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SUMMER PROJECT REPORT: 2010

 Madhya Pradesh Financial Corporation (MPFC

 WORKING &PROJECT FINANCING : MPFC

Submitt Subm itted ed by:

Ishan Trivedi

 

CERTIFICATE

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ACKNOWLEDGEMENT

“The satisfaction Euphoria that accompany the successful completion of any work would be incomplete unless we mention the name of the persons, who made it possible, whose constant guidance and encouragement served as a beckon of light and crowned our efforts with success” I consider it a privilege to express through the pages of this report, a few words of gratitude and respect to those who guided and inspired in the completion of this project. I am deeply indebted to Shri A K Sinha for mentoring me throughout the internship in this esteemed organization. For their timely suggestions & valuable guidance. I want to thank  Shri. Shr i. R.G. R.G. Dwived Dwivedii (Ge (Gener neral al Manage Managerr – MPFC, MPFC, H.O. H.O. Indore Indore))  an and d Shri Shri.. P.K. P.K. Sinh Sinhaa ( Manager  Manager – Systems). Systems).

I cannot do away without thanking few more individuals who educated us in their respective field of expertise and otherwise:



Shri Mukesh Gupta (Manager) Shri S.S. Agnihotri (Dy. General Manager, RRC)



Shri R.K. Jain (Accounts)



Shri A.K. Sinha (Manager, Legal)



Smt. Geeta Agrawal (Recovery & Follow-Up)



Shri Bhartesh Jain (Manager, Recovery & Follow-Up)



Last but not the least I would also thank all my co-interns and friends for the constructive and fruitful discussions and knowledge sharing.

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1. INTRODUCTION

Madhya Pradesh financial corporation is the premier institute of the state engaged in  providing financial assistance and related services to small/medium size industries and it was incorporated under State Financial Corporation Act 1951(act 63 of 1951) in1955and also registered as category 1 merchant bankers and Securities Exchange Board of India (SEBI) since 1996, set up a separate merchant banking division in the name of the MPFC Capital Market Division. MPFC works under the control of board of directors, consisting of representatives from State Government, Small Industrial Development Bank of India, RBI, Scheduled Bank, Insurance Company, Cooperative Bank and Shareholders. However fee  based services can be extended to units located in any part of the country. country. In the definition of industry almost every type of manufacturing or process activity related operations are covered. In addition, MPFC also provides assistance to activities in the service sector also approved by Industrial Development Bank of India (IDBI). As per provision of the “State Financial Corporation Act 1951”, MPFC can grant Assistance to only that concern that’s paid up capital and free reserves taken together  Do not exceed rupees 20 crores. This limit is not applicable to non fund activities. MPFC is well knit organization with head quarter at Indore, and also have tonal and Branch network at 20 districts. Initially the corporation was established with the objective of providing financial assistance to Small Scale Industries but at present 68% of the corporation’s funds assist industrial  projects, 20% of the funds are invested in service sector and 12% in infrastructure

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SECTOR WISE SANCTION OF LOAN

  Loan

Industrial Services Infrastructure

PERFORMANCE IN DIFFERENT AREAS 250

200

150 sancon disbursement recovery

100

50

0 2007-08

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2008-09

 

SIZE WISE SANCTION OF LOAN

Size wise sanction of loan in MPFC up to 100 lakh is 67% and above 100 lakh is 33%

loan

upto 100 lac above 100 lac

MANAGEMENT STRUCTURE OF MPFC Management (1) the general superintendence, direction and management of affairs and business of the Financial Corporation shall vest in a Board of directors which may exercise all powers and do all such acts and things, as may be exercised or done by the Financial Corporation and are not  by this Act expressly directed or required to be done by the Financial Corporation in general meeting. (2) The Board may direct that any power exercisable by it under this Act shall also be exercisable in such cases and subject such conditions, if any, as may be specified by it, by chairman, managing director or the whole-time director. Board of Directors The Board of directors shall consist of the following, namely:(a) a director to be nominated as chairman under sub-section (1) of section 15; (b) two directors nominated by the State Government of whom one director shall be a person 6|Page

 

who has special knowledge of or experience in small-scale industries: Provided that in the case of a joint Financial Corporation, the number of directors shall be such as the State governments of the participating States may, by agreement among themselves, think fit to nominate each participating State Government nominating not more than two directors: Provided further that in the case of a Joint Financial Corporation, the director, who shall have special knowledge of, or experience in, small-scale industries, shall be nominated by that  participating State which, according to the terms of agreement between the participating States, is entitled to make such nomination; (c) two directors nominated by the Small Industries Bank; (d) two directors nominated in the prescribed manner by the parties mentioned in clause (c) of sub-section (3) of section 4; (e) such number of directors elected, in the prescribed manner, by shareholders, other than those mentioned in clauses (a), (b) and (c) of sub-section (3) of section 4, whose names are entered on the register of shareholders of the Financial Corporation, ninety days before the date of the meeting in which such election takes place on the following basis, namely:(I) where the total amount of issued equity share capital held by such shareholders is ten per cent. Or less of the total issued equity capital, two directors; (ii) where the total amount of issued equity share capital held by such shareholders more than ten per cent. But less than twenty-five per cent. Of total issued equity capital, three directors; (iii) Where the total amount of issued equity share capital held by such shareholders is twenty-five per cent or more of total issued equity capital, four directors; and (iv) where the total amount of issued equity share capital held by equity shareholders referred to in this clause does not permit election of all the four directors, the Board shall co-opt such number of directors as is required to make up the staid number who shall retire in equal number on the assumption of charge by the elected directors in the order of their co-option; (f) a managing director appointed in accordance with the provisions of sub-section (1) of section 17: Provided that on the first constitution of the Board, the directors referred to in clause (d) shall be nominated by the State  Government and directors so nominated shall, for the  purpose of this Act, be deemed to be elected directors

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ORGANISATIONAL CHART

 

 

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BRACH NETWORK AND FIELD OFFICE STRUCTURE OF MPFC

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CAPITAL STRUCTURE OF MPFC    

 Refinance from SIDBI  Share Capital from Sate Government  Loan in Lieu of Share Capital Subscription of Bonds to financial institution such as Nationalized Bank, LIC, Cooperative Society, APEX Banks.

THE CORPORATION OFFERS: 1. Financial assistance by sanction of Term Loans to New, Tiny, Small and Medium   Enterprises and Services Sector for acquiring fixed assets like land, building, plant & machinery and other miscellaneous assets. 2. Sanction of Term Loans to existing industrial concerns and services sector units   For expansion or modernization or diversification. 3. Sanction of Working Capital Term Loans to meet working capital requirements of  Industrial or service enterprises under special schemes.

FINANCIAL ASSISTANCE – LIMITS OF ACCOMMODATION: Category Maximum Loan I. Proprietary or Partnership Rs.200.00 lakhs II. Corporate bodies (both private & public limited) Rs.500.00 lakhs In respect of existing units operating successfully, maximum limit can be extended up toRs.400.00 lakhs for category (I) and Rs.1000.00 lakhs for category (II). In respect of category (II) the financial assistance can be sanctioned provided the paid up capital and free reserves do not exceed Rs. 3000.00 lakhs. If the requirements of the funds for a project are substantial and cannot be extended By the Corporation alone, then the requirement of loan of such projects can be met in Consortium with other financial institutions.

ACTIVITIES FINANCED BY THE CORPORATION:   • General Loans for setting up new new tiny, small and medium scale enterprises and service sector units. • Hotels/Restaurants. • Tourism related facilities (Amusement parks, Convention centers, restaurants,   Travel & Transport, Tourist service agencies, Mobile Mobile canteen /catering), • Hospitals/Nursing Homes. ..... • Acquiring Electro Me Medical Equipment, sseetting up of Medical St Stores. 10 | P a g e

 

• Transport Loans (SRTOs) & acquisition of private vehicles, construction and   Purchase of commercial complex and Development Development of Residential Colonies. Colonies. • Development /maintenance and construction of roads. • Qualified Professionals (Management, Accounting, Medical Professionals,   Architects & Engineers, Veterinary Veterinary clinics)

2. OBJECTIVE The main objectives of MPFC areIndustrial development of the state. 





Providing financial assistance to the micro, small and medium scale industries, service sector and infrastructure development projects. Socio-economic development of the state.

The corporation offers financial assistance by sanction of term loans to new, tiny, small and medium enterprises and service sector for acquiring acquiring fixed assets like land, building, building,  plant and machinery and other miscellaneous assets. It also offers sanction of term loans o existing industrial concerns and services sector units for expansion or modernization or  diversification. Apart from this the corporation also offers sanction of Working Capital Medium Med ium Term Term Loan Loan to meet meet Workin Working g Capital Capital requir requireme ements nts of indust industrial rial or service service enterprises under special schemes.

3. HISTORY MPFC – Establishment, Growth, Challenges

1.

Year 1955-56 

MPFC came into existence in Madhya Bharat Period of 

infancy Selection of right people for the right job successfully established the procedures, prob probab ably ly wi with th hard hardly ly half half a doze dozen n of empl employ oyee eess on it itss ro roll ll.. No fi fina nanc ncia iall institution existed in other regions of the newly formed state of Madhya Pradesh  – Renamed “MPFC”. Renowned industrialist Chairman of the corporation for about ten years. Later replaced by an ex-officer   (financial secretary) continues with an exception of two years in seventies.

2.

Year 1957-60 

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Conservative approach

 

Conscious of safety of public money and one should be – Selective financing mostly in Madhya Bharat region may be a surprise to the present generation in the corporation that notice under section 30 of state financial corporation’s act, 1951 (SFC act) served even for a single default on a renowned industrial house –  Format of notice continued to be used for years

3.

Year 1961-64 

 Activities and facilities published

Periodica Period icall press press confe conferen rences ces – Extens Extensive ive tourin touring g and and financ financial ial assist assistanc ancee extended to other regions (Chhattisgarh and Mahakaushal) Liberal financing to provide impetus to set up industries in a state considered to be industrially backward – Positive response resulted in paucity of funds – Had to augment resources through Bonds, guaranteed by the State Government for the first time, position as per an editorial in a daily reversed SFC act amended.

4.

Year 1965 onwards General ‘Sickness’ in field industry – of considerable amount up in corporate already sector –entered this sector tookofadvantage reference to BIFR lock putting a br brak akee on th thee reco recove very ry.. Orga Organi nize zed d cons consor orti tium um meet meetin ings gs,, semi semina nars rs fo forr rehabilitation of ailing units, References to BIFR hardly served any purpose. Procedures in BIFR time consuming targets oriented financing and availability more and more incentives including subsidy always have a drawback – Selective financ fin ancing ing close close and and effec effectiv tivee monito monitorin ring g includ including ing regula regularr inter interact action ion with with borrowers, critical analysis of working results warranted. One cannot ignore the security aspect also even in a development banking, personnel responsible for apprai app raisin sing g the proje project ctss and relea release se of funds funds should should invari invariabl ably y be part part of  recovery and rehabilitation cells. One cannot be perfect and bound to err -: An adage: ‘To err is human. He alone can improve and become perfect who realizes his own mistake and is particular in correcting them’. The corpor corporati ation on is proud proud of having having always always a dynami dynamicc leade leadersh rship ip with with new dimension dimen sionss brining brining its activiti activities es comparab comparable le to any financial financial instituti institution on with good governance. More than 10,000 units have been established. Around 5 lacs people have been given direct employment. Indirect employment has changed the Madhya Pradesh state.

 

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 4.

Key Functions of MPFC

1. SA SANC NCTI TION ON::-

Every institution when they are created they are bonded within some rules and regula reg ulatio tions ns wheth whether er by any law or const constitu itutio tional nal clause clauses. s. This This bindin binding g is necessary to the extent that it is not adopting a rigid attitude. When there exists a proper pro per balanc balancee betwe between en the rigidi rigidity ty and and flexib flexibili ility, ty, then then only only the motive motive of  establishing an institution becomes successful. Thus, MPFC operates within the cr crit iter eria ia fi fixe xed d by the the clau clause se de defi fine ned d unde underr sect sectio ions ns of th thee Stat Statee Fina Financ ncia iall Corporations Act 1951. Basic tasks involved in sanction are submission of application form along with all the required documentation. The process of documentation happens during as well as post disbursement (details are attached in the Appendices). 1) Loan Loan applic applicati ation on formform- The form must be fil filled led and duly duly signed signed by the borrower, along with the documents which are given in the check list. The form is submitted by the borrower along with application fees for registration registration of their case case for for exam exampl plee - copy copy of Part Partne ners rshi hip p Deed Deed,, MoA, MoA, and and Esti Estima mati tion on of  Civil/Technical Engineer. 2) Registration of Loan Case- The concerned authorities go through the rules and regulations/ procedure prescribed and request of the borrower is registered as Case. 3) Bank Opinion- in order to check the credit worthiness of the company, MPFC issues a confidential letter to the bank for their opinion about the borrower as well as guarantor. guarantor. 4) Verification of the property- MPFC verifies the property/registry which the borrower mortgages to the organization. Scrutiny of the security offered by the borro bor rower wer is perfo performe rmed d in the form form of co confi nfiden dentia tiall searc search h by the regist registrar rar through whom MPFC finds out the charges created in favour of other institute. Terms & Condition are discussed further in detail in this report.

DISBURS BURSEMEN EMENT:T:2. DIS Disbursement is the stage where actually funds are at stake, hence it is very vital that before disbursemen disbursementt all required required formalities formalities are complete completed d with all the terms & conditions well defined, documented, and executed. Before considering di disb sbur urse seme ment nt the the Comp Compan any y has has to prov provid idee suff suffic icie ient nt ce cert rtif ifie ied d deta detail ilss of  implementation already taken place. 13 | P a g e

 

During disbursement it is checked that all conditions agreed upon in the sanction process are fulfilled. Disbursement process essentially   includes photographs of  site, certified summary of accounts and technical manager’s report.

3. RE RECO COVE VERY RY: The recovery includes all those efforts made to recover the amount in the form of  instalment against interest and principle amount due. The amount paid by the borro bor rower wer is depos deposite ited d in th thee prefe prefere rence nce of other other charge charges, s, Penal Penalty ty charge charges, s, Arrears of interest, Principle amount. The payment of interest & principle are normally kept separate to avoid the burden on the borrower. In case of multiple loans, the amount received shall be appropriated first towards the loan overdue having

Power delegation The authorities to sanction the loan by the concerned officer are: OFFICER

SANCTION POWER 

Asst. Branch Manager

Up to Rs. 5.00 Lacs

Dy. Manager

Up to Rs. 10.00 Lacs

Manager

Up to Rs. 15.00 Lacs

Dy. General manager

Up to Rs. 30.00 Lacs

General Manager

Above Rs.30.00 Lacs Up to Rs. 50.00 Lacs

Managing Director: Term loans Assets Credit Scheme WCMTL ROTL Short Term Loan D G Set Loan committee Board

Up to Rs. 100.00 Lacs Up to Rs. 100.00 Lacs Up to Rs. 100.00 Lacs Up to Rs. 100.00 Lacs Up to Rs. 75.00 Lacs Up to Rs. 50.00 Lacs Above Rs. 100.00 Lacs Up to Rs. 240.00 Lacs Above Rs.240.00 Lacs

5.SCHEMES MPFC has been providing financial assistance to industrial units in the state of Madhya Pradesh for the last five decades. It has been extending wide ranging fund and non-fund  based services. A number of new schemes for providing financial assistance and services s ervices to 14 | P a g e

 

industries, professionals and other business associates have been successfully introduced by the corporation.

Its fund based schemes are available for setting up indu in dust stri rial al//busi busine nes ss vent ventur ures es with within in the the stat tate of Madh Madhya ya Pradesh. Whereas, its non-fund based schemes are available throughout India.

General Loan Limits:  Proprietorship & Partnership: Partnership: Normal: Rs. 200Lacs Special approval from SIDBI: Rs. 800.00 Lacs Companies:: Normal: Rs. 500Lacs Special approval from SIDBI: Rs. 2000.00 Lacs Companies Currently under consideration: Limits to be extended to Rs.1000 Lacs under normal conditions

S  No. 1 2 3

Sector

Maximum Loan Amount

Industrial Sector Infr Infras astr tru uctur cturee Pro Proje ject ct Service Sector

60% of the cost of project 50 50% % of th thee co cost st of pr proj ojec ectt (e (ex xclud cludin ing g la lan nd co cost st)) 70% of the cost of project

Application fees for all schemes:

(1) 0.05% of the loan amount – Registration of loan proposal (2)0.20% of the loan amount – before issue of sanction letter  (3) Upfront Fee to be charged at the time of first disbursement: 

Term Loan Scheme



1.00%



Small Loan Scheme



0.50%



Short Term Loan Scheme



0.25%

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SCHEMES

Fund based schemes

Non fund based schemes

FUND BASED SCHEMES 

TERM LOAN



EQUIPMENT FINANCE



ASSET CREDIT



SHORT TERM LOAN



WORKING CAPITAL



ELECTRO-MEDICAL EQUIPMENTS



HOSPITAL FINANCE



FINANCE FOR PROFESSIONALS



H P PORTFOLIO MANAGEMENT



LOAN REPLENISHMENT



D G SET FINANCE



SCHEME FOR FINANCING MISCELLANEOUS FIXED ASSETS



SCHEME FOR MEDICAL PROFESSIONALS



LIQUID FUND SCHEME



COMPOSITE LOAN



COMMERCIAL COMPLEX

 NON FUND BASED SCHEMES 

CREDIT SYNDICATION



CORPORATE ADVISORY SERVICES

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FINANCIAL SCHEMES a- PROJECT FINANCEThe financial assistance is provided to new industrial units for creation of fixed assets, such as land, factory building, plant and machinery, electrical installation etc. and for  modernization, diversification, expansion and/or replacement of equipments etc. to existing units.

Provided to- Hotels, Service industries, R & D, Nursing Homes, Diagnostic Centers, Cold Storage, Restaurant, Marriage Garden, Tourism related activities and setting up for various facilities for industries. For Period- 5-8 years b- EQUIPMENT FINANCEExisting Existi ng industrial industrial concerns operating for 2 years earning profit and/or and/or declaring declaring dividends during the preceding 2 years and regular with FIs/Banks can avail financial assistance assistan ce to acquire acquire capital capital goods/equ goods/equipmen ipments ts (imported (imported or indigenous indigenous), ), even when it’s not a part of the complete project. Maximum assistance- up to 75% of the cost of the equipment with a ceiling of Rs. 90 lacs per proposal. Overall debt equity ratio- should not be more than 2:1 c- ASSET CREDITThe scheme similar to Equipment Finance scheme considers financing up to 100% of  the cost of equipments in deserving cases. The company should be in profitable operation for at least two years having good track record with Banks/FIs. Maximum assistance- 100% Overall debt equity ratio- 1:1

d- SHORT TERM FINANCEThis scheme has been designed to meet the short term requirement of funds for  working capital purposes due to peak season needs or for fulfillment of specific order/job enhancement of working capital limits pending up to Bank etc. It is provided to concerns which are in the profit for the last 4 years, having working capital limits sanctioned by any other commercial bank, having regular account with MPFC /Other financial institution. institution. The minimum minimum assistance assistance under the scheme is Rs. 2.00 lacs and maximum Rs. 100.00 lacs. The debt equity ratio should not be more than 1:1 and current ratio should not be less than 1.5:1. Repayment should be done within 12 months.

e- LOAN REPLENISHMENT: REPLENISHMENT: Assista Assi stance nce is availa available ble for the purpos purposee of purcha purchase se of furthe furtherr machin machineri eries es and extension of factory building for the existing line of activity. It is provided only to 17 | P a g e

 

MPFC's existing profit making borrowers with good track record of repayment (at least 3 installments paid in time). The limit of assistance is up to the extent of loan already repaid by them till the date of application. Minimum loan is Rs. 2.50 lacs and maximum loan is Rs. 75.00 lacs. Repayment should be done within 5 years.

f- CREDIT LINKED CAPITAL SUBSIDY FOR SSI: The Credit Linked Capital Subsidy Scheme (CLCSS) aims to facilitate technology up gradation of SSI units in the specified products/ sub-sectors by providing 12% capital subsidy for induction of proven technologies approved under it. CLCSS would cover  the following products/ sub sectors in the SSI:

Leather and leather products, Food processing, Information technology, Drugs and  pharmaceuticals, Auto parts and components, Electronic industry, industry, Glass and ceramic items, Dyes and intermediates, Toys, Tires, Hand tools, Bicycle parts, Foundries - ferrous and cast iron, Stone industry. The list of products/ sub sectors may be expanded with the approval of the Governing and Technology Approval Board (GTAB). The scheme will be in operation for a  period of five years from October 1, 2000 to September 30, 2005, or till the time sanctions of capital subsidy by the Nodal Agency reach Rs 600 Crores, whichever is earli ear lier. er. The The 12 12% % ca capi pital tal su subs bsid idy y su supp ppor ortt woul would d be limi limite ted d to th thee lo loan an amou amount nt indicated below: (Rs. in lacs) Investment in Plant & Machinery *

Max. Ceiling of loan eligible for support **

Maximum available

Up to 10 lacs

8.00

0.96

10 lacs to 25 lacs

20.00

2.40

Above 25 lacs

40.00

4.80

subsidy

* (the purchase price will be considered) ** (the eligible subsidy would be calculated on the actual loan amount or maximum ceiling on loan eligible for subsidy, whichever  is lower) Promoters' contribution, security, debt-equity ratio, upfront fee, etc. will be applicable as per existing norms. Entrepreneurs availing credit linked capital subsidy for technology up gradation shall not avail any other benefit including Interest Subsidy, under any other scheme of the Central Government. If it is found that capital subsidy from the Government has been availed on the basis of any false information, the industrial unit shall be liable to refund the subsidy availed, along with interest.

g- WORKING CAPITAL MEDIUM TERM LOAN: 18 | P a g e

 

Term Loan is provided under this scheme to part finance long term/medium term working capital requirements of the industrial units. It is provided to industries industries having last 3 years profitable profitable operations operations and proven track  record with institution/bank. MPFC borrowers whose fixed assets are mortgaged with MPFC and those who are not MPFC borrowers but intend to offer all their existing fixed assets by way of mortgage as primary security can also avail assistance under  the scheme.loan of Rs. 2.50 lacs and maximum loan of Rs. 500.00 lacs may be Minimum  provided under this scheme. Repayment should should be done within 3-5 years. The prevailing annual interest rate is 14.00% payable quarterly. A penalty @2% p.a. is levied in case default for the period and amount of default.

h- TERM LOAN: Term loan is provided for the purpose of creation of fixed assets (such as land, factory  building, plant and machinery, electrical etc.), for setting up of new unit and for  modern mod ernizat ization ion,, diversi diversific ficati ation, on, expansi expansion, on, and/or and/or replace replacemen mentt of equipm equipment entss in existing units. Finance is provided to new industrial units. It is also provided to Hotels, Service Industries, Transportation, and R&D activities. The maximum limit of assistance to noncorporate sector is Rs. 200.00 lacs and for corporate sector it is Rs. 500.00 lacs. Period of assistance depends upon merits of the case ranging between 5-8 years.

The prevailing annual interest rate structure is as follows:  Interest Rate Structure Term Loan Scheme

Up to Rs. 50,000 Above Rs. 50,000 & Up to Rs. 2.00 Lacs Above Rs. 2.00 & Up to Rs. 25.00 Lacs Above Rs. 25.00 & Up to Rs. 200.00 Lacs *Industriall Units *Industria Above Rs. 200.00

Interest Rate

Rebate

10.00 % 12.00 %

0.50 %

Effective Rate on Timely Repayment 10.00 % 11.50 %

14.00 %

0.50 %

13.50 %

14.00 %

1.00 %

13.00 %

14.00 %

1.00 %

13.00 %

A penalty @2% p.a. is levied in case default for the period and amount of default.

i- COMMERCIAL COMPLEX 19 | P a g e

 

The scheme scheme is for provid providing ing financ financial ial assistan assistance ce for constru constructi ction on of commer commercial cial complex including show rooms and sales outlets. Loan will be given for purchase of  land and construction of commercial complex within the State of M.P. Sale of shops, show room or any portion of complex shall be permissible with the  prior approval of the Corporation. The proceeds shall be deposited in the loan account of the borrower as per terms ter ms of agreement. The min cost of project should be Rs 10.00 lacs. Thee prom Th promot oter er is requi require red d to co cont ntrib ribut utee 50 50% % of to tota tall co cost st of pr proj ojec ect. t. In ca case se of  companies, net worth should not exceed Rs. 30.00 Crores. MPFC will hold the first charge by mortgaging assets i.e. land & building, shop premises, saleable part of  complex. The loan should be repaid in 5 years, including a maximum of 2 years moratorium. Interestt shall be 15.75% p.a. payable quarterly. Interes quarterly. A penalty penalty @2% p.a. is levied in case default for the period and amount of default.

 j- CREDIT SYNDICATION: -

Servicess for credit Service credit syndic syndicati ation on with with other other financ financial ial instit instituti utions ons/ba /banks nks/fin /financ ancee companies in respect of term loans/lease finance/working capital etc. are provided.

6. PROCESS OF PROJECT FINANCING 1 Submission of application form. 2 Documents required before sanction. 3 Cost of project and means of financing. 4 Project appraisal. 5 Sanction of project with terms and conditions. 6 Documents required after sanction of project 7 Disbursement of sanctioned loan amount. 8 recovery and follow-up.

 Submission of application form   The application form contains the followin following g necessary information

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Basicc in Basi info form rmat atio ion n ab abou outt th thee pr prop oprie rieto tor, r, pa part rtne ners, rs, di dire recto ctors, rs, pr prom omot oter ers, s, guaran gua rantor torss includ including ing educati educationa onall qualif qualifica icatio tion, n, comple complete te bio data data & other  other  information.

 





 Nature of industry & product required knowing knowing the area of operation, market share, product performance, product quality, pricing strategies, marketing  policies etc. Financial position of concern, which include the last 3 years performance of the firm in the market with its profitability & position of asset & liabilities. Cost of project & means of finance.





 

Uti Utilit lities ies granted regard regarding ing infrast infloan, rastruc ructur turee facili facilities ties, , Techno Technolog logical ical manage man agemen ment, Security for the declaration by proprietors, director, partners & t, other related persons with complete hierarchy

0.25 % of the Term Loan applied for, subject to minimum of Rs.1000 Application fee has to be deposited along with the application  form

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 Documents required before sanction Sin o

Particulars

A

General Application Form Processing fees Detailed project feasibility report covering technical, economical, & financial aspects About the Promoters Form duly filled and signed by the promoter with photo KYC Form duly filled and signed s igned by the promoter with photo KYC Documents: - Identity proof viz. voter ID / PAN Card/ Driving License - Proof of Residence viz. Electricity / Telephone Bill Copies of Income Tax Returns for last 3 years  Net worth statement duly certified by C.A. Details of Bank A/Cs (Personal) viz. copies of passbook 

B

C (I)

(ii)

(iii (iii))

D.

E.

About th the ap applican antt cco oncer ern n / co com mpany In case of Part rtn ners rsh hip Firm Copy of Partnership Deed Firm’s Registration Certificate Application form to be signed by all the partners with seal In ca case of of Co Companies Memo & Articles of Association (Certified Copy) Incorporation Certificate Copy of Board resolution for availing loan from MPFC along with authorization for MD/Director for negotiations Details of concerns in which the directors are interested and Nature of interest Certificate of commencement of business (in case of Public Limited Company) List of existing and proposed shareholders, their relationship with promoters and their amount of investment. In case case of of Hi Hind ndu u Undi Undivi vide ded d Fami Family ly (HUF (HUF)) Genealogical tree of the family the correctness of which is sworn to be true before a magistrate. Consent in writing for taking loan from MPFC signed by all major members of HUF (above 18 years of age). The application form should be signed by the “KARTA” of HUF Past Past Perf Perfo orman rmance ce – Exis Existi tin ng Unit Unitss Audited balance sheet & working results for 3 years Details about existing track record with Bank / FIs viz. assistance availed, present outstanding, Bank’s opinion  Name and address of the Bankers Details of Asso soci ciaate Concerns Audited balance sheet & working results for 3 years Details about existing track record with Bank / FIs viz. assistance availed, present

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F.

G.

H.

I.

outstanding, Bank’s opinion  Name and address of the Bankers Details ab about th the Pr Project Copies of the title deed / allotment order / lease deed of the land. Site Plan / Map duly approved by competent authority Land diversion order in case of freehold land Blueprint and detailed layout of the existing as well as proposed construction Detailed Civil Estimated for proposed construction Comparative Quotations and catalogues for machinery / electrical items (from three suppliers). Technical knowhow. Marketing agreement.  Necessary application / approval for Working Capital of collateral security offered / to  be offered to the bank for w.c. limits sanctioned / to be sanctioned. sanctioned. Arrangement for procurement of critical raw material comparative quotations (from three suppliers) St Stat atut utor ory y Appr Approv oval alss / Perm Permiss issio ions ns / Regi Registr strat atio ions ns MSME Registration Certificate Permission from Pollution Department for Air and Water discharge. Permission from Department of Tourism in case of Hotel Projects Permission from Drug Controller in case of Pharmaceuticals unit Any other permission required specific to the project Details of of ad additional Se Security Copy of title deeds Valuation of property by Chartered Engineer  Photograph of Property Consent from the owner for mortgage of the property in favor of the Corporation Others Copy of letter if reference addressed by the promoters to their bankers personal as well as concern firm / company for disclosing the information required by MPFC Source of contribution to the capital of the concern which the promoters are intended to make CIBIL Status & AML compliances Credit Rating (If Applicable)

 Cost of project and means of inancing:(A) Cost of project: Finance requirement of any project can be sub divided into two categories, namely (a) Finance Finance needed needed for for creating creating the the assets assets (b) Financ Financee needed needed for raw material material and day-to day-to-da -day y workin working g as well well as extend extending ing credit facilities on the sale of goods. The first category would need resources, which will be required required to be deployed deployed for a considerably long period before they are earned back as cash. On the other hand, in the case of second category, the deployment of resources will be for a considerably short period. Accordingly, the finance requirements in both the categories will be 23 | P a g e

 

classified as long term, short-term finance, the long-term finance is generally known as “term loan”, and the short-term finance is generally known as “working capital”. The term finance is the money required for financing the creation of fixed assets in terms of(1) Land and site development development-- the items of cost covered here are cost of land including including conveyance charges, premium payable on leasehold land and conveyance charges, cost of leveling and development, cost of laying approach roads and internal roads,. Cost of fencing compound walls, cost of gates. (2) Buildi Building ng and civil worksworks- these these includ includes es factory factory buildin building g for the main main plant plant and equipm equ ipment ents, s, factor factory y build building ing for auxili auxiliary ary service services, s, admini administr strativ ativee buildi building, ng, go downs, warehouses, and open yard facilities, misc. non factory building, quarters for  essential staff, silos, tanks, wells, chest, basin, cisterns, hopers, bins, garages, sewers, drainage civil engineering works, architect fees etc. (3) Plant Plant and machiner machinery y – the major major cost cost item item in most most of the projects projects,, this this covers covers imported machinery, indigenous machinery, machinery stores, spares, and foundation and installation charges. (4) Technical Technical knowhow, knowhow, engineering engineering fees- the technical knowhow knowhow and engineering engineering fees  payable to foreign/Indian collaborators is indicated here. Recurring annual royalty  payment is not shown here, but included included in the profitability statements. (5) Misc. fixed assets— these include include furniture, office office machinery and equipment, equipment, misc. tools and equipment, cars, trucks, railway siding, equipment for power, laboratory equipment, equip ment, workshop workshop equipment, equipment, firefighting firefighting equipment, equipment, effluent effluent collection collection misc. fixed assets. (6) Prelimi Preliminar nary y and capital capital issue issue expens expenses es – the items included included are broker brokerage age and commission on capital issue, expenses on company floatation and cost of preparing  project report and conducting market surveys etc. (7) Pre-ope Pre-operat rative ive expens expenses— es— these these expens expenses es incurr incurred ed on the follow following ing till the date of  commencement production: production: establishment, rent, rates and tax taxes, es, travelling expenses, expenses, misc. expenses, interest and commitment charges on borrowing insurance, mortgage expenses, interest on deferred payments, start-up expenses. (8) Provis Provision ion for contin contingen gencies cies – this this represe represents nts a provis provision ion to meet meet any unforese unforeseen en expenses expen ses or expenses ignored inadvertently inadvertently from the estimates. This provision provision is not meant for meeting price escalation, which can be anticipated at the time of estimating the project cost. (9) Margin money money for working capital capital – a certain part of working working capital requirement requirement representing the margin money for working capital finance by commercial banks and certain items are not supported supported by commercial commercial banks. This part naturally is included included in the cost of protect under the head “margin money for working capital”. To figure out the margin money for working capital the requirement on the following items is estimated indigenous raw material, consumable stores, wages and salaries, cost of  fuel, light and power, taxes, insurance, rent, cost of repairs, maintenance, packing and sales expenses, stock of finished goods at cost excluding depreciation, stock of WIP, o/s debtors, other items of working capital.

24 | P a g e

 

REVISED COST OF PROJECT S  No.

Particulars

1

Inc./Dec. due Overruns to addition

Revised esti stimat ateed cost of project

-

-

-

2

Land & site development Building & civil work -

-

-

-

3

P&M

-

-

-

-

4

Misc. fixed asset

-

-

-

-

5

-

-

-

-

-

-

7

Technical knowhow fees Interest during construction Preliminary expenses -

-

-

-

8 9

Preoperative expenses Margin money for W.C.

-

-

-

-

TOTAL

A

B

C

D

6

As appraised

Means of inance 

Equity /paid up capital Preference capital



Secured debenture



Term loan



Deferred credit



 Capital subsidy and development loan



Unsecured loan and deposit



Equity Capital—this is the contribution made by the owners of business, the equity shareholders, who enjoys the rewards and bear the risks of ownership. However, their  liability is limited to their capital contribution. From the point of view of the issuing firm, equity capital offers two important advantages: it represents permanent capital, and it does not involve any fixed obligation for payment of dividends. 25 | P a g e

 

Preference Prefere nce capita capitall – a hybrid hybrid form form of financ financing ing,, prefer preferenc encee capita capitall partak partakes es some some characteristics of equity capital and some attributes of debt capital. It is similar to equity  because preference dividend like equity dividend is not a tax-deductible payment. It resembles debt capital because the rate of preference dividend is fixed. Typically when  preference dividend is skipped it is payable in future because of the cumulative future associated with most preference issues. The high cost associated with it and the near  fixit fix ity y of pr pref efere erenc ncee divi divide dend nd pa paym ymen ents ts rende renders rs pr pref efere erenc ncee ca capi pita tall some somewh what at unattractive in general as a source of finance. Secured debentures— they are protected by a charge on the properties of the issuing compan com pany. y. While While the secured secured debent debenture uress of a well-es well-estab tablis lished hed compan company y may have have appeal to investors, secured debentures of a new company do not evoke interest in investing public. Term loan – term loans, which represent secured borrowings, are presently the most important impor tant source of finance for new project. They carry a fixed rate of interest and are repayable over a period of 6-10 years in equal annual or semi-annual installments. Banks, Ban ks, Madhya Madhya Pradesh Pradesh financ financial ial instit instituti utions ons and all India India term lendin lending g financ financial ial institutions provide term loan. Banks and state level institutions and all India term lending normally provide term loan to project having lesser cost. If the cost is much higher than above then it is financed by all India institutions and state level financial instit ins tituti utions ons,, bu butt not by commer commercial cial banks. banks. For For larger larger protec protects ts all India India financ financial ial institutions provide bulk of term finance MPFC as schemes offered previously. Deferred credits— many a time the suppliers of machinery provide deferred credit facility under which payment for the purchase of machinery can be made over a period. The interest rate on deferred credit and the period of payment vary rather widely. Capital subsidy and Development loans/ sales tax loans – central govt. provides capital subsidy to industries set up in notified backward districts. Many state govt. or state development agencies also provide development loans/sales tax loans. They provide thiss facili thi facility ty for distri districts, cts, which which are consid considere ered d backwa backward rd distri districts cts by the centra centrall government. Unsecured loans and deposits – unsecured loans are typically provided by the promoter  to fill the gap between the promoter’s contribution requited by financial institutions and the equity capital subscribed to by the promoters. These loans are subsidiary to the institutional loans. The rate of interest chargeable on these loans is less than the rate of  interest on the institutional loans. PROPOSED MEANS OF FINANCING As apprais aised

A.

Capital promoters capital / Public issue

26 | P a g e

Funds ra raised as as on on Re Revi vise sed d mean meanss date of overrun of financing -

-

 

B. C.

In Investment subsidy Term loan

-

-

-

7. PROJECT APPRAISAL There are various schemes under which the corporation provides financial assistance that is term loan to new & existing units/setup/clients and other loans only to existing units. MPFC appraises a project from all the aspects like- Marketing, Technical, Managerial and Financial. This is to ensure the viability and feasibility of the project before disbursement. Till the time of sanctioning the corporation’s funds are not at the stake but as soon as the first disbursement is done, the funds get stuck, thus before the disbursement it ensures the working and estimations in all the possible domains. In order to safeguard its interest and principal amount the corporation would like to be confident of the returns attached with the project. For the same, MPFC can advice on choosing the right mix of means of finance. It can help the borrower in assessing the working capital requirement, repayments schedule of the term loans and evaluation of the IRR and BEP. The project appraisal is supported by the details of the borrowers obtained by the application forms and other documents mentioned above. Some of the important aspects are      

Promoters’ background Particulars of the project Cost of the project Means of financing Marketing and Selling arrangements Profitability and working results Economic consideration  The whole process of project appraisal is divided in 5 components-

.1- Marketing Appraisal - Many entrepreneurs do not give much heed to marketability of the  proposed product. In most most of the cases proponents do not give proved, proved, sufficient, credible and authentic information and often end up giving vague remarks like- “market is good and demand dem and is plenty plenty”. ”. In order order to have have proper proper appraisal appraisal of demand demand forecast forecast made made by the  borrowers the lending institutions require information regarding demand, supply distribution,  pricing and external forces. 







Demand- Product uses consumers, actual consumption, likely consumption in future and export prospects. SupplySupp ly- Production Production Capacity, actual productio production, n, capacity capacity utilization utilization imports imports and likely future capacity. Distribution- Channels of distribution involves the cost of distribution and mode of  transport. Pricing- Domestic and international price trends, control on prices, duties and taxes.

27 | P a g e

 



External forcesExternal forces- Government Government policies policies regarding regarding industrializ industrialization, ation, export, export, imports, imports, foreign collaboration, plan outlay etc.

Existing entrepreneurs Existing entrepreneurs may put hurdles hurdles for new entrant by reducing their prices thus the lending institutions should keep in mind all these factors and the proponent should be in  position to face and get through such initial initial problems.

2- Technical Appraisal - The major portion of the time is devoted for this section, as it’s the  backbone of the project appraisal. a ppraisal. The ignorance in this component may result in the failure of the project as Technical Appraisal is done to ensure all technical aspects relevant to the successful success ful commissioning. commissioning. It balances balances the requirement requirement and acquiring of the technical inputs like- raw material, manpower, engineering facilities etc. It ensures that the necessary physical facilities required for production would be available and the best possible alternative is selected to procure them. The important issues considered in this appraisal are-











 

  

Locati Loca tion on of th thee unit unit shou should ld have have tran transp spor ort, t, co comm mmun unic icat atio ion n an and d ot othe her  r  infrastructure facilities. If the unit is labor intensive, it should not face problems in acquiring labor. Proximity to the raw material is essential to consider as if the raw material requirement requi rement is bulky and difficult difficult to transport, transport, it is better to locate the plant near  the source of raw material. List of Suppliers and their quotes in order to establish the availability of the raw material, equipments and other inputs. Approp App ropria riate te choice choice of the machin machine, e, equipm equipment ent and the suppli supplier er accord according ing to manufacturing process and size of the unit. The sufficien sufficientt buildi building ng and civil work work to accommo accommodat datee the future future plant plant and machinery Area of the land used to build up the required new infrastructure and the quality of  material used for the same. The availability of raw material should be from more than one source. Proponent should have knowledge of alternate sources of raw material. Selecting the optimal scale of operation. Si Size ze of th thee plan plantt or its its capaci capacity ty wi with th re resp spec ectt to ou outp tput ut,, in inpu putt or nu numb mber er of  machines. Existing set of plant and machinery together with the installed capacity. Enough places for treatment of effluents and disposal of waste. Procurement of required licenses and statutory requirements.

3- Financial Appraisal - The decision of sanctioning and disbursement is highly based on the financial soundness of the project. The detailed feasibility study is carried out to find that the objectives of the project are achieved successfully. The main objectives of any project are  

To generate adequate profit and cash to recover capital outlay. To give regular returns to the owner of capital. To enable retention of adequate profit in business for future growth.

28 | P a g e

 

Variou Vari ouss fina financ ncial ial aspec aspects ts su such ch as re real alist istic ic co cost st estim estimat ates, es, righ rightt sour source ce of finan financi cing ng,,  preparation of projected financial statements based on realistic estimates as well as proper  financial evaluation through most scientific financial methods and techniques is covered in this component. The major heads of these aspects are-

a- Capital Capital Cost Cost Estimati Estimationon- It covers covers the followingfollowing









The cost of capital capital assets like Land and Build Building, ing, Plant and Machinery, SFF, electric elec tric install installati ations ons,, vehicle vehicles, s, equipm equipment entss and other other tangib tangible le assets assets and intangible assets like- Patents, Goodwill etc. which are of permanent use in  business. Preliminary Prelim inary expenditure expenditure to be allocated allocated to various various assets on proportion proportionate ate  basis. This should be estimated on the basis of volume of business, project time schedule, manpower and its training requirements and administrative set up during during project project execution. execution. Fee for collaboration, collaboration, consultancy consultancy,, technical technical know-how etc are to be estimated on the basis of technical analysis of the  project. Initiall working Initia working capital such as inventory, inventory, debtors debtors etc for starting starting commercial commercial activities. Other incremental costs attributable to utilization of existing facilities, if any. Minu Mi nuss th thee ex expe pect cted ed ca cash sh in infl flow ow from from sale sale of ol old d asset assets, s, if an any y du duee to replacement.

These Cost estimations would be helpful only if the basis of cost estimations should be realistic and should be based on latest budgetary quotations, prevailing market rates, taxes and duties. The market survey should be analyzed carefully to get the realistic estimate. Charges like registration fees, legal fees etc should not be omitted and should be added to the respective asset. Also, the important points such as technical scope of the project, detailed technical specifications of machine tools, state of technology, sources of supply of tools- both imported and indigenous, delivery commitments etc. should be critically analyzed to make realistic assessment of funds required. To make it more realistic and less risky the cost of   project should also als o include Provision for Contingency. The Project costs are mere estimates  based on certain assumptions, which may go wrong for various reasons and uncertainty attached, therefore it is essential that capital outlay must includes adequate provision for  contingency depending upon factors like- gestation period, delay in foreign supply, domestic an and d in inte tern rnat atio ional nal pr pric icee co cond ndit itio ions ns,, requi require reme ment ntss of Fore Foreig ign n Curr Curren ency cy an and d risks risks of  fluctu flu ctuatio ations, ns, change changess in taxes taxes and duties duties etc. To estima estimate te this this amoun amountt the corpor corporati ation on considers part experience and knowledge of business world.  b- Determining Capital StructureVarious sources for financing a project are  

  

29 | P a g e

Equity Share Capital Preference Share Capital Long Lo ng Term Term Loan Loanss (i (inc nclu ludi ding ng Fore Foreig ign n Curr Curren ency cy Loan Loans) s) from from fina financ ncia iall institutions/banks Debentures/ Bonds Public Deposit Cash Subsidy

 



Internal Accruals/Promoters’ Contribution

The balanced or optimum capital structure is planned by analyzing the following factors



 

 

c-

Cost of financing that is cost of capital, cost of borrowed capital, cost of ordinary share capital, cost of retained internal accruals and the weighted average cost of  capital. Risk involved (for example- borrowing adds risk to business in terms of fixed obligations that is regular and timely payment of interest and liquidity of project) Management Policy Profitability and Liquidity of existing products (that is not to accept any Project which returns less that existing rate of return of the company) Prescribed Debt Equity ratio, if any Statutory Statu tory requirement requirementss (like- Industrial License License Company Company Law Requiremen Requirements, ts, Term Loan Conditions etc.)

Projec Projected ted Financi Financial al Statem Statement entss- Apart Apart from from provid providing ing the meaningf meaningful ul analys analysis is and  performance of the company, financial statements are also required for the purpose of  raising capital from different sources. These statements include    

Projected Income Statements Projected Cash Flow Statements Projected Cash Balance Sheet Projected Fund Flow Statements Other Statements such as Working Capital, Income Tax, Value-added etc.

d- EvaluationEvaluation- Some Some of the the important important methods methods of of financial financial evaluation evaluation areareReturn on Investment Pay-Back period Discounted Cash Flow Techniques like- Net present value method and Internal rate of return Sensitivity analysis.   



4- Managerial Appraisal - A financially sound and technically feasible project also fails if it is not backed up by the capable and efficient personnel. Thus MPFC evaluates the management as a part of its appraisal.     

Background of the Promoters/ Partners/ Directors Relationship among the Partners or Promoters and Directors.  Net Worth of the business held by them. Partners’/Directors’ Qualification and experience in same line of industry. Details of the personnel hired.

APPRAISAL OF A TERM LOAN PROPOSAL

30 | P a g e

 

Since the main objective of Madhya Pradesh financial corporation is to promote entrepreneurship and small and medium scale industries in the state, MPFC adopted much liberalized policy regarding appraisal of a loan proposal. It used to finance at very low margin as 10% with Debt equity ratio as high as 3:1 or 4:1. But know due to large percentage of  NPA’s these norms are tightened and appraisal is done totally security based. The main main  parameters used for appraisal of a loan proposal are: -

BREAK-EVEN POINT: - It must be comfortably low to the capacity utilization and  providing safety margin acceptable to the market condition. PAYBACK PERIOD: - It most is comfortably below five years. INTERNAL RATE OF RETURN (IRR): - For calculating IRR, cash flow after tax + Interest  paid to the MPFC as inow. Hence it must be comfortably above the rate of interest charge  by the corporation. DEBT SERVICE COVERAGE RATIO (DSCR): - This is considered as most important  parameter for appraising a loan proposal. I observed that if a loan proposal proposal is fulfilling this  parameter is also used to fulfil all parameters used by MPFC. This ratio must be two (average of five year is considered). DEBT – EQUITY RATIO: - This ratio must be 1:1. SECURITY DEBT RATIO: - This ratio must be more than two times. CASH FLOW ANALYSIS: - Cash flow must be sufficient enough to the need of directors and business requirement after deducting interest payment and loan payment. ANALYSIS OF OLD BALANCE SHEET AND PROFIT AND LOSS ACCOUNT if the  borrower is applying for expansion and modernization. This is for getting helping in fu future ture forecasting. SESITIVITY ANALYSIS: - Project must earn enough return to bear the sensitivity of the market conditions and cost. CREADIT ANALYSIS: - Credit done for borrowers on the basis different  parameters and rate of interest areanalysis adjustedisaccording to that. Since there are of different type of factors that affects existing units and newly established units, hence different type of model used for rating different type of units. On the basis of fast experiences, MPFC has realized that parameters/attributes in normal cases are not applicable in construction cases. Therefore, revised credit rating model constructed for this. All types of credit rating models are given  below.

31 | P a g e

 

 Sanction of loan with terms and conditions   Every institution when when they are created they are bonded within some some rules and regulations regulations whether by any law or constitutional clauses. This binding is necessary to the extent that it is not adopting adopting a rigid attitude. attitude. Somewhere it is obvious that the rules and regulations regulations have to maintain some extent of rigidity so that infringement could be avoided, but that does not mean that there should be no scope for flexibility. When there exists a proper balance  between the rigidity and flexibility, then only the motive of establishing an institution  becomes successful. Thus, MPFC operates within the criteria fixed by the clause defined under sections of the State Financial Corporations Act 1951.

BASIC TERMS AND CONDITION:

ELIGIBILITY MPFC grants assistance to "Industrial Concerns" as defined in clause (c) of  section 2 of "State Financial Corporations Act. 1951", which are located in the state of Madhya Pradesh. However free based service can be extended to units located in any part of the country. In the definition, almost every type of  manufacturing and/or process activity and related operations are covered. In addition to it, MPFC also provides assistance to activities in the service sector, as approved by the Industrial Development Bank of India (IDBI). As per the  provisions of the "State Financial Corporation Act. 1951", MPFC can grant assistance to only those concerns whose paid-up capital and fee reserves taken together do not exceed Rs. 30.00 crores. This limit is not applicable to nonfund fun d based based activit activities ies.. Subje Subject ct to the limits limits prescri prescribed bed under under the variou variouss schemes, MPFC's total exposure to a single concern under all the schemes taken together shall not exceed Rs. 200.00 lacs in case of partnership and  proprietary concerns, and Rs. 500.00 lacs in case of corporate corporate entities.

SECURITY MPFC grants loan against security only. The primary security for the loan is usua usuall lly y a fi firs rstt char charge ge on land land,, bu buil ildi din ng, pla lant nt an and d mac ach hin iner ery y et etc. c. acqu acquir ired ed/p /pro ropo pose sed d to be ac acqu quir ired ed.. In case case of lo loan an un unde derr co cons nsor orti tium um arrangements, pari-passu charge is accepted along with the other participating institutions. Generally General ly MPFC MPFC takes takes collat collatera erall security security of land land and/or and/or buildi building ng of the  borrower or any third party in addition to primary security. MPFC also has a floating charge on all the remaining assets of the borrower, subject to the charge in favor of the bankers for working capital.

32 | P a g e

 

REPAYMENT PERIOD The pe The perio riod d of re repa paym ymen entt of lo loan an is de deci cide ded d on th thee meri merits ts of each each ca case, se, which which generally ranges between 5 to 8 years. The principal amount of loan is payable normally in quarterly installments with an initial moratorium period of 3 months to four years depending upon the size of the  project the implementation. Interest&isstage also of normally charged on quarterly basis and the months of payment of  interest & principal are kept different to even out the liability of the borrowers. PROMOTER'S CONTRIBUTION The minimum promoter’s promoter’s contribution contribution envisaged in the project is worked worked out on the  basis of Debt-Equity norm and the security margin norm applicable at the time of  sanction of the loan. The debt equity ratio is the ratio of loan component and the equity contribution in the total project cost. The maximum amount of assistance shall  be lower of the two amounts worked out on the basis of Debt-Equity norm and the security margin norm. The normal lending norm for debt- equity is 1.5:1; however in some specific schemes this norm may be flexible. The entire promoter's promoter's contributi contribution on envisaged in the project project is desired to be raised by way of capital capital before first disbursement disbursement of the loan installment. installment. However However in case the  promoters are short s hort of own capital, some amount may be raised as unsecured loans in the form of quasi-capital. The quantum is ascertained during the appraisal of loan  proposal. INSURANCE The assets offered, as a security of the loan should be kept insured for their full value during the currency of the loan. The risk normally covered under the insurance are those relating to fire, riots etc., and the specific risks attributable to a specific project which the corporation may specify. The insurance policy should be taken in the joint names of the corporation and the  borrower with theofusual mortgage clause. The firstasinsurance policy the subsequent- renewals the same should be sent to MPFC soon as they are inand effect. In case the same is not sent in time. MPFC has a right to get the same insured on the cost & risk of the borrower unit. MARGIN Margin is the difference between the value of assets offered as prime security and the amount of loan. The margins prescribed for loans under various categories are as under: Backward Category Districts Small Scale Industries 20% Medium Scale In Industries 25% 33 | P a g e

Other Districts 25% 40%

 

Hotel Industry Tiny Sector Composite Loan

50% 10% NIL

50% 15% NIL

  Documentation required required after sanction Sino A.

B.

C.

of loan:

Particulars Legal co compliances Title Search Report by approved legal advisor & Sub-Registrar  Paper Publication for Prime & Additional Security Certificate from Law Officer for completion of all Legal formalities Technical Co Compliances Valuation Report from Technical Officer for Investment in the project & verification of assets created at site Valuation of additional security(s) as per CGL Comments of Technical Officer regarding deviations in the approved scheme (if any) Verification of Performa Invoice (if applicable) Comments of Technical Officers in case there is difference between investments claimed by the borrower and his valuation. Financial CA Certificate regarding investment in the project & promoter’s contribution Money Receipt duly discharged by the Bank  Insurance cover note on fixed assets of the unit Sanction of power from MPSEB Sanction of Working Capital by the Bank  Permission / NOC from MP Pollution Control Board Review of Project cost & means of finance Photographs of assets created at site Receipt of charge registration certificate (in case of companies) .

REQUIREMENT OF DOCUMENTS/ TITLE DEEDS-: 34 | P a g e

 

CHECK LIST1- Loan Loan acce accept ptan ance ce lett letter  er  2- Undertaking Undertaking of of Directors Directors and Guarantors Guarantors regarding regarding conditi conditions ons of sanction sanction and no no case of economic offense is pending against them. 3- Undertaking Undertaking regarding regarding special special condition conditions. s. 4- Two phot photogr ograph aph of of all execu executan tants. ts. 5- Sales In case of existing exist ing clearance unit unit C.A. certificate Certificate Certificateorisphotocopy regardin regarding g regular regula r payment paymen t of ESI, PF,date and and Tax, MPEB of challan regarding up-to  payments. 6- Income Income Tax clearance clearance certificate certificate of Directo Directors rs of the Company Company/Partn /Partners ers of the firm/proprietor.

a- In case of Leasehold Land-

1- All original original lease lease deeds deeds of land land offered offered in primary primary security. security. 2- Search report report from the SubSub- Registra Registrarr for last last 20 20 years. years. 3- Permission Permission to assign assign leasehold leasehold rights rights of land from MPAKVN/ MPAKVN/ DIC/ DIC/ IDA/ Municip Municipal al Corporation etc. in favor of the MPFC. 4- No dues Certific Certificate ate regarding regarding payment payment of up up to date lease lease premium/L premium/Lease ease rent etc. etc. 5- Copy of approve approved d map of factory factory building building from competen competentt authority. authority. Municipal Municipal Corporation/Panchayat whichever is applicable. b- In case of Freehold Land-

12345-

All original original sale sale deed/titl deed/titlee deeds offered offered in prime prime security. security. Search report report from the Sub-Re Sub-Registra gistrarr for last last 20 years. Certified Certified copy of P.II P.II Chars/ Chars/ Panchshala Panchshala for last 20 years. years. Certified Certified copy of “Kist “Kist band Khatauni” Khatauni” for for last 20 20 years. years. Certified Certified copy of diversio diversion n order passed passed by SDO SDO (diversion) (diversion) concern concern U/s 172 (I) (I) of MPLR code 1959. 6- No dues certificate certificate regarding regarding up up to date payment payment of diversion diversion Premium Premium/rent /rent etc. 7- Original Original Bhu adhikar adhikar avam avam rin pustika pustika bhag bhag I and and II. II. 8- Municipal Copy Copy ofpal Naksh Nak sh Aksh Ak(if shproperty prepar preperty pared edisby Pted atwari. ari.nicipal 9Munici record record (if pro suited suiPatw Municip Mu al Limit) Limit) 10- Copy of Site plan and construction plan plan duly approved by Mu Municipal nicipal Corporation/competent authority. c- In case of Partnership Firm-

1234-

Copy Copy of partne partnersh rship ip deed. deed. Firm’s Firm’s Regist Registrati ration on Certi Certific ficate. ate. Income Income tax clearance clearance certifica certificate te of Partners/ Partners/Firm Firm and and Guarantor Guarantors. s. Sales Tax, Tax, PF and ESI ESI clearance clearance certificate certificate and payment payment of MPEB MPEB dues dues in case of existing units.

d- Case of Company-

35 | P a g e

 

1- Memorandum and Articles of Association of Company duly certified by Director. 2- C.A. Certificate regarding capital structure of Company. 3- C.A. Certificate regarding charges verification from the record of registrar of companies concern. 4- Certified copy of board resolution regarding execution of documents in affixation of common seal of the company. 5- Certified copy of resolution U/s 293 1(a) and U/s 293 (d) of the Company’s Acct in

of public Certificate U/slimited 149 of company. Company’s Act regarding commencement of business (in case 6- case of public limited company) 7- Income Tax Clearance certificate of Directors of the company and Guarantors. 8- Sales Tax, PF and ESI clearance certificate and payment of MPEB due in case of existing units. e- Additional security9- All original Sales Deed/ Lease Deed/ Vasiyatnama, Gift Deed, Partition Deed, Title Deeds. 10- Search report of Sub-Registrar concern for last 20 years. 11- Copy of approved map of property offered in additional security. 12- Apartment deed duly registered M.P. Swamitva Prakoshtha Adhiniyam 2000 (if the  property is of multi-storey/ flats/ shops etc.) 13- Copy of power of attorney if deeds are executed through power of attorney holder. 14- Copy of municipal records- Tax payment receipts from Municipal Corporation (If the  property is in the Municipal Limits)

  Dis Disbur bursem sement ent : Following are the compliance that borrower must fulfill before starting disbursement  process: Financial Tie-up if necessary. Initial investment conditions must be fulfilled. Sanction of required power load from MPEB.  NOC from M. P. pollution pollution control board. SSI registration. DGTD registration. Execution of Technical Know-how agreement. Condition regarding availability of raw materials and fuel etc. Charge registration certificate (in case of companies).   



   





 Non – Encumbrance certificate for the balance period.

 Above mentioned conditions are subjected to relaxation under special circumstances. While Disbursement following requisites are to be taken care: Application for disbursement duly filled in along with details of expenditure 



36 | P a g e

incurred of land, building and machinery etc. in the prescribed proforma. Latest Trail Balance duly certified by the Chartered Accountant.

 





   

Advance money receipt duly sighed by the Proprietor/All the  partners/authorized directors and authenticated by the Banker of the borrower. Insurance cover notes regarding comprehensive insurance of the properties on which disbursement in desired (in joint name of borrower & MPFC) Sanction letter of working capital from Bank. Certificate of registration of charge with the RoC (in case of companies) Sanction letter from MPSEB for power. Any paper/document in compliance of special terms and conditions of sanction letter.

.

  Rec Recovery overy

& Follow Fol low Up: U p:

INSTALLMENT: In general the installments of interest & principal fall due for payment on quarterly basis. The months of payments of interest & principal are normally kept separate to avoid burden on the borrower. The due dates of payments are specified in the loan documents. The payments made by the borrowers are appropriated in the following order: firstly towards other charges, followed by arrears of interest, and lastly towards principal. In case of multiple loans, the amount received shall be appropriated first towards loan over  dues having lower rate of interest.

REPAYMENT The bo The borro rrowe wers rs are ex expe pecte cted d to be well well aware aware ab abou outt th thee du duee da date tess fo forr pa paym ymen entt of  installments. However, to facilitate them. It is a usual practice of the corporation to issue demands for such payments well in advance. In case due to postal delay or any other reason, the demand is not received by the  borrowers, they should contact the concerned field office offic e and deposit the amount well in time to avoid penal interest and other consequences of default. It may be noted that non-receipt of demand notice cannot be taken as an excuse for  default. The payment of the dues can be made at the field office or at head office but as far as  possible the payment should be made at the concerned field office office only.

RESCHEDULEMENT

In case the party fails to pay the dues to the corporation in time, due to some genuine reason,, the related reason related facts & circumstances circumstances should be informed to the field office with full details.

37 | P a g e

 

Depending upon merits of the case, postponement of some particular dues, for some  period, may be allowed; or the facility of the reschedulement of the entire outstanding may be granted. However, grant of such facilities is solely at the discretion of the corporation. It is necessary that the borrower should remain in regular touch and continue to keep the field office informed of the progress and working of the concern at regular intervals.

REVIVAL OF SICK UNITS In case, assisted units turnout to be sick and the promoters are very keen and ready to revivee the unit, the corporation reviv corporation extends extends a helping helping hand for revival revival of such units - strictly strictly on merits of each case, and if the corporation corporation feels that the operations operations of such a unit can still be made viable. The benefits, which may be passed on in such cases, generally include reschedulement of  loan loa n accoun accounts, ts, fundin funding g of overdu overduee interes interest, t, grant grant of loan loan for balanc balancing ing equipm equipment ents, s, approval appro val for change change in the management management,, recommenda recommendation tion to other financial institutions, institutions, Bank,Govt. etc.

PENALTY Penal interest is charged in case of default. This interest is over and above the contracted rate.

TAKEOVER AND SALE OF UNITS In case the default becomes a chronic & persisting feature or the corporation feels that the dues are willfully not being paid, or the management is unable to run the units, the corporation is constrained to take painful decision of acquiring the assets U/S 29 of the SFC'S Act, 1951 and dispose them off by auction/sale to recover the outstanding dues. In case the sale proceeds of the assets are less as compared to the outstanding, the corpor cor porati ation on is free free to initiat initiatee legal legal proceed proceeding ing to recover recover the balanc balancee amount amount from from  promoters/guarantors personally. The Government of Madhya Pradesh has also conferred the powers of Tahsildar on the Dy.General Managers of MPFC. This has been done for the limited purpose purpose of recovery recovery of MPFC dues as arrears of land reven rev enue ue to the the ex exte tent nt of is issu suin ing g Reve Revenu nuee Reco Recove very ry Cert Certif ifica icate te (RRC (RRC)) un unde derr th thee  provisions of the M.P.Land Revenue Code, 1959 and the Madhya Pradesh Lok Dhan (Shodhya Rashiyon Ki Vasuli) Adhiniyam, 1987. RRC's are also being issued in favor of  officers at Collect orate and Collect orate Officers are recovering the MPFC dues - as dues of Land Revenue, from the defaulting borrowers and their guarantors.

CHANGE IN MANAGEMENT

38 | P a g e

 

It is one of the usual conditions for grant of loan that the change in the constitution and or  management should not be done by the concern. However if it becomes necessary in the interest of the project, a written request should be made to the concerned field office and the desired change may be affected only if the approval of the request is granted in writing.

SECOND CHARGE On the request of the regular borrowers, the corporation usually permits second charge on fixed assets in favor of the Bankers.

DEFAULT REVIEW COMMITTEE Defaulting borrowers are reviewed by the corporation both at field offices and at Head Office. Default review committee (DRC) at Zonal level considers the cases for reschedulement of  loan account, granting of rebate, issue of legal notice, takeover of the unit, change in management, disposal of units, etc. The zonal level DRC considers cases having sanction amount less than Rs. 20.00 lacs, while those having a higher sanction amount are dealt with by H.O.

STANDING COMMITTEE Cases of disposal of taken over units where assistance originally sanctioned is above Rs. 5.00 lacs, are considered by the standing committee (SC), and constituted in the Head Office of the corporation. The units are disposed off after giving news papers advertisement, calling offers from intending purchasers and subsequent negotiations.

8. SWOT ANALYSIS AT MPFC

STREN STR ENGTH GTHS S:  Large coverage area:  The Madhya Pradesh financial corporation has its coverage area in all over Madhya Pradesh with its 22 branches and zonal offices for the work  operation and trying to provide the best services to its existing and new clients . Helpful in providing small scale industries:The main objective of Madhya Pradesh financial corporation is to provide better services through various schemes of financial assistance to small-scale industries and time-to-time 

39 | P a g e

 

 proper guidance from experience people so that they can achieve their task of higher higher  profitability and a good quality product product easily. Objective of corporation:The corporation formed under the SFC’s (small financial corporation) act, is established  particularly with a view to support small scale and medium scale industries in the state of Madhya Pradesh. It serves both manufacturing as well as service industries in the state. 



Milestone for industrial development:As during the year the corporation sanctioned financial assistance for Rs. 10702 lakhs and almost 75% of it as disbursement, this will bring growth and development for small and medium scale industries to cope up with the situation and to reach in the market with their latest technology and innovation ideas through which they can survive into this competitive world. Facilities with financial assistance:The Madhya Pradesh financial corporation is providing various facilities and services related to financial assistance. This attracts new clients and encourages existing clients, as well as the new projects to be financed in association with financial assistance for the projects they were going to implement 

WEAKNESS:        

               

Lack of innovative ideas. Lengthy and rigid process for financial assistance. Ineffective follow up and recovery. Obsolete technique of keeping the records. The corporation is still practicing the technique of keeping the record in files. Comparatively high rate of interest. More legal formalities. Poor security and verification verification of documents submitted. Lack of human resource training. Not using latest techniques, not yet fully computerized. Lack of advertising and promotional policies. Limited resources. resources. The corporation is incurring losses.

OPPURTUNITIES:  

 

Effective use: the Madhya Pradesh financial corporation can make effective use of its human resource to build a good and healthy relationship with the clients and makes makes its staff staff more more produc productiv tivee and and effici efficient ent with with proper proper tr train aining ing and development. The Madhya Madhya Pradesh Pradesh financia financiall corporat corporation ion can go for financin financing g large-sc large-scale ale industries in the state of Madhya Pradesh.

40 | P a g e

 

 

 

The higher higher rates rates of intere interests sts are attrac attractiv tivee so if the the rates rates are lowered lowered the the corporation can make better use of market opportunities and create business out of it. If the process of financing a project were made easier the borrower, can make use of proper disbursement by the corporation to implement the project and can save save time time invo involv lved ed in the the proj projec ectt so that that he ca can n depo deposi sitt th thee dues dues of th thee corporation in time and can take benefit of it.

THREATS:    

 

Increasing competition with other financial corporations. corporations. Still using the obsolete technique of record keeping, which increases the chances of stakes and loss of records. Promotional policies should be revising to make people aware of its policies and services.

PROBLEMS FACED BY MPFC  

In strict strictly ly techni technical cal terms terms,, th thee corpor corporat ation ion Balanc Balancee Sheet Sheet might might be ca carr rrie ied d forw forwar ard d loss losses es.. Howe Howeve ver, r, the the lo loss sses es,, so re refl flec ecte ted, d, ar aree not not operational in nature. The corporation results in key performance areas also underline the confidence enjoyed by it from the entrepreneur class in general. This fact is confirmed by the fact that the corporation has been consistently posting incremental incremental gains in its main functions i.e. promotion of industrialization and effective plough-back through strong recovery structure built up over the year.

 

The quantum of loss on account of stringent provisioning norms, made effective from 1.4.2002, following guidelines received from SIDBI, is not MPFC – specific but is a ground reality with all SFCs and Financial Institutions in the country

 

The Corp The Corpor orat atio ion n was was offe offere red d a Re Reli lief ef Pack Packag agee to towa ward rdss re refi fina nanc ncee outstanding by IDBI as well as SIDBI carrying 12% p.a. and 11%p.a. intere int erest st rates, rates, respec respectiv tively ely.. The Corpor Corporat ation ion has has re reque quest sted ed both both the instituti insti tutions ons to convert convert their their outstan outstanding ding into Prefere Preferential ntial Capital, Capital, for which no decision has been taken so far. The Corporation, in order to havee th hav thee actual actual liabil liability ity ascert ascertain ained ed until until decide decided d favora favorably bly,, had to provide for a substantial amount towards provision for interest towards Relief Package outstanding. The Gupta Committee recommendations are yet to be implemented and IDBI/SIDBI are being repeatedly requested to givee conce giv concessi ssions ons on th thee inter interest est.. The said amoun amountt shall shall re remai main n as a

41 | P a g e

 

provision and if the concessions are provided, the losses shall get reduced to that extent.



 



Besidess above Beside above,, other other factor factorss such such as ac acute ute indust industria riall re reces cessio sion n and depressed market conditions and high cost of borrowing are eating into the margins available to the Corporation. In brief, a large portion of the carried-forward losses are attributable to the reasons beyond the control of the Corporation. The losses can be wiped-off, given support from the State Govt. & Creditors mentioned in the following paras.

MPFC is one of the 18 SFCs functioning in the country and its plight is not much different from that of other SFCs. Despite a consistently good performance in the key operational areas viz; sanctions, disbursements, recovery ( appreciated by none other than IDBI in their last two years reports), and an excellent record of regular payments to its creditors in the last years, the circumstances are hardly propitious for its survival, what to 10 speak of growth.

42 | P a g e

 

8. CASE STUDY To consider the sanction of a Term Loan of Rs. 46.00 Lacs and WCMTL of Rs. 15.00Lacs (composite Rs. 61.00 Lacs) to M/s Sona Industries for the expansion of their existing unit for Manufacturing of BOPP Self Adhesive Tapes at Plot no. D-2, Sector –  DIND. Area, Sanwar road, Indore(M.P).   PROJECT AT A GLANCE

1

Name Name of the unit unit

:

2

Locatio Location n

: Plot Plot no. D-2,se D-2,secto ctor-D r-D,, Indust Industria riall Area, Area, Sanwer road,indore

3

  Cons Consti titu tuti tion on

4

Name Name of propri proprieto etor: r: Shri Shri Rajesh Rajesh Maheshw Maheshwari ari

5

Cost Cost of proj project ect

6

Comp Complet letio ion n of of pro proje ject ct : 3 mont month h

7

Proj Projec ecte ted d turn turnov over er  

9  

:A Pr Prop oprie rieto torsh rship ip fir firm m

:R :Rs. s.10 104. 4.27 27la lacs cs

Net profit after tax

10 Breakeven point

Product

43 | P a g e

Units

M/s SONA SONA INDUST INDUSTRIE RIES, S, IND INDORE ORE

:1st year 150 lac

2nd year 3rd year 187.50 225

:7.78lac

11.00

14.90

4th year 

15.10

:35.47%

Capacity  being installed

Production

Utilization Sales Based  price/box on double shift & working 300 days in a

 

BOPP self adhesive tape

Boxes of 72 rolls of 2”  per box

25000 boxes

1st year 40% 2nd year 50% 3rd year 60%

60% in the 3rd year onward

1500

The Project is: 1. new project is first time seeking financial assistance from MPFC 2. A The Proprietor 3. The products are well established the market. 4. S.S.I Unit 5. The additional security worth Rs. 15.00 lacs in the form of fixed assets/FDR offered. 6. Adequate built in security. Total cost of project Items Land factory shed Site development &repairs Plant and machines Misc. Fixed Assets Provision for contingency Pre-operative expenses Working capital TOTAL

IN LAKHS 50.00 2.50 21.25 Means of finance 0 .50 4.42   Items In lakhs 25.13 25 Proprietor capital 108.10 Term 211.90loan from MPFC 56 15 WCTML from MPFC 22.01 Unsecured loan

1. Introductory Total 108.01 M/S Sona Industries Indore is proprietorship concern of Shri Rajesh Maheshwari Engaged in manufacturing of BOPP (Bi Oriented poly Propelyne) self adhesive tape At Indore for the last 5 Year. The unit has been working in a rented premise and after  Witnessing market growth, the proprietor decided to expand the unit in its owned Premises. thisnorespect the concern has purchased an industrial Located atIn plot D-2, Sector –d, Industrial Area, Sanwer Road,property Indore. which is 2. Proposal in Brief  The concern has moved existing set up to newly purchased industrial premises and Proposes to expand the capacity for manufacturing of BOPP self adhesive tape from to 2500 boxes per annum. Total cost of scheme is estimated at Rs 28.00 laces, U/S loan Rs. 13.50 lacs and financial assistance of Rs. 61.00 lacs sought from the corporation Under ‘Single Window Scheme’. 3. Promoter and Management The proprietor Shri Rajesh Maheshwari S/o Shri Maheshchandra Maheshwari aged about 36 year is commerce graduate and hails from Vidisha . He belongs to agriculturist Family and has been engaged in BOPP self adhesive tape business since the year 2002. Subsequently in the year 2004 he acquired an ongoing tape unit situated in a rented  premises and managed it successfully. His financial worth is 34.08 lacs. He is income 44 | P a g e

 

tax payer and returns have been filed up to 2008-09. Details about the project 2007-08 – Turnover was 83.35 lacs 2006-07 – Turnover was 50.58 lacs 2006-05 - Turnover was 8.66 lacs

4.Working capital  The total requirement of working capital on the basis of second year of its working has been estimated at Rs. 24.80 lacs. The detailed calculations of working capital requirement of the  proposed scheme are given below:Particulars Raw Material Finished goods Sundry debtors Working expenses   T otal To Less: sundry creditors Other current liabilities  NET WORKING CAPITAL

Period 20 days 15 days 20 days

Margin (%) 25% 25% 25%

Total (Rs. In lacs) 9.30 7.70 12.50 29.50 (4.70)

10 days

(-) 24.08

  5.Profitability Estimates The concern has estimated following turnover and profit for first five years of its working after providing interest depreciation and taxes.  particulars Capacity utilization Turnover Profit before depreciation, interest and tax Interest Depreciation Profit after tax Cash profit

6.Repayment

45 | P a g e

40%

50%

60%

60%

60%

150.00 34

187.50 24.77

225.00 28.59

225.00 27.29

225.00 26.63

8.37 4.30 8.81

7.80 4.30 12.67

8.58 4.30 15.71

5.40 4.30 17.5

4.14 4.30 18.19

13.11

1697

20.01

21.89

22.49

 

Keeping in view the liquidity position based on the estimated profit & projected cash flow ,the proposed loan is too repaid in eight years in 28 quarterly instalments with six months off  period as per schedule given below: First instalment of Rs.100000/ Next 03 instalments of Rs.200000/Rs.200000/ Next 24 instalment of Rs.225000/Rs.225000/-

1.00 lacs 6.00 54.00

Total

61.00

MPFC’s prior experience The corporation’s experience of financing in packaging industries in general is satisfactory.

1- Calculation Calculation of working working capital requirement requirement  particulars

Holding  period

margin

First year

Second year

Third year  

(A) Current assets Raw material Work in process Sundry creditors

20 0 20

25% 25% 30%

7.47 0.00 10.00

9.33 0.00 12.50

11.20 0.00 15.00

consumables

0

25%

0.00

0.00

0.00

Finished goods

14

25%

5.78

7.24

8.68

Sundry expenses

1

25%

0.14

0.52

0.62

23.66

24.59

35.50

3.98 3.98

4.73 4.73

5.66 5.66

19.49

24.86

29.84

Total(A) (B) Current liabilities Sundry creditors Total (B) Total (A-B)

46 | P a g e

10

30%

 

 

Calculation of Break Even Point S.No Particular Amount  

Rs. In Lakhs

I Job Work Receipt

225.00

II Total Variable Cost 1. Raw Material

168.00

2. Wages Power 3. 4. Direct Expenses 5. Consumables 6. Interest on WCMTL 7. Depreciation   III Net Surplus (I - II)

3.27 10.69 3.36 0.25 1.13 4.30 191.00 34.00

IV Total Fixed Cost 1. Admin. & Comm. Salary 2. Admin. Overhead 3. Interest on Term Loan  

0.00 4.80 4.89 9.69

 V Break Even Point For Installed Capacity 

28.50%

 VI Break Even Point For Capacity 

17.10%

7. Calculation of Debt Service Coverage Ratio   Particulars

Amt. in Lakhs I

II

III

IV

V

VI

VII

VIII

Profit after Tax Interest on Term loan

9.56 5.52

12.99 17.5 17.83 18.29 18.97 19.51 19.65 5.40 4.89 4.29 3.60 2.64 1.68 1.26

Interest on WCTML

1.78

1.49

Depreciation

4.30

TOTAL (A)

21.16

1.13 0.77 0.41 4.30

0.07

0.00

4.30 4.30

24.18 27.82 27.19 26.60 25.98 25.49 25.21

Interest on Term loan

5.52

5.40

4.89

4.29 3.60

2.64

1.68

Interest on WCTML

1.78

1.49

1.13

0.77 0.41

0.07

0.00 0.00

7.00 8.00

8.00 11.00

Instalment of Term Loan & 1.50  WCMTL TOTAL (B) 47 | P a g e

8.80 13.89 14.02 13.06 15.01

9.50

8.00

1.26

8.00

12.21 9.68 9.26

 

D.S.C.R (A/B)

2.40

 Average DSCR

2.18

1.74

1.98

2.08

1.77

2.13

2.63 2.72

Credit rating chart S.No Parameters . Financial & Operational Risk Parameters A Static Ratios 1 Projected DER 2 DSCR of the Project 3 Terms of repayment 4 Arrangement of Working Capital 5 Arrangement of Utilities (Power ETC) 6 Payment of Statutory dues Sub Total B Risk Mitigation 1 Value of Collateral Securities 2 Nature of Collateral Securities 3 PC Margins 4 Default ratio in the Portfolio 5 Solvency of the Promoters Sub Total Aggregate financial & operational Risk Score Qualitative Risk Factors C Business Risk Parameters 1 Technology 2 Compliance of environment regulations 3 User / Product Profile 4 Market Network 5 Location of the unit Aggregate Business Risk Score D Industry Risk Parameters 1 Competition 2 Industry Outlook (In Industry Cycle) 3 Regulatory Risk Aggregate Industry Risk Score E Management Risk Factors 1 Integrity 2 Track Record 3 Management Competence & Expertise 4 Experience in the Industry 5 Payment Record 6 Length of relationship Aggregate Management Risk Score Total Score of the Unit Credit Rating Awarded 48 | P a g e

Full Marks

Unit’s Score

3 5 3 5 3 3 22

3 4 1 5 1 1 15

5 5 5 8 4 27 49

3 4 1 5 1 14 29

4 4 2 4 2 16

3 4 1 2 2 12

2 4 2 8

1.5 3 2 6 .5

5 3 5 5 4 5 27 100

3 2 3 5 2 0 15 62.5

 

Project Report for Term loan of  MANUFACTURING MANUFACTURI NG UNIT ( M/S PRASHANTI ENGENIRING )

I got an opportunity to prepare a project report of Rs.150.00lacs under MPFC terms and conditions for a proprietorship proprietorship firm M/S PRASHANTI ENGENIRING

CONTENTS :-



Project at a glance

 

Promoters and activities of the firm

 

Purpose of loan

 

Cost of project

 

Securities

 

Re-payment schedule (dates and installments) 

Annexure 49 | P a g e

 

PROJECT AT A GLANCE

1. Name of promoter

: Shri Ma Manoj Gala ,Shri Narayan Dhanotiya

2. Address

: Plot no 60,Industrial area -1   Pithampur 

3. Constitution

: Private Limited

4. Nature of business

: Manufacturing concern

5. Debt / Equity ratio

: 1.50: 1

6. Promoters contribution

: 40%

7. D.S.C.R

:1.95 (8 year average)

8. Name Name & address address of banker bankerss

: Dena Dena Ban Bank, k, Sukhli Sukhliya ya bran branch, ch, INDORE INDORE

  9.

Size of the unit.

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: Small-scale business.

 

  10.

Amount of term loan Recommended

: Rs.150.00 lace.

For sanction.

 

PROMOTERS AND ACTIVITIES OF THE FIRM

Promoters of the firm Shri manoj gala & Shri Narshing dhanotiya are well qualified engineers engin eers and have work experience experience of over 10 year yearss in the same field. The company company  promoted by them proposes to manufacture automobile components, material handling, hydraulic hydra ulic cylinders & power packs, tooling jigs & fixtures, fixtures, special purposes purposes machineries. Apart from these the company proposes to do job work for M/s EICHER motors ltd., Larson & turbo ltd. ,Force ,Force motors ltd. Hindustan Hindustan motors motors ltd.etc.

PURPOSE OF LOAN

Promoters of PRASHANTI Eng.ltd require a term loan of Rs 150.00 lacs for setting up a new unit for manufacturing of automobile component at pithampur.

COST OF PROJECT

51 | P a g e

 

1. Land: - The co had purchased land & building of M/s Technomech Eng.( INDIA ) through MPFC in the year 1993 .

2. Si Site te Deve Develo lopm pmen entt: Rs.9.00 lac A provision of Rs 9.00 lac has been made in the scheme towards site development which includes site leveling, interval & approach road bore well, boundary wall etc.

3. Factory building: Rs 91.00 lac the co. proposes to consult main production shed, office  building, D.G. set rooms security office etc. The total area of construction will be to 1774.35 sq mtrs costing of Rs. 91 lacs has been made.

4.  Plant & Mach.: Rs 105.00 lac The main plant & mach comprises CNC machines, Drilling machines, fabrication equipments etc. The total cost of plant & mach. Including taxes, erection, installation &electrical comes to Rs 105.00 lacs.

5. Misc. fixed asset: Rs. 2.50 lac viz. furniture & computer.

A provision of 2.50 lacs is made towards misc. assets

6. Preliminary & pre-operative expenses : Rs .15.00   A provision provision of 15.00 lacs had been made in the scheme to take care of expenses during implementation implementation of the project including interest during implementation period ,deposits & expenditure on legal documentation ,stamp duty etc.

7. Provisions for contingency: Rs 15.00 lac  Rs. 15.00 lac has been provided for purposes of contingencies to take care of cost escalation.

8. Margin Margin money money for for working working capital capital :Rs :Rs 12.50 12.50 lacs lacs

52 | P a g e

 

SECURITY

1. Primary security: - First charge by way of English / equitable mortgage of Land &  buildings, plant & mach., furniture & furniture furniture &fixtures of the company.

2. Additional security: - The co. shall offer additional security worth Rs 10.00 lacs in the form of fixed assets.

PERSONAL GUARANTEE

 The loan shall be personally guaranteed by following personal for repayment of Principal & interest:-

1. Mrs. Sudha Sudha Dhanotiya Dhanotiya w/o Shri Shri Narsingh Narsingh Dhanotiya Dhanotiya,, promoter promoter of the above above firm. 2. Mrs. Kalpana Kalpana Gala W/o Shri Manoj Manoj Gala, Gala, promot promoter er of the the above above firm

3. Mr. Manoj Manoj Gala Gala S/o S/o Mr. Mr. Kaly Kalyanj anjii Gala Gala

4. Mr. Narsingh Narsingh Dhanotiya Dhanotiya S/o Mr. Badrilal Badrilal Dhanotiya Dhanotiya

 

53 | P a g e

 

  RE – PAYMENT SCHEDULE

 

PRINCIPAL AMOUNT

  YEAR

1ST

2ND

3RD

4TH

5TH

6TH

7TH

8TH

AMOUNT

0.00

8.00

16.00

20.00

20.00

24.00

28.00

34.00

 

INTEREST YEAR

QUATER AMT.

INST .

BAL.

INT.@13%

1ST 

1ST

150

-

150

4.88

2ND

150

-

150

4.88

3RD

150

-

150

4.88

4TH

150

-

150

4.88

1ST

150

150

4.88

2ND

150

150

4.88

3RD

150

4.00

146

4.88

4TH

146

4.00

142

4.75

2ND

54 | P a g e

YEARLY

TOTAL

19.50

8.00

19.37

 

3RD

1ST 2ND

142

4.00

138

4.62

138

4.00

134

4.49

134

4.00

130

4.36

130

4.00

126

4.23

1ST

126

5.00

121

4.10

2ND

121

5.00

116

3.93

3RD

116

5.00

111

3.77

4

111

5.00

106

3.61

1ST

106

5.00

101

3.45

2ND

101

5.00

96

3.28

3RD

96

5.00

91

3.12

4TH

91

5.00

86

2.96

1ST

86

6.00

80

2.80

2ND

80

6.00

74

2.60

3RD

74

6.00

68

2.41

4TH

68

6.00

62

2.21

1ST

62

7.00

55

2.02

RD

3

4TH

4TH

16.00

17.68

20.00

15.41

20.00

12.51

24.00

10.01

TH

5TH

6TH

7TH

55 | P a g e

 

8TH

TOTAL

56 | P a g e

2ND

55

7.00

48

1.79

3RD

48

7.00

41

1.56

4TH

41

7.00

34

1.33

1ST

34

8.00

26

1.11

2ND

26

8.00

18

.85

3RD

18

9.00

9

.59

4TH

9

9.00

0.00

.29

150

28.00

6.70

2.83 34.00

150

104.29

 

ANNEXURE

LIST OF ANNEXURE:-

 

COST OF PROJECT

 

DEBT SERVICE COVERAGE RATIO

 

PROJECTED CASH FLOW STATEMENT

 

PROJECTED BALANCE SHEET

57 | P a g e

 

 

ANNEXURE –A

COST OF

PROJECT

(Amount in lacs)

Particulars

Amount

Land

0.00

Building &Site Development

107.23

Plant & Machinery

112.59

Miscellaneous Assets Pre –operative Expenses Contingencies Margin money for Working capital

.

Total

2.68 15.00 12.50

250.00

Means of finance  Particulars

Amount

Share Capital (Including Share Premium)

64.00

Unsecured loan (Quasi equity)

36.00

Term Loan from MPFC

150.00

Total 58 | P a g e

250.00

 

  ANNEXURE – B

DEBT SERVICE COVERAGE RATIO Particular

1 st Year

2 nd Year

3rd   Year

4 th Year

5th   Year

6 th Year

7 th Year

8 th Year

Net Profit After Tax

32.82

38.51

47.71

59.05

57.05

56.37

55.42

55.14

Add: Depreciation

9.46

9.46

9.46

9.46

9.46

9.46

9.46

9.46

Interest on Term Loan

19.50

19.37

17.68

15.41

12.81

10.01

6.70

2.83

TOTAL A

61.78

67.34

74.85

83.91

79.31

75.84

71.58

67.42

Interest on term loan

19.50

19.37

17.68

15.41

12.81

10.01

6.70

2.83

Repayment of  term loan

-

8.00

16.00

20.00

20.00

24.00

28.00

34.00

TOTAL B

19.50

27.37

33.68

35.41

32.81

34.01

34.70

36.83

D.S.C.R.(A/B)

3.17

2.46

2.22

2.37

2.42

2.23

2.06

1.83

AVERAGE RATIO

1.95

59 | P a g e

 

ANNEXURE – C PROJECTED CASH FLOW STATEMENT

 Particulars

Const

1

2

3

4

5

6

7

8

0.00

56.24

61.78

69.29

78.37

73.76

70.28

66.03

61.88

SOURCES OFFUND 1

N.P. after with int.

tax

2.

Add :Depreciation

0.00

9.46

9.46

9.46

9.46

9.46

9.46

9.46

9.46

3.

In Inccre rea ase in sh shar aree capital

64.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

4

Increase in long term borrowing

150.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

5

Increase in u/s loan /deposit

36.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Increase in current liabilities

0.00

.31

1.14

1.18

0.00

0.00

0.00

0.00

Increase in

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

6

7

0.00

6.84

0.00 8

other liabilities Increase in Bank  borrowing

0.00

30.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

TOTAL

250.00

102.54

71.55

79.89

89.01

83.22

79.74

75.49

71.34

237.50

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

USES OF FUNDS 1

Increase in capital Expenditure 60 | P a g e

 

2

Increase in Current assets

0.00

0.00

0.00

0.00

0.00

3

Decrease in term loan-existing

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

4

Decrease in term loan-proposed

0.00

0.00

8.00

16.00

20.00

20.00

24.00

28.00

34.00

5

Decrease in bank loan

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

6

Interest

0.00

23.40

23.27

21.58

19.31

16.71

13.91

10.60

6.73

237.50

72.74

43.34

46.65

49.37

36.71

37.91

38.60

40.73

Opening balance

0.00

12.50

42.30

70.50

103.74

143.39

189.90

231.73

268.62

Net Surplus (AB)

12.50

29.80

28.21

33.24

39.64

46.51

41.83

36.89

30.61

Closing Balance

12.50

42.30

70.50

103.74

143.39

189.90

231.73

268.82

299.23

TOTAL DEPOSITION

49.34

12.07

9.07

10.06

ANNEXURE – D

BALANCE SHEET AS AT 31/03/09

61 | P a g e

 

Particular

Amount

Amount

As at 31 31/0 /0/0 /09 9

As at 31 31/3 /3/0 /08 8

Share Capital

13040

130400

Reserve &Surplus

322242

306715

Unsecured Loan

2165161

896049

Total

2615161

1333164

693617

693617

Sources of fund

Application of funds Fixed Assets CURRENT ASSETS Cash &Bank balance

59593

82535

Loans Advances &deposits

1304489

44489

TOTAL

13064082

127024

95984

98857

1268098

28167

2500

2500

Less current liabilities Net current assets Preliminary expenses Pre operative expenses

653588

608880

TOTAL

2617803

133164

 

Annexure :1 MPFC Performance Appraisal Format

CIBIL StatusKYC StatusFactory LocationRegistered Office-

62 | P a g e

 

ConstitutionApplication Informatio received on n completed  by Promoters

ZO Appraisal completed on

HO Appraisal completed on

Loan applied (Rs. in Lacs)

For HOLC Loan consideration appraised (Rs. in (Rs. in Lacs) Lacs)

on

Activity:Products

Unit

Registered Capacity

Installed Capacity

Sale Price Utilization  based on 2 shifts 300 days

PROJECT HIGHLIGHTSPROJECT COSTParticulars

Applied the party

by Appraised by the Corporation

Security Cover 

Utilization of loan SIDB SIDBII Total

Land (leasehold) Site Development Factory Building Plant & Machinery Miscellaneous Fixed Assets P re min inar ary and Preli relim oyperatan ivd e Expenses Contingencies Work Wo rkin ing g Capi Capita tall Margin Money Total

FINANCIAL PARAMETERSRISK RATING SCORE : Promoters’ Contribution : 63 | P a g e

Appraised By

Means

of  

MPFC MPFC

 

Debt-Equity Ratio : Security Margin : Return on own Capital : Return on Capital Emp. : Break Even Point (Ins.Cap): Repayment : Moratorium : Instalment : Employment : Interest Rate : Rebate : Credit Rating Rebate : Penal Interest :

Technical

Financial

Auditors:Bankers:Architects:Main Plant Supplier:Technical Know How Supplier:1- Introduction 2- Proposal in Brief  a- Company b- Land Owners 3- Promoters and Management 4- Guarantors 5- Past Performance and Financial Position 6- Details about the Project Land iFactory and Building iiPlant and Machinery iiiivElectric Installation and Generator Set Preliminary and Pre-operative Expenses vviContingencies 7- Details abouta) The activity b) Manufacturing Process c) Market Scenario d) Pollution and Effluent Disposal 8- Cost of Construction 9- Sales Price (Per unit) 64 | P a g e

Finance (Rs. in Lacs)

TOTAL

 

10- Marketing Arrangements 11- Arrangement of Utilities a) Raw Material b) Power  c) Water  d) Men power  12-  Profitability Estimates

I YEAR

II YEAR

III YEAR

IV YEAR

V YEAR  

Capacity Utilization Turnover  PBDIT Interest Depreciation Profit fit afte fter  Tax Cash Profit

13- Repayment-

Year

I Year

II Year 

III Year 

IV Year 

V Year 

VI Year 

VII Year 

VIII Year 

Amoun t in Lacs

14- Debt equity Ratio-

Equity

Amount

Share capital Reserves and Surplus Unsecured Loans  Debt Equity Ratio

Debt

Amount

Term Loan-MPFC Term Loan-Others

15- Security Scenario-

Security Prime Security

Amount

Debt Term Loan-MPFC Term Loan-Others

Total 16- Capital Structure of the Company17- Technical Feasibility 18- Implementation Schedule and Present status of the Project 65 | P a g e

Amount

TO TA L

 

S.no. 1 2 3 4 5 6 7 8 9

Project Work Period in months Preliminary and Promotional Work   Acquisition of Land and Site development Construction of Building and Structure Design aan nd En Engineering of of eq equipment/ ai air   conditioning arrangements Order and procurement of equipment Electrical installments Furnishing Power Connection Possession to tenants Opening to Public

19- MPFC’s prior experience20- Board assumptions underlying profitability estimates

Sr. No. 1 2 3

4 5 6 7 8 9 10 11

Parameters Total Construction area Capacity Utilization (in %) Raw materialsConsumablesPacking MaterialRental Income Salary and Wages Power and Fuel Repairs and Maintenance Depreciation Interest on Term Loan Interest on Working Capital Others

21- Recommendation 22- Signed by Deputy GM and GM

Enclosures 1- Detail Detailss of Profi Profitab tabili ility ty estimat estimateses- Annexu Annexure re A 2- Cash Cash Flow Flow estim estimate atess- Annex Annexure ure B Draft resolutionSecurity- First Legal Mortgage/Legal Mortgage Margin Utilization Interest 66 | P a g e

Assumptions

 

Guarantee Repayment Capital Unsecured Loans The loans shall be released after- (conditions) Other Conditions

67 | P a g e

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