities.

C) Co-Operative Banks:

Registered under the Co-operative Societies Act of the Respective States, the banking

related activities of the co-operative banks are also regulated by the Reserve Bank of



India. They are governed by the Banking Regulations Act 1949 and Banking Laws

(Co-operative Societies) Act, 1965. The Co-operative banks are an important

constituent of the Indian Financial System. The Co-operative movement originated in

the West, but the importance that such banks have assumed in India is rarely

paralleled anywhere else in the world. Their role in rural financing continues to be

important even today, and their business in the urban areas also has increased

phenomenally in recent years mainly due to the sharp increase in the number of

primary co-operative banks.

While the co-operative banks in rural areas mainly finance agricultural based

activities including farming, cattle, milk, hatchery, personal finance, etc. along with

some small scale industries and self-employment driven activities.

The co-operative banks in urban areas mainly finance various categories of people for

self-employment, industries, small-scale units, home finance, Consumer finance,

personal finance, etc.

The co-operative banks have a three tier set up :

The state co-operative banks.

Central co-operative banks.

Primary Credit Societies.

The co-operative banks proceed on the principle of co-operation.

Some of the co-operative banks are quite forward looking and have developed

sufficient core competencies to challenge state and private sector banks. According to

The National Federation of Urban Cooperative Banks and Credit Societies

(NAFCUB) the total deposits & lending of co-operative banks is much more than Old

Private Sector Banks & also the New Private Sector Banks. This exponential growth

of Co-operative Banks is attributed mainly to their much better local reach, personal

interaction with customers, and their ability to catch the nerve of the local clientele.



LIST OF MAJOR SCHEDULED URBAN CO-OPERATIVE BANKS

1. Saraswat Co-Op. Bank Limited, MUMBAI

2. Abhyudaya Co-Op. Bank Limited, MUMBAI

3. Bombay Mercantile Co-Op. Bank Limited. MUMBAI

4. Citizen Credit Coop. Bank Ltd. Dadar, MUMBAI

5. Andhra Pradesh Mahesh Co-Op Urban Bank Ltd. HYDERABAD

6. Cosmos Coop. Urban Bank Ltd. MUMBAI

7. Janakalyan Sahakari Bank Ltd., Bombay MUMBAI

8. Shamrao Vithal Co op Bank Ltd. MUMBAI

9. Punjab & Maharashtra Coop Bank Ltd. MUMBAI

10. Charminar Coop.Urban Bank Ltd. HYDERABAD

11. Dombivli Nagari Sahakari Bank Ltd. MUMBAI

12. Goa Urban Co-Op. Bank Limited. MUMBAI

13. Kapole Cooperative Bank Ltd., Bombay MUMBAI

14. Thane Janata Sahakari Bank Ltd. NAGPUR

15. Bharat Co-Operative Bank (Mumbai) Ltd. MUMBAI

and many more.



CO-OPERATIVE BANKING SECTOR

Co-operative Banks are organised and managed on the principal of co-operation, self-

help, and mutual help. They function with the rule of one member, one vote. Function

on "no profit, no loss" basis. Co-operative banks, as a principle, do not pursue the goal

of profit maximization.

Co-operative bank performs all the main banking functions of deposit mobilization,

supply of credit and provision of remittance facilities. Co-operative Banks provide

limited banking products and are functionally specialists in agriculture related

products. However, co-operative banks now provide housing loans also.

UCBs provide working capital loans and term loan as well. The State Co-operative

Banks (SCBs), Central Co-operative Banks (CCBs) and Urban Co-operative Banks

(UCBs) can normally extend housing loans upto Rs 1 lakh to an individual. The

scheduled UCBs, however, can lend upto Rs 3 lakh for housing purposes. The UCBs

can provide advances against shares and debentures also.

Co-operative bank do banking business mainly in the agriculture and rural sector.

However, UCBs, SCBs, and CCBs operate in semi urban, urban, and metropolitan

areas also. The urban and non-agricultural business of these banks has grown over the

years. The co-operative banks demonstrate a shift from rural to urban, while the

commercial banks, from urban to rural.

Co-operative banks are perhaps the first government sponsored, government-

supported, and government-subsidised financial agency in India. They get financial

and other help from the Reserve Bank of India NABARD, central government and

state governments. They constitute the "most favoured" banking sector with risk of

nationalisation. For commercial banks, the Reserve Bank of India is lender of last

resort, but co-operative banks it is the lender of first resort which provides financial

resources in the form of contribution to the initial capital (through state government),

working capital, refinance.



Co-operative Banks belong to the money market as well as to the capital market.

Primary agricultural credit societies provide short term and medium term loans. Land

Development Banks (LDBs) provide long-term loans. SCBs and CCBs also provide

both short term and term loans.

Co-operative banks are financial intermediaries only partially. The sources of their

funds (resources) are (a) central and state government, (b) the Reserve Bank of India

and NABARD, (c) other co-operative institutions, (d) ownership funds and, (e)

deposits or debenture issues. It is interesting to note that intra-sectoral flows of funds

are much greater in co-operative banking than in commercial banking. Inter-bank

deposits, borrowings, and credit from a significant part of assets and liabilities of co-

operative banks. This means that intra-sectoral competition is absent and intra-

sectoral integration is high for co-operative bank.

Some co-operative banks are scheduled banks, while others are non-scheduled banks.

For instance, SCBs and some UCBs are scheduled banks but other co-operative banks

are non-scheduled banks. At present, 28 SCBs and 11 UCBs with Demand and Time

Liabilities over Rs 50 crore each included in the Second Schedule of the Reserve

Bank of India Act.

Co-operative Banks are subject to CRR and liquidity requirements as other scheduled

and non-scheduled banks are. However, their requirements are less than commercial

banks. Since 1966, the lending and deposit rate of commercial banks have been

directly regulated by the Reserve Bank of India. Although the Reserve Bank of India

had power to regulate the rate co-operative bank but this have been exercised only

after 1979 in respect of non-agricultural advances they were free to charge any rates at

their discretion. Although the main aim of the co-operative bank is to provide cheaper

credit to their members and not to maximize profits, they may access the money

market to improve their income so as to remain viable.



SARASWAT BANK PROFILE:

Saraswat Bank is a Scheduled Cooperative Bank. On 14th

September 1918, ―The

Saraswat Co-operative Banking Society‖ was founded. Mr. J.K. Parulkar became its

first Chairman. Mr. N.B. Thakur, the first Vice-Chairman, Mr. P.N. Warde, the first

Secretary and Mr. Shivram Gopal Rajadhyaksha, the first Treasurer. These men in

charge of the Society had a commendable sense of service and duty imbibed in them.

The Society was initially set up to help families in distress. Its objective was to

provide temporary accommodation to its members in eventualities such as weddings

of dependent members of the family, repayment of debt and expenses of medical

treatment etc. The Society was converted into a full-fledged Urban Co-operative Bank

in the year 1933.

The Bank has the unique distinction of being a witness to History. The Bank, which

was originally founded in 1918, i.e. close on the heels of the Russian Revolution, also

witnessed as a Society and as Bank-the First World War, the Second World War,

India's freedom Movement and the glorious chapter of post-independence India.

During this cataclysmic cavalcade of history, the Bank as a financial institution and its

members could not of course remain unaffected by the economic consequences of the

major events. The two wars in particular brought in their wake, paucities of all kinds

and realities and stand by its members in distress as a solid bulwark of strength. The

Founder Members and the later-day management's of the Bank continued to

demonstrate their unwavering faith in the destiny of the common man and the co-

operative movement and they encouraged the shareholders to save despite all odds.

The bank still continues to function with the glorious tradition in public services.

Besides being the largest Urban Co-operative Bank in India, Saraswat Bank has now

become the largest in Asia. It has now 180 fully computerised branches, 9 Zonal

Offices and 23 departments located across 5 States viz. Maharashtra, Goa, Gujarat,

Madhya Pradesh, Karnataka and Delhi.

MOTTO & MISSION STATEMENT

Prosperity to customer relationship has been the motto of Saraswat Bank for the

last 90 years.



The Mission Statement of the Bank is "To emerge as one of the premier and most

preferred banks in the country by adopting highest standards of professionalism and

excellence in all the areas of working !!!"

MILESTONES

Over 25 years after its inception, the Bank had gained strong foundation in

terms of its membership, resources, assets and profits. By 1942, it was

fulfilling all the banking needs of its customers.

During the late fifties, the Bank grew from strength to strength. The Bank had

established five branches within the city of Mumbai and one each at Pune and

Belgaum. In its 50th year, the Bank chose a bee motif to symbolise the Bank's

emblem - a fitting and appropriate characteristics of a Bank that believed in

hard work, a search for all that is good, a team spirit to achieve its objectives

and a selfless service to its members and customers.

The Bank has grown in stature, progressed in its social and economic

objectives and produced an image of what an ideal bank should be.

Resultantly, in the year 1977-78, the Bank's gross income crossed the Rs.3.00

crore mark for the first time.

Last two decades the bank has witnessed a steady growth in the business. The

bank has a network of 180 fully computerised branches covering five states

viz. Maharashtra, Gujarat, Madhya Pradesh, Karnataka, Goa and Delhi. The

Bank is providing 24- hour service through ATM at 52 locations.

In 1988 the bank was conferred with "Scheduled" status by Reserve Bank of

India. The bank is the first co-operative bank to provide Merchant Banking

services.

The bank got a permanent license to deal in foreign exchange in 1978.

Presently the Bank is having correspondent relationship in 45 countries

covering 9 currencies with over 125 banks.

Saraswat Bank Business crossed Rs 21000 Crore mark on 31st March 2009.

The bank has a network of 180 branches, 11 Zonal Offices and 37 departments

located across the state of Maharashtra. RBI gave its nod for extending of the

bank‘s branch network and three new branches have opened in Delhi,

Bangalore and Udupi. Saraswat Co-Operative Bank also has a network of 41



ATMs spread across the states of Maharashtra, Karnataka, Madhya Pradesh,

Goa, Gujarat and Delhi.

In Maharashtra, the branches are divided into various zones. A particular zone has

number of branches under it, which monitors all the credit proposals of the branches.

ZONES INFORMATION

There are different zonal offices distributed all over the Maharashtra & Goa.

1. Zone-I Grant Road

2. Zone-II Ghatkopar

3. Zone-III Goregaon

4. Zone-IV Pune

5. Zone-V Goa

6. Zone-VI Aurangabad

7. Zone-VII Thakurdwar

8. Zone-VIII Vyapar Bhavan

9. Sub Zone IV-A Sangli

10. Zone-IX Nashik

11. Zone-X Matunga

Zone-I Grant Road

This zone comprises of various branches whose work is monitored by the zone. The

branches under this zone are:

1. Ballard Estate

2. C.S.T.

3. Dadar

4. Fort

5. Girgaon

6. Grant Road

7. Madhukendra

8. Mahim

9. Masjid Bunder

10. Parel

11. Prabhadevi

12. Wadala



13. Worli

14. Surat

15. Shivaji Park (Gadkari Chowk)

The total business of Zone I as on 31.03.09 is Rs. 4201.15 crores which includes

Rs.2555.14 crores as deposits and Rs.1646.01 crores as advances. The growth in

advances and deposits was 12% for both and the profit as on 31.03.09 was Rs. 83.01

crores.

ACQUISITION:

14 branches were acquired by Saraswat Co-Operative Bank. It had acquired Murdha

Rajendra Co-Operative Bank, Mandvi Co-Operative Bank, Maratha Mandir Co-

Operative Bank, Annasaheb Karale Urban Co-Operative Bank, Nashik Peoples Co-

Operative Bank and South Indian Co-Operative Bank.

GROWTH:

The deposits of Saraswat Bank increased from Rs. 11430.82 crores as on 31st March

2008 to Rs.12993.20 crores as on 11/05/09.

The advances of Saraswat Bank decreased slightly from Rs.7448.31 crores as on 31st

March 2008 to Rs. 7846.64 crores as on 11/05/09.



FINANCIALS OF SARASWAT CO-OPERATIVE BANK

Particulars Year Ended 31.03.2007

Audited (Rs in Crores)

Year Ended

31.03.2008

Audited (Rs in

Crores)

Interest Earned 669.81 1023.11

Other Operating Income 116.44 154.49

TOTAL INCOME 786.25 1177.59

Interest Expenditure 395.61 696.85

Operating Expenditure 208.88 234.39

TOTAL EXPENDITURE 604.49 931.24

GROSS PROFIT 181.76 246.35

Less: Provisions 15.53 14.51

OPERATING PROFIT

BEFORE TAX 166.23 231.84

Less: Income tax expenses 26.90 29.58

NET PROFIT AFTER TAX 139.33 202.26

Deposits 8924.94 11430.82

Advances 6370.46 7448.31

Net NPAs % 0.00% 0.00%

Share capital of Saraswat Bank 57 71.21

Reserves 955.64 1017.07

Capital Adequacy (%) 11.37% 10.85%



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PRODUCTS

The products that are offered by Saraswat Bank can be categorized into SIX groups as

follows :

PERSONAL :

The bank offers retail deposit products like savings, current and term deposit

accounts. The Bank also offers a bouquet of Retail Loan Products such as Vastu

Siddhi Home Loan, Saraswati Education Loan, Car Loan etc. With a view of fulfilling

all the needs of the customers under one roof Bank has entered into tie-ups with

various premium institutions, through which third party products like Life and non-

Life Insurance, Mutual Funds and Demat Services are offered.



The ‗NO Frills‘ account called ‗Janhit Account‘ and the ‗CUBS‘ savings account for

the kids are the prominent features of this segment of products offered by Saraswat

Bank. Also, the bank has entered into a tie-up with one of the most respected and

leading industrial house of the nation, TATA MOTORS, to finance its world-

renowned most cost effective NANO cars.

NRI (Non Resident Indian) :

The Saraswat Co-operative Bank is the only Urban Co-operative Bank having a

permanent license from RBI to deal in foreign exchange. This division plays an active

role in the Forex operations through its B-category branches. The Bank has

relationship with more than 125 correspondent banks spread over 45 countries

covering nine currencies. The bank‘s International Banking Division monitors the

flow of export credit.

The bank offers various NRI deposit products (like FCNR, NRE, NRO and RFC

accounts) and personal loans (against the security of funds held in NRE accounts and

NRO accounts) to the NRI segment.

FCNR ACCOUNT: Foreign Currency Non Resident (FCNR) accounts are permitted

to be maintained in term deposits only from one year to five years by NRIs. Saraswat

Banks accepts such deposits in three currencies i.e. US Dollar, Sterling Pound and

EURO

NRE ACCOUNT: Non Resident (External) Accounts can be opened by Persons of

Indian nationality or origin resident abroad. This account is designated in rupees. It

can be maintained in the form of savings, current or term deposit accounts. Accounts

can be opened/credited with remittances from abroad/transfer from existing

NRE/FCNR accounts/ deposit of foreign exchange brought into India, during visits to

India. NRE Accounts can be opened jointly with any other Non-Resident Indian

Principal amount with interest earned is eligible for repatriation abroad

NRO ACCOUNT : When an Indian national or person of Indian origin residing in

India leaves India for a foreign country (other than Nepal and Bhutan) for taking up

employment, business or vocation outside India, or for any other purpose, indicating



his intention to say outside India permanently or for an indefinite period, he becomes

a person resident outside India. His bank account, if any, in India is designated as an

Ordinary Non-resident Account (NRO Account). Such accounts can also be opened

with funds remitted from abroad. Funds held in NRO accounts, can be repatriated

outside India with an overall limit of USD one million per calendar year including

sale of assets held by NRI‘s in India, on production of an undertaking and certificate

Interest earned on these deposits is not exempt from Indian Income-tax.

RFC ACCOUNT: Resident Foreign Currency Accounts are for the NRIs returning to

India permanently. The balances in NRE/FCNR accounts and other foreign currency

funds brought in by the NRI at the time of return and subsequently from the assets

maintained abroad could be freely invested in RFCs. The funds in RFCs can be

remitted abroad for any bonafide purpose of the account-holder or his dependents

without RBI`s approval. The funds can also be withdrawn by converting into rupees

for local payments. If the Returning Indian subsequently goes abroad to become an

NRI, the balance in his RFC account can be converted into an NRE/FCNR account.

Saraswat Bank accepts the RFC accounts in US Dollar currency.

CORPORATE:

The bank provides various products catering to the needs of the Mid Corporates,

Small & Medium Enterprises (SMEs), Traders, Professionals and Women

Entrepreneurs. The following arrays of facilities are being provided under this

segment:

Working Capital

Term Loan

Export Finance (Pre shipment and Post Shipment)

Import Finance

Bank Guarantees

Bill Discounting

Letter of Credit (Inland and Foreign)

Property Loan

Rental Loans

http://www.saraswatbank.in/view_section.jsp?lang=0&id=0,113,5,118











Treasury:

Saraswat Bank Ltd. is the first co-operative Bank to set up a ‗Unified Treasury‘

incorporating Foreign Exchange desk and Money Market desk. The Treasury is

located in the city of Mumbai and has a dealing room with ‗Reuters‘ and ‗Bridge‘

systems. All the treasury operations are completely computerised. The treasury

complies with the statutory obligations of maintaining C.R.R. and S.L.R. for the Bank

apart from managing overall funds. The Money Market desk is specialised in Money

market and Debt market. This is one of the active G. Sec traders in the market.

The following products are offered :

Debt market securities, including Government papers

Call money lending and borrowing

Retailing of Government Securities and other debt market securities

Treasury Bills and Commercial Papers trading

Demat :

Modernisation in the trading and settlement system has been witnessed in the capital

market through automated trading mechanism of Demat. The advent of Electronic

trading and settlement has brought in transparency in trading and has eliminated risks

associated with Bad Delivery and handling huge load of paperwork. The country has

made a remarkable growth in the capital market by switching over to electronic

trading.

Saraswat Bank is registered as depository Participant with NSDL since 22nd February

1999. Since then it provides the Demat Services to its customers. Services include

Pledge, Demat, Remat, Transfer & Settlement, and Transposition & Transmission.



Services:

The bank‘s value added services can be categorized under this segment. This includes

the following :

Easy Pay – Payment of utility bills like Telephone, Electricity Bills, Cellular Phone

Bills, Insurance Premium etc automatically through the customers‘ account.

Mobile Banking – This provides the authorized/registered users to avail the services

such as information relating to accounts, details about transactions etc.

ATMs – Provides the ATM facility to the customers. The customers can access over

2461 ATMs of 20 members Banks in "BANCS" network, which includes the ATMs

of the Saraswat Bank. For drawing cash from the ATMs of Consortium banks, no

charges are being levied.

Insurance – The bank has a tie-up with HDFC Standard Life Insurance Company Ltd

for offering the life insurance products. The life insurance products includes

Endowment plans, Children plan, Term plans, Pension plans/

For Non Life Insurance products, the bank has a tie-up with Bajaj Allianz General

Insurance Company Ltd, and offers Travel insurance, Health Insurance, Personal

Accident Insurance and Vehicle Insurance.

Mutual Funds - Considering the changes in Indian demographics (more than 70%of

the population below the age of 35), changes in investment pattern (rising disposable

incomes created a huge potential for investment in Insurance and Mutual Funds),

increased competition and thinning of Interest margins, the Indian Banking Industry

had to redesign their bouquet of products and introduce marketing of third party

products like Insurance and Mutual Funds, to increase fee based income.

To encash on this sentiment, the Saraswat Bank has entered into the Mutual fund

distribution business 5 years back and today it has a tie up with 21 fund houses with

total funds invested at around Rs 100 crores.



CORPORATE SOCIAL RESPONSIBILITY (CSR):

The corporate social responsibility of the bank is worth mentioning. Here CSR is not

a new fashion but it is an old creed. CSR constitutes the umbilical cord that connects

the bank to the society. Today the Bank is ninety year old but the importance of CSR

was understood presciently and intuitively by the leaders of the Bank in its infancy

itself. The corporate memory is resplendent with many examples of the early

awareness of CSR in the Bank. The laudable gesture of late Wamanrao Varde and his

associates on the Board then can never be forgotten in spontaneously responding to

the grave scarcity of foodgrains during the Second World War and in starting on

behalf of the Bank a ration shop at Girgaum in Mumbai to make available foodgrains

to all. At that time, Saraswat Bank was a wholly community Bank. The whole

community therefore applauded the gesture then.

Thereafter Saraswat bank, started scholarships and apprenticeships for deserving

students and through that process built the careers of several young men. It has been

providing financial assistance to many social, educational and medical institutions by

way of grants every year from its funds. From time to time, the Board of Directors

responded to national and natural calamities like flood, famine, earthquake etc., in a

magnificent way and employees of the Bank at all levels also contributed their mite in

equal measure towards such emergencies.

As a macro level expression of CSR, the bank in association with Maharashtra Times

created an intellectual platform entitled "Shikhar Maharashtra" with the objective of

researching into, debating and finding ways and means to deal with the many

stubborn economic and social issues that Maharashtra faces today. It is proposed that

at an interval of every three months, a major issue facing Maharashtra such as

farmers' suicides, malnutrition, foeticide, scarcity of drinking water, famine and

hunger, etc. is discussed threadbare on this nonpartisan platform by soliciting the

participation of intellectuals and social workers who are active in the field and

thereafter recommendations are made to the Government on the remedies that may

ameliorate the situation and pursued thereafter.

At the macro-level, another major issue that the bank took was one belonging to the

home turf viz. the 5,90,619 small depositors losing their hard earned money, which



they had kept in deposits in urban co-operative banks. It is here that the bank stepped

in, assimilated five ailing UCBs with it, resurrected all the deposits of all the

depositors and even restored those banks back to pristine health.

THE PROFILE :

The gists of the bank‟s profile are as follows :

Registered Office

Corporate Office

Date of Registration

No and Date of RBI Licence

Website

―Madhukosh‖, S.V. Sovani Path, Girgaum, Mumbai

– 400004

Mittal Court, ‗A‘ Wing, First Floor, Vidhan Bhavan

Marg, Nariman Point, Mumbai-400021

September 14, 1918

ACD- MH-220-P dated 27.08.1980

www.saraswatbank.com



ORGANISATION CHART

SARASWAT BANK

HEAD OFFICE

(NARIMAN POINT)

CHAIRMAN

VICE CHAIRMAN

DIRECTOR

MANAGING DIRECTOR



COMPANY MANAGEMENT

Board of Directors

Shri E. K. Thakur Chairman

Shri K. V. Rangnekar Vice-Chairman

Directors

Shri R. K. Patkar

Shri A. V. Dubhashi

Shri S. V. Deshpande

Shri S. S. Sanzgiri

Shri S. S. Shirodkar

Shri A. A. Pandit

Shri H. M. Rathi

Shri S. V. Saudagar

Shri S. D. Panse

Shri M. V. Desai

Dr. Shri. S. V. Bhende

Dr. (Smt.) A. P. Samant

Shri M. K. Mantri

Advisor to Board

Shri N. R. Warerkar

Managing Director

Shri S. K. Banerji

Joint Managing Director

Shri S. K. Sakhalkar



DEPARTMENT CHART

Zonal Office

Deputy General Manager

Assistant General Manager

Manager

Officer

Accountant Assistant

Clerk



CREDIT POLICY

The Credit Policy governs all credit and credit related exposures, fund based as well

as non-fund based and prescribes acceptance criteria for all forms of credit

dispensation. These would include short term, medium term and long term based

facilities, as also letters of credit, guarantees, acceptances, etc.

The objectives of the credit policy are reiterated as under:

1. Broad base the clientele of Corporate and Non-Corporate segments through

aggressive credit marketing, with focus on SME segment

2. Augment Credit Portfolio of the Bank consistent with the risk management

strategy of spreading risk for the purpose of minimizing the same

3. Address the genuine credit needs of the existing clients to ensure quicker and

prompt credit decision

4. Stringent assessment of new credit proposals, maintain & improve upon the

asset quality through effective monitoring the accounts and to maximize the

yield on advances

5. Develop the skill set of the officials looking after credit portfolio in keeping

with the changing trends in the economy, through training in areas like

appraisal, monitoring and unit inspection

6. Ensure compliance of all the directives/guidelines issued by Government /RBI

and all other regulatory requirements on credit matters

7. Evolve proper reporting system to fix the accountability

The Bank has a revised credit policy every year. The Broad highlights of the

Credit Policy for 2008-09 are :

The individual exposure is of Rs. 75 crores and that for group is Rs. 150 crores, which

has been well maintained between the RBI prudential exposure limits. The group

exposure has been differentiated further in respect of companies involved in similar

activities and those in diversified activities wherein sectoral risks are well spread

thereby increasing the Bank‘s comfort level. However, maximum group exposure is

taken only in respect of the group having existing relationship with us for a

considerable time.



In case of Proprietary concerns proprietary concerns, partnership firms and

companies, additional exposure is taken if and only if at least 4 of the below

mentioned 8 conditions are fulfilled:

Rating of the borrower is not below B

Borrower has applied for additional funds for diversifying into new ventures;

Borrower has finalized plans for introducing private equity whereby Debt equity

ratio would further improve than the existing.

Borrower is arranging for another Bank in consortium and the arrangement is in

the final stage.

In case if the exposure is to the Export oriented unit, borrower has taken per party

ECGC (Export Credit Guarantee Cover) to secure against credit default.

Independent collateral cover offered is more than 50% of the advance applied;

Activity of the company is such that the value addition is very high (raw material

consumption to sales is less than 70% as per the actuals for the last three years)

Insurance cover is obtained

Exposure norms laid down are as follows:

Exposure means outstanding balances in term/corporate loan account/s and sanctioned

working capital limits or outstanding balance, sanctioned DA L/C limit, bank

guarantee limit, sight L/C limit or outstanding balance whichever is higher net of

deposits held as margin for the credit limits sanctioned.

1. The above exposure limits in terms of credit concentrations is applicable only for

business/industrial loans including real estate loans (rent receivable, property

loans and construction) and not for credit against any tangible/liquid securities

such as, Term Deposits of the Bank, Government securities, Life Insurance policy

and RBI Relief Bonds. However, in case of loans against shares the exposure

norms are applicable as per the circular issued in this regard i.e. Rs.10.00 lacs

maximum against demated shares.



2. The Bank doesn‘t lend to unregistered partnership firms or unregistered co-

operative societies.

3. The bank continues to follow RBI guidelines in regard to definition of a group.

As per RBI guidelines, a group is defined as a group of firms/corporate wherein

one or more than one directors/partners/major shareholders and their relatives are

common. Guiding principle has to be commonality of management and effective

control.

4. Near relatives include spouse, brothers, sisters, parents and children. Major

shareholding is defined as more than 10% of equity capital in respect of public ltd.

companies, more than 25% shareholdings in respect of private limited companies

and share of 25% of profits in case of partnership firms. In addition if a

private/public ltd. company holds more than 26% of share holding in another

private/public ltd. company and/or partnership firm, said concern is deemed to be

a group concern.

5. Any additional exposure over and above the prescribed exposure shall be treated

as deviation and would require prior clearance from appropriate authority before

accepting the proposal.

6. In case of their existing customers if the exposure is going beyond the ceiling we

may advise the customer to arrange for another bank in consortium, go for

multiple banking or approach provider of private equity. The bank may also allow

exit options for the customers if the exposure is going beyond the ceiling or where

the exposure is exceeding the individual sector wise exposure limit.

Credit Enquiry Reports & Techno–Economic Viability Reports:

The Branches / Zonal offices are required to conduct due diligence on new borrower /

new connection by conducting credit enquiry in the market in addition to obtaining

credit / opinion report from its existing bankers in respect of advances above Rs 25

lacs.



Credit Enquiry Report and Techno-Feasibility Report are undertaken from CE

Department for business proposals, exceeding an amount of Rs.100 lakhs. In case of

proposals involving large exposures i.e. exceeding Rs. 500 lacs, Techno Economic

Viability (TEV) reports are obtained from experts in this field.

Method of assessment for Working Capital requirement:

The bank uses the MBPF i.e. Maximum Permissible Bank Finance method for

calculation of Working Capital Requirement. For borrowers enjoying fund based

working capital limits in excess of Rs.5.00 crores, it is explored that 25% of the book

debts are financed through bills. The bank is in the process of arranging Credit

insurance on the lines of ECGC (Export Credit Guarantee Cover) from General

Insurance Companies mainly for insuring receivables. The requirement of working

capital therefore is split into limit against receivables and limit against stocks.

Margin against receivables can be reduced upto 10% and also finance against debtors

beyond 90 days upto 180 days can be given where such insurance cover is available.

Once the assessment of working capital limit including DA L/C limit is done and

approved, the interchangeability between these two limits and interchangeability

between L/C limit and bank guarantee limit if for any reason is required to be done, it

should be done with proper assessment and approval by the respective sanctioning

authority.

MPBF Method:

Reserve Bank of India has withdrawn the prescription in regard to the assessment of

working capital needs based on the concept of Maximum Permissible Bank finance

(MPBF).

a. As far as possible second method of lending i.e. minimum NWC 25% of total

current assets is applied to all the credit exposure above Rs.25.00lacs. The same

can be relaxed to first method of lending i.e. minimum NWC 25% of Working

capital Gap in deserving cases for credit limits of Rs.25.00 lacs to Rs.100.00 lacs

with proper justification and future plan of building up of NWC upto the desired

level.



b. As per earlier RBI guidelines following heads are to be excluded from current

assets while calculating MPBF. Margin against L/C, B/G, Fixed deposits for

payment of sales tax deferral, advances to associate concerns, directors, partners,

investment in associates, shares, debentures, debtors above six months and non

moving stock.

c. However, while calculating net worth the above items except following should be

treated as non current assets and should form part of net worth:

Advances to associates/ investments in associates.

Debtors above six months if stuck up and not recoverable.

Non-moving/ old obsolete stock.

These items should be deducted from net worth.

d. Bills negotiated under L/C‘s: As working capital requirements for the same are

assessed separately, receivables under L/C need not be included in the current

assets. Similarly, bank borrowings under bills purchased/ negotiated under L/C‘s

need not be included under current liability. They should be shown as contingent

liability as additional information.

e. Term loan installments / Deferred Payment Guarantee (DPG) installments falling

due for payment during the next 12 months may be included under current

liabilities.

f. While calculating MPBF under first method of lending or second method of

lending DA L/C will be considered as working capital limits and the credit

enjoyed against D.A. L/C should be reflected in the creditors while assessing the

limit and margins on stocks, debtors and creditors should be considered

accordingly.



CREDIT PROPOSAL

Credit is the provision of resources 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 at a later date. It is any form

of deferred payment. The first party is called a creditor, also known as a lender

Movements of financial capital are normally dependent on either credit or equity

transfers. Credit is in turn dependent on the reputation or creditworthiness of the

entity which takes responsibility for the funds.

The credit concept can be applied in barter economies based on the direct exchange of

goods and services, and some would go so far as to suggest that the true nature of

money is best described as a representation of the credit-debt relationships that exist

in society.

Commercial Credit

Definition

A bank loan to a company also called commercial lending or business credit.

A term used in accounting to describe either an entry on the righthand side of an

account or the process of making such an entry. A credit records the increases in

liabilities, owners‘ equity and reserves as well as the decreases in assets and expenses.

The ability of an individual or a company to borrow money or procure goods on time,

as a result of a positive opinion by the particular lender concerning such borrower‘s

solvency and reliability. The right granted by a creditor to a debtor to delay

satisfaction of a debt, or to incur a debt and defer the payment thereof.

Consumer credit consists of short-term loans made to people so that they can purchase

consumer goods and services for personal or household purposes.

The term credit has various applications to transactions that involve borrowing. Credit

can be used in reference to the ability to postpone payment, as in the case of an

individual who has credit with a local store that allows purchase of items on weekly

basis and settlement of account due once a month. An individual might also be

http://en.wikipedia.org/wiki/Financial_capital

http://en.wikipedia.org/wiki/Equity

http://en.wikipedia.org/wiki/Creditworthiness

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extended a credit line, the maximum amount of money that a lender will put at a

borrower‘s disposal. In such a case, an individual enters into an agreement for taking

out a series of loans. Since there is a fixed limitation on the amount to be borrowed,

payments must be made to reduce the debt incurred when the maximum is reached.

RBI vide its circular Dt. May 5, 2003 and March 6, 2007 directed all scheduled

commercial banks to adopt the Fair Practice Code for lenders. Even though it is not

mandatory, Saraswat Co-operative Bank has adopted following Fair Practice Code for

its lending activities:



CREDIT LENDING PROCEDURE

i. Application and processing of loans:

- The Bank gives information explaining the key features of their loan products.

- Along with the application form the Bank provides all the information about fees/

charges payable for processing, the amount of such fees refundable in the case of non-

acceptance of application, pre-payment options etc to the prospective borrower.

- The Bank advises applicant about what information/ documentation is required with

respect to the identity, address, employment, etc. and any other document that is

stipulated by statutory authorities, in order to comply with legal and regulatory

requirements.

- The Bank also gives acknowledgement for receipt of all loan applications.

- The applicant is informed about the time frame within which loan application would

be disposed of.

- The Bank verify‘s the loan applications within a reasonable period of time.

- The Bank conveys in writing to the applicant the main reason/ reasons for rejection

of the loan applications.

ii. Loan appraisal:

- The Bank ensures proper assessment of credit application of the borrowers

- The Bank conveys to the borrower the credit limit along with the terms and

conditions thereof

- They keep the borrower‘s acceptance of terms and conditions on record

- The Bank provides the copy of the loan agreement along with a copy of all

enclosures quoted in the loan agreement to the borrower

- Borrower is made aware that following credit facilities are solely at the discretion of

lenders

- Drawings beyond the sanctioned limits

- Honouring cheques issued for the purpose other than specifically agreed to in the

credit sanction

- Disallowing drawing on a borrowal account on its classification as a non-performing

asset



- Disallowing drawing on a borrowal account on account of non-compliance with the

terms of sanction.

- In the case of lending under consortium (2 to 3 banks come together to fund)

arrangement, the Bank and other participating lenders evolve procedures to complete

appraisal of proposals in the time bound manner to the extent feasible, and

communicate their decisions on financing or otherwise within a reasonable time.

iii.Disbursement of loans:

- The Bank ensures timely disbursement of loans.

- The Bank gives notice of any change in the terms and conditions including interest

rates, service charges etc.

- The Bank ensures that changes in interest rates and charges are effected only

prospectively.

iv.Guarantee:

The Bank tells the person, before accepting him as guarantor about:

-His liability as guarantor

-The amount of liability he will be committing to the bank

-Circumstances in which he will have to pay up the liability

-Whether the Bank has recourse to his money in the bank if he fails to pay up as a

guarantor

-Whether his liabilities as a guarantor are limited to a specific quantum or are they

unlimited

-Time and circumstances in which his liabilities as a guarantor will be discharged as

also the manner in which the Bank will notify him about this.

v. Post disbursement supervision:

- Borrower is made aware of the submission schedule of various stock statements/

financial accounts etc to the Bank and the penalties, in case of default by the

borrower.

- Borrower is made aware of the stock audit/ credit rating etc to be completed by the

external agencies and the details of cost to be borne by him.



- The Bank gives notice to the borrowers before taking a decision to recall/ accelerate

payment or performance under the agreement or seeking additional securities.

- The Bank releases all securities on receiving payment of loan or realization of loan

subject to any legitimate right or lien for any other claim the Bank may have against

borrowers.

- If such right of set off is to be exercised, the Bank gives notice about the same to the

borrower with full particulars about the remaining claims.

vi.General:

- The Bank refrains from interference in the affairs of the borrowers except for what is

provided in the terms and conditions of the loan sanction documents (unless new

information, not earlier disclosed by the borrower, has come to the notice of the

lender)

- The Bank doesn‘t discriminate on grounds of sex, caste and religion in the matter of

lending.

- In the matter of recovery of loans, the Bank doesn‘t resort to undue harassment such

as persistently bothering the borrowers at odd hours, use of muscle power for

recovery of loans, etc.

- In case of receipt of request for transfer of borrowal account, the Bank conveys

consent or otherwise within 21 days from the date of receipt of request.

vii. Grievance Redressal Mechanism:

The Bank has prepared separate document for redressal of grievances, which is

displayed on the website, wherein clear procedure for resolving disputes is explained.



TYPES OF CREDIT PROPOSALS

Funded Facility:

A) Cash Credit:

In 1979 the Reserve Bank of India set up a working group to review the cash

credit system. Cash credit is a short-term cash loan to a company. A bank

provides this type of funding, but only after the required security is given to

secure the loan. Once a security for repayment has been given, the businesses

that receive the loan can continuously draw from the bank up to a certain

specified amount. This type of financing is similar to a line of credit.

Sometimes bank funding is just out of the question. Unless your business has

excellent credit and a proven track record, a bank loan will be nearly

impossible to obtain.

Features of Cash Credit

1) Annual Review of Accounts:

Banks are required to review accounts of all the borrowers having working

capital limits of Rs. 10 lacs and over from the banking system at least once in

a year.



2) Bifurcation of Accounts Discontinued:

The Reserve Bank withdrew its earlier directive to the banks requiring them to

bifurcate the cash credit accounts into demand loan and cash credit

components and to charge differential rate of interest. In case of accounts

already bifurcated, the differential rates were to be abolished immediately.

3) Withdrawal of Funds:

After the credit limits are sanctioned as stated above, the borrower should be

required to indicate, before the commencement of each quarter, his expected

requirement of funds in that quarter. Such limits are called the operating

limits. Borrower is expected to withdraw funds from the bank within the

operating limit in that quarter subject to a tolerance of 10 per cent either way.

If a borrower draws more than or less than these tolerance limits, it must be

considered as an irregularity in the account, which is the consequence of

defective planning by the borrower.

4) Temporary limits:

Bank should very carefully consider request for temporary limits in excess of

the sanctioned limits to meet unforeseen contingencies. Such limits should be

allowed for predetermined short durations may be in the form of a separate

demand loan or non operable cash credit account, bearing an additional

interest of one percent over the normal rate. If the borrower in such a case is

unable to provide corresponding additional contribution, bank may ignore the

same.

B) Term Loans:

Term loans are also known as term/project finance. They represent a source of

debt finance which is generally repayable in more than one year but less than

07 years. The primary sources of such loans are financial institutions.

Commercial banks also provide term finance in a limited way. The financial

institutions provide project finance for new projects as also for expansion /

diversification and modernization whereas the bulk of the term loans extended

by banks are in the form of working capital loan to finance the working capital

gap.



FEATURES OF TERM LOANS:

Maturity:

The maturity period of term loans is typically longer in case of sanctions by financial

institutions in the range of 6-10 years in comparison to 3-5 years of bank advances.

However, they are rescheduled to enable corporate borrowers tide over temporary

financial exigencies.

Security:

Term loans typically represent secured borrowing. Usually assets, which are financed

with the proceeds of the term loan, provide the prime security. Other assets of the firm

may serve as collateral security.

All loans provided by financial institutions, along with interest, liquidated damages,

commitment charges, expenses, etc., are secured by way of:

a) First equitable mortgage of all immovable properties of the borrower, both present

and future for the entire institutional loan including commitment charges, interest,

liquidated damages and so on; and

b) Hypothecation of all movable properties of the borrower, both present and future,

subject to prior charges in favour of commercial banks for obtaining working

capital finance / advance.

Non-Funded Facility:

A) Letter of Credit :

A letter of credit, sometimes called a creditor‘s bill, is a written instrument from a

bank or merchant in one location requesting that anyone or some specifically named

individual, advance money or items on credit to the individual holding, or named in,

the letter. Repayment of the debt is guaranteed by the bank or merchant issuing the

letter. Letters of credit are popular in international commercial transactions because

they enable parties to transact business without the need to exchange large amounts of

cash.

This type of instrument was also popular prior to the common usage of credit cards

and travelers checks. A letter of credit is an instrument which facilitates trade

transactions between two parties who are not known to each other. A letter of credit

carries a promise or an undertaking by the issuing banker which is valued and

honoured on a global basis.



Advantages of Letter of Credit:

a) Certainly of payment and avoidance of risk. Though the exporter may be quite

unfamiliar with the importer, the letter of credit provides him an absolute.

b) Assurance that the bills of exchange drawn under the letter of credit will be

honoured.

c) Immediate negotiation of the bills is possible under letter of credit.

d) Security against exchange restriction the opening banker issues a letter of credit

after having been satisfied that the exchange control regulations of his own

country do not impose any restriction on the transfer of money for the purpose in

question.

L/C working is as follows:

Import L/C (DA – 90 days):

Projected Purchases under DA L/C.:- Rs.X lacs

No. of days from issue of L/C to shipment: - Y Days

Transit: - Y Days

Usance: - 90 Days

Lead period: - 100 Days

L/C facility works to X x 100 = Z lacs

360

B) Bank Guarantees :

Contracts of guarantee have special significance in the business of banking as a

means to ensure safety of funds lent to the customers. The safety of such funds is

primarily ensured by securing a charge over the tangible assets owned by the

borrower and by the personal security of the letter.

Significance of guarantee as a security for a loans granted has greatly

increased in recent years since the introduction of social control on banks and

specially after the nationalization of major banks, great attention is being paid

towards augmenting bank advances for small and neglected borrowers who are

unable to provide sufficient tangible assets as security. To safeguard the interest of

the lending bankers, arrangement has been made of providing guarantees in



respect of such advances by the deposit insurance and Credit Guarantee

Corporation of India.

A contract of guarantee is thus a secondary contract the principal contract

being between the creditor and the principal debtor themselves. If the promise or

liability in the principal contract is not fulfilled or discharged only then the

liability of the guarantor or the surety arises. It can be said as ―A type of guarantee

in which a bank or other lending organization promises to repay the liabilities of a

debtor in the event that the debtor is unable to.‖

http://www.investorwords.com/2264/guarantee.html

http://www.investorwords.com/401/bank.html

http://www.investorwords.com/5909/lending.html

http://www.investorwords.com/3504/organization.html

http://www.businessdictionary.com/definition/promise.html

http://www.investorwords.com/7199/repay.html

http://www.investorwords.com/5911/liabilities.html

http://www.investorwords.com/1323/debtor.html

http://www.businessdictionary.com/definition/event.html



RATIOS

Ratio Analysis:

A relationship between various accounting figures, which are connected with each

other, expressed in mathematical terms, is called accounting ratios.

According to Myers, Ratio analysis of financial statements is a study of relationship

among various financial factors in a business as disclosed by a single set of statements

and a study of trend of these factors as shown in a series of statements.

Ratio analysis is one of the techniques of financial analysis to evaluate the financial

condition and performance of a business concern. Simply, ratio means the comparison

of one figure to other relevant figure or figures.

Ratio analysis is the method or process by which the relationship of items or groups

of items in the financial statements are computed, determined and presented.

Ratio analysis is an attempt to derive quantitative measures or guides concerning the

financial health and profitability of the business enterprise. Ratio analysis can be used

both in trend and static analysis. There are several ratios at the disposal of the analyst

but the group of ratios he would prefer depends on the purpose and the objectives of

the analysis.

Accounting ratios are very useful as they briefly summarise the result of detailed and

complicated computations. Absolute figures are useful but they do not convey much

meaning. In terms of accounting ratios, comparison of these related figures makes

them meaningful.

Accounting ratios are effective tools of analysis. They are indicators of managerial

and overall operational efficiency. Ratios, when properly used are capable of

providing useful information. Ratio analysis is defined as the systematic use of ratios

to interpret the financial statements so that the strengths and weaknesses of a firm as

well as its historical performance and current financial condition can be determined



the term ratio refers to the numerical or quantitative relationship between items/

variables.

This relationship can be expressed as:

a. Fraction

b. Percentages

c. Proportion of numbers

The alternative methods of expressing items which are related to each other are, for

purposes of financial analysis, referred to as ratio analysis. It should be noted that

computing the ratio does not add any information in the figures of profit or sales.

What the ratios do is that they reveal the relationship in a more meaningful way so as

to enable us to draw conclusions from them.

Advantages and Uses of Ratio Analysis

There are various groups of people who are interested in analysis of financial position

of a company. They use the ratio analysis to workout a particular financial

characteristic of the company in which they are interested. Ratio analysis helps the

various groups in the following manner: -

1) To workout the profitability: Accounting ratio help to measure the profitability of

the business by calculating the various profitability ratios. It helps the management to

know about the earning capacity of the business concern. In this way profitability

ratios show the actual performance of the business.

2) To workout the solvency: With the help of solvency ratios, solvency of the

company can be measured. These ratios show the relationship between the liabilities

and assets. In case external liabilities are more than that of the assets of the company,

it shows the unsound position of the business. In this case the business has to make it

possible to repay its loans.

3) Helpful in analysis of financial statement: Ratio analysis help the outsiders just

like creditors, shareholders, debenture-holders, bankers to know about the profitability

and ability of the company to pay them interest and dividend etc.



4) Helpful in comparative analysis of the performance: With the help of ratio

analysis a company may have comparative study of its performance to the previous

years. In this way company comes to know about its weak point and be able to

improve them.

5) To simplify the accounting information: Accounting ratios are very useful as

they briefly summarise the result of detailed and complicated computations.

6) To workout the operating efficiency: Ratio analysis helps to workout the

operating efficiency of the company with the help of various turnover ratios. All

turnover ratios are worked out to evaluate the performance of the business in utilising

the resources.

7) To workout short-term financial position: Ratio analysis helps to workout the

short-term financial position of the company with the help of liquidity ratios. In case

short-term financial position is not healthy efforts are made to improve it.

8) Helpful for forecasting purposes: Accounting ratios indicate the trend of the

business. The trend is useful for estimating future. With the help of previous years‘

ratios, estimates for future can be made. In this way these ratios provide the basis for

preparing budgets and also determine future line of action.

Limitations of Ratio Analysis:

In spite of many advantages, there are certain limitations of the ratio analysis

techniques and they should be kept in mind while using them in interpreting financial

statements. The following are the main limitations of accounting ratios:

1) Limited Comparability: Different firms apply different accounting policies.

Therefore the ratio of one firm can not always be compared with the ratio of other

firm. Some firms may value the closing stock on LIFO basis while some other firms

may value on FIFO basis. Similarly there may be difference in providing

depreciation of fixed assets or certain of provision for doubtful debts etc.



2) False Results: Accounting ratios are based on data drawn from accounting records.

In case that data is correct, then only the ratios will be correct. For example, valuation

of stock is based on very high price, the profits of the concern will be inflated and it

will indicate a wrong financial position. The data therefore must be absolutely correct.

3) Effect of Price Level Changes: Price level changes often make the comparison of

figures difficult over a period of time. Changes in price affect the cost of production,

sales and also the value of assets. Therefore, it is necessary to make proper

adjustment for price-level changes before any comparison.

4) Qualitative factors are ignored: Ratio analysis is a technique of quantitative

analysis and thus, ignores qualitative factors, which may be important in decision

making. For example, average collection period may be equal to standard credit

period, but some debtors may be in the list of doubtful debts, which is not disclosed

by ratio analysis.

5) Effect of window-dressing: In order to cover up their bad financial position some

companies resort to window dressing. They may record the accounting data according

to the convenience to show the financial position of the company in a better way.

6) Costly Technique: Ratio analysis is a costly technique and can be used by big

business houses. Small business units are not able to afford it.

7) Misleading Results: In the absence of absolute data, the result may be misleading.

For example, the gross profit of two firms is 25%. Whereas the profit earned by one is

just Rs. 5,000 and sales are Rs. 20,000 and profit earned by the other one is Rs.

10,00,000 and sales are Rs. 40,00,000. Even the profitability of the two firms is same

but the magnitude of their business is quite different.

8) Absence of standard university accepted terminology: There are no standard

ratios, which are universally accepted for comparison purposes. As such, the

significance of ratio analysis technique is reduced.



Types of Ratio:

a. Liquidity Ratio

b. Profitability Ratio

c. Turnover Ratio

d. Capital Structure Ratio

e. Coverage Ratio

A) Liquidity Ratio:

The following ratio‘s come under this head:

1. Current Ratio

2. Quick Ratio

B) Profitability Ratio:


1. Gross Profit Ratio

2. Net Profit Ratio

3. Return on Assets

4. Return on Equity

5. Return on Capital Employed

C) Turnover Ratio


1. Inventory Turnover Ratio

2. Debtor‘s Turnover Ratio

3. Creditor‘s Turnover Ratio

4. Fixed Assets Turnover Ratio

D) Capital Structure Ratio


1. Capital Gearing Ratio

2. Debt Equity Ratio



E) Coverage Ratio


1. Interest Coverage Ratio

2. Dividend Coverage Ratio

3. Total Coverage Ratio

The Saraswat Co-Op. Bank uses following Ratios:

1) Own Fund Ratio:

This ratio includes opening balance, profit & loss, capital introduced, Reserves &

Surplus, Deferred tax, (drawing) & Net Worth

Own Fund Ratio: Opening Balance + Profit & Loss + Capital Introduced + Reserves

& Surplus – Drawing / Net Worth.

2) Current Ratio:

Current Ratio includes Current Assets & Current Liabilities.

Current Ratio = Current Assets / Current Liabilities

The minimum limit is 1.33 and any ratio below 1.33 is treated as deviation. As

regards proposals having exposures below Rs.1.00 crore and depending upon type of

activities/products, life cycle of production process, performance under other

parameters is permissible in deserving cases, but not below 1.17. Any such proposal

having current ratio lower than 1.17 is treated as deviation.

3) Debt equity Ratio:

Shareholders funds consist of Preference Share Capital, Equity Share Capital, Capital

Reserves, Revenue Reserves and Reserves representing earmark surplus. The amount

of fictitious assets is deducted from the above. Debts represent long-term debts. It

includes mortgage loans and debentures.

Debt equity Ratio = Borrowed Funds / Shareholders funds



For this ratio debt means sanctioned Fund based working capital limits or

outstandings whichever is higher plus outstanding term loans plus Letter of Credit -

usance limit or outstanding whichever is higher.

Particulars of Industry Norms Outer limit *

Manufacturing unit (S.S.I. only) 2.5 3.5:1

Other manufacturing units 2: 1 2.5:1

Trading units 1.25: 1 1.75:1

Diamond Industry As stipulated in Export policy

* Beyond which if proposal is considered, it amounts to deviation.

4) Interest Service Coverage Ratio:

The ISCR is a measurement of the number of times the company could make its

interest payments with its earning before interest and depreciation but after tax.

Higher ratio sounds the better financial capacity of the unit to serve the debt burden of

the company.

ISCR = Profit after Tax + Depreciation + Interest on Unsecured loan & Working

Capital / Interest on Working Capital & Unsecured Loan.

ISCR has to be calculated where only working capital limits are enjoyed with the

bank.

Numerator PAT + Depreciation + Interest

Denominator Total interest payable by unit to Banks, FIs

including interest on WC limits and interest on

Unsecured Loans

# This ratio should not be less than 2.5. ISCR below 2.5 is treated as a

deviation and proposals having ISCR below 2 deserve rejection from bank.



5) Debt Service Coverage Ratio (D.S.C R.):

Profit after tax + Int. on Term loan & working capital limits + Depreciation

Int. on Term loan & working capital limits + Term loan installment payable

It is the ability of a firm to make the contractual payments required on a scheduled

basis over the life of the debt. It is considered a more comprehensive and apt measure

to compute debt service capacity of a business firm. It provides the value in terms of

the number of times the total debt service obligations consisting of interest and

repayment of principal in installments are covered by the total operating funds

available after the payment of taxes. The higher the ratio, the better it is.

While calculating the cash accruals, the income generated from the business activity

should be considered and introduction of capital /unsecured loans should not be

considered. Normally an annual/average DSCR should be minimum of 1.5. However,

annual/average DSCR between 1.4 to 1.50 is accepted but with proper justification.

DSCR below 1.40 is treated as a deviation. An annual/average DSCR 1.25 or less

deserves outright rejection of the credit proposal.

6) Sales to Working Capital Ratio :

This ratio includes sales and working capital.

Sales to Working Capital Ratio = Sales / Working Capital.

7) Sales to Fixed Assets Ratio :

This ratio includes sales and Fixed Assets.

Sales to Working Capital Ratio = Sales / Fixed Assets.

8) Assets Coverage Ratio :

This ratio includes fixed assets and term loan, cash credit.

Assets Coverage Ratio = Total Fixed Assets / Term loan + Cash Credit.

8) Quick Ratio :

In finance, the Acid-test or quick ratio or liquid ratio measures the ability of a

company to use its near cash or quick assets to immediately extinguish or retire its

http://en.wikipedia.org/wiki/Finance

http://en.wikipedia.org/w/index.php?title=Near_cash&action=edit&redlink=1

http://en.wikipedia.org/w/index.php?title=Quick_asset&action=edit&redlink=1



current liabilities. Quick assets include those current assets that presumably can be

quickly converted to cash at close to their book values.

Quick Ratio = Cash + Marketable Securities + Accounts Receivable

Current Liabilities

Generally, the acid test ratio should be 1:1 or better, however this varies widely by

industry.

http://en.wikipedia.org/wiki/Current_liability

http://en.wikipedia.org/w/index.php?title=Quick_asset&action=edit&redlink=1

http://en.wikipedia.org/wiki/Current_asset

http://en.wikipedia.org/wiki/Book_value



PROCESS OF GRANTING CREDIT

A) Collection of Documents:

Audited profit and Loss A/c, Balance Sheet for the Current Year

Month wise sales, purchases for the last year and current year

Party wise major sales, purchases for the last year

Pending orders in hand

Xerox copies of tax payments especially Sales Tax, Income Tax, Service Tax,

Wealth Tax

Assets and liability statement certified by a Chartered Accountant

CIN and DIN in case of Companies

Insurance Policy for stock & other assets duly endorsed in banks name

Borrowings in the personal name of Directors / Partners (if any) from other banks

/ other sources

B) Proposal :

Bank makes proposal on the basis of required documents. The Proposal shows the

capacity of the company by calculating various ratios and by giving comments on

those ratios.

Proposal includes, establishment of the company, activity, rate of interest,

sanction limit of cash credit and term loan and background of the company. The

applicable rate of interest is dependent upon the Credit Rating Model of the bank.

The Credit Rating model is divided into:

Financial parameters & Commercial & Technical Factors & Management factors &

Industrial Parameters.

The financial parameters include the ratios to which certain marks are allotted. These

marks vary depending upon the values obtained. Based upon the total marks obtained

a rating is achieved which helps to determine the rate of interest applicable.



The Financial parameters include ratios such as:

i. Current ratio

ii. Debt-Equity ratio

iii. PBDIT to sales ratio

iv. Sales to Working Capital exposure ratio

v. Sales to Fixed / Current assets ratio

vi. Debt Service Coverage Ratio

vii. Interest Service Coverage Ratio

viii. Trend Analysis

Here the trend in the outcome of ratios for the past three years is

considered. The ratios scrutinized here are

1. Current Ratio

2. Debt-Equity Ratio

3. Sales Growth Rate

4. Cash Accruals

Commercial & Technical Availability includes:

a. Raw Material availability

b. Competition faced

c. User / Product Profile

d. Technology used

e. Quality Control

f. Distribution Network

g. Recovery

Management parameters include:

a. Expertise / Technical Competitors

b. Integrity

c. Track Record

Industrial Parameters:

Based on the preference of the industry the marks are allotted



This table shows how the rating is done based upon the score obtained

The present Prime Lending Rate (PLR) of the bank is 13.00%

Sr. No. Credit Rating Score Applicable ROI

I PRIME 90 & Above 13.00

II A 81 – 90 13.50

III B 71 – 80 14.00

IV C 55 – 70 15.00

V D 41 – 54 16.00

VI E Below 40 17.00

The credit rating is must for every account and every year the credit rating of a

particular account is done. The PLR is determined by the bank & is based upon the

economic condition.



CASE

„XYZ‟ Private Limited Company.

Constitution: Private Limited Company

Establishment: 1994

Banking with us since: 1994

Sector: Trading

Present PLR: 13.00%

Rating: B

Applicable ROI; PLR + 1.00% i.e. 14.00%

Activity: Trading

Products: Alphox, Polymeg, Sorbitrol, Sodium Hydro Suplhite, Maize Starch, Liquid

Glucose, Dicyandiamide.

Background:

The company is mainly in the business of trading in dyes and chemicals. The

company is an authorized distributor of major chemical companies. The main

range of products traded by the company are Alphox, Polymeg, Sorbitrol, Sodium

Hydro Suplhite, Maize Starch, Liquid Glucose, Dicyandiamide etc. which find

uses in the various industries like textile pharmaceuticals, glassware etc.

Type of Facility

Sancd. Limit

Ruling Limit

Addl.

Applied

Addl.

Recomd.

Total O/s Bal.

31.03.09

Overdues

(1) (2) (3) (4) (5) (6) (7) (8)

Cash Credit *

130.00 120.00 50.00 - 130.00 18.64 -

Total Funded

130.00 120.00 50.00 - 130.00 18.64 -

Letter of Credit-90

days

70.00 70.00 50.00 40.00 110.00 90.78 -

Bank guarantee

15.00 15.00 - - 15.00 10.05 -

Total N-Funded

85.00 85.00 50.00 - 125.00 100.83 -

Total FB + NFB

215.00 205.00 100.00 40.00 255.00 119.47 -



The applicant company has started importing products like DCDA from China.

The products are finding a very good demand in the Indian market mostly in the

textile and pharma industry for which the marketing channel has already been

established by the company by way of its existing clientele.

The CIBIL Inquiry was carried out and the account described was Standard. Carrying

out CIBIL (Credit Information Bureau India Limited). The need for such enquiry can

be described as below:

At a time when the economy is growing more resilient and self-sufficient, the demand

for credit is on the rise. Borrowers are sometimes predisposed towards taking

advantage of the system by moving from one institution to another, despite being

defaulters in their earlier banking relationships. The aim of CIBIL's Commercial

Credit Bureau is to minimise instances of concurrent and serial defaults by providing

credit information pertaining to non-individual borrowers such as public limited

companies, private limited companies, partnership firms proprietorships, etc. CIBIL

maintains a central database of information as received from its Members. CIBIL then

collate and disseminate this information on demand to Members, in the form of

Commercial Credit Information Reports (CIR) to assist them in their loan appraisal

process.

The CIN and DIN of the company were referred from the website www.mca.gov.in

(CIN-Company Identification Number & DIN- Directors Identification Number) This

is useful to know whether the company is really in existence and have the directors

really registered for that company. The charge against the fixed assets has to be

registered with the ROC. For this there is a need to know whether the company is in

existence.




The Financials for „XYZ‟ Private limited Company

Profit and Loss A/c

XYZ Pvt. Ltd.

OPERATING STATEMENT SCHEDULE 4

Audited 2005-06

Audited 2006-07

Audited 2007-08

Proj. 2008-09

Prov. 2008-09

Local Sales (Mfg.) 818.21 1,240.00 1,701.16 2,500.00 2,370.08

Local Trading/ Jobwork - -

Export sales (Mfg.) - - - - -

Export sales (Trading) - - - - -

Total Gross Sales 818.21 1,240.00 1,701.16 2,500.00 2,370.08

Less: Excise Duty/ Returns - - - - -

NET SALES 818.21 1,240.00 1,701.16 2,500.00 2,370.08

12.76% 52% 37.19% 46.96% 39.32%

MATERIAL CONSUMED

Imported - -

Indigenous 786.41 1,271.33 1,565.07 2,275.00 2,153.96

Material consumption to sales ratio 96.11 102.53 92.00 91.00 90.88

Packaging material - - - - -

Spares, stores & consumables - - - - -

Power, fuel, water - - - - -

Direct labour - - - - 2.65

Direct expenses - - - 80.00 60.51

Depreciation 2.54 1.90 1.42 1.00 1.07

Sub Total 788.95 1,273.23 1,566.49 2,356.00 2,218.19

Add :Opening W.I.P. - - - - -

Less: Closing W.I.P. - - - - -

Cost of Production 788.95 1,273.23 1,566.49 2,356.00 2,218.19

Add : Opening Finished Goods 1.85 13.38 111.10 99.00 98.52

Less: Closing Finished Goods 13.38 111.10 98.52 115.00 122.58

Cost of Sales 777.42 1,175.51 1,579.07 2,340.00 2,194.13

92.82 93.60 92.58

GROSS PROFIT 40.79 64.49 122.09 160.00 175.95



G.P.% 4.99% 5.20% 7.18% 6.40% 7.42%

Interest to Bankers 2.40 8.62 11.84 28.00 12.71

Interest to Unsec. Loans 0.88 1.35 1.19 - -

Selling & Administration Exp. 41.77 50.91 104.57 120.00 133.13

Salary/ Int.to partners/Dir. - 5.40 - - 17.98

Sub Total 45.05 66.28 117.60 148.00 163.82

OPERATING PROFIT (4.26) (1.79) 4.49 12.00 12.12

Operating Profit % -0.52% -0.14% 0.26% 0.48% 0.51%

Other Income 11.95 10.42 10.56 15.00 6.20

Other Expenses

Net Other Income 11.95 10.42 10.56 15.00 6.20

Profit Before Tax 7.69 8.63 15.05 27.00 18.32

P.B.T.% 0.94% 0.70% 0.88% 1.08% 0.77%

Less: Tax Provision 2.84 3.44 5.85 8.00 -

N.P. After Tax 4.85 5.19 9.20 19.00 18.32

PAT % 0.59% 0.42% 0.54% 0.76% 0.77%

Add: Depreciation 2.54 1.90 1.42 1.00 1.07

Less: Drawings/Dividend - - - - -

CASH ACCRUALS 7.39 7.09 10.62 20.00 19.39



BALANCE SHEET

XYZ Pvt. Ltd. SCHEDULE 5

COMPARATIVE FINANCIAL POSITION

Audited 2005-06

Audited 2006-07

Audited 2007-08

Proj. 2008-09

Prov. 2008-09

Vehicles 4.22 3.12 - - -

Other Fixed Assets 2.89 2.08 4.07 5.00 3.20

TOTAL 7.11 5.20 4.07 5.00 3.20

Less: Revaluation Reserve - - - - -

TOTAL FIXED ASSETS 7.11 5.20 4.07 5.00 3.20

TL from Institutions. (excl.1 yr.) - - - - -

Bank Term Loan (excl. 1 year) 1.39 - - - -

Other term loans - - - - -

TOTAL TERM LIABILITIES 1.39 - - - -

NET FIXED ASSETS 5.72 5.20 4.07 5.00 3.20

Raw Material Indigenous - - - -

------"---------- Imported - - - -

Finished Goods 13.38 111.10 98.52 115.00 122.58

Stores & Spares - - - - -

Adv. To suppliers - - - - -

Trade Debtors Local (< 6 mths) 168.38 172.79 408.09 300.00 338.38

Trade Debtors Export (<6 mths) - - - - -

Loans & advances 1.44 1.69 - - 2.19

Advance Payment of Taxes 4.38 7.37 13.29 13.00 6.45

Advance Income Tax 13.73

Cash & Bank Balance 0.23 0.37 11.03 2.00 2.59

Fixed Deposits 6.14 7.94 2.94 12.00 10.03

Other Current assets 0.66 0.88 - - 4.42

TOTAL CURRENT ASSETS 194.61 302.14 533.87 442.00 500.36

Cash Credit 28.94 58.05 112.94 180.00 130.50

Bill Purchase - - - - -

Term Loan Installment. In a year - - - - -



Creditors for goods Local 90.88 152.55 330.25 115.00 214.31

'---------"--------- Import - - - - -

Creditors for expenses 2.24 - 0.48 - -

Deposits accepted - - - - 0.30

Advances received - - - - -

Taxes Payable - - - - 3.96

Tax Provisions 4.03 7.64 13.60 13.00 20.25

Other provisions 1.40 - 4.19 - 2.13

Others - 1.51 - - 0.13

TOTAL CURRENT LIABILITIES 127.49 219.75 461.46 308.00 371.58

NET CURRENT ASSETS 67.12 82.39 72.41 134.00 128.79

TANGIBLE NET WORTH 72.84 87.59 76.48 139.00 131.99

Represented By:

Opening Balance of Capital 1.00 1.00 1.00 1.00 1.00

+Profit/Loss in the year - - 9.20 - 18.32

+Capital introduced - - - - -

+Reserves ( Excl Rev. Reserve) 9.50 14.69 14.69 43.00 23.89

+Unsecured Loan/quasi equity 62.92 72.60 52.33 95.00 89.03

- Drawings/Dividend - - - - -

NET WORTH (A) 73.42 88.29 77.22 139.00 132.24

Debtors above 6 months, non recoverable - - - - -

+Investments including ICD’s 0.25 0.25 0.25 - 0.25

=Total non current assets 0.25 0.25 0.25 - 0.25

-Non current liabilities - - - - -

=NET NON CURRENT ASSETS(B) 0.25 0.25 0.25 - 0.25

Intangible Assets (C) 0.33 0.45 0.49 - -

TANGIBLE NET WORTH (A-B-C) 72.84 87.59 76.48 139.00 131.99

(0.00) (0.00) (0.00) (0.00) (0.00)



Cash credit limit

30.00

80.00

130.00

180.00

130.50

L/C 70.00 70.00 70.00 70.00

Bank guarantee 15.00 15.00 15.00 15.00

Total 30.00 165.00 215.00 265.00 130.50

Fixed Assets 7.11 5.20 4.07 5.00 3.20

Term Liabilities 1.39 - - - -

Current Assets 194.61 302.14 533.87 442.00 500.36

Current Liab. 98.55 161.70 348.52 128.00 241.08

Bank Finance 28.94 58.05 112.94 180.00 130.50

Net Worth 72.84 87.59 76.48 139.00 131.99

Sales Growth Rate

Own Funds %age 14.30 17.77 32.23 31.65 32.68

Current Ratio 1.53 1.37 1.16 1.44 1.35

Debt / Eq. Ratio 0.41 1.71 2.62 1.80 0.99

Sales – F.A. Ratio 115.08 238.46 417.98 500.00 -

Asset Coverage Ratio 0.24 0.03 0.02 0.02 0.02

I. S. C. R. 3.25 1.71 1.82 1.71 2.53

Avg. I. S. C. R 2.33



KEY RATIOS

Current ratio for 2008-09 provisional is 1.35 which is above the banks outer norm of

1.17 and hence it satisfies the requirements with respect to Current ratio. The trend for

past years is also in the acceptable limits.

The debt-equity ratio is 1.63 which is above the below norm of 1.75. The debt-equity

ratio is on higher side on account of due to increase in the unsecured loans.



The ISCR is 2.53, which is above the banks norms of 2.5. The average for the four

years is well above the rejection norms.

Sales:- Company has achieved sales of Rs.2370.08 lacs as against Rs.1701.16 lacs in

the previous year. There is growth in sales to the extent of 39.32% over the previous

year.

During the previous there were frequent fluctuations in prices of the chemicals and

hence the company had to restrict dealings of certain chemicals whose prices had

increased substantially.



Networth:- Company‘s networth as on 31.03.09 is Rs.131.99 lacs as against Rs.76.48

lacs as on 31.03.08. Increase in networth is on account of net sales to the extent of

Rs.668.92 lacs.

Profitability:- Company has recorded operating profit at 0.51% as against operating

loss of 0.26% in the previous year. With rise in turnover, the profit margins have

improved. The other income of Rs.6.20 lacs includes commission Rs.2.53 lacs,

discount Rs.2.71 lacs, interest received Rs.0.58 lacs, foreign exchange fluctuation

income Rs.0.33lacs and dividend Rs.0.05 lacs. Cash accruals are Rs.19.39 lacs and

are at 0.82%.



CONCLUSION

1) The Zone provides Funded, Non-Funded & other services to customers

Funded facilities like TL / WC / WCTL / PCPS

Non-funded facilities like LC / BG

2) It is studied during the project that, past record with regard to payments,

nature of business is scrutinized neatly before considering the proposals

3) At the time of visit to the firm the concerned officers check the required

information & also discuss the third party products like CASA (Current A/c‘s

& Savings A/c‘s}, Deposits & other banks accounts

4) Ratio analysis method is specially use by the bank for company‘s future

financial study for e.g. debt equity ratio, current ratio etc.

5) The rating of the firms applying for credit is done on the basis of the credit

rating model every year. The parameters considered for rating are financial

and non-financial parameters like raw materials availability, competition faced

etc.

6) Security in the nature of prime & collateral. Prime security is where the bank

has prima facie charge and collateral security is secondary in nature. In case if

the prime security fails to service the advance only then the collateral security

is considered.

7) Security is in liquid form like FDR, LIC policy, NSC etc. or tangible form like

any property (gala, godown), machinery etc.

8) For manufacturers or traders bank provides cash credit facility against stock.

Prime Security for Cash Credit (CC) is in the nature of Stock + (Debtors -

Creditors) or else property & collateral may be in liquid or tangible form

9) Bank collects required documents and prepares proposal on the basis of

collected documents, before granting loan to the company. This

documentation is done after the sanction letter is issued by the zonal office to

the respective branch. The legal department then verifies these documents



Recommendations

The Saraswat Co-Operative bank being the leading Co-operative bank has some areas

where it needs to be looked upon. The present state of economy has resulted into

many big players in banking sector shaping up their strategies accordingly. Though

the economy is grooming up from the effects of recession the following steps for

various industry segments is suggested for Saraswat bank.

1. Auto ancillary:

The rise in the interest rate is deterring the purchase of commercial vehicles, which

has reduced the sales of commercial vehicles of some big companies. This is further

compounded by steep rise in international prices of crude oil resulting into

skyrocketing prices of petrol and diesel. General slump in automobile sales may in

turn affect the companies which supply components to auto manufacturers. Hence, the

bank needs to adopt cautious approach while financing such units. The sales of the

units should not be dependent only on single party.

2. FMCG:

The rising purchasing power of individuals has boosted the FMCG segment. This will

boost the industries directly/indirectly dependent on the FMCG segment. Packaging

industry is one such related industry. With the continuous growth in country‘s GDP

fortunes of this industry are bright. Impending global economic slowdown would

have least effect on this sector and hence this sector needs to be encouraged .

3. Steel:

The units engaged in steel manufacturing are expected do well due to increasing

infrastructure projects that are coming up. At the same time, the bank needs to have a

cautious approach while lending to units engaged in trading especially due to high

price volatility. Integrated steel mills with captive sources of basic raw material like

coal can be looked at. Stainless steel making units are also doing well presently due to

increased demand from equipment manufacturers.



4. Textile:

The textile industry is booming. However, due to appreciation of the value of the

rupee borrowal units engaged in exports may take a hit. Manufacturers with fixed rate

contracts with MNCs like Wall Mart may be affected due to general slowdown in

USA. However, the Indian textile industry is presently in the diversified markets and

is expected to do well due to favorable GOI (Textile Upgradation Fund Scheme)

policies and acceptability it can achieve from the world markets towards its quality of

product. Possible global economic slowdown would affect this industry the most.

5. Pharmaceuticals:

The pharmaceutical industry has registered a steady growth and is expected to

continue doing so. Units in Active Pharma Ingredients and those in contract

manufacturing are doing well. Contract research is another booming area and few

units set up for this activities have shown good performance.

6. Hotel & Tourism:

The policies and initiatives taken by the Government for strengthening the tourism

infrastructure are responsible for growth in the hotel industry. The availability of

cheap air travels and various websites offering reasonable package tours is also one of

the reasons to boost hotel and tourism industry. However recent terror attack on

Mumbai coupled with global economic meltdown has affected this industry badly and

revival may take some more time.

Recently RBI has modified the definition of industry/business for the purpose of

classification. Earlier the units were classified as Small business, SSI, Medium and

Large industries. Now as per the new definition the units will be classified as Micro,

Small and Medium Enterprise (MSME) of which micro and Small enterprises were

classified as priority sector advances. The bank should therefore implement its

policies according to the new guidelines.

In addition to the above suggestions the bank shows negligence in granting credit to

Sugar industries, Oil crushing industries, Glass industries and audio and video

cassettes industries. This negligence is due to the performance of the sector in the

economy and the risk associated with it. But credit facilities should be provided as



these sectors have high demand for their products in market and wont be much risky

at the present economic scenario.

The bank has also slowed down the granting of credit to some industries such as:-

1. Textiles (natural fiber as well as synthetic fibre)- staple fiber into yarn i.e. spinning

mills and standalone texturised yarn makers, Denim.

2. Steel manufacturing like melting of scrap through induction furnace, manufacturing

of sponge iron & pig iron.

3. Cigarette manufacturing, manufacturing of Gutka & Paan Masala

4. Infrastructure-direct finance to large projects.

5. Project Finance - Large Greenfield projects with long gestation period

6. Production of TV serials and films.

7. Service sector industries such as Travel by sea, land for new entrants, tourism,

hospitality, healthcare and hospitals with long gestation period have least acceptance

for credit from the bank.

The bank therefore needs to explore these segments so as to build its esteemed

presence in the banking sector at more higher and competitive level.



BIBLIOGRAPHY:

Web:

a. http://www.saraswatbank.com

b. http://www.wikipedia.com

c. http://www.investopedia.com

d. http://www.mca.gov.in

e. http://www.cibil.com

f. http://www.moneycontrol.com

g. http://www.google.com

h. http://www.teachmefinance.com

i. http://www.rbi.gov.in

Books:

Financial Management – Khan & Jain

Banking Law & Practice – Varshney P. N.

Papers:

The Economic Times

Business Standard

http://www.saraswatbank.com/

http://www.wikipedia.com/

http://www.investopedia.com/


http://www.cibil.com/

http://www.moneycontrol.com/

http://www.google.com/

http://www.teachmefinance.com/

http://www.rbi.gov.in/

Credit Saraswat

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Transcript of Credit Saraswat