THREE Ps OF CREDIT
PARTY Credentials of party and Group concerns must be beyond doubt ( Character - Capacity Credit-worthiness ) Due Diligence of borrower and guarantor to be done from suppliers, buyers, bankers and other players in same line / market in case of new connection. Govt dues, litigations give adverse reading. Net worth statement to know the means- complete address of properties PROPERTY Clear Title, Marketability, Fair Valuation Residential property better than others Adequate coverage PAPERS Papers are least important of the 3 Ps Bank norms / guidelines are to be complied with
LOAN POLICY
Credit Rating >Rs. 2 lac (except exempted category) a) b) CR-4 for Takeover CR-5 for new connection
Hurdle rate Low Priority Areas Takeover Due Diligence Credit Grid Approval Even under Branch powers
Credit Process Audit >Rs. 1 crore (After vetting of EM, documents as New limit or enhancement per sanction) Ratios Trade- CR-1.17, TOL/TNW-5:1 Other- CR-1.33, TOL/TNW-4:1
Seasonal activitiesSugar, fertilizers etc. NBFCs a)DER 2:1 b)DSCR 1.50 (Min.1.20) c)Tenor- 84 Months (Max.)
LC(DA)
LG
Long Term Sources Long Term Uses = NWC or Margin OR Current Assets Current Liabilities = NWC or Margin Current Liabilities Short Term Bank Borrowing = OCL Current Assets OCL = Working Capital Gap Working Capital Gap Margin = MPBF / FBF
IMPORTANT RATIOS
FINANCIAL RATIOS Current Ratio TOL / TNW Ratio TL/ TNW Ratio TURNOVER RATIOS TCA to Sales Debtors to Sales Inventory to Sales SOURCES FOR CURRENT ASSETS (TCA) NWC or MARGIN Promoters contribution (excess of LTS over LTU) OCL Liabilities towards outsiders STBB or FBF or MPBF Liabilities towards Bankers
=70.0 = 17.5
= 20.0 = 52.5 or =50.0
= 50.0
=20.0 = 5.0
= 5.0 neg = 15.0 = 15.0
=10.0 or =10.0
AMT 15 10 70 5
=20.0 = 5.0
= 5.0 = 15.0 = 15.0
AMT 15 10 70 5
=20.0 = 5.0
= 5.0 = 15.0 = 15.0
SOURCES
TNW LTL STBB50+500 OCL
AMT USES
35 NET BLOCK 5 NCA 550 LENDABLE ASSETS 70+500 10 OCA
AMT
10 10 570 10 =570.0 = 142.5
= 20.0 = 427.5 or = 550.0 = 427.5 = 122.5
SOURCES
TNW35+122.5 LTL STBB550-122.5 OCL
AMT USES
157.5 NET BLOCK 5.0 NCA 427.5 LENDABLE ASSETS 70+500 10.0 OCA
AMT
10.0 10.0 570.0 10.0
=570.0 = 142.5
= 142.5 = 427.5 or = 427.5 = 427.5 = NIL
SOURCES
TNW LTL STBB50+10 OCL10+490
AMT USES
35.0 NET BLOCK 5.0 NCA 60.0 LENDABLE ASSETS 70+500 500.0 OCA
AMT
10.0 10.0 570.0 10.0
= 80.0 = 20.0
= 20.0 = 60.0 or = 60.0 = 60.0 = NIL
3 TIPS
How the money came and where it has gone?
Look only at long term sources & long term uses Analyse the deviations between two periods Difference in LTS & LTU is always equal to change in NWC