Loans and Advances Management
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A presentation on the summer internship program topic: loans and advance management
Transcript of Loans and Advances Management
ADVANCES MANAGEMENT
INDIAN OVERSEAS BANK
INDIAN BANKING INDUSTRY
EARLY PHASE
1786-1969
NATIONALIZATION
1969-1991
BANK REFORMS
1991
INDIAN OVERSEAS BANK
FOUNDED ON FEBRUARY 10, 1937
1st BANK TO ESTABLISH
OPERATIONS OVERSEAS
1st PSB TO START MOBILE BANKING
‘AA’RATING BY CRISIL IN 2000
RANKED AS BEST PUBLIC
SECTOR BANK IN 2007
LOANS AND ADVANCES
The ideal advance is one that is granted to a ‘reliable’ customer for a legal purpose where he has enough
experience for efficient utilization of the amount and repays the amount within a given time frame as per the
agreement
PROCEDURE FOR SANCTION
• comes up with a loan proposal
• collateral security
• financial details
BORROWER
• verifies the purpose of loan
• assess the credibility of borrower
LENDER (BANK) • verifies the
proposal
• either approves (final sanction) or rejects
REGIONAL OFFICE
FINANCIAL ANALYSIS
• PROFITABILITY
• STABILITY
• SOLVENCY
• LIQUIDITY
ASSESSMENT OF:
• BALANCE SHEET
• INCOME STATEMENTS
• INCOME TAX RETURNSVERIFICATION
OF:
CASE ANALYSIS: XYZ INFOTECH
The borrower is into business since 1992, his existing branch of NIIT is working successfully.
NIIT has offered him for opening a new unit at Kharagpur and he has paid more than Rs
10,00,000 as advance for starting the same. The borrower is one of the very old and regular client of the bank and needs another Rs.
20,00,000 as loan from the bank to start this new set up
XYZ INFOTECH
TNW
• March, 07 -- 7.01
• March, 08 – 7.57
• March, 09 – 11.87
• March, 10 -- 16.77
NET SALES
• March, 07 -- 0.26
• March, 08 -- 21
• March, 09 -- 30
• March, 10 -- 40
NWC
• March, 07 -- 0.56
• March, 08 -- 1.63
• March, 09 -- 2.69
• March, 10 -- 4.83
In Rs, Lacs
XYZ INFOTECH
MARCH, 07 MARCH, 08 MARCH, 09 MARCH, 10
DE 2.83 2.7 1.39 1.78
DSCR 1.4 1.53 1.91 2.12
CR 1.55 1.59 1.42 1.56
0
0.5
1
1.5
2
2.5
3
Details of RatiosDER: TOTAL DEBT
TOTAL EQUITY
DSCR: N. OPERATING Inc.
T. DEBT SERVICE
CR: CURRENT ASSETS
CURRENT LIABILITIES
XYZ INFOTECH
MULTIPLE DISCRIMINANT ANALYSIS: Z SCORE
Z= 0.012X1 + 0.014X2 + 0.033X3 + 0.006X4 + 0.010X5 where
Z = discriminant function score of the firm
X1= net working capital/total assets (%)
X2= retained earnings/total assets (%)
X3= EBIT/total assets (%)
X4= market value of total equity/book value of debt (%)
X5= sales/total assets (times)
XYZ INFOTECH
1.08
2.12
2.73
0
0.5
1
1.5
2
2.5
3
2008 2009 2010
Z SCORE
XYZ INFOTECH
ASSESSMENT OF MPBF FOR CC A/c
NWC• March, 07 -- 0.56
• March, 08 -- 1.63
• March, 09 -- 2.69
• March, 10 -- 4.83
NWC CONSIDERED AS 3.00
MPBF = 25% of Sales – 5% as margin or 25% of Sales - NWC
(whichever is lower)
IN Rs. LACS
XYZ INFOTECHCOLLATERAL/ GUARANTEE
MARGIN MONEY
CREDIT RATING
TERMS & REPAYMENT SCHEDULE
DOCUMENTATION & FIANL SANCTION
TERM LOAN
FURTHER PROCEDURE
STANDARD ACCOUNT
NON PERFOMING
ASSET
• SUBSTANDARD ASSET
• DOUBTFUL ASSET
• LOSS ASSET
FOLLOW UP
&
MONITORING
TREATMENT OF N PA
BANK PROCEEDINGS
• LEGAL NOTICE
• SARFESI ACT 2002
• FILING OF SUIT
• WRITE OFF
UPGRADATION OF ACCOUNT
• RENEWAL
• RECOVERY
• RESTRUCTURING
* SARFESI: SECURITISATION AND RECONSTRUCTION OF
FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY
INTEREST [email protected]
PREVENTIVE MEASURES
IMPACT
• DRAIN ON PROFIT
• EFFECT ON CAPITAL ADEQUACY
EXTERNAL MEASURES
• RELEASE OF DEFAULTER’s LIST
• FORMATION OF CIBIL
INTERNAL MEASURES
• DECLARATION OF SMA
• RISK ASSESSMENT
• FOLLOW UP
RECOMMENDATIONS
THOROUGH STUDY OF CASE IN PRELIMINARY
PHASE
ESTIMATION OF BANKRUPTCY APPLYING Z SCORE
FOLLOW UP SINCE DECLARATION OF SMA
THANK YOU
Presented By
Soniya Sinha
