Submitted by: SEEMA GUPTA UIM (UTTARANCHAL INSTITUTE OF MANAGEMENT)
LIST OF CONTENTS Preface Executive Summary Acknowledgement Certificate Objectives of the Report Introduction to Banking Banking system in India Guide lines of R.B.I. Chronology of Banks in India Future of Banking About Standard Chartered Bank Banking Profile of SCB SCB Structure Over View Operations in IPC Operation in Internal services Risk Management System Credit Risk Management Introduction to Managing Credit Risk Introduction to Cash flow Analysis Introduction to Ratio analysis Introduction to Credit Scoring Models Introduction to Financial Services of SCB Introduction to Small & Medium Enterprises Banking of SCB Customers of SCB banking Workings on Petroleum Company & It's Analysis Workings on Metals Company & It's Analysis Workings on Motors Company & It's Analysis Conclusion Bibliography 1 2 3 4 5 6-7 8 - 10 11 - 12 13 - 16 17 13 - 15 16 17 23 - 30 31 - 57 58 - 64 65 - 66 67- 69 70 71 - 74 75 76 - 80 81 - 85 86 87 - 103 109 - 129 130 - 159 160 - 162 163
As a part of MBF program, a student has to peruse a project duly approved by the Director of the institute. I had privileged of undertaking the project on the study and critical analysis of the Operation Procedures of consumer banking and Analysis of financial statements and of the customers of SME banking and measuring the credit risks at Standard Chartered Bank, 10 Parliament Street, New Delhi - 110001 during the period (15th April To 15 June). It encompasses the entire operation unit in Delhi & consists of three Departments namely:-
ITEM PROCESSING CENTRE INTERNAL SERVICES SME BANKING My project is divided into five Chapters and they are given as under. 1) Chapter one of this study contains, concepts of banking and importance of the subject in present scenario. 2) Chapter two deals with Introduction of Standard Chartered Bank which consists history as well as the present scenario of the bank. 3) Chapter three deals with the Banking operations of item processing centre of Slandered Chartered Bank. 4) Chapter four deals with the Banking Operations of internal services of Slandered Chartered Bank 5) Chapter five deals with Introduction of SME Banking and of Management of credit risk. 6) Chapter six deals with the analysis of Financial Statements and measuring risk 7) Chapter seven deals with the Conclusion and the Bibliography Part.
I have done my summer internship in Standard Chartered Bank. I have devoted around one month in Item Processing Centre and Internal Services and around one month in SME Banking. In the first section of summer training I was in operation department, thereafter I was moved to SME Banking to learn the processing's of that department. During my stint, I was exposed to theoretical as well as practical learning. My project starts with an overview of the banking sector and the profile and History of STANADRD CHARTERED. It lists the various activities handled by IPC. A loss of any document can cause us lots of problem and hence we have to be very cautious about the same. The project contains the workflow of the operation unit of standard chartered.
The summer training project in STANDARD CHARTERED bank was a very wonderful experience for me. No matter what one achieves in life, he/she is always guided and helped by someone. I got a good exposure of the industry, both in theoretical as well as practical ground. This project is a sincere effort to have an in-depth knowledge of various "Banking operations and credit risk management of SME ". With profound sense of gratitude and regards I convey my sincere thanks to Mr. ARUN OBEROI ( Head--IPC) , Mr. Prashant (SME s), Miss Rachna (SMEs ) and all colleagues of standards chartered bank for not only giving me an opportunity to pursue the project, but also helping and guiding me through out in this project. I would like to Express my Sincerest thanks to Prof. J.D.Agarwal And Prof. Aman Agarwal.I would also like to express my sincerest thanks to Miss. Yamini Agrawal, Prof.Chaterjee, MR. Pushpendra Raghav, Mr. Deepak Bansal and all the faculty members of IIF for guiding me with their knowledge and guidance throughout my project work and also very graceful to all my IIF colleagues for their helpful nature.
OBJECTIVE OF THE PROJECT
During the course of my project, I had covered the below-mentioned objectives: 1) To Review & Analyze the work process in operation unit in a bank. 2) To understand the importance of the backend operation unit. 3) To review the analysis of Financial Statements of Small & Medium Enterprises to minimize Credit Risk. 4) To review the significance of process normalization towards saving Processing time & enhancing productivity/ Output. .
INTRODUCTION TO BANKING
After the nationalization of Banks, increasing adoption of technology, continuous mergers in the banking, modernizing backroom operation in the banks and competition pave the path of growth of Indian banking. By the mid-1990, the near monopoly of public sector banks faced the competition by the more customer-focused private sector entrants. This competition forced older and nationalized banks to revitalize their operations. Year 1992 was the golden period of Indian Banking system due to the scam-tainted stock market. Large proportion of household saving moved into the banking system, which recorded an annual growth of 20 percent in deposit But along with the continuous growth and modernization, there are several challenges confronting the banking sector. The main challenges facing the banking sector is the deployment of funds in quality assets and the management of revenues and costs. The problem of NPA (non- performing assets), overall credit recovery system still exist. There is a continuous reforms and modernization is in process. A number of recon mediations of two Narasimham committees have been implemented. Foreign Banks are focusing on corporate and on the middle class consumer and providing them better service. Nationalized Banks are also attempting to get on the path of automation. Strong Banks will acquire the weaker banks. The numbers of foreign banks operating in India has increased significantly and their share of total assets has also increased. In the year 2001 estimated foreign bank account for 14.7 percent of the total net profit of commercial banking sector in India. In spite tangible progress and the contribution of Narasimham I and Narasimham committee reports the banking sector in India suffering from systemic and structural problem.
BANKING SYSTEM IN INDIA
The modern banking system in India started with establishment of the first joint stock bank The General Bank of India in the year 1786. After this first bank, Bank of Hindustan and Bengal Bank came to existence. In the mid of 19th century East India Company established three banks The Bank of Bengal in 1809, The Bank of Bombay in 1840, and bank of Madras in 1843. These banks were independent units and called Presidency banks. These three banks were amalgamated in 1920 and new bank Imperial Bank of India was established. After Independence the Imperial Bank of India was nationalized with a new name State Bank of India by passing State Bank of India act 1955. The Reserve Bank of India as a Central bank was nationalized in the year 1935 by an act the Reserve bank of India act passed in the parliament. Several new banks as Punjab National Bank, Bank of Baroda, Canara Bank, Indian Bank, Bank of India etc were established after independence. On July 19, 1969 14 major banks were nationalized. Later on more banks were nationalized. At present the numbers of nationalized banks are 20. Several Foreign banks were allowed to operate as per the guidelines of RBI. At present the banking system can be classified in following categories: 1. PUBLIC SECTOR BANKS Reserve Bank of India State Bank of India and its 7 associate Banks Nationalized Banks (20 in number) Regional Rural Banks sponsored by Public sector Banks PRIVATE SECTOR BANKS Old Generation Private Banks New Generation Private Banks Foreign Banks in India Scheduled Co-operative Banks Non Scheduled Banks
CO-OPERATIVE SECTOR BANKS State Co-operative Banks Central Co-operative Banks Primary agriculture Credit Societies Land Development Banks Urban Co-operative Banks State Land Development Banks DEVELOPMENT BANKS Industrial Finance Corporation of India (IFCI) 8
Industrial Development bank of India (IDBI) Industrial Credit & Investment corporation of India (ICICI) Industrial Investment Bank of India (IIBI) Small Industries Development Bank of India (SIDBI) National Bank for Agriculture & Rural Development (NABARD) Export-Import Bank of India SCICI Ltd All the types of banks have a centralized control of RBI. All the banks have to follow the guidelines of RBI. Government used banks to provide credit and loan to weaker sections. This all lead to a serious crisis of unrecoverable debt. At the end of 1990 banks were saddled with NPA (Non Performing Assets) as bad and recoverable debts touched to Rs.75, 000 crores. Foreign Banks in India started to lure customers by good services. These banks were more automated, providing more faster information, kept flexible working hours and introduced 24 hrs ATM's. Today Private Indian Banks as well as Nationalized Banks offering better services and attempting to get on to the path of comprehensive automation.
Guidelines of RBI
The RBI issued guidelines regarding the formation and functioning of private sector banks in January 1993. The guidelines are as follows: The Banks shall be governed by the provisions of The Reserve Bank of India Act 1934, The Banking Regulations Act 1949, and other relevant statuaries. Private Sector Banks are required to be registered as Public limited Companies in India. The shares of banks are required to be listed on Stock Exchanges. Preference will be given to those banks whose headquarters are proposed to be located in a center which does not have headquarters of any other bank. 9
Maximum voting rights of an individual shareholder will be limited to 1% of total voting rights. The new bank will not be allowed to have as its Director any person who is already a Director in a banking company. The bank will be subject to prudential norms in respect of banking operations, accounting policies, and other policies as laid down by RBI. The bank will be required to adhere` to the following: Minimum paid-up capital of Rs.1 billion. Promoter's contribution as determined by the RBI capital adequacy of 8% of the risk weighted assets. Single borrower and group borrower exposure limits in force priority sector lending Export Credit Loan policy within overall policy guidelines laid down by RBI. The banks will be free to open Branches anywhere once they satisfy the capital adequacy and prudential accounting norms. The banks will not be allowed to have investments in subsidiaries, mutual funds and portfolio investments in other companies in excess of 20% of the bank's own paid-up capital and reserve. The banks would be require to use the modern infrastructural facilities in office equipments, computer, telecommunications etc. With the recommendations of Narasimham Committee, the Government has now allowed the entry of Private Banks.
The RBI will grant approvals for entry of private sector banks provide such banks offer competitive, efficient and low cost financial intermediation services, result in up gradation of technology in the banking sector, are financially viable and do not resort to unfair means like preemption and concentration of credit, monopolization of economic power, cross holding with industrial groups etc. Non Residential Indians are allowed to have primary equity in a new banking company to the extent of 40%. In the case of a foreign banking company or a finance company acting as a technical collaboration or a co-promoter, equity participation is restricted to 20%.
CHRONOLOGY OF BANKS IN INDIA
January 1, 1949 September 4, 1951 1956 July 3, 1964 July 6, 1966 July 19,1969 1973 January 11, 1978 November 19, 1986 1987 April 1988 July 1 and 3, 1991 November, 1991 : : : : : The Reserve Bank of India is Nationalized and made a Central Bank in India by an act of Parliament. The Government of India planned to seek loan from World Bank. Life Insurance Companies were Nationalized. IDBI was set up. First time the Rupee was devalued by 36.5 percent, one Dollar became Rs.7.50
from Rs.4.75. : Fourteen major banks were nationalized by Mrs. Indira Gandhi the then Prime : : : : : : : Minister of India. The Foreign Exchange Regulation Act came into existence. (Now Foreign Exchange Management Act) Currency notes in denomination of Rs.1000, Rs.5000 and Rs.10, 000 were withdrawn from circulation. Government of India Launched Indira Vikas Patra. Government of India introduced 9 % Tax free relief bonds, to mobilize resources for meeting draught related expenditure. National Housing Bank was set up with a share capital of Rs.100 crores subscribed entirely by the R.B.I. R.B.I devalued the rupee downward by 17.38 percent. M. Narsimham committee on reforming the financial system submitted its 11
report suggesting phased reduction of SLR to 25 percent in three years and March, 1992 : CRR to 10 percent in four year. Dual Exchange rate system was instituted under liberated rate management, enabling orderly transition from a managed floated regime to a market April, 1992 January 8, 1993 January, 1993 March, 1993 September, 1993 March, 1994 June 13, 1994 July 15,1994 : : determined one. RBI introduced Risk-Assets-Ratio for Banks as a Capital adequacy measure. FERA was amended and subsequently repealed and replaced by Foreign
Exchange Regulation Act 1993. : Guidelines for setting up private sector banks are issued. : Process of convertibility is started and Rupee is made convertible on the trade : : : account. New Bank of India was merged into Punjab National Bank. UTI Bank became the first private sector bank to start its operation. RBI issued guidelines on Prudential norms. Banks should achieve minimum capital adequacy ratio 6 percent on their risk weighted assets and off Balance Sheet exposures by march31, 1995 and 8 percent by march 1996. : Amendment in Banking Companies Act 1970 enabled the Nationalized bank to tap the capital market. The Nationalized banks are allowed to strengthen their capital base to contribute to their capital up to 49 percent in the capital market. Full convertibility was taken by making the Rupee convertible on the current account. Oriental Bank of Commerce became the first Nationalized bank to access the
August, 1994 October, 1994 October 1995 July, 1996 May 9, 1997
capital market to raise Rs.387.24 crore capitals. : Banks are allowed to fix their own interest rates on domestic term deposits with maturity of two years. : The insurance regulatory authority was set up to privatize the insurance sector. : RBI issued new norms for Non Banking Finance companies to improve their financial health and viability. The financial companies are required to apply for registration with RBI by July 8, 1997. RBI constituted a working group under the Chairmanship of S.H.Khan to examine the harmonization of role and operations of development of Financial Institutions and Banks. The S.H.Khan committee on the harmonization of the role and operations of development of Financial Institutions and Banks submitted its recommendation to move towards universal banking. Banks having a minimum net worth of Rs.500 crore and satisfying other criteria regarding capital adequacy were allowed to enter insurance business through a joint venture. Guidelines to Bank for financing of equities and investment in shares were 12
December 7, 1997
April 24, 1998
August 9, 2000
November 10, 2000
issued. Banks were allowed to invest unto 5 percent of its total outstanding January 3, 2001 : domestic credit in capital market. Revised guidelines for licensing of new banks in private sector were issued. These stipulate a minimum initial paid-up capital of Rs.200 crore (to be raised to Rs.3000 crore within three years o commencement of business) with a April 19, 2001 April 28, 2001 : : minimum 40 percent as contribution from its promoter. Banks permitted to formulate Fixed Deposit Schemes specifically for senior citizen offering higher and fixed rate of interest. RBI clarifies approach to universal banking for term lending and reframing institutions.
FUTURE OF BANKING
India Banking Summit, an international conference examining the future of banking and financial services in India will bring together leaders in the field of banking, wealth management, insurance, and IT to discuss growth opportunities in retail, community, rural, and commercial banking. The summit will be held in Mumbai from Tuesday 7th December until Wednesday 8th December 2004 at the Renaissance Mumbai Hotel and Convention Centre. The event has been endorsed by Dr. Manmohan Singh, Prime Minister of India, and sponsored by Intellect Suite by Polaris, SunTec, PSI Data Systems, Carreker Corporation, Red Hat, Aviva Life Insurance and SDG Software Technologies. It brings together over 150 senior executives to evaluate the latest developments in banking technology, risk management, retail and rural financial services, capital markets, and regulation. Opening this year's event, Chief Executives from ING Vyasa Bank, Bank of Baroda, IDBI Bank, ICICI Bank, Bank of Maharashtra, Yes Bank, and the Development Bank join the World Bank and Polaris Software Lab to explore new growth opportunities in retail banking. The program also features participation from Citigroup, Bank of America, HDFC Bank, Kodak Investment Banking, Bank of India and the Reserve Bank of India.
ABOUT STANDARD CHARTERED BANK
Standard chartered is the world's leading emerging markets banks headquartered in London. Its businesses however, have always been overwhelmingly international. This is the summary of the main events in the history of Standard Chartered and some of the organizations with which it merged. The early years Standard chartered is named after two banks that merged in 1969. They were originally known as the Standard Bank of British South Africa and the Chartered Bank of India, Australia and China. Of the two banks, the Chartered Bank is the older having been founded in 1853 following the grant of a Royal Charter from Queen Victoria. The moving force behind the Chartered Bank was a Scot, James Wilson, who made his fortune in London making hats. James Wilson went on to start The Economist, still one of the world's pre-eminent publications. Nine years later, in 1862, the Standard Bank was founded by a group of businessmen led by another Scot, John Paterson, who had emigrated to the Cape Province of South Africa and had become a successful merchant. Both banks were keen to capitalize on the huge expansion of the trade between Europe, Asia and Africa and to reap the handsome profits to be made from financing that trade. The Chartered Bank opened its first branches in 1858 in Calcutta and Mumbai. A branch opened in Shanghai in that summer beginning Standard Chartered unbroken presence in china. The following year the Chartered Bank opened a branch in Hong Kong and an agency was opened in Singapore. In 1861the Singapore agency was upgraded to a branch which helped provide finance for the rapidly developing rubber and tin industry in Malaysia. In 1862 the Chartered Bank was authorized to issue bank notes in Singapore, a privilege it continued to exercise until the end of the 19 t h century. Over the following decades both the Standard Bank and Chartered Bank printed bank notes in a variety of countries including China, South Africa, Zimbabwe, and Malaysia and even during the siege of Making in the South Africa. Today Standard chartered is still one of the three banks which print Hong Kong's bank notes.
Standard Chartered in the 1990s
Even within this period of apparent retrenchment Standard Chartered expanded its network, reopening in Vietnam in 1990, Cambodia and Iran in 1992, Tanzania in 1993 and Myanmar in 1995. With the opening of branches in Macau and Taiwan in 1983 and 1985 plus a representative office in Laos (1996), Standard Chartered now has an office in every country in the Asia Pacific Region with the exception of North Korea. In 1998 Standard Chartered concluded the purchase of a controlling interest in Banco Exterior de Los Andes (Extebandes), an Andean Region bank involved primarily in trade finance. With this purchase Standard Chartered now offers full banking services in Columbia, Peru and Venezuela. In 1999, Standard Chartered acquired the global finance trade business of Union Bank of Switzerland. This acquisition makes Standard Chartered one of the leading clearer of dollar payments in the USA. Standard Chartered also opened a new subsidiary, Standard Chartered Nigeria Limited in Lagos, acquired 75 percent of the equity of Nakornthon Bank, Thailand; and agreed terms to acquire 89 percent of the share capital of Metropolitan Bank of the Lebanon. Standard Chartered Today Today Standard Chartered is the world's leading emerging market bank employing 30,000 people in over 500 offices in more than 50 countries primarily in countries in the Asia Pacific Region, South Asia, The Middle East, Africa, United Kingdom, and the Americas. The new Millennium has brought with it two of the largest Acquisition in the history of bank with the purchase of Grindlays bank from the ANZ Group and the acquisition of the Chase Consumer Banking operation in Hong Kong in 2000. These acquisitions demonstrate Standard Chartered firm committed to the emerging markets, where it has a strong and established presence and where it sees its future growth. It is one of the world's most reputed international banks, with a management team comprising 70 nationalities. Standard Chartered is listed on both the London Stock Exchange and the stock exchange of Hong Kong and is in the top 25 FTSE100 companies, by Market Capitalization. It serves both consumer and Wholesale banking customers. Consumer Banking provides Credit cards, personal loans, mortgages, deposit taking and wealth management services to individuals and small to medium sized enterprises. Wholesale banking provides corporate and institutional clients with services in trade finance,
cash management, lending, custody, foreign exchange, debt capital markets, and corporate finance. Standard Chartered is well established in growth markets and aims to be the right partner for its customers. The Bank combines deep local knowledge with global capability. The bank is trusted across its network for its standard of governance and its commitment to making a difference in the communities in which it operates.
BANKING PROFILE OF SCB
SCB has some different types of banking:-
Priority Banking Personal Banking Door Step Banking Retail Services Additional Services
SCB STRUCTURE OVERVIEW
Standard Chartered Bank
Whole Sale Banking
Shared Distribut -ion
Metro Ops Central Ops Account Services
Item Processing Centre
rvices Liabilities Operation
INTRODUCTION Clearing is a way adopted by the banking system to enable the exchange of negotiable instruments like cheques, drafts etc... I.e. drawn in any bank in favor of another branch or its customers and the subsequent settlement of the amounts due between banks on account of such exchange of these instruments. In case of Indian banks, 'RESERVE BANKS OF INDIA' is the intermediary between various banks R.B.I. derives the power of setting up and managing clearing house from section 58(2) (p) of R.B.I. act. For the above purpose, all banks maintain an account with R.B.I. which is used for the settlement of inter-bank dues. In case, where R.B.I. does not maintain a clearing house, a specified local branch of the 'State Bank of India' or its subsidiaries is used for this purpose. Clearing can be grouped under two heads: 1) INWARD CLEARING: Inward clearing is a process wherein each member bank receives payments. 2) OUTWARD CLEARING: - Outward clearing is a process wherein each member bank of the clearing house delivers cheques for realization instruments, drawn on the other banks. INWARD CLEARING CLEARING MECHANISM MICR CLEARING: MICR Clearing concept is basically introduced by R.B.I. MICR band consists of - Serial number of the instruments. - City drawn cheques. - Bank code. 20
- Branch code. - Transaction code. - Amount. The step by step procedure of clearing : STEP 1: From R.B.I. clearing house, the inward clearing instruments, the input forms, the floppy and the reports has been picked up. Similarly from the S.B.I. , the hard copy as well as the soft copy of the input statement has been picked up. STEP 2: I.T personnel is handed over that floppy and tapes from the clearing house through ICSMERGE. STEP 3: After merging they generate a report of the total number of items and the value, in the listing of the R.B.I., tallies with the report. The file is uploaded to the host for processing and posing of the debits into the customer accounts. NEXT AT SINGAPORE:STEP 4: After uploading at Singapore, the support team runs a program which debits the customer accounts. This program has two entries: CR - Clearing Settlement.
DR - Inward Clearing computer surpass. This program pass- Debit to customer.
- Credit to ICCS (IPC cost center). This program simultaneously generates reports for- Items that have been posted (90 Q). 21
- Items that have not been posted (90 V). -items with hard hold (XS 14) The reports downloaded to local "IPC control D-ID". NEXT AT IPC CENTRE:STEP 5: R.B.I. Report will be ticked back against the cheques. If any differences found, it will captioned in clearing differences. STEP 6: Three reports generated here: XS0014 - Late posting (i.e. manual posting transaction). XS0090V- Rejected items by items sequence numbers. XS0090Q- Posted items.
STEP 7: Technical verification having checking of six different entries: - Cheque is postdated/ outdated/ having no date. - Have signature or not. - Cheque has crossing stamp of the presenting bank. - Any unauthorized signature. - Having payers name. If any point is missed, that cheque would be considered as > INR 10,000/- will be done. > INR 50,000/- will be scanned by U.V.Rays. STEP 9: Total value of Inward Clearing received from the R.B.I. are reported for finance. STEP 10: Now Inward Balancing takes place like below: + Total auto posted items (90Q). - Total of XS14. + Manual posted rejected items (90V). 22 rejected items. STEP 8: Signature Verification of those cheques having amount:
+ XS14 (Returned un-posted items). + CRS (Returned un-posted items). + GL payments. + CDDTV. = Total = Total IC as per R.B.I. Schedule. CLEARANCES OF HIGH VALUE CHEQUES:The high-value cheques will be collected from the R.B.I. at the proper given time .The cheques are in lot and arranged in lots with the listing attached to it .Inward clearing of highvalue cheques are completely manual as against HICR Inward-Clearing. Cheques will be addlisted "presenting bank" lot-wise and verified against the total of the listing. Verification of signature is done on CT-Dos. All customer cheques will be posted manually through transfer withdrawal option in CT-Dos and high-value posted journal is a check to any wrong posting by the teller. At the time of posting, the details of the cheques have been matched to identify any wrong position. Then technical verification takes place. Then high-value limex report has been generated. The transaction refers to the concerned branch. Then totaling of the following:1. Posted transaction total. 2. Un-posted returned total. 3. Drafts sent to total. 4. Differences if any. INTER-BANK INWARD CLEARING : 1. Cheques and lists are collected from R.B.I. 2. Verification of the technical error. 3. Signature verification of the Bank officer. 4. Posting of pay-order through CT-Dos. 5. Checking and verification of entries takes place with the sheet. 6. Then GL has been generated. 23 R.B.I. Settlement
OUTWARD CLEARING: This department receives outward clearing cheques and deposit slip from the customers from branches or boxes. # Two sets of cheques are received here: - One accepted at the counter. - One accepted at the cheque collection boxes. Then cheques are segregated into:* Local cheques. * Outstation cheques. * Dollar cheque. * Transfer cheque. * High amount cheque. * Discrepancies cheques. The instruments having high-value > 6 lacs have been reported to senior officials according to "money laundry guidelines". In the meanwhile, in the Technical Verification, the NC and BC cheques are segregated. Clerk reviews the instruments to see if there are any doubtful deposits. While clearing, clerk checks that: - Beneficiary details are same as the account number. - The cheque is not post-dated. 24
- Any deposit slip having any discrepancy are considered as rejected items finally returned to concerned branch. Now the cheques are batched together separately for MICR and payable at par cheques .Then total of each batch note down. Then all cheques encoded by outward clearing houses. The duly encode cheques will be checked against the total of various deposit slips. Then the 'block ticket" at the end of the day are prepared through the machine for the sum of total of all the batches. Simultaneously MSA OCCS credit voucher will be totaled. Then the cheques are posted through CT-Dos. To credit the GL a/c of the bank, the entries that has been passed are - Dr.-to- OCCS -to- IPC cost centre - Cr. -to- Respective GL a/c. Then balancing takes place. Two types of balancing are there: 1) MICR clearing. 2) Non MICR clearing. and then
O UT PUT CO NT RO L
F IN A N C IA L C H E C K IN G
N O N– F I N A N C IA L T R A N S A C T IO N S • C A S H TR A N S A C T IO • S C C O U N T L A S NA • A M E N D M E N TS O N • TR A N S F E R HOGA N TR A N S A C T IO N S • N • A L L T H E V O U C H E R S A M E N D M E N T S O– C T A N D IN S T R U C T IO N D O S • R A B O V E TE L L E R L IM IT S E S T R A IN T S M U S T B E A U TH O R IS E D B Y C O M P E TE N T P E R S O N . ( T S M /B M )
• • • • • • • • • • • • • • XC 00 8 -1 XC 00 8 -2 CR 02 90 DR 02 90 DR 01 0 CR 01 1 DR 02 6 XS 0 03 1B XS 0 00 8 XS 0 01 3 CR 00 3 -T G LB S C 01 9 G LB S C 02 0 G LB S C 01 0
C A S H T R A N S A C T IO N S
C A S H D E P O S ICT A S H W IT H D R A W L S
• T O C U S T O M E R• B Y C H E Q U E ACCO UNT • THR O UG H C ASH • T O C R E D I T C A R W IT H D R A W A L S L IP D • AGA • T O P S G L A C C O U N T INS T C R E D IT C AR D • A G A INS T ID
C A S H D E P O S IT T O C M A /C
• T x nR s 2 5 0 0 -0a0 n d a b o v e . . / • P A N /G IR N o to b e m e n tio n e d o n c a s h d e p o s it s a b o v e 5 0 k . If n o t a v a ila b le F o rm 6 0 d u ly fille d u p t o b e a n n e x e d . • If t h ru A – A T M a s h TM C D e p o s it E n ve l o p e w it h c o p y o f J P e n c lo s e d . • A m o u n t s in w o rd s & fig u r e s t o t a lly . • A lt e ra t io n s o n t h e d e p o s it s lip t o b e a u t h e n t ic a t e d . • P o s t in g in t o c o rr e c t a c c o u n t a n d w it h c o rr e c t a m o u n t .
C A S H D E P O S IT IN C R . C A R D
• A ll C a s h d e p o s its to b e c h e c ke d irre s p e c tiv e o f a m o u n t. • T a lly C re d it C a rd A /c N o w ith in p u t c a rd n o . • S ta te m e n t C o u n te rf o il a tta c h e d
C AS H D E P O S IT T O P S G L
•A ll Tra ns a c tio ns irre s pe c tiv e o f a mo u nt. •A m o u nt a n d Ac c o u nt N u m be r to be ta llie d.
C A S H W IT H D R A W A L B Y CHEQUE
• T xnR s 5 0 0 0 a n d a b o ve . . -0/ • R e p e r fo rm a n S eg . V e r i fi c a tio n of ci fo rT xn > = s. 5 0 0 0 a n d xn . R -0/ T . = <R s 5 0 0 0 - a0n/ d fo rxn> = . 0 T . R s. 5 0 0 0 -0i 0 n o t d o n e b y f/ T S M /B M • T xn > = s 5 0 0 0 -0U /V S c a n . R . 0/ p e r fo rm e d . • D a te C fh e q u e l i d o Va • B e a r e r In s tr u m e n t • A l te r a ti o n s a u th e n ti ca te d • R u b b e r S ta m p – i n dn ivin u a l fo r o d a c c o u n ts • C a s h R e ce i p t A c k n o w l e d g e m e n t o n r e ve r s ceh o q u e ef . • C o r r e c t A /c N o , A m o u n t a n d C h e q u eu m b e r i n p u t. N
C a s h W it h d r a w a l S lip /C o u n t e r C heque
• R e q u is itio n S lip /L e tte r h e ld • ID D o c u m e n ts o b ta in e d , C u s to m e r Id e n tif ie d b y b r a n c h s ta ff d u ly s ig n e d o n th e r e v e r s e .. • A /c N o . C h e q u e on H a n d W r itte n /S ta m p e d • N o t Is s u e d to N o n – In d iv id u a l A /c
C r e d i t C a r d A d v a n c e S l ip
• A ll T ra n s a c tio n s irre s p e c tiv e o f a m o u n t. • C h e c k th e c o r re c t a m o u n t p o s te d . • C a s h A d v a n c e S lip p u t th ru a m a n u a l im p rin te r/P O S
C a s h P a y m e n t A g a in s t I D
•R e c e ip t A c k n o w le d g e d b y ID H o ld e r •S w ift/IT T M a sa u theo r is b y P a y m e n ts sag ed •ID D o c u m e n ts o b ta in e d •A m o u n t a s p e r in s tr u c tio n
F o re ig n C u rre n c y T ra n s a c tio n U S D /G B P /E U R O
• • • • • • • • • • • • • F C Y C a s h D e p o s it T C D e p o s it F C Y C a s h W ith d r aw a l T C S a le C u rre n cy U S D, G B P a n d E U R O P A F ( 2 c o p ie s ) m u s t b e a tta c h ed to th e v o u c h ers F o r m –A4 a n d F E M A d e c la r a tio n m u s t b e o b ta in e d ddu/s taf illepde d p a n d s ig n e ly m u E n s u r e th a t F C Y le g is p o s te d N e c e s s a ry d o c u m o p y of P a s s p or t/C D F / C o p y o f V is a /C o py of A ir T r a v e l – C e n ts T ic k e t/ P u r p o s e of T r av e l m u s t b e o b ta in e d F o r m -2 ( 2 c o p ie s ) a n d d o c u m e n ts a s a b o v e m u s t boeu c h ers a te d f ro m th e v A s e p ar a n d b e h a n d e d ov e r to th e pe rs o n d o in g r ecso nc ilia tio n o f F C Y A / c E n s u r e r e c e ip t of F C Y ac k n ow le d g e d by c m & is n c as h in e n t c er tif ic a t e e s u e d m c as e o f F C Y T C /C u r r e n c y pu rc h a s e . A ny b r a n c h c a n d e a l in F C Y h ow ev e r th e F C Yosac c ou nth c een o n ly b e p te d in t r a C a t A b r a nc 1 7Pss, t 1 0 E C P a n d 1 0 S M G . –he In m o s t o f th e c as e s a ll th e b r a n c h e s w h ic p or s tc the eL/s aYle leing F C Y h e e iv C in th e ir b r a nc h a n d f o r F C Y le g th e y s e n d m a s s a g e to 1 0 E C P b r a n c h .
T r a n s f e r T r a n s a c t io n s
T yp e s R emember
• A / c t o A / c T ra n syf e r –B • If A / c t o T rfdco n e o n L e t t e r A/ C h e q /u L e t t e r e t c . e – It m u s t abuet h o risbe d t h e y B M . At ra n s a c t io n s m u s t b e ll • S a la ry T r a n s f e r checked • C h a rg e s R e v e rs a l • R e v e rs a l o f C h a rg e s fr o m • D D / P O Is s u a n c e w a i v e r A / c (P S G L ) c a n o n ly • T D Is s u a n c e (Q A O )/ T D b ea u t h o risbey d B M . A ll B re a k s t ra n s a c t io n s m u s t b e c h e c k e d • Q u ic k A / c O p e n in g F o rm m u s t b e s e p a ra t e d f ro m t h e v o u c h e rs a ft e r c h e c k in g a n d s e n t to A C S
A /c to A /c T r a n C feer qbuye sh
• T x n =R s 5 0 0 0 0 / > . • S i g n a tu re– P e r fo rm a n cTex n =R s. 5 0 0 0 0 / R fo r > a n d =R<s 5 0 0 0 -. 0 / b o v es. 5 0 0 0 -0i 0 /n o t . 0A R f a u t h o ri sbeyd T S M /B M
C h e c k fo r
a ) D a teCohf e q u e li d va b ) A lte ra ti o n s a u t h e n ti c a te d c ) A /c T i t le m a tc h e s w i t h b e n e fi c i c h e q .u e e o n t h e a ry n a m d ) R u b b e r S ta m p p la c e d o n s i g n .n dni vci a s e l o f n o n -i i d u a A /c e ) N D S S ta m a udt u oyri s e d p hl f)C h e q u e c o r re c t l y i n p u t no
A / c t o A /r.cf b y L e tt e r T
• M u s t a e t h o r is e dt h e T S M / B M . bu by • D ia r y n o t e in d ic a t in g c a ll b a c k t o c m . • A llo w e d o n ly if t h e r e is c o m m o n A / c h o ld e r b e t w e e n D e b it & C r e d it A / c h o ld e r . • N o t h ir d P a r t y t r a n s f e r s a llo w e d o n le t t e r . • A ll t r a n s a c t io n s a r e r e q u ir e d t o b e che cke d.
D D / P O Is s u a n c e
• • • • T x n a b o vRe s 5 0 0 0 to/ b e c h e c k e d . s . -0 A lte r a tio n s a u th e n tic a te d D D /P O n u m b e r a n d a /c n o lo a d e d c o r r e c tly R e c e ip t a c k n o w le d g eadu b yo c m e o r th ris d re p r e s e n ta tiv e • If c m h a s p r o vcid e q uae a in s t is s u a n c e o f h d ag D D /P O it m u s t b e c a n c e lle d b y d e b it o r c ro s s e d f o r c a n c e lla tio n a f te r c h e c k in g fo r s to p p a y m e n ts b y th e T S M .
A c c o u n t C lo s u r e
DD A CD A
• A ll tr a n s a c t io n s m u s t b e c h e c k er d .s h R s. 5 0 0 0 0 / • T h e o ld -. • S ig ne p e r f o r m a onrc > R s. r f e= • S ig r e p e r fo rm a n ce e q u i r e d . n not r 5 0 0 0- 0 / = < 5 0 0-0a 0n0d/ f o r & • A l te r a ti o n s a u th e n ti ca te d . h ig h e r a m t s aif tnhoot r isbey d u • C r e d i t to A /c o f s a m e a c c o u n t TS M/B M. • C h e q u e o k / D e b it C a r d ta k e nh o l d e r . Bo b a c k a n d d e s tr o y e d . ( p r o p •e r N o th ir d p a r ty c r e d i ts a l l o w e d . r e m a r k s g iv e n ) • N o c a s h p a ym e n ts i f th e • S ig n a t u r e s o f a l l a c c o u n t h o ldeel rasti. o n s h ip a m o u n t ( a c r o s s a l l r s. • If c o m p a n y a c c o u n t B o a r d C D A a c c o u n ts ) eRxc e e d s R e s o lu t io n a t ta c h e d . B R m u s t0 b0e0- 0n/ c l u s i ve o f i n te r e s t 2 i s ig n e d abt y a twt o u th o r is e d le s a a c c r u e d . T h is is IT r e q u i r e m e n t r e p r e s e n ta t iv e w h o a r e n o t a n d m u s t b e a d h e r e d to s tr ic tly. s ig n a t o r y t o c lo s u r e l e tte r . • O n ly a r tia H U F a n d P r o p r ie t o r in K n P r o p r i e t o r s h i p f ir m c a n s ig n th e c lo s u r e i n s t r u c tio n n o t th e P O A h o ld e r. • N o T h ir d p a r ty p a y o u t b e m a d e f o r proc ee ds .
N o n F in a n c ia l T ra n s a c tio n s
• • • • • • I s s u a n c e o fCO T C B e o k . he qu o S to p P a y m e n ts . P la c e m e n t / r e m o v a l o f H o ld s / L ie n s . A m e n d m e n t s in D e b it / A T M C a r d S t a t u s . A m e n d m e n t s a t id / a c c o u n t le v e l. N e w A c c o u n t s e tu p
A c c o u n t C lo s u r e
DD A CD A
• A ll tr a n s a c t io n s m u s t b e c h e c k er d .s h R s. 5 0 0 0 0 / • T h e o ld -. • S ig ne p e r f o r m a onrc > R s. r f e= • S ig r e p e r fo rm a n ce e q u i r e d . n not r 5 0 0 0- 0 / = < 5 0 0-0a 0n0d/ f o r & • A l te r a ti o n s a u th e n ti ca te d . h ig h e r a m t s aif tnhoot r isbey d u • C r e d i t to A /c o f s a m e a c c o u n t TS M/B M. • C h e q u e o k / D e b it C a r d ta k e nh o l d e r . Bo b a c k a n d d e s tr o y e d . ( p r o p •e r N o th ir d p a r ty c r e d i ts a l l o w e d . r e m a r k s g iv e n ) • N o c a s h p a ym e n ts i f th e • S ig n a t u r e s o f a l l a c c o u n t h o ldeel rasti. o n s h ip a m o u n t ( a c r o s s a l l r s. • If c o m p a n y a c c o u n t B o a r d C D A a c c o u n ts ) eRxc e e d s R e s o lu t io n a t ta c h e d . B R m u s t0 b0e0- 0n/ c l u s i ve o f i n te r e s t 2 i s ig n e d abt y a twt o u th o r is e d le s a a c c r u e d . T h is is IT r e q u i r e m e n t r e p r e s e n ta t iv e w h o a r e n o t a n d m u s t b e a d h e r e d to s tr ic tly. s ig n a t o r y t o c lo s u r e l e tte r . • O n ly a r tia H U F a n d P r o p r ie t o r in K n P r o p r i e t o r s h i p f ir m c a n s ig n th e c lo s u r e i n s t r u c tio n n o t th e P O A h o ld e r. • N o T h ir d p a r ty p a y o u t b e m a d e f o r proc ee ds .
O T C h e q u eo o k s Is s u a n c e C B
• Is s u e d o n ly t o in d iv id u a l a c c o u n t s . • R e q u is itio n s lip / c u s t o m e r le t te r o b ta in e d . • M u s t b e t h o r isbeyd T S M / B M . au
S to p P a y m e n t s
• • • • A ll tr a n s a c tio n s to b e c h e c k e d . C u s to m e r L e tte r . S ig n a tu re s V e rif ie d . D a te & T im e o f re c e ip t m e n tio n e d o n th e in s tru c tio n . • C h e q u eo a n d A /c n o c o r r e c tly lo a d e d . N • C h a r g e s ta k e n a n d if w a iv e d th e n d u ly a u th o r is e d . • T h e g a p b e tw e e n r e c e ip t a n d p o s tin g tim e s h o u ld b e r e a s o n a b le .
O th e r N o n F inTaxnncsia l
• A l l t r a n s a c ti o n s to b e c h e c k e d . • C u s to m e r I n s tr u c ti o n / D i aa ru th o rte/seodp lyy o f o r d e r s y n i cd u o f r e g u l a to r y b o d i e s . • I f n o t i n i ti a te d b y c m a si g n – o ff e c i fth e l ByMi n c a s e S p b y ic a l o f c h a n g e o f A R M c o d e a p p ro v a l b y re g io n a l he a d / A R M c o d e o w n e r a tta c h e d . • C u s to m e r I D d o c s o b ta i n e d w h e–rae sv e n a a s eli coaf b le i r cpp D e b i t/ A T M c a r d a c ti v a t i o n , r e m o v a l o f H o l d 6 0 / 2 0 e tc . • P l a c e m e n t/ R e m o v a l o f H o adu th0o mi sey dtBbM . l 2 r bs e u • A p p r o p r i a te H o l d p l a c e d . • A c c o u n t O p e n i n g F o r m fo r L A S . • D e ta i l s o f h o l d a r e m e n ti o n e d o n th e re v e r s e o f h o l d v o u c h e r s .
T r a n s a c tio n o n D o r m a n t A /c & U n c la im e d A /c
• ID a n d A d d r e s s o f th e c u s to m e r to b e ve r i fi e d in s u c h c a s e s . • C o p ie s o f ID d o c s o f a ll a c c ou uth o h o eigde rs to rie s ta k e n a n d a n t riss l d n a / a n n o ta te d w i th “ O r i g in a l S e e n ” b y th e T S M / M S S /B M . • ID p r o o f n o t r e q u i re d if th e c u s to m e r is m n sin ta ti n ig g( Sa/B o th e r tra a a c in n n o r C /A ) a c c o u n t ( s ) u n d e r th e s a m e ID A N D l o s e da c c o u n t is b e in g c th w h e r e th ea m o u n t in vo lve d i s R ss s0 0 .0 0 . txn le 5 th a n • In c a s e th e ID c o u ld n o t b e o b ta ian u th o r dbiaydth n oB M th a t e d a is e ry e te th e ID d o c s w o u ld b e o b ta in e d i n d u e c o u rs vo m cuhset rs e a tta c h e d to e u b. • M a i l to A C S fo r d e fe r ra l fo r o b ta in in g ID d oto th M u s t b e a tta c h e d cs . e vo u c h e r s . • H o l d 6 0 m u s t b e m a r k e d in c a s e o f d e fe r r a l. • B M c a n w a i ve o b ta i n in g ID d o cs . i f h e /s h c u is to m tis rfie a sth a t th e e s sa e hd b e e n id e n tifie d . T h e s a m e m u s t b e c le a r l y u c tioonta te d o n th e in s tr ann . • In c a s e o f D o rm a n t A /c c lo s u r e w h e r e th e ID tapinoe od f, c o u l d n o t b e o b r p a yo u t c a n b e m a d e b y P O o n ly a n d th e P O m u s t b e s e n t th ru c o u r ie r /r e g is te re d p o s t a t th e a d d r e s s r e co r d e d i n o u r s ys te m . U n c la im e d a c c o u n t s • U n c l a im e d A /c c a n o n ly b e c l o s e d a n d a fr e sfte ra c c o u n t i s o p e n e d a h o b ta in i n g K Y C d o cs . • S ig n a tu re s m u s t b e ve r ifie d b y T S M /B M .
O th e r N o n F inTaxnn cs i a l
• A l l tr a n s a c ti o n s to b e c h e c k e d . • C u s to m e r I n s tr u c ti o n / D i a r ythnoorti/es eo du yy o f o r d e r s u c dp l o f r e g u l a to r y b o d i e s . • I f n o t i n i ti a te d b y c m a s i g n– S ff ebcyi fit c a l lB Mi n c a se op he y o f c h a n g e o f A R M c o d e a p p ro v a l b y re g io n a l he a d / A R M c o d e o w n e r a tta c h e d . • C u s to m e r I D d o c s o b ta i n e d w h e a es v ienr ca apspeli c a b le –r of D e b i t / A T M c a r d a c ti v a ti o n , r e m o v a l o f H o l d 6 0 / 2 0 e tc . • P l a c e m e n t/ R e m o v a l o f H oal d t2 0o rm suysdtB b e. u h i be M • A p p r o p r i a te H o l d p l a c e d . • A c c o u n t O p e n i n g F o r m fo r L A S . • D e t a i l s o f h o l d a r e m e n ti o n e d o n th e re v e r s e o f h o l d v o u c h e r s .
Standard Chartered Bank has over the years maintained its services and relationship. It runs over 88 branches all over the country. It has created a name for itself in the banking sector. As far as my views are concerned, Standard Chartered as a model has a well-defined banking structure and gives satisfactory business to its clients. Moreover I have observed some drawbacks in the short span in this department; I strongly believe that if these are done away with in the Standard Chartered, its family would definitely see a better future. The key areas of concern are: - the main problem area of this department is the outdated software package being used across all the branches for business. It simply reduces the efficiency of this organization. As we know, Cost minimization and profit maximization is the main and common aim for any organization. The software which is being used here directly or indirectly hampering the work-efficiency and minimizes profit. It should be replaced by advanced software as soon as possible. It will double the efficiency of this firm as well as across all branches. - Use of Dot-Matrix printer should be replaced by "Laser Printer ". It will save "30-45 minutes" of each employee employed as a clerk here. They use to get their ledger through ink-jet. If Laser-printer will be introduced here, each day, at least '10 hrs.' can be saved and again it will directly minimize the cost and maximize the profit. - Automation of simple jobs: Technology Up gradation- Sama Shodhan should be upgraded to enhance the efficiency and support outstation cheques also, so that it works as a safe-guard for future problems. At present Sama Shodhan processed only local cheques not outstation cheques. Out-station cheques are processed through CT-Dos. But there are limitations with this package. It cannot provide further details of the cheques which had been processed. So any queries occurs, then we have to search the overall records processed cheques manually to answer and if any cheques are misplaced or damaged intentionally or unintentionally, then the bank may have to face a bigger problem. Solution : Shama Shodhan can be advanced by having an option for outstation cheques. It works a safe guard for coming problems if any and works as a cousin for this bank. Expenditure Analysis : Absenting is a disease to a flourishing company hence such employees, who fails to constraints to an organization should be relieved.
Excess of employees in department : In my view, the no. of employees are more than required, as I noticed in 2 weeks that each day, 1 or 2 employees remain absent throughout the week but the operation is going on without any hindrances. Securitisation of risk : Securitisation of risk should be there which actually lacking here. In clearance department what I felt is the job of a clerk need much concentration because of a single mistake can resulted into financial loss may be Lakhs or Crores. But they are actually working in a disturbed environment they are not able to pay much attention and concentration as required and lastly differences occurs which takes a long time to solve. So my opinion is, Clerks should be separated by small cabins then only they can pay much concentration and finally it will helpful for bank as it minimizes the chances of risk and financial loss and can some time also. Employees Satisfaction level : As far as my views are concerned, the employees satisfaction is one of the most important factor and what I found here is that Employees are not working with enthusiasm but working under pressure of work load. It effects the growth of the firm adversely. So an enthusiastic environment should provide there so that they simply enjoy their work. It definitely increase their efficiency to work. Proper Utilization of Resources : For any firm, Manpower is the biggest resources. Here, manpower is
more than enough but the way, they are doing should be slightly change. Work-distribution and time management should be modified. Then only the firm will properly utilize its resources and proper management can only prove economic for this. In my point of view, the above points of considered favorably will definitely prove as leverages to this organization and will be 100% helpful in the growth of this firm.
. I RISK MANAGEMENT SYSTEM
RBI Guidelines 1) Introduction
Banks in process of financial intermediation are conforme3ed with various kinds of financial and non financial risks viz. credit interest rate, foreign exchange rate, liquidity, equity price, commodity price, legal, regulatory, reputation, operational, etc... These risks are highly interdependent and events one area of risks can have ramification of risks for a range of other risks categories. The broad parameters of risks management system should encompass: • • • • • • Organizational structure
Comprehensive risk management approach Risk management policies
Guidelines & other parameters
Strong MIS for controlling , monitoring & controlling risks
Well laid out procedures , effective control & comprehensive risk reporting framework • Separate risk management framework • 2) Periodical review and evaluation Risk management structure
A major issue in establishing an appropriate risk management organization structure is choosing between a centralized & decentralized structure. The board should set a risk limits by assessing the bank’s risk & risk bearing capacity. At organizational level, over all risk management should be assigned to an independent risk management committee or executive committee of the top executives that reports to the boards of director.
3) Credit Risk
The management of credit risk should receive the top management’s attention and the process should encompass: • • Measurement of risk through credit rating
Quantifying the risks through estimating expected loan losses i.e. the amount of loan losses that bank would experience over a chosen time • • Risk pricing on a scientific basis Management Instruments of credit risk management • Credit approving authority • • • • • 4) Prudential limit Risk Rating Risk Pricing
Controlling the risk through effective Loan Review Mechanism and Portfolio
Portfolio Management Loan Review Mechanism
Credit risk & investment banking
Significant magnitude of credit risk, in addition to market risk, is inherent in investment banking. The proposals for investments should also be subjected to the same degree of credit risk analysis, as any loan proposals. The proposals should also be subjected to detail appraisal and rating framework those factors in financial and non-financial parameters of issuers, sensitivity to external developments, etc.
Credit Risk in Off-balance Sheet Exposure
Banks should evolve adequate framework for managing their exposure in off-balance sheet products like forex forward contracts, swaps, options, etc as a part of overall credit to individual customer relationship and subject to the same credit appraisal, limits and monitoring procedures. Banks should classify their off-balance sheet into three broad categories-full risk, medium risk and low risk.
Inter-bank Exposure and Country Risk
A suitable framework should be evolved to provide a centralized overview on the aggregate exposure on other banks. Bank-wise exposure limits could be set on the basis of assessment of financial performance, operating efficiency, management quality, past experience, etc.
Market risk arising from adverse changes in market variables, such as interest rate, foreign exchange rate, equity price and commodity price has become relatively more important. Market risk takes the form of • • • • Liquidity Risk Interest rate Risk
Foreign exchange rate(forex) risk Commodity Price Risk and • Equity Price Risk
Market Risk Management
The Boards should clearly articulate market risk management policies, procedures, prudential risk limits, review mechanisms and reporting and auditing systems. The policies should 55
address the bank’s exposure on a consolidated basis and clearly articulate the risk measurement systems that capture all material sources risk and assess the effects on the bank. 9) Interest Rate Risk (IRR)
The management of Interest rate Risk should be one of the critical components of market risk management in banks. Deregulation of interest rates has, however, exposed them to the adverse impact of interest rate risk. The net Interest Income (NII) or net Interest Margin (NIM) of banks is dependent on the movement of interest rates.
10) Foreign Exchange (Forex) Risk Forex risk is the risk that a bank may suffer losses as a result of adverse exchange rate movements during a period in which it has an open position, either spot or forward, or a combination of the two, in an individual foreign currency. Forex risk Management Measures (a) Set appropriate limits- open positions and gaps. (b) Clear-Cut and well-defined division of responsibility between front, middle, and back offices.
Capital for market Risk
The base Committee on banking supervision (BCBS) had issued comprehensive guidelines to provide an explicit capital cushion for the prices risk to which banks are exposed, particularly those arising from their trading activities. 12) Operational risk
Managing operational risk is becoming an important feature of sound risk management practices in modern financial market in the wake of phenomenal increase in the volume of transactions, high degree of structural changes, and complex support systems. 56
Risk Aggregation and capital Allocation
Most of internally active banks have developed internal processes and techniques to assess and evaluate their own capital needs in the light of their risk profiles and business plans. Such banks take into account both qualitative and quantitative factors to access economic capital. CREDIT RISK MANAGEMENT Credit risk management today Banks are in the business of making loans, and it is credit officer’s responsibility to peruse that business by making sound credit decisions. This requires more judgments than technical skills. Reviewing financial statement may yield preliminary findings, but these fail to assess the numerous variables that must be weighed. The loan officer must understand the information, not merely crunch the numbers. Further, unless credit analysis standards are clearly defined, valuable time and efforts are wasted, not to mention the bottom line consequences of reaching the wrong deci8sion. If a loan officer determines that the borrowing firms expectations exceeds its repayments ability, does this mean all possible repayments sources are exhausted? Since the key is to increase profitability through sound credit judgment, the analyst must always evaluate repayment judgment; the analyst must always evaluate repayment potential from all alternative sources. In turn if the bank is confident of repayment based of additional findings, the appropriate pricing consideration are issued & monitored. The net effect is future profits of the banks due to a meticulous credit investigation. Other wise the loan will probably be lost to a better prepared competitor. Since lenders are in business of taking risks, why banks are are so concerned about losing money / briefly stated, a bank can never price an individual loan at a loss even if the probability of default decreases. For ex., if the bank net interest margin is 4% annually, it will take 25 years to recoup 100% of the loss, not including related overheads costs. Thus the core of credit analysis is evaluating the borrower's ability to repay debt. 57
Critical risk assumption plays a critical role in finalizing lending decision. To calculate risks, comprehensive information is needed. Further we must understand how much information is enough. In other words, identifying what is and is not significant is critical to reliable credit judgment. On way to do this is to assign a risk rating (above average, avg., & below avg.) to all facts.’ Weights of importance will then assigned to details regardless of a positive or a negative rating. The important components of this model should be:1) Management 2) Management / Administration 3) Bank Relationship 4) Financial Reporting 5) Intention (purpose) Components of credit risk i) ii) iii) Personal or consumer risks Corporate or company risks Sovereign or country risks
Managing Credit Risk This section describes credit analysis for real estate lending, consumer and small business lending, mid-market commercial and industrial lending, and large commercial and industrial lending. It also provides insights into the credit risk evaluation process from the perspective of a credit officer evaluating a loan application. Risk State Lending Because of the importance of residential mortgages to banks, savings institutions, credit unions, and insurance companies, residential mortgage loan applications are among the most standardized of all credit applications. Two ratios are very useful in determining a customer’s ability to maintain mortgage payments: the GDS (gross debt service) and the TDS (total debt service) ratios. Gross debt service ratios are the customer’s total annual accommodations expenses (mortgage, lease, condominium, management fees, real estate taxes, etc…) divide by annual gross income. Total Debt ratios is the customer‘s total annual accommodation expenses plus all other debt service payments divided by annual gross income. FIs often combine the various factors affecting the ability and willingness to make loan repayments into a single credit score. A credit-scoring system is a quantities model that uses observed characteristics of the applicant to calculate a “score” representing the applicant’s probability of default (versus repayment). Credit scoring systems are developed by using borrower characteristics (e.g., income, age, loan repayment history) for some past period. The credit scoring model weights each characteristics to identify a boundary number (score) or range such that if past loan customer had an overall credit score (derived from the weighted characteristics) greater than the boundary number they defaulted on the loan. If the FI uses a scoring system, the loan officer can give an immediate answer- yes, maybe, or no- and the reasons for that answer. A maybe occurs in borderline cases or when the loan officer is uncertain of the classification of certain input information. A credit scoring system allows an FI to reduce the ambiguity and turnaround time and increases the Transparency of the credit approval process. A loan customer listing the following information on the loan application receives the following points: 59
I. Annual gross income II. TDS III. Relations with FI IV. Major credit cards V. Age VI. Residence VII. Length of Residence VIII. Job Stability IX. Credit History X. Total score XI. Consumer (Individual) and small business Lending The techniques used for mortgage loan credit analysis are very similar to those applied to individual and small business loans. Individual consumer loans are scored like mortgage, often without the borrower ever meeting the loan officer. Unlike mortgage loan for which the focus is on the property, however, no mortgage consumer loans focus on the individual ability to repay. Thus, credit-scoring models for such loans would put more weight on personal characteristics such as annual gross income, the TDS score, and so on. Mid-market Commercial and Industrial Lending In recent years, mid-market commercial and industrial lending has offered some of the most profitable opportunities for credit granting Fis. Although definition of mid-market corporate varies, they typically have sales revenues from $5 million to $ 100 million a year; have a recognizable corporate structure (unlike many small businesses). But do not have ready access to deep and liquid capital markets. Credit analysis of a mid-market corporate customer differ from that of a small business because, while still accessing the character of the firms management, its main focus is on the business itself. Five C’s of credit:
To analyze the loan applicant's credit risk, the account officer must understand the customer character, capacity, collateral, and capital (sometimes referred to as the five Cs of credit). Measures of capacity and conditions Measures of character and condition Measures of conditions Measures of capital and Collateral.
Cash flow Analysis FI's require corporate loan applicants to provide cash flow information, which provides the FIs with relevant information about the applicant's cash receipts and disbursements that are compared with the principal and interest payments on the loan. Cash receipts include any transaction that result in an increase in cash assets (i.e., receipt of income, decrease in a non cash asset, increase in a liability, and increase in an equity account). Cash Disbursements include any transactions that result in a decrease in cash assets. The cash flow statement reconciles changes in the cash account over some period according to three cash flow activities: operating, investing, and financial activities. When evaluating the cash flow statement, FI's ant to see that the loan applicant can pay back the loan with cash flows produced from the applicants operations. Ratio Analysis In addition to cash flow information, an applicant specific level of credit substantiates these business needs by presenting historical audited financial statements and projections of future needs. Historical financial statement analysis can be useful in determining whether cash floe and profit projections are plausible on the basis of history of the applicant and in highlighting the applicant’s risks. Financial ratios are useful when performing financial statement analysis on a mid-market corporate applicant. Although stand-alone accounting ratios are used for determining the size of the credit facility, the analyst may find relative ratio more informative when determining how the applicants business is changing over time. Hundreds of ratios could be calculated 61
from any set of accounting statements. The following are a few that most credit analysts find useful. Liquidity ratios Current ratio = Current assets Current Liabilities Quick ratio (acid-test ratio) = Cash + Cash Equivalents + Receivables
Current liabilities Liquidity provides the defensive cash and near-cash resources for firms to meet claims for payment. Liquidity ratios express the variability of liquid resources relative to potential claims. Assets Management ratios Number of days sales in receivables = Credit sales Number of days in inventory = Cost of goods sold Sales to working Capital = Working capital Sales to fixed assets = Fixed Assets Sales to total Assets = Total assets The asset management ratio gives the account officer clues to how well applicant uses its assets relative to its past performance and the performance of the industry. Sales Sales Sales Inventory X 365 Accounts receivables X 365
Debt & Solvency Ratio Debt asset ratio= Short Term Libilities+Long Term liabilities Total Assets Fixed Charge Coverage Ratio=Earning Available To meet Fixed Charges Fixed Charges Cash Flow to Debt Ratio= Debt Where EBIT represents Earning before income &tax. Debt solvency ratio give the account manager an idea of the extent to which the applicant finances its assets with debt verses equity. EBIT + Depreciation
Profitability Ratio Gross margin = Sales Operating Profit Margin = Sales Return on Assets = Return on Equity = Total Equity Dividend Payout = EAT 63 Dividend EAT EAT Operating Profit Gross profit
Average Total Assets
Where EAT represents earning after tax, or net income. For all Dividend payout Ratios, the higher the value of the ratio, the higher is the profitability of the firm.
Cautions with Ratio Analysis While ratio analysis provides useful information about loan applicant's financial conditions, it also has the limitations that require care and judgments in its use. For example many firms operate in more than one industry .For these companies it is difficult to construct a meaningful set of industry averages. Credit Scoring Models Credit scoring models use data on observed borrower characteristics either to calculate profitability of default or to sort borrowers into different default risks classes selecting & combining different borrowers economic & financials Characteristics, an FI manager may be able to: • Numerically Establish which factor is important in explaining default risks • Evaluate the relative degree or importance of these factors • • • Improve the pricing of default risks Screen high risk loan applicants
Calculate any reserve needed to me expected future
To employ credit scoring models in this manner, the FI manager must identify objective economy & financial measures of risks for any particular class of borrower. After data are identified, a statistical technique quantifies or scores the default risks probability or default risk classification. Financial Services of SCB
Business Financial address the complete financial needs of Professionals, Professional Firms, Small & medium enterprises (SME) engaged in services or manufacturing by offerings a range or multiple product proposition to the target segment. The constitution of the target is:• Individual comprising of Professional or Business • • • Proprietorship or HUF
Partnership firm & Private Ltd. Companies Public Ltd. Companies
BFS facilities generally structured as multiple products or single products facility depending upon customer requirement. The process of Overdrafts Facility against single products & loans backed by property of INR 5M or less are decentralized, and has been detailed in Asset Circular Nos. Assest/SCB/2003/12 and Asset/SCB/2003/15. Where the credit line extends to the customer is for multiple products and / or against multiple securities, the operational activities are centralized at CLC, Chennai for the following purposes: o Preparing and documenting the banking Arrangement letter (LOBA) as per the approved terms of the credit approval. This involves documenting the limits available against various credit lines; Extend and type of security required; specifying the security information; specifying any preconditions. o Review of documentation received after acceptance of facility received from customer based on the condition set out for the facility. o Evaluate the eligible operating credit limits based on valuation of securities and lodgment of the same. o Limit set-up in various TP systems o Revaluation of security periodically and monitoring the exposure levels across various credit lines. 1 Sourcing
BFS facilities are relationship based and the sourcing will be done By the business financial manager )BFM) in each cities The BFM will conduct interview or do a site visit At the customer trading address/ production site to understand and obtain basic information on the
owner, manager, nature of business. This will be documented in a fast sheet or basic information report. The application Cum AOF will be obtained at the time of Customer requesting the credit facility even though the customer may have an existing current account with SCB. The following Information will be obtained Nature of facility requested Limit account Borrower details Security holder details Guarantor details Relationship with SCB
Based on the basic information of the customer of the customer obtained through the interview & the Financials , a detailed limit Application Will be prepared which will broadly include the following : Customer Profile: ownership, management , banking relationship, business operation Purpose : New application/ renewal/ increase/structure/review/Amount Pricing/Risk Rating/ Total Credit facilities Facilities description: Amount, pricing, risk rating, total credit facilities. Net Worth: Financial Analysis & personal Finance Statements of Guarantor / Borrower
Operational Sheet : Description & Valuation of security / collateral , terms & conditions of the facility , LTV & any Deviation. 66
Prior to Submission for Approval , BFM will check the applicants & guarantors profile from the following database : RBI lists of Willful Defaulters Search on register of companies( ROC) books for all registered business Dedup against Hogan & RLS • All Limit application (LA) initiated by BFM will be Supported by Regional Manager (RM) put approval to Senior Manager , Credit- BFS or to the delegated lending authority For proposal outside senior manager's authority, the LA will be Supported by Business head, BFS and approved by head- Credit CB. For proposal referred to group credit , will be retained the Original LA & send a scanned copy of the LA to Officer CLC for preparing the LOBA
Acceptance of Letter of Banking Arrangement (LOBA)
Once the approved LA is sent by CLC , the officer CLC refuse the LA approvals condition & prepares the LOBA giving the following details: Sanctioned Limit Products Cap ( inner limits) Interest rates Documentation Security & margin Pre Condition ( if any)
LOBA is sent to the concerned BFM by e-mail with a copy to manager CLC. A hard copy is signed by the manager CLC after review of the sanctioned terms & condition. The BFM will review the sanctioned terms & send to LOBA. The LOBA is delivered to the customer & on customer acceptance collects the documents including the securing documents as stipulated in LOBA • A credit file will be created by the BFM & the documents will be sent to CLC by courier with an e-mail confirmation sent to officer. 67
Small & Medium Enterprises Banking Definition of "SME" varies from bank to bank. For Standard Charted Bank, Broadly all entities with turn over of Rs.5.00 - Rs.150.00 Crore come under SME. • • • SME contributes more than 40% of Industry output of India.
SME enjoys bank Finance of less than 15% of total credit outstanding of banks. distributors, dealers, OEM's, etc. Quick Overview SME Characteristics • • Closely held owner managed • • • Not highly capitalized
Comprises mainly of small and mid sized Manufactures, Exporters Importers Traders,
Significant personal wealth of promoters- property liquid assets Geographically dispersed
Low financial transparency due to historical tax issue. COMPETITION
Entrenched Nationalized banks & Aggressive Private Banks • Wide Spread branch network
Relatively liberal credit policies , but lower services level Economic Environment 68
Significant growth in industrial and services sectors >10% • SME growth Rate (last 2 yrs) - 10%
Sharp growth in international trade (esp. Exports) > 15% • Stable currency outlook
CUSTOMERS NEEDS • Facilities for regular / one off business needs i.e. working capital expenditure financing • Transaction Banking needs viz. Trade, Cash, Treasury services
SME SECTOR IS VITAL TO THE ECONOMY
SME Sector in India Accounts For
95% of all Industrial units
40% of all industrial outputs
45% of Industrial Environment
35% of Exports
Prime Driver of a new Employment
Customer of SME Banking CONDITIONS • • • Turn over <= INR 1000Mn Min. 3 Years in Business Profit Making in the Previous 70
PRODUCTS OFFERED Following Products are offered to multi-product customers, i.e. customers with annual turn over of > US$1Mn. • FUND BASED Over Draft Term Loan WC Demand Loan (INR / FCY ) Export Credit ( INR / FCY) Domestic Bill Discounting OD against Credit Card Receivables • NON FUND NBASED Letters of Credit Guarantees Co acceptance of Bills LC confirmation • TRANSACTION BKG Trade Services Inward / Outward Remittances Fixed Deposits ITTS
In January 2005, SME Banking has launched the business installment loans product offered to small establishments with turn over less than USD 1M.
Criteria followed by SME Banking
Age of should be more than 3 years, in case of professionals, it should be more than 5 years. • • Companies with a Turn over criteria of less than 92 crores falls in SMEs
Working Capital Cycle will be = Debtors + Stock turn over - Creditor turnover residential mutual funds, India millennium deposits. 71
They offer their products by keeping collaterals such as RBI bonds, Fixed deposits, property commercials
• They required 3years audited financials and calculating this MFA report is generated in which different ratios occur And MPBF( MAXIMUM PERMISSEBLE BANK FINANCE ) is calculated by preparing one page summary according to which bank finally decides whether to finance the company or not. • They charge 2% of sectionals limit, 10% is earned of cash collaterals or marketable securities. • Term loan can be provided Maximum For 5 Years and minimum for 3 years. • • • • Over draft can be provided for 1 year.
Letter Of credit depends on customer maximum for 180 days.
Inter coverage ratio i.e. PBIT/ Interest should be Greater than 1.5%. Gearing Ratio i.e. Secured loans / Equity should be less than 3%.
I have got the opportunity to analyze the financial statements And Measure the credit risks of three companies who had approached standard charted bank for loans. Those Companies are:-
M/S BAJRANG PETROLEUM RANJIT METALS WESTERN INDIAN MOTORS COMPANY
M/S. BAJRANG PETROLEUM BALANCE SEET AS ON 31ST MARCH,2001
Liabilities CAPITAL ACCOUNT Balance as per ledger Add:Net profit during the year 179,310.09 4,579,548,90 CURRENT ASSETS , LOANS & ADVANCES:Closing Stock (As Certified & valued by Prop.) Sundry Debtors (As per Annexure-F) Security Deposits SAIL – Bokaro Loans & Advances (As per Annexure-G) 2,001,661.00 (Amt. In Rs.) 4,400,238,81 Assets FIXED ASSETS: (As per Annexure-E) (Amt. In Rs.) 460,568.00
SECURED LOANS: (As per Annexure-A) UNSECURED LOANS: (As per Annexure-B) CURRENT LIABILITIES : (As per Annexure-C)
OTHER LIABILITIES: (As per Annexure-D)
CASH & BANK BALANCES: Bank Balance 212,191.00 Cash inHand 58,307.00
Total Rs ……
M/S. BAJRANG PETROLEUM TRADING AND PROFIT & LISS ACCOUNT FOR
THE YEAR ENDED 31ST MARCH, 2001 Particulars To Opening Stock To Purchases To Freight & Cartage To Gross Profit C/D Total Rs……… To Salary To Office Exp. To Bank Charges To Postage & Telephone Exp To Audit Fees To Printing & Stationary Exp. To Accounting Charges To Electricity Expenses To Repair & Maintenance Exp. To traveling Exp. Interest To Advertisements To Business Promotion Exp. To Insurance Exp. To Fee & Taxes Exp. To staff Welfare Exp. To Conveyance Exp. To Depreciation To Net Profit Trfd To Prop Capital Account Total Rs…… Amount (Rs.) 1,260,568.56 97,836,047.00 1,933,080.00 1,287,005.93 102,316,701.50 246,900.00 15,855.51 136,700.00 14,176.00 5,000.00 15,771.00 30,000.00 41,597.00 21,898.00 3,678.00 368,593.83 1,000.00 17,034.00 26,817.00 1,000.00 27,459.00 63,605.00 71,659.50 179,310.09 1,288,053.93 Total Rs…….. 1,288,053.93 Particulars By sales By Closing Stock Total Rs……. By Gross Profit B/D Misc. Income Amount (Rs.) 100,315,040.50 2,001,661.00 102,316,701.50 1,287,005.93 1,048.00
M/S. BAJRANG PETROLEUM BALANCE SEET AS ON 31ST MARCH,2002 Liabilities CAPITAL ACCOUNT Balance as per ledger (Amt. In Rs.) Assets FIXED ASSETS: Car a/c as per Ledger Less: Depreciation during the year Fax Machine As per ledger Less: Dep. During the Year CURRENT ASSETS , LOANS & ADVANCES:Closing Stock (As Certified & valued by Prop.) Sundry Debtors Reliance India Ltd.(Advance) UNSECURED LOANS: Mrs. Madhu Agrawal Car Loan From City Bank Sundry Creditors Expenses Payable: Audit Fee Cash & Bank Balances 55000.00 92951.28 159313.00 Canara Bank Punjab National Bank Cash in Hand Loans & Advances 3,150.00 124,334.50 1317494.50 4900.00 18057.00 1340451.50 ------------(Amt. In Rs.) 215,500.00 43,000.00 172,000.00 10990.00 2747.50 8242.50 1260568.57 398,145.00 29.810.00
Add:Net profit during the year SECURED LOANS: (As per Annexure-A)
15417.81 2774468.81 --------------
Total Rs …….
M/S. BAJRANG PETROLEUM TRADING AND PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 2002 Particulars To Opening Stock To Purchases To Freight & Cartage To Gross Profit C/D Total Rs……… To Salary To Office Exp. To Bank Charges To Postage & Telephone Exp To Audit Fees To Printing & Stationary Exp. To Accounting Charges To Electricity Expenses To General expenses To traveling Exp. Interest To Advertisements To Legal Expenses To Insurance Exp. To Fee & Taxes Exp. To staff Welfare Exp. To Conveyance Exp. To Depreciation To Net Profit Trfd To Prop Capital Account Total Rs…… Amount (Rs.) 60384.00 17032,915.00 410290.00 204807.57 17,708,396.57 46800.00 14092.00 3322.00 3150.00 3270.00 9000.00 13598.00 4290.00 ---------26991.99 ------------725.00 ----------------------------4924.00 6980.00 45747.00 15417.81 204807 Total Rs…….. 204,807.57 Particulars By sales By Closing Stock Total Rs……. By Gross Profit B/D Misc. Income Amount (Rs.) 16447828.00 1260568.57 17708396.57 204807.57
Projected Balance Sheet:STANDARD CHARTERED BANK Petroleum Company (petroleumc) SCB ISIC Code: 3530 6/11/2005 Detailed Balance Sheet - Actual and % Thousands Date Prepared: Page 1
Statement Date 3/31/2001 3/31/2002 Months Covered 12 12 Analyst Monika Monika Source Currency: INR Target Currency: INR Segment Type: Company Account CURRENT ASSETS Cash and Bank Deposits 1,340 41.8 270 2.6 Trade Debtors (Gross) 398 12.4 6,003 58.2 Stock: Trading 1,260 39.3 2,002 19.4 Other Op Current Assets 30 0.9 1,578 TOTAL CURRENT ASSETS 3,028 94.4 9,853 95.5 FIXED ASSETS Plant & Machinery Motor Vehicles Gross Fixed Assets TOTAL FIXED ASSETS TOTAL TANGIBLE ASSETS WORKING CAPITAL NET WORKING ASSETS NET CASH ASSETS 8 0.2 6 0.1 172 5.4 455 4.4 180 5.6 461 4.5 180 5.6 461 4.5 3,208 100.0 10,314 100.0 2,742 6,572 1,499 6,989 1,340 (1,736) -
CURRENT LIABILITIES Due to Banks(O/D,T/R etc) Trade Creditors Provisions: Other Current Other Op. Cur Liabilities TOTAL CURRENT LIABILITIES 159 5.0 127 4.0 286 8.9 2,006 19.4 1,016 9.9 259 3,281 31.8
TERM LIABILITIES Hire Purchase Loans(1 Year+) Loans from Subs (1 Year+) Loans from Assoc. Co.(1 Year+) Loans from Dir/Shareholders (1 Yr+) TOTAL TERM LIABILITIES TOTAL LIABILITIES EQUITY Share Capital - Ordinary 2,774 86.5 TOTAL EQUITY 2,774 86.5 NET WORTH 2,774 86.5 EFFECTIVE EQUITY 2,774 86.5 TOTAL LIABS & NET WORTH 3,208 100.0 4,578 44.4 4,578 44.4 4,578 44.4 4,578 44.4 10,314 100.0 93 2.9 55 1.7 148 4.6 434 13.5 1,000 9.7 455 4.4 1,000 2,455 23.8 5,736 55.6
STANDARD CHARTERED BANK Petroleum Company (petroleumc) SCB ISIC Code: 3530 6/11/2005 Detailed Profit & Loss Statement - Actual and % Thousands Statement Date Months Covered Analyst Source Currency: INR 3/31/2001 Date Prepared: Page 2
3/31/2002 12 12 Monika Monika Target Currency: INR
PROFIT & LOSS STATEMENT Sales (Net of Returns/Duties) Cost of Sales GROSS PROFIT(LOSS) 16,448 (16,243) 100.0 100,315 (98.8) (99,028) 205 1.2 1,287 1.3 (5) (71) (0.1) (389) (0.4) (1) (247) (0.2) (27) (740) (0.7) 547 0.5 (368) (0.4) 179 0.2 (179) 100.0 (98.7)
ADMIN/OTHER OPERATING EXPENSES Auditors Remuneration (3) Depreciation (46) (0.3) Other Expenses (62) (0.4) Advertising Wages & Salaries (47) (0.3) Employee Benefit (Incl. Pension) Expense (5) Total Admin/Other Operating Expenses (163) (1.0) NET OPERATING PROFIT (LOSS) BEFORE INTEREST & TAXES 42 0.3 Interest Expense NET PROFIT (LOSS) AFTER TAX (27) (0.2) 15 0.1 -
PROFIT (LOSS) DISTRIBUTION Distribution to Benefactors/Partners (15) PROFIT RETAINED -
STANDARD CHARTERED BANK Petroleum Company (petroleumc) SCB ISIC Code: 3530 6/11/2005 Detailed Cash Flow Thousands Statement Date Months Covered Analyst Sales (Net of Returns/Duties) Chg in Trade Debtors (Gross) Cash Collected From Sales Cost of Sales Chg in Stock: Trading Chg in Trade Creditors Cash Paid to Suppliers CASH FROM TRADING ACTIVITIES Auditors Remuneration Advertising Wages & Salaries Employee Benefit (Incl. Pension) Expense Cash Paid for Operating Costs GROSS CASH FROM OPERATIONS Other Expenses Chg in Other Op Current Assets Chg in Other Op. Cur Liabilities Chg in Provisions: Other Current Other Income (Expense) & Taxes Paid NET CASH AFTER OPERATIONS NET CASH AFTER OPERATIONS Interest Expense Distribution to Benefactors/Partners Cash Paid for Dividends & Interest CASH AFTER FINANCING COSTS Current Portion Long Term Debt 3/31/2001 12 Monika 3/31/2002 12 Monika 100,315 (5,605) 94,710 (99,028) (742) 857 (98,913) (4,203) (5) (1) (247) (27) (280) (4,483) (389) (1,548) 259 (127) (1,805) (6,288) (6,288) (368) (179) (547) (6,835) 80 Date Prepared: Page 3
CASH AFTER DEBT AMORTISATION Chg in Plant & Machinery Chg in Motor Vehicles Depreciation Chg in Other Fixed Assets Cash Paid for Plant and Investments FINANCING SURPLUS (REQS) Chg in Due to Banks (O/D, T/R etc) Chg in Long Term Debt Chg in Loans from Subs (1 Year+) Chg in Loans from Assoc. Co. (1 Year+) Chg in Loans from Dir/Shareholders (1 Yr+) Chg in Equity Total External Financing CASH AFTER FINANCING Add: Cash and Bank Deposits ENDING CASH & EQUIVALENTS 1,340 270 (6,835) 2 (283) (71) (352) (352) (7,187) 2,006 (93) 1,000 400 1,000 1,804 6,117 (1,070)
STANDARD CHARTERED BANK Petroleum Company (petroleumc) SCB ISIC Code: 3530 6/11/2005 Detailed Ratios Thousands Statement Date Months Covered Analyst 3/31/2001 12 Monika LIQUIDITY RATIOS Stock Turn Period (Days) 28 Gross Trade Debtor Collection Period (Days) 9 Net Trade Debtor Collection Period (Days) 9 Net Debtor Collection Period (Days) 9 Trade Creditors Pmt Period (Days) 4 Net Cash Cycle Period (Days) 34 Total ST Debt Coverage Cash Coverage (11.50) DEBT MANAGEMENT RATIOS Leverage Ratio Gearing NPBIT: Interest Net Cash after Operations: Interest Interest on Avg. Financial Debt (%) Short Term Debt Long Term Debt PROFITABILITY RATIOS (%) Net Profit Margin Operating Efficiency Return on Equity Return on Assets (Geared) Return on Assets (Un-geared) Gross Profit Margin NPBIT to Sales NPBT to Sales 0.09 0.16 0.03 1.56 7 22 22 22 4 25 (2.65) 3/31/2002 12 Monika Date Prepared: Page 4
1.25 0.44 1.49 (17.09) 29.03 35.06 2,006 93 0.09 0.99 0.54 0.47 1.31 1.25 0.26 0.18 0.74 3.91 1.74 5.30 1.28 0.55
GROWTH RATIOS (%) Sales Growth Net Profit Growth Total Asset Growth Total Liabilities Growth Gross Profit Growth Sustainable Growth OTHER RATIOS Current Ratio 10.59 Liquid Ratio 6.18 Sales: Fixed Assets 91.38 Sales: Total Assets 5.13 Effective Tax Rate Capital Spending Avg. Cap Spending Expected Capital Spending Avg. Expected Cap Spending Def Tax + Tax Payable/Tax Exp (%) N/A Dividend Payout Rate 100.00 Average Tax Rate (%) Other Cur Assets/Tot Cur Assets (%) 0.99 Other Cur Liabilities/Tot Cur Liabilities (%) Other Fixed Assets/Tot Fixed Assets (%) Other Term Liabilities/Tot Term Liabilities (%) Other Income/Net Income Aft Tax (%) Investments/Total Assets (%) Gross Cash Flow less Interest & Dividends (annualized) Free Cash Flow (annualized) 3.00 2.39 217.60 9.73 281 281 989 989 N/A 100.00 16.02 7.89 (4,851) (2,256) 509.89 1,093.33 221.51 1,221.66 527.80 -
STANDARD CHARTERED BANK Petroleum Company (petroleumc) SCB ISIC Code: 3530 6/11/2005 Detailed Ratios Thousands Statement Date Months Covered Analyst 3/31/2001 3/31/2002 12 12 Monika Monika Date Prepared: Page 5
CREDIT GRADING DATA Large Corporate Total Equity Leverage (Total Liabilities to Total Assets) Net Profit Margin Cash to Total Debt Debt to EBITDA EBITDA to Interest - New Net Cash Ratio - New Pre-tax Profitability - New Size Factor (Total Equity) - New Capital Structure - New Liquidity - New Debt Service Coverage (%) - New Cash Flow Ratio 2 (%) - New Middle Market Gearing Ratio Net Profit Margin (%) Cash Ratio (%) Trading Stock Turn Period EBITDA to Interest Cash Flow Ratio Asset Turnover Debt Service Coverage (%) Sale Growth (%) Cash Flow Ratio 2 (%) 2,774 0.14 0.09 1.06 3.26 2,774 0.86 0.66 0.16 4,578 0.56 0.18 (3.13) 3.25 1.68 (1.10) 4,578 0.44 0.12 0.37 (6.13)
0.05 0.43 0.09 0.18 468.53 8.23 28 7 3.26 1.68 N/A (1.48) 5.13 9.73 0.16 0.37 509.89 (6.13)
Channel Finance & Supply Chain Gearing Ratio 0.05 0.43 Stock Turn Period 28 7 Net Profit Margin % 0.09 0.18 Total Tangible Assets 3,208 10,314 Net Worth 2,774 4,578 Productivity % 0.29 0.25 84
STANDARD CHARTERED BANK Petroleum Company (petroleumc) SCB ISIC Code: 3530 6/11/2005 Detailed Ratios Thousands Statement Date 3/31/2001 3/31/2002 Months Covered 12 12 Analyst Monika Monika FINANCIAL SUMMARY FOR BCA FRONT SHEET DATA Total Sales 16,448 100,315 Operating Profit 42 547 Extraordinary Expenses Net Profit after Tax 15 179 EBITDA 88 618 Net Worth 2,774 4,578 Total Debt 93 2,006 Gearing 0.03 0.44 Debt to EBITDA 1.06 3.25 Net Cash After Operations (6,288) CADA (6,835) Contingent Liabilities Total Provision for Employee Benefits (Including Pension) REPAYMENT SOURCE DATA PROFITABILITY Total Sales Gross Profit Net Profit after Tax Change in Sales (%) Gross Profit Margin (%) EBITDA to Sales (%) NPBT to Sales (%) 16,448 205 15 100,315 1,287 179 509.89 1.25 1.28 0.54 0.62 0.09 0.18 Date Prepared: Page 6
NET WORKING CASH CYCLE Stock Turn Period (SDOH) Trade Debtors Period (DDOH) Trade Creditors Period (CDOH) Net Working Cash Cycle Period 28 9 4 34 7 22 4 25 85
DEBT SERVICE CAPACITY Net Cash after Operations Cash after Financing Costs Cash after Debt Amortisation Net Cash after Operations/Interest Financing Surplus/Deficit (6,288) (6,835) (6,835) (17.09) (7,187)
LONG TERM ASSET/LIABILITY MANAGEMENT Net Fixed Assets 180 461 Long-Term Debt+ Equity 2,867 4,578 Sales to Fixed Assets 91.38 217.60 Capex to Depreciation Ratio 3.96 DEBT PROTECTION Gearing Interest Cover Debt to EBITDA EBITDA to Interest Maturing Debt Obligations S/T Maturing Debt Obligations M/T Debt Service Cover Ratio Subordinated Debt Annual Operating Leases Contingent Liabilities 0.03 1.56 1.06 3.26 0.44 1.49 3.25 1.68 2,006 (12.18) -
CAPITAL PROTECTION Tangible Net Worth 2,774 4,578 Revaluation Reserve Total Assets 3,208 10,314 Leverage (Total Liabilities to Total Assets) 0.14 0.56 Dividend Payout Ratio 100.00 100.00
STANDARD CHARTERED BANK Petroleum Company (petroleumc) SCB ISIC Code: 3530 6/11/2005 Financial Summary Ratios Thousands Statement Date Months Covered Analyst Source Currency: INR Target Currency: INR LIQUIDITY Cash After Financing Costs Cash Coverage PROFITABILITY Sales (Net of Returns/Duties) 16,448 100,315 Gross Profit (Loss) 205 1,287 Net Operating Profit (Loss) Before Interest & Tax 42 547 Net Operating Profit (Loss) Before Tax 15 179 Profit Retained CAPITAL STRUCTURE Total Equity Net Worth Total Debt Gearing NPBIT: Interest OTHERS Sales Growth 509.89 Sustainable Growth Net Cash Cycle Period 34 25 Total ST Debt Coverage (2.65) Net Op. Profit before Interest& Taxes/Sales (%) 0.26 0.55 ISIC: Nature of Business 3530 Mining 2,774 2,774 93 0.03 1.56 4,578 4,578 2,006 0.44 1.49 (6,835) (11.50) 3/31/2001 3/31/2002 12 12 Monika Monika Date Prepared: Page 7
Segment Type: Company Account
Analysis of Financial Statements Bajrang Petroleum Company approached Standard Chartered Bank for a loan of Rs.2000000/- for 6 years. As the sale of this company is increasing so the company is in the need of fund. Analysis: If we analyze the P&L a/c of the company. The performance of the company is very impressive as its sale is increased by more than 500%. & Gross profit by more than 600%. Sales Gross Profit PAT : : : Increased by more than 500% Increased by more than 600% Increased by more than 1000%
So we can say that there is a good reputation of the products of the company in the market and due to which its profit & sale are increasing tremendously. It all shows the efficiency of the corporation in the market as it has been able to face the tough competition & increased its profit year by year. There is a drastic increase in the total asset of the company & it has been able to increases it from 3 crore to 10 crore. As the company's capital is also increased from Rs.2759051/- To Rs.4400238/- which helped the company to increase its assets. As the demand in the market is increasing & reputation of Company is also good, the company is funding money into the business on the basis of its sale.
Comment on various ratios : Company's leverage ratio & the gearing are tremendously increased because of the need of the fund. If we parallel look on the ratio of EBIT & Interest of the Company, it is more than 1.5 even after taking lots of debt from the outside. It all shows that as
funds were increased, Production Increased, then Sales Increased, then finally Net Profit increased. So if the profit increased with the increase in the interest expenses then the ratio of EBIT & Interest remained more than one. Company is performing so well in the market that its sales / total assets ratio is increased from 91% to 217%. It all shows the utilization of assets in a more efficient way. If we see the position on the current ratio of the company, the ratio has been decreased from 10.59 to 3.00 which is favorable to this. 2:1 is considered to be a removable one. In 2003 ratio 10.59 was very high which shows that lots of funds of a company are locked into the stocks, debtors etc. This all has an effect on the operations of the firm. I f we look to the debtors collection period of the corporation. Then it increased from 9 days to 22 days with the tremendous increases in the sale. The reason for this could be that corporation might have given the more credit facility to their in order to increases the sales of the corporation. As it is clear from the statements that sale is increased by more than 500%. The effect of this increase is that stock turn over period of the company is decreased from 28 days to 7 days which is a good sign of the company. The all over impact of this is that cash conversion cycle of the corporation is decreased from 34 days to 25 days which increases the profitability of the corporation. Because if this period increases then the corporation's need for external financing will be increase which will carry some cost. Cash Conversion Cycle = Inventory turnover days + Debtors turnover days - Creditors payment period 25 = 7 + 22 - 4
The Gearing Ratio of the company is 0.02% for the financial year 2000-01, 0.80% For 2002-03 ,Which is less than 3 and the Interest coverage ratio is 1.56 ,1.49, 2.72 for financials years 200001, 2001-02, 2002-03 respectively. If we comment on the other ratios of the company, there is improvement almost most of the assets. Net profit margin of the company is increased from 0.09 to 0.18 which increases the sale of the company.
OVERALL ANALYSIS If we do the overall analysis of the company then we can say that the demand for the products in the market is rising year by year due to which the company is also able to increase its debt. The company is so efficient that it liberalized its credit policy which increased its debtor's turnover period and also helped to increase its sale to more than 50%. Management of the company is also very efficient and the company is having the experience in the same business for more than 5 years. There is also the stability of the business of the company. So after taking into consideration all these factors we can say that the bank can sanction the loan of Rs.20 lacks to the firm @ not more than 13%. If we look towards the EBITD of the company for the last 2 years then we find that there is an increase of more than 1000% or ten times. If we see the record of the last 3 years, the company is also able to maintain EBITD/interest ratio of more than 1. It shows that for every Rs.1 interest liability, the company has enough cash to repay. So after looking on all the sides of the company, we can say that if the company grows with the same pace or even at a slightly lower pace, the company will be able to pay the interest installments of Rs.2,60,000 [Rs.2,00,[email protected]
13%] easily because its EBITD is more than Rs.5 lacs last year. So the bank can sanction the loan of Rs.20 [email protected]
RANJIT METALS INDUSTRIES [Type text] Page 107
Balance Sheet As At 31st March 2001 Liabilities Amount Assets Rs. P. Sh. Kamal jain Capital A/C 3956226.21 Fixed Assets (As per annexure ‘F’ attached) Secured Loans The Federal Bank Ltd ICICI Bank Ltd City Bank Loan Unsecured Loans (As per annexure ‘A’ enclosed) Current Liabilities & Provisions Sundry Creditors (As per annexure ‘B’ enclosed) 10085752.53 180270.13 233263.72 1389782.00 Security Deposit With DVB Deposit With Excise Dept. Sales Tex Deposit Security Deposit - Rent Current Assets, Loans & Adv. Sundry Debtors (As per annexure ‘G’ enclosed) 2939488.20 Other Creditors (As per annexure ‘C’ enclosed) Expenses Payable (As per annexure ‘D’ enclosed) 4816896.80 92222.00 Stock in Hand Loans & Advances Loans & Advances (As per annexure ‘H’ enclosed) Interest Accrued on FDR Modvat Credit Recoverable TDS Bank Interest Cash & Bank Balances Cash in hand Bank STDR- The Federal Bank Ltd 11762925.00 352133.15 Amount Rs. P. 707918.35
105704.00 1254.80 42481.54 45000.00 9633116.03
100998.00 769115.10 8494.00 5062.24 1134659.00 24668860.49
Other Current Liabilities (As per annexure ‘E’ enclosed)
RANJIT METALS INDUSTRIES [Type text] Page 108
Trading and Profit & Loss Account For the year ended 31-05-2001 Particulars Amount Particulars Rs. P. To Opening Stock 11670777.00 By Sales To Purchase 54117622.18 By Closing Stock To Gross Profit C/D 3887797.82 69676197.00 To Accountancy Charges 55000.00 By Gross Profit B/D To Audit Fees 5400.00 By Other Income To Bank Charges 150909.05 To Business Promotion 75804.70 To Charity & Donation 13130.00 To Commission On Cons. Sale 340542.78 To Depreciation A/C 176906.65 To Electricity & Water Expenses 107163.00 To Freight & Other Expenses 263912.92 To General Expenses 51029.68 To insurance 45942.00 To interest 1600345.56 To Legal & Professional Charges 20400.00 To Mobile & Telephone Expenses. 144915.32 To Office Repair & Maintenance 35775.00 To printing & Stationery 2234.00 To Rent 90000.00 To Salary 543000.00 To Security Services Charges 11910.00 To Subscription & Memberships 3300.00 To traveling Expenses. 115019.19 To Vehicle Repair & Maintenance 42515.02 To Net Profit 189783.79 (Transferred in Prop. Capital A/C) 4084939.11
Amount Rs. P. 57913272.00 11762925.00 69676197.00 3887797.82 197141.29
RANJIT METALS INDUSTRIES Balance Sheet As At 31st March 2002 [Type text] Page 109
Liabilities Sh. Kamal jain Capital A/C Less: Drawing 3932552.21 73006.00 Amount Rs. P. Assets Fixed Assets (As per annexure ‘F’ attached) Amount Rs. P. 565408.3
Add: Net Profit for the year 3859546.21 191289.26 Secured Loans The Federal Bank Ltd ICICI Bank Ltd 8623907.09 60726.35 4050835.47 Security Deposit Deposit With DVB Deposit With Excise Dept. Sales Tex Deposit Unsecured Loans (As per annexure ‘A’ enclosed) Current Liabilities & Provisions Sundry Creditors (As per annexure ‘B’ enclosed) 8684633.44 1345782.00 Security Deposit Rent Current Assets, Loans & Adv. Sundry Debtors Stock in Hand Loans & Advances Loans & Advances (As per annexure ‘H’ enclosed) Interest Accrued on FDR Modvat Credit Recoverable TDS Bank Interest Cash & Bank Balances Cash in hand Bank STDR- The Federal Bank Ltd
105704.00 1254.00 42481.50 45000.00 12764911.36
10663371.15 Other Creditors (As per annexure ‘C’ enclosed) Other Current Liabilities (As per annexure ‘E’ enclosed) 221615.59
9503775.00 979945.25 194213.00 544031.41
1056322.95 Provision & Expenses Payable (As Per annexure ‘E’ enclosed) 316655.64 26339216.24 26339216.24
10360.00 214920.28 1367212.00 26339216.24
RANJIT METALS INDUSTRIES Trading and Profit & Loss Account For the year ended 31-05-2002
Particulars To Opening Stock To Purchase To Gross Profit C/D To Accountancy Charges To Audit Fees To Bank Charges To Business Promotion Expenses. To Commission On Cons. Sale To Conveyance To Depreciation To Diwali Expenses. To Electricity & Water Expenses To Fees & Taxes To Freight & Other Expenses To General Expenses To interest To Legal & Professional Charges To Medical Expenses To Mobile & Telephone Expenses. To News Paper & Periodicals To Office Repair & Maintenance To printing & Stationery To Rent To Salary To Staff Welfare To Vehicle Repair & Maintenance To Traveling Expenses To Loss on Con. Sale To Net Profit (Transferred in Prop. Capital A/C) Amount Rs. P. 11762925.00 61286905.80 3796796.00 76846627.30 79000.00 6600.00 85826.00 32589.05 329657.38 206700.00 142510.03 47000.00 159139.00 54218.00 296507.00 15795.97 1082356.67 10000.00 1102.00 164816.96 149.00 47050.00 23181.00 90000.00 576000.00 576450.00 20900.00 40524.71 104966.59 30692.84 191289.26 3906721.46 Particulars By Sales By Closing Stock Amount Rs. P. 67342852.30 9503775.00 76846627.30 3796796.46 109925.00
By Gross Profit B/D By Other Income
To Legal & Professional Charges 3906721.46
Projected Balance Sheet:STANDARD CHARTERED BANK METAL COMPANY (METALCOMPA) SCB ISIC Code: 3710 [Type text] Date Page 111
Prepared: 6/11/2005 Detailed Balance Sheet - Actual and % Page 1 Thousands Statement Date Months Covered Audit Method Analyst Source Currency: INR 3/31/2003 12 3/31/2004 12 Unqualif'd
Unqualif'd Auditor Monika Monika Target Currency: INR Segment Type: Consolidated Accounts CURRENT ASSETS
Cash and Bank Deposits Trade Debtors (Gross) Stock: Trading Other Op Current Assets Other Non-Op. Current Assets TOTAL CURRENT ASSETS
1,140 4.6 1,582 6.0 9,633 39.1 12,764 48.5 11,763 47.7 9,504 36.1 1,230 5.0 1,730 6.6 194 0.8 194 0.7 23,960 97.1 25,774 97.9
FIXED ASSETS Loose Plant/Furniture/Fittings Motor Vehicles Gross Fixed Assets TOTAL FIXED ASSETS TOTAL TANGIBLE ASSETS WORKING CAPITAL NET WORKING ASSETS NET CASH ASSETS 0.1 18 0.1 2.8 547 2.1 2.9 565 2.1 708 2.9 565 2.1 24,668 100.0 26,339 100.0 684 708 5,051 16,579 (8,946) 4,893 11,605 (7,042) 24
CURRENT LIABILITIES Due to Banks (O/D, T/R etc) 10,086 40.9 8,624 32.7 Trade Creditors 4,817 19.5 10,663 40.5 Creditors: Sundry 2,940 11.9 221 0.8 Provisions: Other Current 92 0.4 317 1.2 Other Op. Cur Liabilities 974 3.9 1,056 4.0 TOTAL CURRENT LIABILITIES 18,909 76.7 20,881 79.3 TERM LIABILITIES Hire Purchase Loans (1 Year+) 413 1.7 61 0.2 Loans from Assoc. Cos. (1 Year+) 1,390 5.6 1,346 5.1 TOTAL TERM LIABILITIES 1,803 7.3 1,407 5.3 TOTAL LIABILITIES 20,712 84.0 22,288 84.6 EQUITY [Type text] Page 112
Share Capital - Ordinary TOTAL EQUITY NET WORTH EFFECTIVE EQUITY TOTAL LIABS & NET WORTH 3,956 16.0 4,051 15.4 3,956 16.0 4,051 15.4 3,956 16.0 4,051 15.4 3,956 16.0 4,051 15.4 24,668 100.0 26,339 100.0
STANDARD CHARTERED BANK METAL COMPANY (METALCOMPA) SCB ISIC Code: 3710 6/11/2005 Detailed Profit & Loss Statement - Actual and % Thousands Statement Date Months Covered Audit Method 3/31/2003 12 3/31/2004 12 Unqualif'd
Date Prepared: Page 2
Unqualif'd Auditor Analyst Monika Monika Source Currency: INR Target Currency: INR
PROFIT & LOSS STATEMENT Sales (Net of Returns/Duties) 57,913 100.0 67,343 Cost of Sales (54,025) (93.3) (63,546) GROSS PROFIT (LOSS) FROM TRADING 3,888 6.7 OTHER OPERATING INCOME Other Operating Income 197 0.3 GROSS PROFIT (LOSS) 4,085 7.1 3,797 5.6 110 0.2 3,907 5.8
ADMIN/OTHER OPERATING EXPENSES Auditors Remuneration (5) (7) Depreciation (177) (0.3) (143) (0.2) Other Expenses (1,570)(2.7) (1,822)(2.7) Wages & Salaries (543) (0.9) (576) (0.9) Financial Expenses (86) (0.1) Total Admin/Other Operating Expenses (2,295) (4.0) (2,634)(3.9) NET OPERATING PROFIT (LOSS) BEFORE INTEREST & TAXES 1,790 3.1 1,273 1.9 Interest Expense NET PROFIT (LOSS) AFTER TAX (1,600)(2.8) (1,082)(1.6) 190 0.3 191 (191) 0.3
PROFIT (LOSS) DISTRIBUTION Distribution to Benefactors/Partners (190) PROFIT RETAINED -
STANDARD CHARTERED BANK METAL COMPANY (METALCOMPA) SCB ISIC Code: 3710 6/11/2005 Detailed Cash Flow Thousands Statement Date Months Covered Analyst Sales (Net of Returns/Duties) Chg in Trade Debtors (Gross) Cash Collected From Sales Cost of Sales Chg in Stock: Trading Chg in Trade Creditors Cash Paid to Suppliers CASH FROM TRADING ACTIVITIES Auditors Remuneration Wages & Salaries Financial Expenses Cash Paid for Operating Costs GROSS CASH FROM OPERATIONS Other Operating Income Other Expenses Chg in Creditors: Sundry Chg in Other Op Current Assets Chg in Other Op. Cur Liabilities Chg in Provisions: Other Current Other Income (Expense) & Taxes Paid NET CASH AFTER OPERATIONS NET CASH AFTER OPERATIONS Interest Expense Distribution to Benefactors/Partners Cash Paid for Dividends & Interest CASH AFTER FINANCING COSTS 3/31/2003 3/31/2004 12 12 Monika Monika 67,343 (3,131) 64,212 (63,546) 2,259 5,846 (55,441) 8,771 (7) (576) (86) (669) 8,102 110 (1,822) (2,719) (500) 82 225 (4,624) 3,478 3,478 (1,082) (191) (1,273) 2,205
Date Prepared: Page 3
Current Portion Long Term Debt CASH AFTER DEBT AMORTISATION Chg in Loose Plant/Furniture/Fittings Chg in Motor Vehicles Depreciation FINANCING SURPLUS (REQS) Chg in Due to Banks (O/D, T/R etc) Chg in Long Term Debt Chg in Loans from Assoc. Co. (1 Year+) Chg in Equity Total External Financing CASH AFTER FINANCING Add: Cash and Bank Deposits ENDING CASH & EQUIVALENTS 2,205 6 137 (143) 2,205 (1,462) (352) (44) 95 (1,763) 442 1,140 1,582
STANDARD CHARTERED BANK METAL COMPANY (METALCOMPA) SCB ISIC Code: 3710 Prepared: 6/11/2005 Detailed Ratios Thousands Statement Date Months Covered Analyst 3/31/2003 3/31/2004 12 12 Monika Monika Date Page 4
LIQUIDITY RATIOS Stock Turn Period (Days) Gross Trade Debtor Collection Period (Days) Net Trade Debtor Collection Period (Days) Net Debtor Collection Period (Days) Trade Creditors Pmt Period (Days) Net Cash Cycle Period (Days) Total ST Debt Coverage Cash Coverage 79 61 61 61 33 108 55 69 69 69 61 63 0.36 2.73
DEBT MANAGEMENT RATIOS Leverage Ratio 5.24 5.50 Gearing 2.65 2.14 NPBIT: Interest 1.12 1.18 Net Cash after Operations: Interest 3.21 Interest on Avg. Financial Debt (%) 15.24 11.28 Short Term Debt 10,086 8,624 Long Term Debt 413 61 PROFITABILITY RATIOS (%) Net Profit Margin Operating Efficiency Return on Equity Return on Assets (Geared) Return on Assets (Un-geared) Gross Profit Margin NPBIT to Sales NPBT to Sales 0.33 3.96 4.80 0.77 7.26 6.71 3.09 0.33 0.28 3.91 4.71 0.73 4.83 5.64 1.89 0.28
GROWTH RATIOS (%) Sales Growth Net Profit Growth Total Asset Growth Total Liabilities Growth Gross Profit Growth Sustainable Growth OTHER RATIOS Current Ratio 1.27 Liquid Ratio 0.65 Sales: Fixed Assets 81.80 Sales: Total Assets 2.35 Effective Tax Rate Capital Spending Avg. Capital Spending Expected Capital Spending Avg. Expected Capital Spending Def Tax + Tax Payable/Tax Exp (%) N/A Dividend Payout Rate 100.00 Average Tax Rate (%) Other Cur Assets/Tot Cur Assets (%) 5.94 Other Cur Liabilities/Tot Cur Liabilities (%) 5.15 Other Fixed Assets/Tot Fixed Assets (%) Other Term Liabilities/Tot Term Liabilities (%) Other Income/Net Income Aft Tax (%) 103.68 Investments/Total Assets (%) Gross Cash Flow less Interest & Dividends (annualized) Free Cash Flow (annualized) 1.23 0.78 119.19 2.56 (143) 258 258 N/A 100.00 7.46 5.06 57.59 7,020 1,763 16.28 0.53 6.77 7.61 (2.34) -
STANDARD CHARTERED BANK METAL COMPANY (METALCOMPA) SCB ISIC Code: 3710 6/11/2005 Detailed Ratios Thousands Statement Date Months Covered Analyst 3/31/2003 12 Monika 3/31/2004 12 Monika
Date Prepared: Page 5
CREDIT GRADING DATA Large Corporate Total Equity Leverage (Total Liabilities to Total Assets) Net Profit Margin Cash to Total Debt Debt to EBITDA EBITDA to Interest - New Net Cash Ratio - New Pre-tax Profitability - New Size Factor (Total Equity) - New Capital Structure - New Liquidity - New Debt Service Coverage (%) - New Cash Flow Ratio 2 (%) - New Middle Market Gearing Ratio Net Profit Margin (%) Cash Ratio (%) Trading Stock Turn Period EBITDA to Interest Cash Flow Ratio Asset Turnover Debt Service Coverage(%) Sale Growth (%) Cash Flow Ratio 2 (%) 0.48 0.33 6.03 79 1.23 N/A 2.35 2.76 0.38 0.28 7.58 55 1.31 0.34 2.56 1.61 16.28 1.63 0.38 55 0.28 Page 119 3,956 0.84 0.33 5.34 1.23 3,956 0.16 0.03 2.76 4,051 0.85 0.28 0.40 6.13 1.31 0.16 4,051 0.15 0.04 1.61 1.63
Channel Finance & Supply Chain Gearing Ratio 0.48 Stock Turn Period 79 Net Profit Margin % 0.33 [Type text]
Total Tangible Assets Net Worth Productivity % 24,668 26,339 3,956 4,051 0.94 0.86 Date Prepared: Page 6
STANDARD CHARTERED BANK METAL COMPANY (METALCOMPA) SCB ISIC Code: 3710 6/11/2005 Detailed Ratios Thousands Statement Date 3/31/2003 3/31/2004 Months Covered 12 12 Analyst Monika Monika FINANCIAL SUMMARY FOR BCA FRONT SHEET DATA Total Sales 57,913 67,343 Operating Profit 1,790 1,273 Extraordinary Expenses Net Profit after Tax 190 191 EBITDA 1,967 1,416 Net Worth 3,956 4,051 Total Debt 10,499 8,685 Gearing 2.65 2.14 Debt to EBITDA 5.34 6.13 Net Cash After Operations 3,478 CADA 2,205 Contingent Liabilities Total Provision for Employee Benefits (Including Pension) REPAYMENT SOURCE DATA PROFITABILITY Total Sales Gross Profit Net Profit after Tax Change in Sales (%) Gross Profit Margin (%) EBITDA to Sales (%) NPBT to Sales (%) 57,913 67,343 4,085 3,907 190 191 16.28 6.71 5.64 3.40 2.10 0.33 0.28
NET WORKING CASH CYCLE Stock Turn Period (SDOH) Trade Debtors Period (DDOH) [Type text] 79 61 55 69 Page 120
Trade Creditors Period (CDOH) Net Working Cash Cycle Period DEBT SERVICE CAPACITY Net Cash After Operations Cash After Financing Costs Cash After Debt Amortisation Net Cash After Operations/Interest Financing Surplus/Deficit 3,478 2,205 2,205 3.21 2,205 33 108 61 63
LONG TERM ASSET/LIABILITY MANAGEMENT Net Fixed Assets Long-Term Debt+ Equity Sales to Fixed Assets Capex to Depreciation Ratio DEBT PROTECTION Gearing Interest Cover Debt to EBITDA EBITDA to Interest Maturing Debt Obligations S/T Maturing Debt Obligations M/T Debt Service Cover Ratio Subordinated Debt Annual Operating Leases 2.65 2.14 1.12 1.18 5.34 6.13 1.23 1.31 10,086 8,624 7.49 708 565 4,369 4,112 81.80 119.19 (1.00)
Contingent Liabilities CAPITAL PROTECTION Tangible Net Worth Revaluation Reserve Total Assets Leverage (Total Liabilities to Total Assets) Dividend Payout Ratio
3,956 4,051 24,668 26,339 0.84 0.85 100.00 100.00
STANDARD CHARTERED BANK METAL COMPANY (METALCOMPA) SCB ISIC Code: 3710 6/11/2005 Financial Summary Ratios Thousands Statement Date Months Covered Analyst Source Currency: INR Target Currency: INR LIQUIDITY Cash After Financing Costs Cash Coverage PROFITABILITY Sales (Net of Returns/Duties) 57,913 67,343 Gross Profit (Loss) 4,085 3,907 Net Oper Profit (Loss) Before Interest & Tax 1,790 1,273 Net Oper Profit (Loss) Before Tax 190 191 Profit Retained CAPITAL STRUCTURE Total Equity Net Worth Total Debt Gearing NPBIT: Interest OTHERS Sales Growth 16.28 Sustainable Growth Net Cash Cycle Period 108 63 Total ST Debt Coverage 0.36 Net Oper Profit before Interest &Taxes/Sales (%) 3.09 1.89 ISIC: 3710 3,956 4,051 3,956 4,051 10,499 8,685 2.65 2.14 1.12 1.18 2,205 2.73 3/31/2003 12
Date Prepared: Page 7
3/31/2004 12 Monika Monika Segment Type: Consolidated Accounts
Nature of Business Manufacturing Please see the Financial Summary Text report on the Consultant tab for more summary information.
Analysis of Ranjit Metal Industries Ranjit Metal Industry approached Standard Chartered Bank for a loan of Rs.50 lacks for 7 years. 1) The P&L a/c of the company for the 2 years shows the increase in the sales % the gross profit is decreased due to the increase in COGS could be increased the cost of the goods Due to because of the increase in the prices of the the but sold.
labour, raw material or any other input item in the market. the reduction on the gross profit.
competitive environment the company couldn't increase the selling prices which result in
2) The gross profit of the company is decreased but finally the company is able to increase the net profit. If we analyze properly then we will find that the company internal expenses are company in able to repay a part of its has saved around Rs.6 lacks from the interest item. The company's decreased by around Rs.6 lacks which means that the debts. 3) From the analysis of the P&L and balance sheet we can say that the sales of company are increased during the year because of the increasing in the metal in the country. The impact of this is directly seen liquidity position. the demand of the balance
sheet as the debtors are increased. Company is also able
to increase its
COMMENTS ON THE VARIOUS RATIOS 1) The Gearing ratio of the company is increased which is a good indicator that company's dependence on the outsider's liabilities has been decreased. selling from 79 of the the
2) Due to the increasing demand in the market and the company's aggressive strategies company. material helped the company a lot to decrease its stock turn period days to 55 days which is a good indicator of the bright future company is saving 24 days in order to sale. This factor also plays the increase in the sales.
It shows that the
process the raw
to finished goods to
a very important role in
3) Company is able to increase net profit margin from 0.32% to 0.28% due to the increase in the cost of goods sold and some increase in the operating expenses. 4) If we analyze some other ratios of the company then we can say that the ratios of the company are also improved from 2003 to 2004. Like EBITD to interest ratio is increased from 1.23 to 1.31 which shows that the company's ability to pay the interest is increased.This ratio shows that for the every Re.1 interest company has Re. 1.31 to pay that interest. Company is also able to increase its tangible assets and net worth also as shown in the balance sheet of the company. Company is also able to improve its cash cycle period from 108 days to 63 days, which is also a good indicator. This helped the company to improve its profits because the longer the cash conversion cycle, the greater the need for external financing and that financing has a cost.
Increment of creditor paid period
is also a good sign as the company can use this credit
facility in a productive manner.
In the overall analysis of the company, on the basis of the weighted score of the company, 56.9(financial score+ non financial score), it is eligible for the loan. If the bank allowed the company a loan of Rs.50 lacks @ 13%, then we can analyze that the company will easily be able to repay the interest of Rs.6, 50,000 per year. Because the company's EBITD of the last two years is more than Rs.13 lacks. As the company is in the same business for the last 8 years, industry segment prospects are stable and the management of the company is also with good talent. In this case we can the increasing graph of the company in the future. Company is also having a strong competitive advantage and the demand for the metal products is increasing in the future. The Gearing Ratio of the company is 0.3% for the financial year 2000-01, 0.02% For 2002-03 ,Which is less than 3 and the Interest coverage ratio is 1.07 ,2.86, 5.24 for financials years 2000-01, 2001-02, 2002-03 respectively. then we can conclude that overall position of the company is good and we can sanction the loan to the company.
Western Indian motors Balance Sheet As on 31st March 2001 Liabilities Partners* capital Account Partners* Current Account Secured Loans F.C.Y Amount (Rs) 52,65,000.00 16,33,864.32 16,67,747.87 Assets Fixed Assets Investments Current Assets , loans, & Advances A. Current Assets 1. Inventories Stock in Trade (As valued & Certified By the partners) 2. Sundry Debtors 3. Cash & Bank Balances 1. Cash in Hand(Including Cheques in hand Rs. 1010681.24) 2. Balance with Schedule Banks in 1. In Current a/c 2. Fixed Deposits (Including Accrued interest) B. Loans & Advances 1. Advances recoverable in cash or in Kind or for which value to be Recovered 2. Security Deposits F.C.Y Amount(rs.) 89,90,948.48 Nil
103,69,466.7 0 61,84,625.02 10,46,044.21 9,39,23.68 9,27,044.00 21,27,911.21 2,71,477.00
12,05,952.91 Unsecured Loans From Relative & Friends Current Liabilities & Provisions (A) Current Liabilities 1. Sundry Creditors (a) For Goods Supplied (b) For Others 2. Advance payments for which value has still to be given 3. Other Liabilities (B) Provisions
46,81,383.38 119,57,240.5 1 37,38,028.62 7,07,513.69 Nil
( Total RS) 308,56,731.0 0 ( Total RS ) 308,56,731.0 0
Western Indian Motors Company Profit And Loss A/C for Year ended on 31st March 2001 Particulars To salaries & wages Management STORES Siemens Deptt. Work Shop Work shop mag. To Advertisement & Publicity To Bank Charges & commission To Bonus To Charity & donation To Claims To Demonstration And Car Expenses To Electricity Charges To contribution to Employees Family pension fund To Contribution to ESI To Contribution to link deposit assurance To Employees Gratuity To General trade expenses To Interest charges To Legal & professional Charges To News paper & periodical To Office Vehicle & Expenses To Printing & stationary To postage and Telegram To Rent And House tax To Insurance & Subscription & taxes To Railway Freight & Octopi To Staff welfare & expenses [Type text] Amount 2387285.40 Particulars By Gross profit Ltd. from trading Account By work shop service By rent receipt By commission By incentive receipt 400839.50 56531.15.00 269294.00 8700.00 13311.25 46666.26 405522.00 103967.00 152341.00 9949.00 69736.00 29427.05 883158.00 57506.00 4321.00 52122.00 177453.00 24043.00 37389.00 132532.00 257485.00 55851.00 Page 132 Amount 5469165.37 445669.00 441600.00 3412563.00 NIL
To telephone and trunk call To traveling and conveyance To computer accounting charges To computer services charges To depreciation To bad debts To sales promotion expenses To sales campaign expenses To hire purchase charges To sales incentive To turn over tax To profit c/d Total 733901.00 395559.50 18000.00 49240.00 831985.00 349437.02 96152.80 95543.05 10658.00 40,000.00 90,000.00 13,31,597.02 97,68,998.06
Western Indian motors Balance Sheet As on 31st March 2002 Liabilities Partners* capital Account Partners* Current Account Secured Loans [Type text] F.C.Y Amount (Rs) 52,65,000.00 13,21,548.18 86,62,873.93 Assets Fixed Assets Investments Current Assets , loans, & Advances F.C.Y Amount (Rs.) 96,84,227.48 Nil
1,11,95,544.57 Page 133
A. Current Assets 1. Inventories Stock in Trade (As valued & Certified By the partners) 2. Sundry Debtors 3. Cash & Bank Balances 1. Cash in Hand(Including Cheques in hand Rs. 1010681.24) 2. Balance with Schedule Banks in 1. In Current a/c 2. Fixed Deposits (Including Accrued interest) B. Loans & Advances 1. Advances recoverable in cash or in Kind or for which value to be Recovered 2. Security Deposits 11,14,123.76 Unsecured Loans From Relative & Friends Current Liabilities & Provisions (A) Current Liabilities 1. Sundry Creditors (a) For Goods Supplied (b) For Others 2. Advance payments for which value has still to be given 3. Other Liabilities (B) Provisions ( Total RS) 4,76,60,334.98 ( Total RS ) 4,76,60,334.98
1,78,56,538.63 7,64,287.57 3,96,416.28 21,59,266.00 23,38,313.45 2,65,741.00
142,44,595.26 116,13,336.24 34,95,656.26 19,43,200.98 Nil
Western Indian motors Company Profit And Loss A/C for Year ended on 31st March 2002
Particulars To salaries & wages [Type text]
Particulars By Gross profit Ltd. from
Amount(Rs.) 44,28,670.00 Page 134
Management STORES Siemens Deptt. Work Shop Work shop mag. To Advertisement & Publicity To Bank Charges & commission To Bonus To Charity & Donation To Claims To Demonstration And Car Expenses To Electricity Charges To contribution to Employees Family pension fund To Contribution to ESI To Contribution to link deposit assurance To Employees Gratuity To General trade expenses To Interest charges To Legal & professional Charges To News paper & periodical To Office Vehicle & Expenses To Printing & stationary To postage and Telegram To Rent And House tax To Insurance & Subscription & taxes To Railway Freight & Octopi To Staff welfare & expenses To telephone and trunk call To traveling and conveyance To computer accounting charges To computer services charges To depreciation To bad debts To sales promotion expenses To sales campaign expenses To hire purchase charges To sales incentive To turn over tax [Type text] trading Account By work shop service By rent receipt By commission By incentive receipt 2570179.90 167245.00 72513.00 278035.00 4100.00 9945.00 48066.00 338316.00 114397.00 166924.00 94695.00 10951.00 Nil 8379.35 91940.00 3,658.00 53240.00 131636.00 16976.00 38832.00 127047.00 154312.00 27185.00 154312.00 27185.00 584891.64 341789.00 18000.00 18230.00 783227.00 NIL 106050.00 10798.00 49,500.00 Page 135 5,23,800.00 4,41,600.00 15,17,645.15 17,70,173.70
To profit c/d Total 16,81,676.14 86,81,409.77 Total 86,81,409.77
Western Indian motors Balance Sheet As on 31st March 2003 Liabilities Partners* capital Account Partners* Current Account Secured Loans F.C.Y Amount (Rs) 53,65,000.00 13521,548.18 78,62,873.93 Assets Fixed Assets Investments Current Assets , loans, & Advances A. Current Assets 1. Inventories Stock in Trade (As valued & Certified By the partners) 2. Sundry Debtors 3. Cash & Bank Balances 1. Cash in Hand(Including Cheques in hand Rs. 1010681.24) 2. Balance with Schedule Banks in 1. In Current a/c 2. Fixed Deposits (Including Accrued interest) B. Loans & Advances 1. Advances recoverable in cash or in Kind or for which value to be Recovered 2. Security Deposits F.C.Y Amount (Rs.) 106,84,227.48 Nil
199,95,544.57 1,3,56,538.63 8,64,287.57 5,96,416.28 33,59,266.00 34,38,313.45 346,741.00 Page 136
Unsecured Loans From Relative & Friends Current Liabilities & Provisions (A) Current Liabilities 1. Sundry Creditors (a) For Goods Supplied (b) For Others 2. Advance payments for which value has still to be given 3. Other Liabilities (B) Provisions ( Total RS) 4,12,65,339.1 2 ( Total RS ) 4,12,65,339.12 10,14,123.76
123,44,595.26 111,13,336.24 3195,656.26 17,43,200.98 Nil
Profit And Loss A/C for Year ended on 31st March 2003
Particulars To salaries & wages Management STORES Siemens Deptt. Work Shop Work shop mag. To Advertisement & Publicity To Bank Charges & commission To Bonus To Charity & Donation To Claims To Demonstration And Car Expenses To Electricity Charges To contribution to Employees Family pension fund To Contribution to ESI To Contribution to link deposit assurance [Type text]
Particulars By Gross profit Ltd. from trading Account By work shop service By rent receipt By commission By incentive receipt
Amount(Rs.) 43,28,670.00 432,800.00 341,600.00 110,645.15 1223,173.70
2470179.90 117245.00 34513.00 258035.00 4400.00 10045.00 46066.00 367316.00 124397.00 145924.00 96795.00 Page 137
To Employees Gratuity To General trade expenses To Interest charges To Legal & professional Charges To News paper & periodical To Office Vehicle & Expenses To Printing & stationary To postage and Telegram To Rent And House tax To Insurance & Subscription & taxes To Railway Freight & Octopi To Staff welfare & expenses To telephone and trunk call To traveling and conveyance To computer accounting charges To computer services charges To depreciation To bad debts To sales promotion expenses To sales campaign expenses To hire purchase charges To sales incentive To turn over tax To profit c/d 11151.00 Nil 8339.35 92340.00 3,758.00 53233.00 133336.00 16922.00 38552.00 134047.00 144312.00 33185.00 133312.00 24485.00 584891.64 241789.00 19000.00 12430.00 789227.00 NIL 104450.00 10888.00 50000.00 1141,676.14
STANDARD CHARTERED BANK Western Indian state motors (westernInd) SCB ISIC Code: 7114 6/11/2005 Detailed Balance Sheet - Actual and % Thousands Statement Date Months Covered Analyst Source Currency: INR 3/31/2002 12 3/31/2003 12 3/31/2004 12
Date Prepared: Page 1
Monika Monika Monika Target Currency: INR Segment Type: Other
CURRENT ASSETS Cash and Bank Deposits 5,134 10.0 3,320 7.0 2,912 9.4 Trade Debtors (Gross) 14,677 28.5 17,857 37.5 6,185 20.0 Stock: Trading 19,720 38.3 14,196 29.8 10,369 Other Op Current Assets 2,056 4.0 2,604 5.5 2,399 TOTAL CURRENT ASSETS 41,587 80.8 37,977 79.7 21,865 FIXED ASSETS Motor Vehicles 9,870 19.2 9,684 20.3 8,991 TOTAL FIXED ASSETS 9,870 19.2 9,684 20.3 8,991 29.1 TOTAL TANGIBLE ASSETS 51,457 100.0 47,661 100.0 30,856 100.0 WORKING CAPITAL NET WORKING ASSETS NET CASH ASSETS (1,873) 20,651 (2,965) (1,983) 17,808 (5,343) (886) 11,873 1,245 -
33.6 7.8 70.9
CURRENT LIABILITIES Due to Banks (O/D,T/R etc) 7,959 15.5 8,663 18.2 1,667 5.4 Curr. Mat. Hire Purchase Commit 140 0.3 Trade Creditors 13,746 26.7 14,245 29.9 4,681 15.2 Creditors: Sundry 13,556 26.3 11,613 24.4 11,957 Other Op. Cur Liabilities 8,059 15.7 5,439 11.4 4,446 TOTAL CURRENT LIABILITIES 43,460 84.5 39,960 83.8 22,751
38.8 14.4 73.7
TERM LIABILITIES Loans from Dir/Shareholders (1 Yr+) 2,100 4.1 1,114 2.3 3.9 TOTAL TERM LIABILITIES 2,100 4.1 1,114 2.3 1,206 3.9 TOTAL LIABILITIES 45,560 88.5 41,074 86.2 23,957 EQUITY Share Capital - Ordinary 5,897 11.5 6,587 13.8 6,899 TOTAL EQUITY 5,897 11.5 6,587 13.8 6,899 22.4 NET WORTH 5,897 11.5 6,587 13.8 6,899 22.4 EFFECTIVE EQUITY 5,897 11.5 6,587 13.8 6,899 22.4 TOTAL LIABS & NET WORTH 51,457 100.0 47,661 100.0 30,856 100.0 22.4 1,206 77.6
STANDARD CHARTERED BANK Western Indian state motors (westernInd) SCB ISIC Code: 7114 6/11/2005 Detailed Profit & Loss Statement - Actual and % Thousands Statement Date Months Covered Analyst Monika Source Currency: INR 3/31/2002 12 3/31/2003 12 Monika Target Currency: INR 3/31/2004 12 Monika Date Prepared: Page 2
PROFIT & LOSS STATEMENT Sales (Net of Returns/Duties) Cost of Sales FROM TRADING 211,461 (205,386) 100.0 193,862 (97.1) (188,393) 100.0 (97.2) 100,872 (96,444) 4,428 4.4 1.5 0.4 2,294 4.2 100.0 (95.6)
GROSS PROFIT (LOSS) 6,075 2.9 5,469 2.8
OTHER OPERATING INCOME Commission Received 2,379 1.1 3,412 1.8 1,518 Rent Received 442 0.2 441 0.2 442 Other Operating Income 430 0.2 446 0.2 Total Other Operating Income 3,251 1.5 4,299 2.2 4,254 GROSS PROFIT (LOSS) 9,326 4.4 9,768 5.0
ADMIN/OTHER OPERATING EXPENSES Depreciation (775) (0.4) (832) (0.4) (783) (0.8) Bad Debts Written Off (349) (0.2) Wages & Salaries (2,258)(1.1) (2,387)(1.2) (2,570)(2.5) Other SG&A Expense (4,193) (2.0) (3,986) (2.1) (3,143) Total Admin/Other Oper. Expenses (7,226)(3.4) (7,554)(3.9) (6,496)(6.4) NET OPERATING PROFIT (LOSS) BEFORE INTEREST & TAXES 2,100 1.0 2,214 1.1 Interest Expense [Type text] (1,104)(0.5) (883) (0.5) 2,186 2.2 (504) (0.5)
NET PROFIT (LOSS) AFTER TAX 996 0.5 1,331 0.7 1,682 1.7 (1,682) -
PROFIT (LOSS) DISTRIBUTION Transfers to/from (+) Rev Reserves (996) (1,331) PROFIT RETAINED -
STANDARD CHARTERED BANK Western Indian state motors (westernInd) SCB ISIC Code: 7114 6/11/2005 Detailed Cash Flow Thousands Statement Date Months Covered Analyst Sales (Net of Returns/Duties) Chg in Trade Debtors (Gross) Cash Collected From Sales Cost of Sales Chg in Stock: Trading Chg in Trade Creditors Cash Paid to Suppliers CASH FROM TRADING ACTIVITIES Bad Debts Written Off Wages & Salaries Other SG&A Expense Cash Paid for Operating Costs GROSS CASH FROM OPERATIONS Commission Received Rent Received Other Operating Income Chg in Creditors: Sundry Chg in Other Op Current Assets Chg in Other Op. Cur Liabilities Other Income (Expense) & Taxes Paid [Type text] 3/31/2003 12
Date Prepared: Page 3 3/31/2004 12
Monika Monika 193,862 100,872 (3,180) 11,672 190,682 112,544 (188,393) (96,444) 5,524 3,827 499 (9,564) (182,370) (102,181) 8,312 10,363
(349) (2,387) (2,570) (3,986) (3,143) (6,722) (5,713) 1,590 3,412 441 446 (1,943) (548) (2,620) (812) 4,650 1,518 442 2,294 344 205 (993) 3,810 Page 142
NET CASH AFTER OPERATIONS NET CASH AFTER OPERATIONS Interest Expense Cash Paid for Dividends & Interest CASH AFTER FINANCING COSTS Curr. Mat. Hire Purchase Commit Current Portion Long Term Debt CASH AFTER DEBT AMORTISATION Chg in Motor Vehicles Depreciation Chg in Other Fixed Assets Cash Paid for Plant and Investments FINANCING SURPLUS (REQS) Chg in Due to Banks (O/D, T/R etc) Chg in Loans from Dir/Shareholders (1 Yr+) Chg in Equity Admits to Profit & Loss Total Chg in Capital Total External Financing CASH AFTER FINANCING Add: Cash and Bank Deposits ENDING CASH & EQUIVALENTS 778 778 (883) (883) (105) (140) (140) (245) 186 (832) (646) (646) (891) 704 690 (1,331) (641) (923) (1,814) 5,134 3,320 8,460 8,460 (504) (504) 7,956 7,956 693 (783) (90) (90) 7,866 (6,996) (986) 92 312 (1,682) (1,370) (8,274) (408) 3,320 2,912
STANDARD CHARTERED BANK Western Indian state motors (westernInd) SCB ISIC Code: 7114 6/11/2005 Detailed Ratios Thousands Statement Date Months Covered Analyst Monika LIQUIDITY RATIOS Stock Turn Period (Days) Gross Trade Debtor Collection Period (Days) Net Trade Debtor Collection Period (Days) Net Debtor Collection Period (Days) Trade Creditors Pmt Period (Days) Net Cash Cycle Period (Days) Total ST Debt Coverage Cash Coverage 35 25 25 25 24 36 28 34 34 34 28 34 0.08 0.76 39 22 22 22 18 44 3.90 16.79 3/31/2002
Date Prepared: Page 4 3/31/2003 3/31/2004
DEBT MANAGEMENT RATIOS Leverage Ratio Gearing NPBIT: Interest Net Cash after Operations: Interest Interest on Avg. Financial Debt (%) Short Term Debt Long Term Debt 7.73 1.37 1.90 13.63 8,099 6.24 1.32 2.51 0.88 10.54 8,663 3.47 0.24 4.34 16.79 9.76 1,667 -
PROFITABILITY RATIOS (%) Net Profit Margin Operating Efficiency Return on Equity Return on Assets (Geared) Return on Assets (Un-geared) Gross Profit Margin NPBIT to Sales NPBT to Sales 0.47 3.42 16.89 1.94 4.08 2.87 0.99 0.47 0.69 3.90 20.21 2.79 4.65 2.82 1.14 0.69 1.67 6.44 24.38 5.45 7.08 4.39 2.17 1.67
GROWTH RATIOS (%) Sales Growth Net Profit Growth Total Asset Growth Total Liabilities Growth Gross Profit Growth Sustainable Growth OTHER RATIOS Current Ratio 0.96 0.95 0.96 Liquid Ratio 0.50 0.60 0.51 Sales: Fixed Assets 21.42 20.02 11.22 Sales: Total Assets 4.11 4.07 3.27 Effective Tax Rate Capital Spending (186) (693) Avg. Cap Spending Expected Cap Spending 11 (3,862) Avg. Expected Cap Spending 11 (1,926) Def Tax + Tax Payable/Tax Exp (%) N/A N/A N/A Dividend Payout Rate Average Tax Rate (%) Other Cur Assets/Tot Cur Assets (%) 4.94 6.86 10.97 Other Cur Liabilities/Tot Cur Liabilities (%) 18.54 13.61 19.54 Other Fixed Assets/Tot Fixed Assets (%) Other Term Liabilities/Tot Term Liabilities (%) (8.32) 33.63 (7.38) (9.85) (9.98) 20.32 25.34 (47.97) 26.37 (35.26) (41.67) (19.03) 32.23
Other Income/Net Income Aft Tax (%) 326.41 322.99 252.91 Investments/Total Assets (%) Gross Cash Flow less Interest & Dividends (annualized) 707 4,146 Free Cash Flow (annualized) 542 2,249
STANDARD CHARTERED BANK Western Indian state motors (westernInd) SCB ISIC Code: 7114 6/11/2005 Detailed Ratios Thousands Statement Date Months Covered Analyst Monika CREDIT GRADING DATA Large Corporate Total Equity Leverage (Total Liabilities to Total Assets) Net Profit Margin Cash to Total Debt Debt to EBITDA EBITDA to Interest - New Net Cash Ratio - New Pre-tax Profitability - New Size Factor (Total Equity) - New Capital Structure - New Liquidity - New Debt Service Coverage (%) - New Cash Flow Ratio 2 (%) - New Middle Market Gearing Ratio Net Profit Margin (%) Cash Ratio (%) Trading Stock Turn Period EBITDA to Interest Cash Flow Ratio Asset Turnover Debt Service Coverage (%) Sale Growth (%) Cash Flow Ratio 2 (%) 0.20 0.47 11.81 35 2.60 N/A 4.11 0.52 0.21 0.09 0.69 1.67 8.31 12.80 28 39 3.45 5.89 0.02 0.18 4.07 3.27 0.46 0.50 (8.32) (47.97) 0.61 4.46 0.21 28 0.09 39 Page 146 5,897 0.89 0.47 2.82 2.60 5,897 0.11 0.22 0.52 6,587 0.86 0.69 0.09 2.84 3.45 0.02 0.01 6,587 0.14 0.25 0.46 0.61 6,899 0.78 1.67 5.07 0.56 5.89 0.35 0.02 6,899 0.22 1.48 0.50 4.46 3/31/2002
Date Prepared: Page 5 3/31/2003 3/31/2004
Channel Finance & Supply Chain Gearing Ratio 0.20 Stock Turn Period 35 [Type text]
Net Profit Margin % Total Tangible Assets Net Worth Productivity % 0.47 0.69 1.67 51,457 47,661 30,856 5,897 6,587 6,899 1.07 1.23 2.55 Date Prepared: Page 6
STANDARD CHARTERED BANK Western Indian state motors (westernInd) SCB ISIC Code: 7114 6/11/2005 Detailed Ratios Thousands Statement Date Months Covered Analyst 3/31/2002 Monika
3/31/2003 3/31/2004 12 12 12 Monika Monika
FINANCIAL SUMMARY FOR BCA FRONT SHEET DATA Total Sales 211,461 193,862 100,872 Operating Profit 2,100 2,214 2,186 Extraordinary Expenses Net Profit after Tax 996 1,331 1,682 EBITDA 2,875 3,046 2,969 Net Worth 5,897 6,587 6,899 Total Debt 8,099 8,663 1,667 Gearing 1.37 1.32 0.24 Debt to EBITDA 2.82 2.84 0.56 Net Cash after Operations 778 8,460 CADA (245) 7,956 Contingent Liabilities Total Provision for Employee Benefits (Including Pension) REPAYMENT SOURCE DATA Total Sales Gross Profit Net Profit after Tax Change in Sales (%) Gross Profit Margin (%) EBITDA to Sales (%) NPBT to Sales (%) PROFITABILITY 211,461 193,862 100,872 9,326 9,768 8,682 996 1,331 1,682 (8.32) (47.97) 2.87 2.82 4.39 1.36 1.57 2.94 0.47 0.69 1.67
NET WORKING CASH CYCLE
Stock Turn Period (SDOH) Trade Debtors Period (DDOH) Trade Creditors Period (CDOH) Net Working Cash Cycle Period 35 25 24 36 28 34 28 34 39 22 18 44
DEBT SERVICE CAPACITY Net Cash after Operations Cash after Financing Costs Cash after Debt Amortisation Net Cash after Operations/Interest Financing Surplus/Deficit 778 (105) (245) 0.88 (891) 8,460 7,956 7,956 16.79 7,866
LONG TERM ASSET/LIABILITY MANAGEMENT Net Fixed Assets Long-Term Debt+ Equity Sales to Fixed Assets Capex to Depreciation Ratio DEBT PROTECTION Gearing Interest Cover Debt to EBITDA EBITDA to Interest Maturing Debt Obligations S/T Maturing Debt Obligations M/T Debt Service Cover Ratio Subordinated Debt Annual Operating Leases Contingent Liabilities 1.37 1.90 2.82 2.60 8,099 1.32 2.51 2.84 3.45 8,663 1.80 0.24 4.34 0.56 5.89 1,667 9.23 9,870 5,897 21.42 9,684 6,587 20.02 (0.22) 8,991 6,899 11.22 (0.89)
CAPITAL PROTECTION Tangible Net Worth Revaluation Reserve Total Assets Leverage (Total Liabilities to Total Assets) Dividend Payout Ratio 5,897 6,587 6,899 51,457 47,661 30,856 0.89 0.86 0.78 -
STANDARD CHARTERED BANK Western Indian state motors (westernInd) SCB ISIC Code: 7114 6/11/2005 Financial Summary Ratios Thousands Statement Date Months Covered Analyst Source Currency: INR Monika Target Currency: INR LIQUIDITY Cash after Financing Costs Cash Coverage PROFITABILITY Sales (Net of Returns/Duties) 211,461 193,862 100,872 Gross Profit (Loss) 9,326 9,768 8,682 Net Oper Profit (Loss) Before Interest & Tax 2,100 2,214 2,186 Net Oper Profit (Loss) Before Tax 996 1,331 1,682 Profit Retained CAPITAL STRUCTURE Total Equity Net Worth Total Debt Gearing NPBIT: Interest OTHERS Sales Growth Sustainable Growth Net Cash Cycle Period Total ST Debt Coverage Net Op. Profit before Interest& Taxes/Sales (%) ISIC: Nature of Business [Type text] (8.32) (47.97) 20.32 25.34 32.23 36 34 44 0.08 3.90 0.99 1.14 2.17 7114 Trading Page 149 5,897 5,897 8,099 1.37 1.90 6,587 6,587 8,663 1.32 2.51 6,899 6,899 1,667 0.24 4.34 (105) 7,956 0.76 16.79 3/31/2002 3/31/2003 12 12 Monika 12 Monika Date Prepared: Page 7 3/31/2004
Segment Type: Other
The motor sector of this company is on demand but there is a tough competition in the market. A number of multi-national companies are coming to India with new technologies and innovative techniques which makes very difficult for an Indian company to sustain in the market. A look at the P &L account of the Corporation shows that there is a constant decrease in the sales of the Company, but even after that the Company is able to maintain its NPAT. If we analyze the situation closely we find that the NPAT/Sales of the company have kept on increasing year by year from .5 to .7 to 1.7%. The Company’s gross profit has also increased in the same way from 2.8 to 4.4%. There is an increase in the management and operation efficiency of the company because the company is able to decrease the cost of sales which helps the corporation to increase its Gross profit. The bad-debts of the company are also removed during the year 2004, which shows the strong collection technique of the company. But if we analyze the sales part of the company, it is not showing good performance, because if it keeps on increasing in the same pace, then it will adversely affect the company. So if the company increases its sales with the induction of the new technologies and adoption of aggressive marketing strategies, then the prospects of the company could brighten in the future.
Comments of various ratios If we see the figures of the company's profit in the percentage form, then we can say that there is a positive trend as the net Profit & the gross profit of company are increasing year by year. Company’s current ratio & the Quick ratio are below 1 which is not good for any company. Any company can face this situation in getting a short term loan from the market. There is high decrease in Debt equity ratio & the Gearing ratio of the company which is a
very good indicator for a company. It shows that the company's dependency on the outsiders is decreasing progressively & the company is becoming self-dependent. [Type text] Page 150
A glance towards the NPBIT/Interest shows that it has increased from 1.90 -> 2.54 -> 4.34 which is a positive for the company. It shows that for every one rupee of Interest liability, the company is having Rs.4.34, which means that the company can easily bear the interest payment .The above ratios directly shows that Company can repay a major portion of its debt.
When we come on the Cash Conversion cycle of the company, we see that it has increased, which is not a good sign for the company because the company has to be dependent on outsider's financing which carries an additional cost .The reason for this is an increment in the stockturnover period & the debtor-turnover period. After analyzing it we can say that due to the lack of proper advertising of the company its sales is not increasing & on the other side its debtor & stock period is also not increasing. It shows that lots of money of this company is locked in the form of debts & the stock. Or we can say that this company is trying to increase its sales by providing the lenient
(loose) credit policy or facility to its customers. If we see the cash flow statement then we will find that company has been able to repay a major portion of its due to Bank or debt which helped the company in reducing its interest expenses.
If we analyze the whole situation of the company, then we will find that, as due to lots of Competitive pressure in the market, the sales of the company are decreasing. If company comes with the new technology, talented employees then the company could rise in the future as it is clear from the annual report of the company that the % of the Net profit & the Gross Profit of the company is increased.
As the Corporation gearing ratio & the debt to EDITDA is decreasing year by year which shows the sign of the corporation self dependency. In that case a lender can believe or trust the Corporation for the security of its interest because corporation liabilities are also decreasing.
If we se the overall picture & compare the corporation with the industry, then we can say that Corporation is able to control on its cost department or cost of sales but the main problem with the corporation at this stage is to face the stringent Competition in the market. As lots of multinational company had entered into the market, so company need to adopt some innovative & aggressive techniques to face this situation. The corporation approached the bank for a loan of Rs.1 crore to purchase the new updated machines to enhance the productivity & production of the innovative products.
If we see the company’s condition & the market condition then we can say that if company will launch its new products in the market; then it can definitely increase its sale which will directly increase the profit of the corporation.
If we see the past 3 years record of the corporation in term of EBI TDA/ Interest ,it is near to Rs.22 lakhs in the 3 years, even after the decrease in the Sales of the corporation. As the Corporation is offering the collateral of new machines & some personnel property, then we can sanction a part of the requirement of the corporation. If The bank sanctions Rs.70 lakhs @14 % per annum (PLR + 1.5%) , then we can say that the corporation will easily be able to repay its interest installment of Rs.9,60,000 as its EBITDA/INT.. is more than Rs.21 lacks in last 3 years. And if we analyze the credit of the corporation, we see, it has been able to repay a major portion of its debt without any default. If the same crisis happens in the near future, the bank can recover its loan with the sale of its machinery & the personal property of the customers. The value of the property is Rs.30, 00,000 and there are the chances that its value will increase in the future. The Gearing Ratio of the company is 0.01% for the financial year 2000-01, 0.60% For 2002-03 ,Which is less than 3 and the Interest coverage ratio is 1.09 ,1.36, 2.32 for financials years 2000-01, 2001-02, 200203 respectively. So now finally we can say that bank can sanction the loan of Rs.70 lacks with 30 % margin at the rate of 14 % or 1.5% above PLR because there are fewer risks associated with it.
Standard Chartered Bank over the years maintained its services and relationship. It runs over 78 Branches all over the country. It has SME sector is Vital to the economy . This sectors accounts for 95% of industrial units The SME sector is vital to the Indian economy. This sector accounts for 95 percent of industrial units, around 40 percent of the industrial output and 35 percent of the country's exports. With liberalization, the sector is witnessing a new dawn. SMEs are fast adopting international best practices, focusing on productivity and are at the leading edge when it comes to innovation and entering new global markets. In addition to sectors like the auto ancillary, garment exports and pharma, SMEs in emerging sectors such as BPO, ITES, etc are already making their presence felt in the international vendor markets. However, SMEs face hurdles in their growth process. To remove these, there are several issues that we need to tackle. These include revamping the policy framework in the context of the new global paradigm, consolidating various policy initiatives in a single nodal authority and developing a comprehensive credit guarantee scheme for small businesses. In this context, the union budget has given importance to stimulating growth in the SME sector. While the sector is attractive in terms of its potential, banks have to overcome several challenges in servicing the SME banking requirement. These are challenges of credit risk evaluation based on inadequate financial information, high cost of setting up wide distribution architecture, particularly in semi-urban and upcountry areas and meeting the large volumes of granular transactions.
SMEs, on their end, are seeking efficiency in banking transactions, convenience and reduction in cost of transactions. With globalization and increasing competition, the SME customer now requires complex and sophisticated banking products, and is becoming increasingly demanding in terms of value and service levels. SME exports are on the rise - SMEs are exporting to retail chains (Walmart, Gap) , auto majors (Ford, GM) and pharma MNCs (GSK, Avetis, Pfizer). To fund this growth, there are also additional avenues such as the Indonext platform. This will provide the much-needed capital market window for growth. Besides, the SME Growth Fund recently announced in the budget, will provide debt-funding support. We can conclude that the commercial banks are likely to remain the dominate institution for some time. Banks have to gradually rise to provide services in response to market requirement. Banks can be made more efficient by improving their management system. Better management requires new lending polices, better loan recovery procedures, more sophisticated information system, better trained and highly motivated staff and less government interference. The entry of new private banks, domestic or foreign can stimulate competition. In spite of competition, commercial banks are to spearhead the financial system in India and continue to foster accelerated economic development and growth with merit. Apart from performing the key function of providing liquidity and payment services to the real sector and managing bulk of the financial intermediation process, the banking sector has contributed to the process of economic development by serving as a major source of credit to all section of the economy, be it the house hold, industry, government or the weaker section of the society. To reach the international standard s of capital adequacy , risk management and accounting practices the right talent at appropriate levels of management needs to be inducted laterally and banks should have the necessary freedom to do so. There are several impediments including statuary, legal and political in the recovery of bank loans and advances. Therefore, restructure of borrower accounts should be left to individual bank decision subject to full transparency then only the banks can perform better, as business organization in pursuit of excellence and sound financial performance. [Type text] Page 155
As I have analyzed three companies in my project report, I came to know there are some chances of improvement. The bank should properly analyze the customers profile on some other grounds also to minimize credit risk. If a loan turns into NPA then it can create a big trouble for the company. Standard Chartered Bank over the years maintained its services and relationship. It runs over 78 Branches all over the country. It has created a name for itself. As far as my views are concerned
BOOKS AND NOTES Process notes of different departments Brochures of different SCB Products
Six Sigma for Managers by author GREG BRUF Study material from the Bank
Reserve bank of India Guidelines Booklet Presentations from Employees
WEBSITES www.standardchartered.com www.default.com