Session Coverage

• Process  Note Significance
• Directors and their worth
• Process Note Tools
• Credit Rating
• Sanction Letter 
• Non-Financial Conditions

 Objective

• Risk
• Risk mitigation
• Deviation
• Justification

 KEY FINANCIAL INDICATORS

 Security

Legal opinion details

• Name of the advocate
• Date of the Legal Opinion.
• Whether advocate and Legal department confirmation of title clearance

Valuation Details

• Name of the Valuer
• Whether he is from our Panel
• Valuation Amount
• Valuation report dated

Branch Inspection Details

• Name of the Official
• Inspected on
• Opinion on valuation

Other information

• EC obtained up to 
• Tax paid up to
• Insured for
• Residual Value of Second Charge
• Collateral Security Coverage

 Credit Rating

Instrument

• Rating
• Rating definition
• Short Term Bank facilities
• Long Term Bank facilities 
• COMMENTS on the Industry Scenario
• PERFORMANCE OF THE SIMILAR UNITS FINANCED

OTHER INFORMATION

• Factory situated in backward area.
•  Selective Credit Control of RBI.
•  Whether the directors are under:
•  CIBIL’s list of suit filed accounts of Rs.1.00 crore & above 
•  CIBIL’s list of willful defaulters (suit filed) of Rs.25.00 lacs & above 
•  RBI’s willful defaulters (Non-suit filed) list of Rs.25.00 lacs & above 
•  ECGC specific approval List.
•  Whether any overall ceiling limit fixed to finance this type of industry / business / whether sanction within the overall exposure.
•  Whether sanction within the individual/group exposure fixed by RBI.
•  Whether all  earlier sanction conditions fully complied with.
•  Whether refinance available from SIDBI/ECGC
•  Whether the proposal is in conformity with the lending policy of the Bank

Facilities

DETAILS OF CREDIT FACILITIES ENJOYED WITH OTHER BANKS/FINANCIAL INSTITUTIONS

Working capital limits  

• under Consortium Banking arrangement led by Bank
• Bank Fund based Non-fund based
• Total 
• O/s as on Total

Term Loans:

• Bank Facility Limits 
• O/s as on  
• Total
• Whether the repayments of TL are regular / Whether the operations are satisfactory /  Whether status of  Account / confidential opinion report obtained and whether the same is satisfactory? 
• DETAILS OF FACILITIES ENJOYED BY THEIR ASSOCIATES 

 Utilisation of Limits

CC Limit Period under review Facility / Limit 

• Credit summation
• Maximum availed
• Minimum availed
• Income earned
•  Whether excess drawings during the period under Review have been reported and got ratified?
•  Whether there was shortage of DP in the account at any time?
•  Whether any delay was observed in servicing of interest?

For Bills Facilities, Bills Performance Report: 

• Period under review
• Nature of facility 
• Total no. of bills purchased        
• Total amount of bills purchased 
• No. of bills returned unpaid         
• Amount of bills returned unpaid
• % of bills returned unpaid             
• Average period of realization
• No. of overdue bills as on date      
• Amount of overdue bills as on date
• Income earned through this bills facility 

LC performance - Period under review

• No. of LCs opened Amount
• No. of LCs devolved Amount
• LC  bills outstanding as on the date of end of the period
• Income earned 
• Devolved LCs honoured with delay of 15-20 days

Guarantees performance

• Date of Issue
• Beneficiary
• Amount
• Cash Margin held
• Validity
• Period
• Guarantees invoked and unpaid

Term Loan Performance

• Limit sanctioned
• Effective Limit as on date
• Balance outstanding as on date
• Whether instalments paid regularly
• Interest earned
• Overdues if any 
• No. of instalments
• Amount (principal)
•  Interest & other charges
•  Reasons for overdues & steps taken

 OTHER INFORMATION

INVENTORY

• Submission of stock statement  
• Goods Movement 
• Stock Insurance Amount 
• Whether stock insurance is sufficient?
• Return Of Cheques 
• Submission of QIS statements 
• Submission of renewal papers

UNIT VISIT DETAILS

• Date of visit
• Name of the Official
• Gist of observations

TOTAL INCOME EARNED FROM THIS ACCOUNT

REVIEW/RENEWAL

• Review of an account is periodical evaluation of the performance of the Borrower in achieving business parameters and also operations in the account vis a via the projections/assumptions based on which the credit facilities have been sanctioned.
• Renewal is to obtain a fresh sanction from the appropriate sanctioning authority on the basis of a detailed proposal containing review of the account and reassessment of borrowers limits,

 Advantages for Banks

• Take stock of the situation
• Can assess the quality of the asset portfolio
• Can do repricing of the account based on internal rating
• Can know whether migration taken place in the rating
• Comprehensive look on the performance of the borrower unit from various angles.
• Can rectify irregularities if any in areas like security documents, mortgage, valuation and ensure that the interest of the bank is protected.
• Will enable the bank to decide whether to go for exit option from the account before things further worsen.

 Advantages for the borrower

• Opportunity to obtain adequate need based finance for his activity.
• Assured of continuance of the limit  for next one year.
• Can have improved ROI if rating score is showing improvement.
• Gets professional advice from the banker as to what are the draw backs observed in the functioning of the unit and how further improvement could be made.

 Points from Non Financial Angle

• Constitution of the borrower.
• Change in directors
• Shareholding pattern.
• Family feud, absence of succession planning
• Whether any key person resigned from the unit
• Whether management taking steps to take the competition
• Labour relationship
• Any long term planning or looking for short term results.
• Any change in activity

 Due Diligence

• Any adverse features in the market report.
• CIBIL report
• Any change in credit worthiness of the borrower/guarantor
• Latest search report.
• Audit Remarks
• Insurance.
• Reports and returns- whether submitted in time.
• Periodical inspection
• Monthly monitoring report.

 Account operations

• Whether operations satisfactory.
• Whether turnover reflected in the account . Proportionate in case of consortium accounts.
• Maximum, minimum and average utilization of limit.
• Whether limits underutilized.
• How many times over limit or adhoc limit given.
• Any issues with regard to DP.
• Any devolvement of LC & invocation of BG.
• How many times account gone into SMA category.
• Whether cheques returned.
• Collateral Security
• Personal guarantee of the Promoter /Directors.
• Security documents.
• Internal rating
• External rating.
• Compliance of Terms and conditions.
• Group accounts
• Consortium/multiple banking arrangements.
• Performance of similar units financed.

 Points from Financial Angle

• Audited Financials to be studied vis a vis projections/estimates.
• If review done on provisional figures, audited figures to be verified and variations should not be more than + 10% 
• Off balance sheet items to be examined and its impact on the financial position to be seen.
• CMA data to be examined in correlation with financial statement and should be scrutinized and vetted.
• Quality of liquidity management.- cash flow/funds flow statement
• Assessment of limits- adequacy and realistic.
• Terms and conditions- financial covenants compliance.

 Auditors Note

• Auditor notes makes comments on the accounts and on P & L, BS and other documents attached to the financial statements.
• It contains an opinion whether the financial statements present true and fair view of the state of affairs of the company.
• Whether the books of accounts are in agreement with and whether there is any deviation from generally accepted accounting principles.
• Details of disputed statutory liabilities not provided for and their impact on profitability in the event of crystallization.
• Whether the company has defaulted in servicing of its debt obligations.
• Whether short term loan raised by the company has been used to finance long term investment and its impact on liquidity.
• Whether adequate provision towards depreciation, taxation, dividend etc. has been provided or not.
• Banker should ensure that the Note forming part of the Balance sheet  should be  “Unqualified.” 

 Analysis of Notes to Balance sheet

• Depreciation method may be changed to boost profit
• It may be silent on key personnel and staff turnover
• Marginal changes in the classification of certain items would lead to different results. Investment decision
• Resorting to window dressing
• Management competence/experience of the promoters/Board comprises of only family members/the key personnel of the company/The structure of the organization/The authority and decision making are decentralized
• The state of industrial relations
• Financial systems and procedures/management control
• planning, budgeting, forecasting/capacity utilization/status of the technology
• awareness of the market, competitions ..etc.
• for listed co: share prices, EPS, book value, dividend record, public response etc.

 TERMS AND CONDITIONS

• WHY?
• LEGAL SAFETY
• LENDER KNOWS HIS RIGHT
• BORROWER UNDERSTANDS HIS OBLIGATIONS
• HELPS CREDIT PORTFOLIO MANAGEMENT
• HELPS TO MEET REGULATORY COMPLIANCE
• HELPS TO MEET STATUTORY COMPLIANCE

 POINTS TO BE REMEMBERED WHILE STIPULATING CONDITIONS

• BASED ON THE NATURE OF FACILITIES
• BASED ON THE CONSTITUTION OF THE BORROWER
• CONDITIONS TO COMPLY WITH SANCTIONING AUTHORITY’S OBSERVATIONS.

 TYPES OF CONDITIONS

• PRECOMMITMENT CONDITIONS
• CONDITIONS BEFORE DISBURSEMENTS
• CONDITIONS DURING DISBURSEMENTS
• CONDITIONS AFTER DISBURSEMENTS
• RESTRICTIVE CLAUSES
• LEGAL CONDITIONS
• CONDITIONS FOR GOOD MANAGEMENT
• CONDITIONS FOR FINANCIAL STRENGTH

 Dos and Don’ts while stipulating conditions

• No ambiguous conditions
• No impossible conditions
• No unilateral conditions

 Sanction
Generally Loans and advances have the following eight features

 Features of Loan

Financial Terms & Conditions

• Prepayment Penalties
• Maintenance of Current Ratio
• Maintenance of Debt/Equity Ratio
• DSCR
• Promoter’s Contribution
• Penalties for non- adherence 
• Penal Interest

Non- Financial Terms & Conditions

• Implementation Schedule
• Disbursement Schedule
• Various documents to be submitted for disbursement
• Inspection of Assets Financed
• Location of Assets installed /Kept
• Submission of Financial Statement for Review of A/c
• Various Undertaking By Borrowers
• Monitoring tool for project Implementation

 Security Related Terms & Conditions

• Full description of Asset Financed 
• Insurance of Asset
• Location of Asset Installed
• Valuation of security and its valuation report
• Right of Inspection
• Periodical description of details in case of Cash credit

Other Terms & Conditions

• Credit Rating
• Limit Cancellation Clause
• Event of Default