A REPORTON

CREDIT APPRAISAL ATUCO BANK

A REPORT ON

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

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

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

JAIRAJ SINGH SANDHU

TABLE OF CONTENTS

Authorization

Acknowledgement

1. Introduction of Project2. Objective3. Methodology4. Limitations & Scope5. Economic Industry Analysis6. Company Analysis7. Financial analysis of UCO Bank8. Loan Policy Document of MSE Sector9. Master Circular of Reserve Bank of India10. Project Specefic Analysis (Case study 1 & 2)11. Recommendations12. Conclusions13. Outcomes and Learnings

INTRODUCTION

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

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

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

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

1.1Background:

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

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

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

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

1.2Objective:

The main objectives of the project are:

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

To understand the need of specific lending policy adopted by banks

To understand and practically implement the techniques of credit appraisal within

1.3Methodology:

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

Training:

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

Implementation:

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

Analysis:

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

Primary Sources of Information:

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

Study of Credit Appraisal reports

Secondary Sources of Information:

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

1.4Scope & Limitation:

Scope:

Basic level of understanding of the banking industry

Learning about different credit facilities extended by the bank

Learning about techniques used by bank for credit analysis

Firsthand experience of client interaction

Limitation:

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

ECONOMIC INDUSTRY ANALYSIS

Banking Industry Analysis:

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

2.1Genesis of Banking in India:

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

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

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

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

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

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

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

2.2Structure of Industry:

The structure of Indian Banking Industry is as follows:

Fig. 1 Indian Banking Industry Structure

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

2.3Major players in the industry:

The major players in the industry are as follows:

Type of Commercial BanksMajor ShareholdersMajor Players

Public Sector BanksThe Government of IndiaSBI, PNB, Bank of Baroda,

Bank of India, Canara Bank, Union Bank of India, etc.

Private Sector BanksPrivate Individuals or groupsHDFC Bank, Axis Bank, Yes

Bank, Kotak Mahindra Bank, etc.

Foreign BanksForeign EntitiesStandardCharteredBank,

HSBC Bank, Deutsche Bank, Citi Bank, etc.

Table 1 Major players of the Indian banking industry

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

DepositsNationalizedBanks

CreditNationalize d Banks

4.60% 2.90%4.80%

State Bank of India and Associates

New PrivateSectorBanks

4.80%

2.50%

5.20%

State Bank of India and Associates

New PrivateSectorBanks

13.70%

21.80%

52.20%

Old Private Sector Banks

ForeignBanks

13.80%

22.10%

51.60%

Old Private Sector Banks

ForeignBanks

RegionalRural Banks

RegionalRural Banks

Fig. 2 Break Up of Share of scheduled commercial banks for Deposits and Credit17

2.4The working of the industry:

Fig. 3 The working of industry in a nut shell

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

Main Cost ComponentsMain Income Components

Interest paid on deposits

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

Employee costInterest earned on lending

FeeIncome,brokeragesand

Commission

Income from treasury operations

Selling of investments

Table 2 Cost and Income Components of a bank

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

Segmented Activities

Retail BankingLoans to Individuals include Housing Loan, Education

Loan, Auto Loan, and Personal Loan.

Whole Sale BankingLoans to small, medium and large Corporate

Treasury OperationsInvestment in bonds, equity, commodities, mutual funds,

derivatives; trading and forex business

Other ActivitiesHire Purchase, Leasing, Merchant banking, etc.

Table 3 Business segmentation of a bank

Following are some important terms associated with banking business:

TermsDescription

Cash Reserve RatioThis is the percentage of net total of deposit a bank is

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

Currently 4.75%

Statutory Liquidity RatioIt is the minimum percentage of deposits that the bank is

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

Currently- 24%

Bank RateThe rate at which the central bank lends money to other

banks and financial Institutions. Currently- 9.00%

Base RateIt is the minimum rate of interest the bank is allowed to

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

rate but not below certainly.

Repo Rate- Reverse Repo

RateRepo rate is the rate at which the RBI lends short term money

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

Currently Repo Rate- 8.00% Reverse Repo Rate-7.00%

Table 4 Key Terms in banking industry

2.5Macro Economic View :

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

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

Early indicators suggest that growth may have bottomed out in Q3 of 2011-12 but recovery may be slow during 2012-13. Lower global demand, domestic policy uncertainties and the cumulative impact of monetary tightening lowered the growth rate to below seven per cent over the last two quarters. Industrial growth remains subdued due to supply-side bottlenecks, particularly in the mining sector, and moderation in investment demand. The pace of new loan sanctions has also decreased significantly over the past couple of quarters as corporate have postponed their capacity expansion plans in the wake of an overall slowdown and rising global uncertainty. With measures being taken to remove supply-side bottlenecks, progress on fiscal consolidation could create conditions for a more favourable situation.

The growth slowdown has been driven by a sharp fall in investment, some moderation in private consumption and fall in net external demand. The drag from investment is likely to continue in the near term. Consultations with industry and banks suggested that new project investment continue to be sluggish. However, if increased capital outlays in the latest budget are speedily translated into government capital expenditure, it could crowd in private investment.

Inflation has moderated in recent months to under 7 per cent, in line with the Reserve Banks projections. However, the path of inflation in 2012-13 could remain sticky with high oil prices, large suppressed inflation, exchange rate pass-through, impact of tax hikes, wage pressure and structural impediments to supply response.In 2009-10 when Inflation touched new high in the country, the RBI chose to adopt anti inflationary policies by increasing Repo-Reverse Repo Rates and CRR. It has lead to decrease in money supply in the country. Tight Monetary policies controlled the inflation to certain extent but it had adverse effect on the economic growth as the country registered low growth than expected. The anti inflationary policies were continued to till October, 2011. The growth for Q3 of 2011-12 dropped to just 6.1%. Later, declining inflation and decelerating growth raised concerns and thus RBI went ahead with loosening the policy. There was a reduction of125 basis points in CRR for the period January-March 2012. Moreover, the Repo and Reverse Repo rates were also decreased by 100 basis points. But alongside RBI will have to keep an eye on inflation tendencies as the loosening in monetary policy may lead to inflationary pressures in the economy.According to CRISIL research estimates the aggregate credit growth in 2012-13 is expected to be at 17%.

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

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

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

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

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

Mar '12Mar '11Mar '10Mar '09Mar '08

Face Value1010101010

Dividend Per Share331.511

Operating Profit Per Share (Rs)22.6714.9917.0112.043.08

Net Operating Profit Per Share (Rs)225.29185.53182.05159.9385.98

Free Reserves Per Share (Rs)55.447.632.5622.6313

Bonus in Equity Capital----------

PROFITABILITY RATIOS:Profitability RatiosMar 12Mar 11Mar 10Mar 09Mar 08

Interest Spread4.24.113.723.433.29

Adjusted Cash Margin(%)7.78.1510.447.016.72

Net Profit Margin7.27.489.726.15.75

Return on Long Term Fund(%)149.91125.65178.21203.74220.99

Return on Net Worth(%)17.617.6128.0219.9516.58

Adjusted Return on Net Worth(%)17.5917.6128.0219.9516.58

Return on Assets Excluding Revaluations94.728265.7450.8831.08

Return on Assets Including Revaluations102.1689.1873.9159.2936.61

MANAGEMENT EFFICIENCY RATIOS:

Management Efficiency RatiosMar 12Mar 11Mar 10Mar 09Mar 08

Interest Income / Total Funds8.737.778.068.768.39

Net Interest Income / Total Funds2.482.752.262.32.26

Non Interest Income / Total Funds0.240.310.320.350.36

Interest Expended / Total Funds6.265.025.816.466.13

Operating Expense / Total Funds1.62.121.51.641.96

Profit Before Provisions / Total Funds1.070.881.020.930.57

Net Profit / Total Funds0.650.60.820.560.5

Loans Turnover0.140.130.130.140.13

Total Income / Capital Employed(%)8.978.078.399.118.75

Interest Expended / Capital Employed(%)6.265.025.816.466.13

Total Assets Turnover Ratios0.090.080.080.090.08

Asset Turnover Ratio8.977.697.146.565.67

PROFIT & LOSS A/C RATIOS:Profit And Loss Account RatiosMar 12Mar 11Mar 10Mar 09Mar 08

Interest Expended / Interest Earned73.3366.1975.679.7577.14

Other Income / Total Income2.643.823.863.834.07

Operating Expense / Total Income17.826.2317.9218.0422.42

Selling Distribution Cost0.160.180.180.210.16

BALANCE SHEET RATIOS:Balance Sheet RatiosMar 12Mar 11Mar 10Mar 09Mar 08

Capital Adequacy Ratio12.3513.7113.2111.9310.09

Advances / Loans Funds(%)72.7570.9171.4474.8273.96

DEBT COVERAGE RATIOS:Debt Coverage RatiosMar 12Mar 11Mar 10Mar 09Mar 08

Credit Deposit Ratio71.7167.8367.9668.7870.51

Investment Deposit Ratio29.6432.2932.7529.7830.24

Cash Deposit Ratio6.096.596.216.826.56

Total Debt to Owners Fund24.7528.5934.2136.1132.16

Financial Charges Coverage Ratio0.180.190.191.161.11

Financial Charges Coverage 1.111.131.151.11.1

LEVERAGE RATIOS:Leverage RatiosMar 12Mar 11Mar 10Mar 09Mar 08

Current Ratio0.030.020.020.020.02

Quick Ratio25.7321.6526.8914.2511.91

Loan Policy Document for Micro & Small Enterprises SectorBANKS POLICY IN RESPECT OF LENDING TOMICRO AND SMALL ENTERPRISES SECTOR1. PREAMBLE :Worldwide, the Micro and Small Enterprises (MSEs) have been accepted as the engine of economic growth and for promoting equitable development. In India too, the MSEs play a pivotal role in the overall industrial economy of the country. It is estimated that in terms of value, the sector accounts for about 39% of the manufacturing output and around 33% of the total export of the country. Further, in recent years the MSE sector has consistently registered higher growth rate compared to the overall industrial sector. The major advantage of the sector is its employment potential at low capital cost.The Government of India has been making concerted efforts for the promotion and development of MSE sector which enabled the MSE sector to grow at a higher pace than the overall industrial sector. To facilitate the development of this sector as also enhance their competitiveness, the Government has enacted the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, which is in force from 2nd October, 2006 which is a turning point for the development of Indian Industry, as it addresses and streamlines entire frame work along with key governance & operational issues being faced by the SMEs.One of the major policy initiatives of the Government has been inclusion of the MSE sector under priority sector lending. It has been done so because credit is one of the critical inputs for the sustained growth of the MSE sector. The MSE sector has been receiving direct assistance from the commercial banks mostly for meeting working capital requirements.The SME segment is broadly classified as under:ParticularsInvestment in Plant & Machineries of Manufacturing EnterprisesInvestment in Equipments of Service Sector Enterprises

Micro EnterprisesUpto Rs.25.00 lakhUpto Rs.10.00 lakh

Small EnterprisesAbove Rs.25.00 lakh and upto Rs.500.00 lakhAbove Rs.10.00 lakh and upto Rs.200.00 lakh

2. Definitions:2.1Small (Manufacturing) Enterprises:Enterprise engaged in the manufacture/production or preservation of goods and whose investment in plat and machinery (original cost excluding land and building and the items specified by the Ministry of Small Scale Industries vide its notification No. S.O. 1722(E) dated October 5, 2006 as furnished in Annex I) does not exceed Rs.5.00 crore.2.2Small (Service) Enterprises:Enterprise engaged in the providing/rendering of services and whose investment in equipment (original cost excluding land and building and furniture, fittings and other not directly related to the service rendered or as may be under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006) does not exceed Rs.2.00 crore.2.3Micro (Manufacturing) Enterprises:Enterprise engaged in the manufacture/production or preservation of goods and whose investment in plant and machinery (original cost excluding land and building and such items as in 1.1.1) does not exceed Rs.25.00 lakh, irrespective of the location of the unit.2.4Micro (Service) Enterprises:Enterprise engaged in the providing/rendering of services and whose investment in equipment (original cost excluding land and building and furniture, fittings and such items as in 1.1.2) does not exceed Rs. 10.00 lakh.3.OBJECTIVES :The MSE Loan Policy is framed with the following objectives : To ensure availability of adequate and timely credit to MSE sector. To devise an organizational structure at all levels for handling MSE credit portfolio in a more focused manner. To improve flow of credit to MSE Sector so as to double the credit to the Sector in 5 years. To provide guidelines to the branches to dispense credit to MSE Sector on liberalized terms.4.SCOPE OF POLICY : Broad guidelines on lending to MSE Sector Identifying Thrust Industries Composition of MSE Sector Pricing Policy5. TARGETS FOR MSE SECTOR: Banks are advised to fix their own target in order to achieve a minimum 20% YOY growth over the MSE advances as of March, 2005 with an objective to double flow of credit to SME sector by the year, 2009-10. Sub-targets for lending to Micro Enterprises within the Small Enterprises, which are included under Priority Sector lending, are as under :1. 40% of total advances to Small Enterprises Sector should go to Micro (Manufacturing_ enterprises having investment in Plant and Machinery upto Rs.5.00 lakh and Micro (Service) Enterprises having investment in equipment upto Rs.2.00 lakh;2. 20% of total advances to Small Enterprises Sector should go to Micro"(Manufacturing) Enterprises with investment in Plant and Machinery above Rs.5.00 lakh and upto Rs.25.00 lakh, and Micro (Service) Enterprises with investment in equipment above Rs.2.00 lakhand upto Rs.10.00 lakh.

(Thus, 60% of Small Enterprises advances should go to Micro Enterprises).6. COMMON GUIDELINES/INSTRUCTIONS FOR LENDING TO MSE SECTOR6.1Processing of Applications:i. Loan Application :The existing Common loan Application-cum-Appraisal Format applicable to all loans irrespective of limit will be applicable for financing to MSE sector.ii. Issue of Acknowledgement of Loan Applications :Each branch will issue an acknowledgement for loan applications received from the borrowers towards financing under this sector and maintain the record of the same.iii. Disposal of Applications :In case of Loans upto Rs.25000/- : Within 2 weeksIn case of Loans above Rs.25000/- : Within 4 weeks(Provided the loan applications are complete in all respects and are accompanied by a check list enclosed to the application form).iv. Register of Receipt/Sanction/Rejection of Applications :1. A register should be maintained at branch wherein the date of receipt, sanction/disbursement, rejection with reasons, should be recorded. The register should be made available to facilitate verification by the Banks officials including Zonal Manager during visit to the branch.2. Branch Manager may reject application (except in respect of SC/ST). In the case of proposals from SC/ST, rejection should be done at a level higher than Branch Manager.3. The reason for rejection will be communicated to the borrower in line with stipulation mentioned in the Fair Practice Lenders Code.6.2.Types of LoansMSE Units may be granted a variety of Credit facilities for their different needs which will include the following:1. Term Loan/ Demand Loan/ Deferred Payment guaranteeFor acquisition of capital goods (excluding second hand), fixed assets, vehicles, Plant & machinery, purchase of land, construction of buildings etc. There is no provision in the Policy for allowing term loan against purchase of second hand machinery.2. Working Capital by way of Cash Credit, Overdraft etc for:i. Purchase of raw material, components, stores and maintenance of stock of these items at minimum level and stock in process and finished goods.ii. Finance against receivables including receipted challans/invoicesiii. Meeting marketing expenses where the units have to incur large-scale expenditure towards marketing of their products.3. Bills Purchase/Discounting under L/C or outside L/C4. Export Credit facilities like Packing Credit,FBP/UFBP.5. Letter of Credit on sight/usance basis for purchase of raw material/ capital goods.6. Bank Guarantee for performance, advance Payment, Tender Money , Security Deposit, Guarantees for getting orders , for procurement of raw materials etc.6.3.MarginFor Term LoanFor Working Capital

In case of factory land & building, overall margin of 20% 25% uniform margin on stocks and receivables. For export credit margin may be stipulated @10%

In case of Plant & Machineries and Equipment margin is proposed at 20%

6.4.Collateral Free Advances covered under CGTMSE:Presently, the Banks guidelines for providing collateral free loans are as under:i. Collateral Free Loan up to Rs.5.00 Lakh to Micro & Small Enterprises.ii. As per the Special Stimulus Package, it has been decided by the Bank to dispense with collateral security including third party guarantee for loans to MSE Sector up to a limit of Rs. 100.00 Lakh, subject to satisfying the following criteria in case of existing borrowers as also in case of takeover accounts.1. Consistent growth in sales for last 3 years.2. Continuous profit for last 3 years.3. Credit rating of A or equivalent and above and no slippage in credit rating during last 3 years.4. The units assets (fixed as also current) are charged to the Bank and Promoters/Directors personal guarantee are available.5. Asset coverage ratio of more than 1:5.6. Other take-over norms are complied with.The category-wise maximum extent of cover under CGTMSE is as under:CategoryMaximum extent of Guarantee whose credit facility is

Upto Rs.5 lakhAbove Rs. 5 lakh upto Rs.50 lakhAbove Rs. 50 lakh upto Rs.100 lakh

Micro Enterprises85% of the amount in default subject to a maximum of Rs. 4.25 lakh75% of the amount in default subject to a maximum of Rs. 37.50 lakhRs 37.50lakh plus 50% of amount in default above Rs.50 lakh subject of overall ceiling of Rs 62.50 lakh.

Women Entrepreneurs/ Units located in North Eastern Region(including Sikkim)80% of the amount in default subject to a maximum of Rs.40 lakh.Rs.40 lakh plus 50% of the amount in default above Rs.50 lakh subject to overall ceilinh of Rs.65 lakh.

Composite Loans: As per RBI guidelines, credit assistance to artisans, village and cottage Industries and other MSE units up to Rs.100.00 Lakh for equipment finance or working capital or both should be considered as composite term loan. This will enable majority of Micro & Small Enterprises to avail loans from a single window eliminating the need for borrowing term loan from SFCs and working capital from Banks. This will also facilitate to sign one set of documents only instead of signing facility-wise separate documents.6.5Credit Rating(i) The RBI has directed to Banks to take steps to rationalize the cost of loans to MSE sector by adopting a transparent rating system.(ii) The rating of account may be done under In-House Module or Rating from outside rating Agencies.(a) In-House Rating Modules :- In case of MSE accounts with aggregate limit over Rs. 25 lacs and unto Rs. 1 crore, the accounts are to be rated as per existing norms for general advances. The purpose of rating is for ascertaining the quality of the asset and not for deciding the rate of Interest. For aggregate exposure above Rs. 1 crore, the rate of Interest is decided as per credit Rating.(b) Rating from outside rating Agencies :- Our Bank has entered into MOU with SMERA, Fitch Ratings India (P) Ltd., Dun & Brad Street and ICRA Ltd. for getting the SME borrowers rated by them. The National Small Industries Corporation (NSIC) has been appointed as nodal agency which provides subsidy to the units obtaining credit rating from any of the empanelled agencies to the Micro and Small Enterprises (manufacturing sector, i.e earlier SSI units). The Credit rating awarded by Rating Agencies under NSIC Subsidy Scheme is conclusive for borrower as well as lender. The good rated borrowal accounts will get concession in applicable Rate of Interest unto 1% depending upon the grade/rating awarded by Rating Agencies.6.6 Interest Rate:INTEREST RATES:Total Funded Exposure up to Rs. 5.00 LakhBPLR-3.50% = 9.00% (Minimum)

TFE of more than Rs.5.00 Lakh to Rs.25.00 LakhBPLR-1.50% = 11.00% (Minimum)

TFE of more than Rs.25.00 Lakh to Rs.1.00 CroreBPLR-0.50% = 12.00% (Minimum)

TFE of more than Rs. 1.00 CroreAs per credit rating

The credit rating module of our Bank for MSEs will be as per Loan Policy document of our Bank.As a part of the Special package announced by the IBA for the MSME Sector, our Bank has reduced the interest rates for borrowing by Micro Enterprises by 100 basis points i.e. 1% for all existing and new loans with effect from 17.12.2008. Similarly interest rates for borrowing by Small and Medium Enterprises with fund based exposures unto Rs.10 crores has reduced by 50 basis points i.e. 0.50% for all existing and new loans w.e.f. 17.12.2008.The benefits of this special package will be applicable till further instruction.7. Penal Interest:Penal interest @ 1% to be charged for the period of default in repayment, non-submission of financial statements, non-compliance of terms and conditions etc. as per extant guidelines of the Bank.8. Processing Chargesfor Micro & Small EnterprisesAmount of Advance

Processing Charges for advances other than from Loan & DPGProcessing Charges For Term Loan & DPG

a) Fresh sanctions

Upto Rs.25000/-NILNIL

Above Rs.25000/-Rs.350/-per lac Min. Rs.350/-1.1236%of the sanctioned limit Min. Rs.600/-

b) Renewal /Review of limit

Upto Rs.25000/-NILNIL

Above Rs.25000/-Rs.350/-per lac Min. Rs.350/-Rs.120/-per lac Min.Rs.250/-Max. Rs.55000/-

9. Methodology for calculation of Bank Finance1. Working Capital Loani. Working Capital Credit limits to Micro, Small and Medium Enterprises in individual cases up to Rs.2.00 Crore(Manufacturing Sector) and up to Rs 1.00 Crore(Service sector) will be computed as per existing guidelines on the basis of minimum 20% of their projected annual turnover(turnover method).However in cases of borrower applying for working capital limit lower than the working capital computed on the basis of turnover method shall be assessed as per actual requirement.ii. For assessment of the working capital requirement of the borrowers falling within the band of above Rs.2.00 crores and below Rs.10.00 crore (Manufacturing sector) and above Rs.1.00 crore and below Rs.10.00 crore (service sector) the traditional method of computing MPBFas per second methodof lending will continue. If any of the borrower falling in this band intends toshift to cash budget system, the same may be accepted.2. Term Loani) In case of term loan, Debt Equity Ratio (DER) should not normally be above 3:1.ii) However, in case of capital intensive industries, the same may be considered 5:1iii) In case of Term Loan, minimum Average DSCR of 1.50:1 will be considered as reasonable requirement for any New connection. Relaxation may however be considered on merit of the case by the sanctioning authority not below the rand of Zonal Head.iv) Moratorium period depending on requirement of the project/proposal will be considered.3. The Technical feasibility the economic, financial, commercial viability, Managerial competence, environment viability and bank-ability of the proposal with reference to risk will be assessed.4. Other benchmark financial ratios like Current Ratios, Tenure etc. will be in line with the Banks Loan Policy.10. Financing under cluster based approach:i. The cluster based approach should be given a thrust area.ii. The cluster financing approach reduces the cost of transition to the entrepreneurs.iii. The Zonal Office/ branches will give due importance for financing of MSME sector in the identified Special Credit Delivery branches and Branches situated near to clusters.11. Discretionary authorityAs per Loan Policy Document of the Bank.12. Repayment ScheduleRepayment schedule should be fixed taking into account the sustenance requirements, surplus generating capacity, the break-even point, the life of the asset, etc., and not in an ad hoc manner. The maximum door to door tenor should not exceed 60 months excluding the moratorium period.In respect of composite loan the repayment schedule may be fixed for term loan component only.Moratorium period of 6 months to 1 year may be allowed taking into consideration the nature of the project and also commencement of commercial production.13. Mode of Disbursement of LoanThe disbursement of the loan amount for Plant & Machinery, Equipment and other fixed assets will be made in favour of the supplier through Demand Draft/ Pay Order. Branches will continue to ensure the end use verification on monthly/quarterly basis.14. MonitoringPolicy directives for monitoring of accounts covering documentation, supervision and control over accounts, special watch/potential NPAs etc., are as per Credit Monitoring Policy 2007-08 of the Bank and any amendment thereof.Where ever the lending to MSE sector is eligible to be covered under CGTMSE, it will be the responsibility of the respective branch head and the concerned officials at Zonal Office to ensure that the respective accounts are duly covered under CGTMSE and the Guarantee Fee and the Annual Service Fee is paid to CGTMSE in time.It is to be ensured that any loan sanctioned to MSE up to a limit of Rs. 5 lac will be without any collateral and or third party guarantee. However all those accounts are invariably be covered under CGTMSE Scheme. Any deviation from this policy will attract accountability to the sanctioning authority.The Priority Sector Department of the Bank will ensure proper implementation of this Policy in the Bank.15. Review of the SchemeIn case any modification/changes are warranted in this Policy, the Chairman and Managing Director/Executive Directors of the Bank will be approved the same and the same will be got vetted by the Credit Risk Management Committee (CRMC) and the Board of Directors of the Bank before its circulation among our Branches/Offices.16. Our SME Products:i. Laghu Udyami Credit Cardii. Artisan Credit Cardiii. Prime Minister Employment Generation Programme (PMEGP)iv. Collateral Free Loans under Credit Guarantee Trust Fund for Micro & Small Enterprises (CGTMSE)v. Loans under Technology Upgradation Fund Scheme for Textile Units (TUFS Scheme)vi. Swarozgar Credit Card Schemevii. Uco Shilpa Udyogviii. Uco Vishwakarma Yojnaix. Uco Mahila Shilpa Udyog Schemex. Composite Loans to MSE Unitsxi. Scheme for financing Handloom Weavers Group (HWGs)xii. Loans under Credit Linked Capital Subsidy Scheme for Technology Upgradation.xiii. Uco Channel Schemexiv. Scheme for Food Processing Industries

MASTER CIRCULAR BY RESERVE BANK OF INDIA ON PRIORITY SECTOR

Master Circular on Priority Sector Lending

1.Introduction on Priority Sector Lending

1.1At a meeting of the National Credit Council held in July 1968, it was emphasised that commercial banks should increase their involvement in the financing of priority sectors, viz., agriculture and small scale industries. The description of the priority sectors was later formalised in 1972 on the basis of the report submitted by the Informal Study Group on Statistics relating to advances to the Priority Sectors constituted by the Reserve Bank in May 1971. On the basis of this report, the Reserve Bank prescribed a modified return for reporting priority sector advances and certain guidelines were issued in this connection indicating the scope of the items to be included under the various categories of priority sector. Although initially there was no specific target fixed in respect of priority sector lending, in November 1974 the banks were advised to raise the share of these sectors in their aggregate advances to the level of33 1/3 per cent by March 1979.

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

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

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

2.Categories of Priority Sector

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

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

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

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

Loans granted to micro and small enterprises (MSE) (manufacturing and services) are eligible for classification under priority sector provided such enterprises satisfy the definition of MSE sector as contained in MSMED Act2006, irrespective of whether the finance is for export activities or domestic activities. The export credit granted to MSEs may be reported separately as "Export Credit to Micro and Small Enterprises Sector" in statement II.

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

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

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

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

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

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

3.Targets / Sub-targets

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

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

Targets and Sub-Targets set under Priority Sector LendingTotal Priority Sector advances40 per cent of Adjusted Bank Credit (ABC) or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher.AgricultureAdvancesNo target.Small Enterprise advancesAdvances to small enterprises sector will be reckoned in computing performance under the overall priority sector target of 40 per cent of ABC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher.Micro enterprises within Small(i)40 per cent of total advances to small enterprisessectorshouldgotomicro(manufacturing)

Enterprises sectorenterpriseshavinginvestmentinplantand machinery up to Rs.5 lakh and micro (service) enterprises having investment in equipment up to Rs.2 lakh;

(ii)20 per cent of total advances to small enterprises sectorshouldgotomicro (manufacturing) enterpriseswithinvestmentinplantand machinery above Rs.5 lakh and up to Rs.25 lakh, and micro (service) enterprises with investment in equipment above Rs.2 lakh and up to Rs.10 lakh. (Thus, 60 per cent of small enterprises advances should go to the micro enterprises).

Advances to weaker sectionsOf the stipulated target for priority sector advances, at least 25% (or 10% of the ABC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher) should be given to weaker sections.

Advances toMinoritiesWithin the overall target for priority sector lending and the sub-target of 25 per cent for the weaker sections, sufficient care may be taken to ensure that the minoritycommunitiesalsoreceiveanequitable portion of the credit.

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

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

4.Reporting / Monitoring under Priority Sector

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

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

4.3Further, annual review of the performance under priority sector advances as on March 31 may also be placed before the Board (Statement II-part A) by15th of the following financial year. A copy of the annual review (Statement II, part A to E) complete in all respect as on March 31 may be forwarded to the concerned Regional Office of the Reserve Bank with the Board's observations, indicating the steps taken / proposed to be taken for improving the bank's performance. The report should reach the Regional Office within a period 15 days from the end of the period to which it relates.

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

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

ReturnsContentsPeriodicity

Statement IMemorandum to be submitted to BoardHalf yearly returns put up toBoard of UCBs

Statement II - Part APrioritySectorAdvances detailed sector wise data.Yearly returns to be submitted totheBoardandRBI's Regional Office.

Statement II -PrioritySectorAdvances-Yearly returns to be submitted

Part BState wise data - Outstandingto RBI's Regional Office

Statement II - Part CPrioritySectorAdvances- State wise data - Disbursal during current year-do-

Statement II - Part DPriority Sector Advances toMinorities - state wise.-do-

Statement II - Part EPriority Sector Advances toMinorities in identified district-do-

Statement III - Part AAdvances to Agriculture and alliedactivities(Direct Finance) - State wise-do-

Statement III - Part BRecoveryofAgriculture(Direct Finance) - State wise-do-

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

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

1.Agriculture

Direct Finance

1.1FinancetoindividualfarmersforAgricultureandAlliedActivities (dairy, fishery, piggery, poultry, bee-keeping, etc.)

1.1.1Short-term loans for raising crops, i.e. for crop loans. This will include traditional / non-traditional plantations and horticulture.

1.1.2Advances up to Rs.10 lakh against pledge / hypothecation of agricultural produce (including warehouse receipts) for a period not exceeding 12 months, irrespective of whether the farmers were given crop loans for raising the produce or not.

1.1.3Working capital and term loans for financing production and investment requirements for agriculture and allied activities.

1.1.4Loans to small and marginal farmers for purchase of land for agricultural purposes.

1.1.5Loans to distressed farmers indebted to non-institutional lenders, against appropriate collateral

1.1.6Loans granted for pre-harvest and post-harvest activities such as spraying, weeding, harvesting, grading, sorting, processing and transporting undertaken by individuals, in rural areas.

1.2Finance to others [such as corporates, partnership firms and institutions] for Agriculture and Allied Activities (dairy, fishery, piggery, poultry, bee-keeping, etc.)

1.2.1Loans granted for pre-harvest and post harvest activities such asspraying,weeding,harvesting,grading,sortingand transporting.

1.2.2Finance upto an aggregate amount of Rs one crore per borrower for the purposes listed at 1.1.1,1.1.2,1.1.3, and 1.2.1 above.

1.2.3One-third of loans in excess of Rs one crore in aggregate per borrower for agriculture and allied activities.

Indirect Finance

1.3Finance for Agriculture and Allied Activities

1.3.11.3.1Two-third of loans to entities covered under 1.2 above in excess of Rs one crore in aggregate per borrowerfor agriculture and allied activities.

1.3.2

1.3.2Loans to food and agro-based processing units with investments in plant and machinery up to Rs.10 crore, undertaken by those other than 1.1.6 above.

1.3.3(i)Credit for purchase and distribution of fertilizers, pesticides, seeds, etc.

(ii)Loans up to Rs.40 lakh granted for purchase and distribution of inputs for the allied activities such as cattle feed, poultry feed, etc.

1.3.4Finance for setting up of Agriclinics and AgribusinessCentres.

1.3.5Finance by scheduled UCBs to NBFCs for hire-purchase schemesfordistributionofagriculturalmachineryand implements.

1.3.6Existing investments as on March 31, 2007, made by banks in special bonds issued by NABARD with the objective of financing exclusively agriculture / allied activities may be classified as indirect finance to agriculture till the date of maturity of such bonds or March 31, 2010, whichever is earlier. Fresh investments in such special bonds made subsequent to March 31, 2007 will, however, not be eligible for such classification.

1.3.7Loans for construction and running of storage facilities (warehouse, market yards, godowns, and silos), including cold storage units designed to store agriculture produce /

products, irrespective of their location.

If the storage unit is registered as SSI unit / micro or small enterprise, the loans granted to such units may be classified under advances to Small Enterprises sector.

1.3.8Advances to Custom Service Units managed by individuals, institutions or organisations who maintain a fleet of tractors, bulldozers, well-boring equipment, threshers, combines, etc., and undertake work for farmers on contract basis.

1.3.9Finance extended to dealers in drip irrigation / sprinkler irrigation system / agricultural machinery, irrespective of their location, subject to the following conditions :

(a)The dealer should be dealing exclusively in such items or if dealing in other products, should be maintaining separate and distinct records in respect of such items.

(b)A ceiling of up to Rs.30 lakh per dealer should be observed.

1.3.10Loans already disbursed and outstanding as on the date of this circular to State Electricity Boards (SEBs) and power distribution corporations / companies, emerging out of bifurcation / restructuring of SEBs, for reimbursing the expenditure already incurred by them for providing low tensionconnectionfrom step-downpoint toindividual farmers forenergisingtheirwells andforSystems Improvement Scheme under Special Project Agriculture (SI- SPA), are eligible for classification as indirect finance till the dates of their maturity / repayment or March 31, 2010,whichever is earlier. Fresh advances will, however, not beeligible for classification as indirect finance to agriculture.

1.3.11Loans to National Co-operative Development Corporation (NCDC) for onlending to the co-operative sector for purposes coming under the priority sector will be treated as indirect finance to agriculture till March 31, 2010.

1.3.12Loans granted by scheduled UCBs to Non-Banking FinancialCompanies (NBFCs) for on-lending to individual farmers.

1.3.13Loans granted to NGOs / MFIs provided they have been admitted as members for on-lending to individual farmers.

2.Small Enterprises

2.1

2.1.1DIRECT FINANCE IN SMALL SECTOR ENTERPRISES WILL CREDIT TO:Manufaturing Enterprises:building and the items specified by the Ministry of Small Scale Industries vide its notification no. S.O. 1722 (E) dated October 5, 2006] does not exceed Rs.5 crore.

(b)Micro (manufacturing) Enterprises

Enterprisesengagedinthemanufacture/production, processing or preservation of goods and whose investment in plant and machinery [original cost excluding land and building and such items as in 2.1.1 (a)] does not exceed Rs.25 lakh, irrespective of the location of the unit.

2.1.2Service Enterprises

(a)Small (service) Enterprises

Enterprises engaged in providing / rendering of services and whose investment in equipment (original cost excluding land and building and furniture, fittings and other items not directly related to the service rendered or as may be notified under the MSMED Act, 2006) does not exceed Rs.2 crore.

(b)Micro (service) Enterprises

Enterprises engaged in providing / rendering of services and whose investment in equipment [original cost excluding land and building and furniture, fittings and such items as in 2.1.2 (a)] does not exceed Rs.10 lakh.

(c)The small and micro (service) enterprises shall include small road & water transport operators, small business, professional & self-employed persons, and all other service enterprises. Loans granted in respect of the following activities are also included under Micro and Small (Service) Enterpriseswithintheprioritysectorsubjecttothe enterprises satisfying the definition of Micro and Small (Service) Enterprises in respect of their investment in equipment (original cost excluding land and building and furniture, fitting and other items not directly related to the service rendered or as may be notified under the MSMED Act 2006 i.e., not exceeding Rs 10 lakh and Rs 2 cr respectively) :

(i)Consultancy Services including Management Services(ii) Composite Broker Services in Risk and InsuranceManagement(iii) Third Party Administration (TPA) services for MedicalInsurance Claims of Policy holders(iv) Seed Grading Services(v) Training cum Incubator centre(vi) Educational Institutions(vii) Training Institutes(viii) Retail Trade(ix)Practice of Law i.e., legal services(x)Trading in medical instruments (brand new)

(xi)Placement and Management Consultancy Services and(xii) Advertising agency and Training Centres

Note : Loans granted for Retail Trade (i.e., advances granted to retail traders dealing in essential commodities (fairpriceshops),consumercooperativestores;and advances granted to private retail traders with credit limits not exceeding Rs 20 lakh would be part of the Small (Service) Enterprise.

2.1.3Khadi and Village Industries Sector (KVI)

All advances granted to units in the KVI sector, irrespective of their size of operations, location and amount of original investment in plant and machinery. Such advances will be eligible for consideration under the sub-target (60 per cent) of the small enterprises segment within the priority sector.

Indirect Finance

2.2Indirect finance to the small (manufacturing as well as service)enterprises sector will include credit to :

2.2.1Persons involved in assisting the decentralized sector in the supply of inputs to and marketing of outputs of artisans, village and cottage industries.

2.2.3Loans granted by scheduled UCBs to NBFCs for on-lending to small and micro enterprises (manufacturing as well as service

3.Micro Credit

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

4.State Sponsored Organizations for Scheduled Castes / ScheduledTribes

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

5.Education

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

6.Housing

6.1Loans up to Rs.20 lakh (Rs.25 lakh for housing loans sanctioned on or after April 1, 2011), irrespective of location, to individuals for purchase / construction of a dwelling unit per family, excluding loans granted by banks to their own employees.

6.2Loans given for repairs to the damaged dwelling units of families up to Rs.1 lakh in rural and semi-urban areas and up to Rs.2 lakh in urban and metropolitan areas.

6.3Assistance given to any governmental agency for construction of dwelling units or for slum clearance and rehabilitation of slum dwellers, subject to a ceiling of Rs.5 lakh of loan amount per dwelling unit.

6.4Assistance given to a non-governmental agency approved by the NHB for the purpose of refinance for construction / reconstruction of dwelling units or for slum clearance and rehabilitation of slum dwellers,subject to a ceiling of loan component of Rs.5 lakh per dwelling unit.

6.5Investments made by UCBs in bonds issued by NHB / HUDCO on or after April 1, 2007 shall not be eligible for classification under priority sector lending.

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

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

8.Weaker Sections

The weaker sections under priority sector shall include the following:

(a)Small and marginal farmers with land holding of 5 acres and less, and landless labourers, tenant farmers and share croppers;

(b)Artisans, village and cottage industries where individual credit limits do not exceed Rs.50, 000;

(c)Scheduled Castes , Scheduled Tribes and Women

(d)Loans to distressed poor to prepay their debt to informal sector, against appropriate collateral

(e)Education loans to persons having monthly income not exceedingRs.5000/-

(f)Personsfromminoritycommunitiesasmaybenotifiedby Government of India from time to time. In States, where one of the minority communities notified is, in fact, in majority, item (f) will cover only other notified minorities. These States / Union Territories are Jammu & Kashmir, Punjab, Sikkim, Mizoram, Nagaland and Lakshadweep.

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

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

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

BorrowerM/s ABC Poultries

BranchNaraingarh

ConstitutionProprietorship Firm

Date of IncorporationNew Unit

SectorPriority Sector-Agriculture

Target ClassificationAgriculture: Poultry

ActivityLayer Farming; Proposed Capacity: 30,000 layers

LocationVillage:Kurali,Teh:Bilaspur,Distt:Yamunanagar

Controlling OfficeVillage:Kurali,Teh:Bilaspur,Distt:Yamunanagar

Name of the ProprietorSh.H Lal

DEFAULT DETAILSNOYES WITH DETAILS

Does the company/ firms name appear in RBI Defaulter list?No

Does the name of group company/ firm appear in RBI Defaulter list?NO

Does the name of any director of the company/ firm appear in RBI Defaulter list / ECCG Specific approval list?No

Does the bank have any unsatisfactory dealing with any account connected with the company/ firm or its directors?No

Dealing with Bank SinceNew Customer

Asset ClassificationNA

NBC ClearanceYes ,ZNBC clearance obtained vide CZO/CAD/ZNBC/35/02 dated 25.02.2012

Existing Financial ArrangementNone

Limits Requested:Term loan: Rs. 70.00 lacsWorking Capital CC limit: RS. 25.00 lacsLimit considered for finance:Term loan: Rs. 68.00 lacsWorking Capital CC limit: RS. 17.00 lacs

Brief History:-

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

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

b) Collateral Security:Description of the PropertyOwnerValuation/Legal opinion

1. Regd. Mortgage of Agricultural land measuring 12 Kanals-3 Marlas detailed as under :-a.) Land measuring 1K-3M, comprised in khewat 83, khtauni 97, Khasra No.10//15/1 measuring 3 Kanal to the extent of 23/60 share,b.) Land measuring 2K-16 M comprised in khewat 168 min khtauni 197 Khasra No. 11/1/2(6-0) to the extent of 56/120 share,c.) Land measuring 0K-7M, comprised in khewat 191 khtauni 147, khasra no. 10//5/2(4-16), 16/1(4-19) kita 2 measuring 9K-15M to the extent of 76/195 share,d.) Land measuring 3K-11M, comprised in khewat no.237 khtauni 289 Khasra No.10//6(7-8), 15/4(2-0), 11//1/1 (2-0) Kita 3 measuring 11K-08M to the extent of 71/228 share,e.) Land measuring 0K-10M, comprised in khewat no. 285, khtaino no. 347, Khasra no. 10//15/2 measuring 1K-09M to the extent of 10/29 share.Situated at Vill.Kurali, H.B No.284, Tehsil-Bilaspur, Distt.Yamuna Nagar as per Jamabandi for the year 2007-08 & mutation No.680,690.

Smt.S Devi w/o Sh.B Ram R/o Rasidpur, Tehsil-Naraingarh, Distt.Ambala.1.Valuation: Distress value is Rs.41.00 lacs as per the valuation report of M/s Ace Architects dated 30.03.2012

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

2. Equitable mortgage of Building/Land measuring 5 Kanal-14Marla comprised in Khewat 118 min Khtauni 177, Khasra no.16//6/1 as per Khud Kasgt Hissedar situated at village Majra HB No. 60,Tehsil-Naraingarh, Distt.Ambala, as per Jamabandi for the year 2009-10.Sh.B Ram S/o Sh.Tula Ram ( share), Sh.Subhash Chand, Ramesh Pal,Satish Kumar,Heera Lal, Sukhdev , Ss/o Sh. Balak Ram S/o Sh.Tula Ram share R/o Vill.Rasidpur,Tehsil-Naraingarh,Distt-Ambala 1.Valuation: Distress value is Rs.167.16 lacs as per the valuation report of M/s Ace Architects dated 30.03.2012

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

Stipulations:

1. Branch must satisfy itself that during the intervening period there has been no charge or attachments on the property created.2. After creation of charge through registered mortgage over the properties, the same to be got recorded in revenue record and certified copy of the mutation after entering charge should be kept with the documents.3. Branch to obtain all documents as mentioned in the legal opinion.4. Before disbursement, Branch to confirm that there are no other encumbrances on the applicants TOTAL land for any advance for the same purpose and obtain an undertaking from the borrower regarding the same. 5. Branch to get equitable mortgage registered as per Haryana Registration act with the revenue authorities.6. Branch to fully ascertain the value of the land and that it covers the advance adequately; ownership and encumbrances of the said land/property. Procedure regarding acceptance of properties for the purpose of creation of charge by way of mortgage as outlined in Bank's manual of Instructions Vol. No.7, page No. 18 (Agr. & Priority Sector) to be strictly followed.7. Branch to create charge on the property as per instructions contained in Manual of Instruction, Vol. 6, Chapter 12, strictly.8. Branch to obtain certificate from Advocate regarding genuineness of the title deed of the property.9. Branch Manager to verify the valuation, marketability and ownership of property offered as collateral security and report to be kept with documents. EMTD to be created as per HO guidelines.10. Branch to obtain comparison report from the Branch Manager of Jatwar Branch, who will compare the original title deed of the property with the certified copy of the title deed, to be obtained from Sub-registrar office, as per Head Office extant guidelines.11. Branch to ensure that title deeds obtained for registered mortgage in respect of the captioned properties are not laminated and coloured photocopies.12. Under Central Registry Rules it is mandatory for the branches to file information in relation to mortgage by deposit of title deeds with the Central Registry through Mrs Shashi Garg , Nodal Officer, Zonal Office Chandigarh. The time limit for registration with Central Registry is within 30 days from the date of creation of mortgage( The provision is applicable for the mortgage created on or after 31.03.2011. Branch to ensure to obtain a revised valuation report of the above property wherein longitude and latitude of the property must be incorporated as poer Zonal Office circular No. CZO/CR-MON/2011-12/125 dated 10.05.2011.

Guarantee:Name of the GuarantorNet Worth(As per the Net Means statement duly verified by the branch)(Rs. In Lacs)

i) Hira Lal47.10

ii) Ramesh Pal40.75

iii) Satish39.50

iv) Sukhdev40.70

v) Subhash40.30

vi) Balak Ram86.00

vii) Shakuntala Devi40.75

*CIBIL report of proprietor as well as all the guarantors was obtained and all reports were found satisfactory. Branch to recover the CIBIL charges from the party.

PROJECT COST ASSESMENT:

A.)Land Already Owned

(Rs. In Lacs)

B.)BuildingArea(Sq. Ft)Rate/ Sq Ft.Total RequirementMargin(40%)Eligible Bank Finance

b1.)Layer Shed2700012032.412.9619.44

(30000 layers@ 0.90 sq ft /layer)

b2.)Chick Cum Grower Shed60001207.22.884.32

(10000 birds @0.60 sq ft/ bird)

b3.)Feed Mill14002503.51.42.1

b4.)Egg Store3002500.750.30.45

b5.)Office3004501.350.540.81

b6.)Labour Quarters12002002.40.961.44

b7.)Water Tank for tubewell41.62.4

b8.)Boundary Fencing,Land Leveling31.21.8

C.)Machinery cum EquipmentsMargin(25%)

c1.)Layer Cage and other items22.55.62516.875

c2.)(30000 cages @ Rs.75/ cage)

Chick Cage(10000 cages@ Rs 60.00/ cage)61.54.5

D.)Misc. AssetsMargin(25%)

d1.)Furnitures & Fixtures etc.0.850.21250.6375

d2.)D.G.Set10.250.75

d3.)Feed Mill Machine2.50.6251.875

d4.)Weighing Scale0.50.1250.375

Total87.9530.18 57.77 57.00

Term Loan Assesment:

The firm plans to start the unit with purchase of layers instead of chicks to start functioning at the earliest. From the next year onwards chicks will be purchased. Thus, this cost of purchase of layers is a one time cost but the party has included it in its working capital requirement which does not seems plausible as it is a one time . Hence, it has been considered as Term Loan requirement. Thus the Term Loan Requirement of the firm comes out to be as under: -(Rs. In Lacs)ParticularCostBorrowers MarginEligible Bank Finance

Term Loan Requirement87.9530.1857.00

Cost of Layers to be Bought(30000*40)12.002.40 (25%)11.60

Total Term Loan Requirement99.9532.58 68.60 68.00

Term Loan Requested for financeRs.70.00 lacs

Term Loan Considered for financeRs.68.00 lacs

WORKING CAPITAL ASSESSMENT:PARTICULARS Amt in Rs. lac

i)Cost of 2 batches of chicks of 10000 birds @ Rs. 25/-5.00

ii)Cost of Feed for 1.5 months(Annual cost of feed = 105.34 lacs)

13.16

iii)Cost of medicine, Vaccination for 1.5 months 2.50

Total21.66

Less:Borrower's own contribution (Margin: 20.00%)4.33

Cash Credit Limit From Bank17.3317.00

Balance Sheet: (Rs. In Lacs)PARTICULARS13-Mar14-Mar15-Mar16-Mar

(a) LIABILITIES

CAPITAL ACCOUNT

Opening Balance31.5344.3653.33

Additions32.84---

Add Net Profit0.3714.5010.7718.89

Sub-total33.2146.0455.1372.23

Less Drawings1.681.681.801.80

Net Capital31.5344.3653.3370.43

SECURED LOANS

Bank Term Loan70.4862.9554.3944.64

Bank CC Limit25.0025.0025.0025.00

Unsecured Loans (from friends & relatives)----

Sundry Creditors & other provisions2.724.194.394.54

TOTAL LIABILITIES129.74136.51137.12144.62

(b) ASSETS

Fixed Assets

Gross Block-81.6572.2263.91

Additions92.38---

Less Depreciation10.739.438.307.31

Net Block81.6572.2263.9156.60

Current Assets

Stock of Birds14.5014.5014.5014.50

Feed and other Material & Medicines15.7716.8117.6418.23

Debtors4.687.077.077.55

Funds For Expansion-20.0030.0040.00

Cash & Bank Balance9.165.633.817.63

Total Current assets 44.1164.0173.0287.91

Miscellaneous Expenses

Purchase cost of Layers deferred3.60---

Preliminary Expenses0.360.270.180.09

TOTAL ASSETS129.74136.51137.12144.62

SALIENT FINANCIAL INDICATORS:

Particulars2012-132013-142014-152015-16

a) Paid-up Capital31.5344.3653.3370.43

b) Net Worth 31.5344.3653.3370.43

c) Tangible Net Worth31.5344.3653.3370.43

d) Long Term Secured Loans70.4862.9554.3944.64

e) Long Term unsecured Loans0.000.000.000.00

f) Net Fixed Assets 81.6672.2263.9256.60

h) Non currents assets3.960.270.180.09

i) Inventories30.2731.3132.1432.73

j) Receivables4.687.077.077.55

k) Other Current Assets9.1625.6333.8147.63

l) Total Current Assets44.1164.0173.0287.91

m) Current Liabilities2.724.194.394.54

n) Bank Borrowings25.0025.0025.0025.00

o) Net Working Capital16.3934.8243.6358.37

p) Current Ratio (with T/L instl.due within 1 yr. as CL)1.331.601.822.18

q) Current Ratio (without T/L instl.due within 1 yr. as CL)1.592.192.481.59

r) Debt-Equity RatioConsidering all outside Liab.3.112.081.571.05

- Considering Term Liab. Only2.241.421.020.63

s) Gross Sales171.07258.21258.21275.76

t) Net Sales Domestic171.07258.21258.21275.76

u) Operating Profit / (Loss) 0.5918.8713.5725.21

w) Profit before interest, tax and depreciation (PBDIT)18.1339.7732.2741.70

x) Depreciation10.739.438.307.31

y) Interest7.0111.7210.689.50

z) Tax0.004.102.505.99

aa) Profit after tax (PAT)0.3914.5210.7918.90

bb) Cash accruals11.1223.9519.0918.00

cc) Increase in Net Sales (%)--50.94%0.00%6.80%

dd) % of Gross Profit to Net Sales11.41%16.56%13.94%16.83%

ee) PAT to Net Sales (%)0.23%5.62%4.18%6.85%

ff) Interest as % to Net Sales4.10%4.54%4.14%3.45%

gg) Return on Capital Employed (%)5.83%19.83%16.18%20.28%

hh) Interest Cover (Time)2.593.393.024.39

ii) Fixed assets to Secured Term Liabilities1.161.151.181.27

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

PROFITABILITY :

1. In the first year of operation the gross profit of the firm comes out to be Rs.18.13 lacs, however , due to low operating efficiency in the first year and interest cost ,the firm is showing a profit of merely Rs. 0.39 lacs however the cash accruals of Rs.11.00 lacs of the firm are sufficient to meet the installment of Term Loan of Rs. 5.00 lacs.As the firm starts operating at near optimum capacity from second year onwards the profitability of the firm is improving with net profit at Rs.14.52 lacs in the FY 2013-14 and Rs.10.79 lacs in the third year. This slight decrease in Net profit is due to increased feed consumption in the third year,however, after that the Net profit is is showing an increasing trend mainly due to increase in sales and reduction in interest expense of the Term Loan.PAT/Net Sales of the firm in the FY12, FY13 and FY14 is 0.23%, 5.62% and 4.18% resp. and showing an increasing trend in the further years .So, the firm is profitable in its operations in years to come.2. Average DSCR is 1.69 and it shows that the project has the ability to repay the term loan installments.3. Return on capital employed is ranging from 5.83 %( for 1st year) to 20.28% in the fourth year which may be taken as satisfactory.

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

Solvency :-

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

Net Worth:-

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

CALCULATION OF DSCR:2013201420152016

SERVICE

PAT0.3914.5210.7918.90

DEP10.739.438.307.31

INTEREST TL5.518.727.686.5

TOTAL16.6332.6726.7732.71

DEBT

INSTALLMENT TL5.110.210.210.2

INTEREST TL5.518.727.686.5

TOTAL10.6118.9217.8816.7

DSCR1.571.731.501.96

Average1.69

Average DSCR comes out to be 1.69 which shows that the firm has the capacity to service its debt obligations easily.REPAYMENT

Term loan:To be repaid in 84 months including 6months of moratorium period,starting from June 2012. Interest to serviced during moratorium.

Working Capital:On demand

Rate of InterestBase Rate+2.00& i.e 12.50%

Processing charges As per extant guidelines

RECOMMENDATION

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

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

3. The advance will be primarily secured by Regd. Mortgage of Agricultural land measuring 12 Kanals-3 Marlas standing in the name of the mother of proprietor Sh.Hira Lal S/o Sh. Balak Ram. The property is v