EXECUTIVE SUMMARY

Once a project opportunity is conceived and it is considered after the preliminary

screening, a detailed feasibility study has to be undertaken covering marketing, technical,
and financial aspects of the project. The study in the form of cases deal with calculations
of MPBF (Maximum Permissible Finance), along with going through the borrower’s
information, general information of the proposal, past record of borrower and details of
security mortgaged. Financial records of the borrower audited, provisional and projected
such as Profit and loss account statements, Balance Sheet and Cash and Fund Flow
Statements needed to be considered. The ratios such as current Ratio, Debt Service
Coverage Ratio etc are also checked. The ultimate decision whether to grant the credit to
borrower for the application or not and how to go about it , is undertaken after this study
which discloses whether the borrower has good past record and information provided are
true and fair.

My project concerns with the Calculations of MPBF i.e. Credit Appraisal and Renewal,
in which I need to asses if the borrower should be granted credit, and what should be the
recommended loan amount. This all is done after carefully evaluating the financials and
securities provided by the borrower.

Various financial ratios are calculated for the past and future data provided by the
borrower after checking the veracity of the same. The various ratios, which are frequently
calculated include:

• Current ratio:
[(Receivables + material and finished good inventory)/ (creditors for goods and
expenses)]

• Long term debt-equity ratio

[Long Term Debt/ Net worth]

1
 • Interest coverage ratio
[(Profit Before Interest – Provision for Tax)]/(Interest payments due for the year]

• Fixed assets coverage ratio

[Fixed Assets/ (Term loan and other long term debt obligations)]

• Debt-service coverage ratio

[{(Profit after tax + Interest on term loan + Depreciation} + Other non-cash
charges]/ [Interest on term loan + Principle Repayment ]

• Profit after tax/sales

• Debtors Velocity

[Average Receivables/Credit Sales* No. of days in a year.]

• Creditors Velocity

[Average Payables/Credit Purchase* No. of days in a year.]

• Stock Velocity

[Average Stocks/Cost of goods Sold* No. of days in a year.]

Two other important criterions are IRR and DSCR

Financial institutions calculate the Internal Rate of Return (IRR). The Internal Rate of
Return refers to the rate of return that the project is expected to generate based on its
projected cash flows accruing over its expected lifespan. Institutions have a threshold
IRR that the project needs to surpass to assess its viability.

DSCR refers to the ability of the project to generate sufficient cash flows to repay the
debt taken to finance the project. This includes the principal along with the interest
component.

The above ratios are taken and matched with the standard, though a certain amount of
flexibility is exercised depending on the perception and personal judgment of the
appraising officer. A rating is assigned to the project based on the scores of the different
ratios. A cut-off rating determines financing decision (whether the project would financed

2
or not). Above the rating, the projects maybe categorized into excellent, good and
average. Based on this and the project characteristics, the final terms and conditions of
financial assistance are decided upon like:

• Moratorium
• Repayment period
• Availability period
• Security (like first charge, personal guarantee etc.)
• Interest rate
All the expenses like service fee, processing fee, document fee and other expenses like
inspection of site, factory, etc. are charged to the applicant and are a source of income for
the lending institution.

3
The new identity for J&K Bank is a visual representation of the Bank’s philosophy and
business strategy. The three colored squares represent the regions of Jammu, Kashmir
and Ladakh. The counter-form created by the interaction of the squares is a falcon with
outstretched wings – a symbol of power and empowerment. The synergy between the
three regions propels the bank towards new horizons. Green signifies growth and
renewal, blue conveys stability and unity, and red represents energy and power. All these
attributes are integrated and assimilated in the white counter-form.

4
 COMPANY PROFILE

Jammu and Kashmir Bank Limited was incorporated on 1st October, 1938 and
commenced its business from 4th July, 1939 in Kashmir (India). The Bank was the first in
the country as a State owned bank. The Bank was established as a semi State Bank with
participation in capital by State and the public under the control of State Government.

The bank had to face serious problems at the time of independence when out of its total
of ten branches two branches of Muzaffarabad and Mirpur fell to the other side of the line
of control (now Pak Occupied Kashmir) along with cash and other assets.

According to the extended Central laws of the state, Jammu & Kashmir Bank was
defined as a govt. Company as per the provision of Indian company’s act 1956. In the
year 1971, the Bank received the status of scheduled bank. It was declared as "A" Class
Bank by RBI in 1976.

Today, Jammu & Kashmir Bank is one of the fastest growing banks in India with a
network of more than 500 branches/offices spread across the country offering world class
banking products/services to its customers. The Bank has a status of value driven
organization and is always working towards building trust with Shareholders, Employees,
Customers, Borrowers, Regulators and other diverse Stakeholders, for which it has
adopted a strategy directed to developing a sound foundation of relationship and trust
aimed at achieving excellence, which of course, comes from the womb of good Corporate
Governance. Good Governance is a source of competitive advantage and a critical input
for achieving excellence in all pursuits. J&K Bank considers good Corporate Governance
as the sine qua non of a good banking system and has adopted a policy based on all the
four pillars of good governance – transparency, disclosures, accountability and value,
enabling it to practice trusteeship, transparency, fairness and control, leading to
stakeholders delight, enhanced shareholder value and ethical corporate citizenship. It also
ensures that bank is managed by an independent and highly qualified Board following

5
best globally accepted practices, transparent disclosures and empowerment of
shareholders, besides ensuring to meet shareholders aspirations and societal expectations
following the principles of management's executive freedom to drive the bank forward
without undue restraints but within the framework of effective accountability. The
excellence achieved by the bank in its operations stemming from the roots of voluntary
good Governance has not gone unrecognized and Bank has recently bagged three very
prestigious awards for following fair business practices and commitment to social
obligations.

Key Developments

“The Bank should be an organ of public interest and not an instrument for the
government or the shareholders to achieve their own end”.
The J&K Bank seems to have made some headway in getting there. The Bank has
changed the business model and made it relevant to the people of the state.
The further story explains it all…
In the last two years, the Bank has registered a 140 per cent increase in profits, a 108 per
cent increase in the rate of return on equity, thereby showing a vast improvement in the
Bank’s efficiency to generate profits from every invested rupee.
Similarly, the efficiency of using the assets of the Bank to generate earnings has increased
104 per cent in two years.
As far as safety is concerned, Bank has covered itself very well. The NPA coverage ratio
has been increased from 48 to 65 per cent

The stock price has more than doubled in the last two years. The Bank touched a high of
Rs 788 in the month of May, showing a 288 per cent increase. And above all, the Bank
has produced, for the second consecutive year, a completely transparent balance sheet,
which has no auditors' qualifications.

Outperforming the sector, as the bank has done in the last two years is the hallmark of a
good company. For a company like J&K Bank, which operates in a region of low

6
development and poor financial intermediation, it is also important to see how these
numbers are generated. As it is, the J&K Bank is much more than a mere bank for the
people of the state. Not only is it the most successful company of and from the state, it is
a citadel of civil society. Going beyond that, it is a testimony of the competencies of the
people of the state in the building of a national institution.

Future Goals of the Bank

To build a global brand, the Bank feels a need to do two things – go global physically and
second, more importantly, have a unique business model, product offering and service
standards, all of which are globally recognized.

The bank has taken initial steps to achieve the first. As of today, after the state
government, the bank’s second largest shareholders are Foreign Institutional Investors,
with a combined stake of almost 36 per cent. Some of the biggest names in the world
figure in the sixty plus funds that have invested in the Bank. The list is truly international,
with funds from USA, Europe, Singapore, Japan, Sweden, Mexico and Spain, having
investments valued at more than $300 million in the Bank.

As a next step in this direction, the bank plans this year to raise money abroad. The bank
will offer Global Depository Receipts and list the Bank in international capital markets.
This will be a landmark in J&K bank illustrious history.

The second way to becoming a global brand is to have a unique business model, which is
a far more formidable task. The Bank has a wonderful brand in Pashmina.By and large
most global brands are products. What the bank is setting out to do is to create a global
brand in the financial services industry.

7
 The BANK’S MISSION STATEMENT

The most important change is to move away from trying to govern to trying to serve.
The bank’s overriding mission as a corporation is to use its core competency to serve and
empower the people of the state in general and entrepreneurs in particular, rather than
serving them as an afterthought.

SERVICES OFFERED

8
Depository Services Scheme of J&K Bank

• Dematerialization (Demat)
• Stock Broking through INVESTMART an initiative of ILFS
• Depository
• Depository Participant
• Market transaction
• Off-market transactions
• Pledge of securities
• Rematerialisation (remat)

Insurance offered by J&K Bank

Insurance products of Jammu and Kashmir Bank are offered in association with Bajaj
Allianz General Insurance Co. Ltd.

• Motor insurance
• Hospital cash
• Burglary
• Shop keepers

In association with MetLife, the Bank is offering the following Life Insurance Policy to
its customers:

• Met Bhavishya- A flexible money-back plan

• Met Junior- Par Endowment
• Met Mortgage Protector SP- Single Premium Mortgage Protection Plan
• Met 100- Limited Pay Whole Life Insurance

9
 • Met 100 Gold- Par Whole Life
• Met Platinum (Endowment)-Participating endowment assurance for face amount
above Rs. 3 lakh
• Met Riders- Customization tools for policies.

Credit Card of J&K Bank

Initially there are three types of Credit Cards issued by Jammu and Kashmir Bank:

• Gold Card
• Silver Card
• Blue Card

All the above cards are also available with photo along with a family address on Cards.
The Card is accepted by all those Merchant Establishment who honour MASTER cards.
ATMs linked with MASTER cards accept J&K Bank Credit Card.

Customer Service

The Jammu and Kashmir Bank has proved to be customer driven organization and the
people in the organization understand that innovation creates opportunity, quality creates
demand and teamwork makes it happen. The Bank, feeling the pulse of customers need
that they demand more for less, has endeavored to provide them better quality service,
wider choice and above all innovative products. The Bank is always ready to add value to
its customers and takes every possible step to improve quality of customer service. The
Bank proves its promises to customer quality service by establishing. ‘Customer
Advisory Foray at its every major branch. The number of such foray has been
consistently rising. In monthly meetings of these forays, the branch managers and
customers interact to sort out issues relating to customer service or other related
problems. The Bank has a very efficient complaint redress mechanism. It handles the
customer queries and complaints on priority. One can find ‘Customer Suggestion Card’,

10
at all branches of the Bank and also on its website. Customers accessing the website of
the Bank have the option to send their queries through e-mail.

Bank on Information Technology

The bank has a constant focus on application and augmentation of the information
technology in order to modernize Bank’s operations and deliver value-added services to
the customers. The Bank covers more and more branches under the computerization
programmes.The bank has extended Anywhere Banking and Tele-Banking facilities to
many new locations/branches, The number of ATMs (both off-site and on-site) installed
by the Bank has increased to 78 during the year under report, of these 51 ATMs were
networked through IST Switch. The Bank is in the process of setting up its DATA centre
at Delhi for which creation of infrastructure is in progress. With the commencing of the
said data centre the Bank will be able to introduce Internet Banking.

Customer Orientation

The Bank has come up with various value added products and services to suit customers’
expectations and requirement. Its Marketing and Research Cell has been functioning for
three years now. The market research is conducted on an ongoing basis to identify needs
and expectations of the customers and shape products / services accordingly. Even value
addition to the extant products/services is made to suit the growing needs/ demands of the
customers. Bank provides value to its customers by delivery of innovative products and
services in an effective and efficient manner. In order to reach extant and potential
customers in an effective manner creative promotional campaigns are being undertaken to
create a strong "Brand Identity" for the Bank. With multiple options available to customer
in shopping their products, more focus was laid on retail advertising during the year and
extensive promotional campaign through print and electronic media was undertaken
which showed significant results in the form of increased demand for the Bank’s products
and customer base. As a part of the advertising strategy the Bank has sponsored weekly
radio programmes named "JK Bank Dairy" which is aired from the three stations of radio

11
Kashmir viz., Srinagar, Jammu and Leh. It is an innovative programme and is
successfully running for last 18 months. The programme is being produced by Bank’s
own staff. The programme has gained wide popularity among the people as it provides
awareness and up-to-date information about banking in general and products/services
offered by the Bank in particular. People from all walks of life with their responses have
appreciated the usefulness of the programmes, which is evident from hundreds of
responses received every week from the listeners.

Bank’s web site is a powerful resource for customer education and information. The
website provides the visitors up-to-date information about all the products/services
offered by the Bank and other matters of interest relating to the Bank besides, providing
some on-line services. The updating of the site is done on daily basis so as to provide the
visitors latest information about the Bank. The site attracts on an average 700 visitors
weekly.

Branch Expansion

With a view to increasing its reach to potential markets and extending banking facilities
to un-banked areas coupled with catching on new business opportunities Bank has been
opening new branches selectively at centers offering highest business potential. In
keeping with this strategy the Bank opened 15 new branches/extension counters during
the period under report raising the total number of offices to 454 at the end of March
2003.

12
 J&K BANK

BRIEF FINANCIAL (IN RS. MN.)

Profit / Loss A/C FY 2007-08 FY 2006-07

Net profit 360 274.49
Net Interest Margins 2.95% 2.97%
Operating Income 1055.45 928.06
Net interest income 810.44 767.85
Fee based income 245.01 160.21
Operating Profit 651.84 555.62
Deposits 28593 25194
Return on Assets (%) 1.1 0.96
Post Tax Return on Equity (%) 16.68 14.42
Earnings per Share 74.26 56.62
CRAR 12.80% 13.24%

Tier – I 12.14% 12.60%

Tier – II
0.66% 0.64%

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 J&K BANK AT A GLANCE
• Incorporated in 1938 as a limited company.
• Governed by the Companies Act and Banking Regulation Act of India.
• Regulated by the Reserve Bank of India and SEBI.
• Listed on the National Stock Exchange (NSE) and Bombay Stock Exchange
(BSE)
• 53 per cent owned by the Government of J&K.
• Rated "P1+" by Standard and Poor- CRISIL connoting highest degree of safety.
• Four decades of uninterrupted profitability and dividends

Unique Characteristics: One of a Kind

• Private sector Bank despite government holding 53 per cent of equity.

• Sole banker and lender of last resort to the Government of J & K.
• Plan and non -plan funds, taxes and non-tax revenues routed through the bank.
• Salaries of Government officials disbursed by the Bank.
• Only private sector bank designated as agent of RBI for banking.
• Carries out banking business of the Central Government.
• Collects taxes pertaining to Central Board of Direct Taxes in J & K

The J&K Bank identifies empowerment as the process of enhancing the capacity of
individuals or group to make choices and to transform those choices into desired actions
and outcomes. Central to this process are actions that build both individual and collective
assets, and improve the efficiency and fairness of the organizational and institutional
context that governs the use of these assets.

Registered Office Corporate Headquarters

M A Road M A Road
Srinagar 190 001 Srinagar 190 001
Jammu & Kashmir Jammu & Kashmir
www.jkbank.net

14
 TASK ASSIGNED

I was assigned a project in J&K Bank that deals with evaluating and providing credit
assistance to applicants and consumers from business establishment to consumable
requirements, taking the prescribed norms of the RBI and J&K Bank into consideration.
The task starts with the application from the borrower. Then a checklist is created to
confirm the presence of all relevant documents and guarantees duly certified and to the
satisfaction of JK bank. These documents contain the Detailed Project Report (DPR) in
case of term loan, the stock reports and company’s financials along with guarantee in
case of cash credit, the salary slips in case of consumable loans to salaried persons and
securities in every case. The DPR contains the financial outlook, projections and the
assumptions in accordance to the company applying for the loan. After initial scrutiny the
borrower is requested to submit any further documents, if required and/or for clarification
and queries. For a complex and large project, agency may also be asked to make a
presentation to the team of appraisers, where the queries and clarification are addressed to
obtain the complete documents and clarification. The Team prepares a final appraisal note
in form of Report. We start with institutional financial viability assessment first, which
contains the assessment of the net worth of the main promoters (both individuals and
corporate according to the share holding pattern), the net worth of companies giving
corporate guarantee along with the main company asking for loan. The relevant
information from the audited reports of all is taken into account for this assessment. This
is how we come across to a fine picture of financial position of the company requesting
for financial aid. Confidential reports from existing bankers and lenders to the agency are
also sought to ascertain the borrower/promoter's track record. For our regular borrowing
agencies, the past record with JK Bank is also checked for any default.
From here on the financial appraisal takes up examining the projected future Cash Flows
and Balance Sheet. The main criterions used by JK Bank are DSCR (Debt Service
Coverage Ratio) and DER (Debt Equity Ratio). The guidelines issued by JK Bank govern
the required criterion.
I was required to assess the working capital requirements of various firms applying to JK
bank for Cash Credits (Working Capital Loans). We were required to estimate MPBF for

15
the same. Maximum Permissible Bank Finance is the maximum limit of credit that Bank
can lend. It is calculated as follows:

Maximum Permissible Bank Finance (MPBF)

Current Assets ( All Current Assets)

Less: Current Liabilities ( Crs. + Other Current Liabilities)
Working Capital Gap
Less: 25% of the Total Current Assets or NWC whichever is
higher of the two amounts

MPBF

Assessment Of Working Capital Fund Based : under Mortgage

Loan Scheme

Sales for last financial year

Projected Sales for next financial year
Accepted Sales
(Maximum 125% of the achieved turnover)
Permissible Limit A
(20% of the accepted sales)
Forced Sale value of Property
Permissible Limit B
(75% of the forced Sale Value)
Maximum Permissible Limit C
(Lower of A or B)
Available Limit
Limit Recommended by the branch

FORMS OF BANK FINANCE

A firm can draw funds from its bank within the maximum credit limit sanctioned. It can
draw fund in the following forms:

16
Overdraft

Under the overdraft facility, the borrower is allowed to withdraw funds in excess of the
balance in his current account up to a certain specified limit during a stipulated period.
Though overdrawn amount is repayable on demand, they generally continue for a long
period by annual renewals of the limits. It is a very flexible arrangement from the
borrower’s point of view since he can withdraw and repay funds whenever h desires
within the overall stipulations. Interest is charged on daily balances- on the amount
withdrawn-subject to some minimum charges. The borrower operates the account through
cheques.

Cash Credit

It is the most popular method of bank finance for working capital in India. Under this
method a borrower is allowed to withdraw funds from the bank up to the sanctioned
credit limit. Borrower is not required to borrow the entire sanctioned credit once, rather,
he can draw periodically to the extent of his requirements and repay by depositing surplus
funds in his cash credit account. There is no commitment charge; therefore, interest is
payable on the amount actually utilized by the borrower. Cash credit limits are sanctioned
against the security of current assets. Though funds borrowed are repayable on demand,
banks usually do not recall such advances unless they are compelled by adverse
circumstances. Cash credit is the most flexible arrangement from borrower’s point of
view. It is more often than not is used for working capital.

Purchase of Discounting Bills

Under the purchase or discounting of bills, a borrower can obtain credit from bank
against its bills. The bank purchases or discounts the borrower’s bills. The provided under

17
this agreement is covered within the overall cash credit or overdraft limit. Before
purchasing or discounting the bills, the bank satisfies itself as to the creditworthiness of
the drawer. Though the term bills purchased implies that the bank becomes owner of the
bills, in practice, bank holds bills as security for the credit. When a bill is discounted, the
borrower is paid the discounted amount of the bill.

Letter of Credit

Suppliers, particularly the foreign suppliers, insist that the buyer should ensure that his
bank will make the payment if he fails to honor its obligation. This is ensured through a
letter of credit arrangement. A Bank opens a Letter of Credit in favor of a customer to
facilitate his purchase goods. If the customer does not pay to the supplier within the credit
period, the bank makes the payment under the L/C arrangements. This arrangement
passes the risk of the supplier to the bank. Bank charges the customer for opening the
L/C. The Bank extends such facility to the financially sound customers. Unlike cash
credit or overdraft facility, the L/C arrangement is an indirect financing; the bank makes
payment to the suppliers on behalf of the customer only when he fails to meet the
obligation.
There are two banks involved in L/C arrangements. The L/C opener Bank on behalf of
the applicant or purchaser and the advisory bank on behalf of the beneficiary or supplier.
The L/C opener Bank issues L/C after taking required security. The beneficiary or
supplier gives the goods invoice & bill of exchange to the advisory bank. The advisory
bank sends the same to the Opener Bank for acceptance, the opener bank take an
acceptance from the applicant and sends back the same to the advisory bank. Now the
L/C opener Bank makes payment to the beneficiary or supplier in case of purchaser
default. The bank charges the customer for opening the L/C.

Bank Guarantee

A Bank Guarantee is a guarantee made by a bank on behalf of a customer (usually an

established corporate customer) should it fail to deliver the payment, essentially making

18
the bank a co-signer for one of its customer's purchases.
A bank guarantee is more risky for the merchant and less risky for the bank.
A letter from a bank guaranteeing that a buyer's payment to a seller will be received on
time and for the correct amount. In the event that the buyer is unable to make payment on
the purchase, the bank will be required to cover the full or remaining amount of the
purchase.
With a bank guarantee, a client can default and the bank assumes the liability.
Thus it can be said that Bank Guarantee is a commitment made by a bank to a foreign
buyer that the bank will pay an exporter for goods shipped if the buyer defaults.

Housing Loan

The Bank provides facility of housing loan to consumers fork purchase, construction,
renovations or for repairs of the house. The eligibility criterion of the bank is as follows:
• Employees of Govt., Semi-Govt. Dept., Civic Bodies, PSU's with minimum 5
years service.
• Reputed Businessmen with minimum 5 years standing.
• Professionals & Self employed like Doctors, Engineers , CA's , Advocates with
minimum 5 years standing
The quantum of loan that can be sanctioned to the consumer is:
• For Construction /Purchase 60 months net salary or 75.00 Lacs whichever is
lower.
• For repairs/renovation 20 months net salary, subject to a maximum of Rs.10.00
Lacs.
• For purchase of land: 20 months net salary/income subject to maximum of Rs.5
Lacs within J&K and Rs10.00 Lacs outside J&K.
• Also as an incentive for small borrowers, the loans up to Rs. 1.5 Lacs granted for
repairs/renovations of existing houses would now be secured by third party
guarantee of two persons or such other security as is deemed appropriate by the
Bank.

19
The Bank as against the loan amount asks for security from the borrower, the conditions
for which are as follows:
• Primary: Mortgage of the house Property to be purchased / constructed.
• Collateral: Third party Guarantee of one person, or assignment of LIC Policies,
pledge of Govt. securities etc.
• Negative lien on the property to be repaired/renovated without mortgaging the
same to the Bank.

In the view of above conditions bank sanctions the loan to the borrower. The bank asks a
margin of 15% for construction/purchase of built flat and 20% for renovation/purchase of
land. The J&K Bank charges a processing fee @0.25% of loan amount.
Following is the table for rate of interest that bank charges against housing loan amount.
They are subject to change.

Rate of Interest (Subject to change)

Floating Fixed
Up to
Up to Rs.15 Above Rs.15 Rs.15 Above
lacs lacs lacs Rs.15 lacs
Repayable up to 5
years 10.00% 11.75% 10.75% 12.75%
Above 5 years up to
10 years 10.50% 12.75% 11.75% 13.50%
Above 10 years up to
15 years 11.50% 12.75%
Above 15 years up to
20 years 11.75% 13.25%
Education loan

The J&K Bank also provide assistance to gain education to the Indian Nationals, who
have secured admission to professional/technical courses through entrance test/selection
process or have secured admission to foreign universities/institutions or have passed the

20
qualifying examination for admission to the courses or to employed person intending to
improve their educational qualification and/or receive training in modern technology in
India or abroad provided training offers prospects of better placement. The quantum of
finance is Rs. 7.50 Lacs for studies in India and Rs. 15.00 Lacs for studies abroad. The
courses that are finances ranges from Graduate/P.G. Courses in: Medicine, Surgery,
Engineering, Hotel Management, Design, Architecture, Bio-chemistry, Agriculture,
Veterinary etc. to Graduate / P.G Courses in : Business Management, Chartered or Cost
Accounting , Company Secretary ship.

The security against finance amount is Personal guarantee of borrower and Collateral
security equal to amount of loan. The margin that J&K Bank asks for is nil to the loan
amount of Rs. 4 lacs and for loans above Rs. 4 lacs, 5% in case studies pursued in India
and 15% in case studies pursued abroad..

. Rate of Interest (Subject to change)

Loan Amount Interest Rate

Up to Rs.25,000 9% p.a

Rs.25,001 to Rs.5.00 Lacs 10.50% p.a

Above Rs.5.00 Lacs 11.50% p.a

Apart from above said assistance bank also provide special education loans such as Term
loan for B.Ed/M.Ed. Courses. The purpose of this loan is to provide loan to students or
employed persons who want to pursue B.Ed/M.Ed courses and for meeting admission/
tuition/ examination/ library/ lab Fee. The nature of this type of loan is not called
educational loan but term loan. It is offered to Indian Nationals, who have completed
their graduation in any discipline from any recognized university, should have secured
admission to the recognized Institution/College imparting the B.Ed/M.Ed Course. The
loan application should be forwarded by the principal of the college. The quantum of

21
bank finance is maximum Rs. 25000 with 10% margin and a processing fee 0.05% or
minimum Rs. 25. The security in this case is third party guarantee of one person. The
interest rate is PLR with quarterly rests.

The J&K Bank also provide opportunity to children to have good quality primary
education for which it provides term loan assistance under the special tag Budshah
Primary Education Finance. This facility is to finance the entire cost of education of a
child including school fee, uniform, books, etc. The finance is granted in the name of
Guardian who has an independent regular source of income, for all children above the
age of 3 years, on producing a Certificate from the concerned recognized/ registered
school where the child has been granted admission and the loan application should be
forwarded by the principal of the school. The bank asks for personal guarantee of the
parent/guardian and third party guarantee of one person as the security (However third
party guarantee does not apply in case of Government employees drawing salary through
J&K Bank Branches). The bank also asks for a margin of 10% and a processing fee @
0.05% of the amount sanctioned with a minimum cap of Rs. 25 to be paid upfront. The
interest rate is charged with quarterly rests. The Quantum of Finance is given ahead:

Quantum of Finance

Class School Maximum Amount (Rs)

22
Pry.Edu. Private 30,000.00
Pry.Edu Govt. 2,000.00
Sec.Edu Private 25,000.00
Sec.Edu. Govt. 5,000.00

Car Loan

The J&K Bank provide car loan facility to the employees of Government/Semi
Government, Civic Bodies PSU's / Individual / Proprietorship Concerns / Firms / Limited
Companies known to the Bank. The eligibility criterion for Employees of Government /
Semi Government., Civic Bodies is: their Net annual income should not be less than Rs.
60000 per annum. Spouse’s income can also be included for calculating the eligibility for
quantum of finance. The applicant (individuals) should have a valid driving license in
his/her own name. The employees of the State Govt/Semi Govt. Departments/Other
Organizations should have a minimum of 5 years active service in the
organization/department. The security is as follows: Primary: Hypothecation of vehicle
Financed. Collateral: Third party guarantee of one person.

However, no Third Party Guarantee is required in respect of government employees

drawing salary through the bank and maintaining account with us or where drawing and
disbursing authorities undertake deduction of required monthly installments from their
salaries.

In respect of others like professionals, businessmen etc. guarantee of one person good for
the amount is obtained along with an affidavit to the effect that the prospective borrower
is not defaulter with any bank/ branch of the bank.

The quantum of loan is calculated on the basis of 24 months net monthly income/salary
which is subject to maximum finance of Rs. 10.00 lacs with a margin @ 20%. There are
no processing charges as such however the bank charges interest @ 11.50% (Fixed.)
Amount of loan is to be repaid within 7 years.

Apart from the above car loan facility the J&K Bank provides loan facility for used cars.
The purpose of such a finance is to let borrower buy an old car/jeep (not more than 5

23
years old) any model. This loan facility is available for Permanent employees of
Government/Semi-Government Undertakings, Autonomous bodies, Public Sector
Undertakings, Private Companies or reputed establishments. Professionals or self
employed individuals, Proprietorship Concerns. Partnership Firms, Private /Public Ltd
Co.

There is age criteria attached with this loan facility which is as follows: in case of a
salaried individual the applicant should be at least 21 years old at the time of application,
and below 58 years of age at the time of maturity of the loan but in case of institutions,
where retirement age is 60 years, the upper age limit shall be 60 years. In case of Self-
Employed Individual, any Proprietor, Partner, Professional or director above 21 years of
age but below 65 at the time of the loan's maturity. The bank asks for a margin @ 25%
for vehicles having age less than 3 years and 30% for vehicles having age of 3 years and
above up to 5 years. The maximum loan amount that the bank can finance is 2.5 times of
the net annual income or 15 lacs, whichever is lower. If married, the spouse's income also
considered provided the spouse guarantees the loan. Loan amount for used vehicles shall
be subject to a maximum limit of Rs. 15 lacs.

The security for the same is as follows: Primary: Hypothecation of vehicle to be

purchased. Collateral: No third party guarantee required in respect of employees drawing
salary through our branches & where letter of undertaking from employer is available.
Third Party Guarantee of two persons for all other applicants. Third Party Guarantee may
be waived off in case of existing account holders having good reputation. Instead Post
Dated Cheques may be accepted.

The rate of interest is fixed considering repayment period. If the repayment period is up
to 4 years then rate of interest would be PLR+ 0.25% p.a. and if the repayment period is
above 4 years and up to 6 years the rate of interest would be PLR+0.75% p.a. In case
cheques drawn for repayment of the loan gets bounced the bank charge Rs. 200 as
penalty.

The value of the vehicle is ascertained on the basis of present market value of the new car
of same variety & configuration less than depreciation

24
Consumer Loan

The J&K Bank grants Consumer Loan for purchase of durable consumer goods like:

• Desktop Computer ( P.C )/ Laptop

• Motor Cycle / Scooter / Air Conditioner
• Color TV / DVD Player/ VCR / Generator/ Washing Machine (automatic) /
cooking range.
• Refrigerator / Dish Antenna/DTH Equipment/ Kerosene Room Heater/ Washing
machine
• Vacuum cleaner
• Water Filter cum purifier / CD Players /Cassette Players / Geyser / Cooler, etc.

The scale of finance range from Rs. 3000 to Rs. 40000 per article however maximum
finance is Rs. 75000 subject to 12 times net monthly Salary.

The borrower must be one out of the following: Employees of Govt., Semi-Govt., Civic
Bodies, Self employed (with assured income).

The Security is as follows: Primary: Hypothecation of article financed. Collateral: Third

party Guarantee of one person. Rate of interest keep changing however current rate of
interest is 14% with no processing charges. The margin is 25%.

Consumption Loan

The main features of Consumption loan provided at J&K Bank are as follows:

• Disbursed in cash
• No questions asked about its end-use.

25
 • Revolving type facility, as full limit can be restored on request of the borrower
subject to the following:-
• Outstanding balance reduced to below 40% of the loan amount.
• At the time of reinstatement of the limit, applicant must have sufficient remaining
years of service so that loan is repaid within the borrowers remaining years of
service.
• Fresh D.P Note for full amount of loan.
• Borrower has not had more than two installments in arrears on any point of time
during currency of loan.
• Borrower shall have to furnish an undertaking from drawing and disbursing
officer for intimating the bank about their transfer and noting that outstanding
from the bank and the monthly installment obligation in their LPC forwarded to
the next drawing and disbursing authority.

The borrower must be Permanent employees of State, Central Government, autonomous

bodies, corporates, public & private sector undertakings having minimum of 3 years
confirmed service. The quantum of loan is 30 months gross salary or Rs 7.00 lacs
whichever is less. There is no margin asked and rate of interest is 14% subject to change.

Working Capital Loan/Term Loan or Mortgage loan for Trade & Service Sector

Banks are the main institutional sources of working capital finance in India. After trade
credit, bank credit is the most important source of financing working capital
requirements. A bank considers a firm’s sales and production plans and the desirable
levels of current assets in determining its working capital requirements. The amount
approved by the bank for the firm’s working capital requirements is called credit limit.
Credit limit is the maximum funds which a firm can obtain from the banking system.
In case of firms with seasonal businesses, banks may fix separate limits for the peak level
credit requirements indicating the periods during which the separate limits will be utilized
by the borrower. In practice, banks do not lend 100% of the credit limit; they deduct
margin money. A margin requirement is based on the principle of conservatism and is

26
meant to ensure security. If the margin requirement is 30%, bank will lend only up to
70% of the value of the asset. This implies that security of bank’s lending should be
maintained even if the asset’s value falls by 30%.
A borrower may sometimes require ad hoc or temporary accommodation in excess of
sanctioned credit limit to meet unforeseen contingencies. Banks provide such
accommodation through a demand loan account or a separate non operable cash credit
account. The borrower is required to pay a higher rate of interest above the normal rate of
interest on such additional credit.
The purpose of such loan is to provide hassle free working capital finance to the
borrower. The nature of this loan can be cash credit, overdraft or a term loan. The
borrower should have a good track record of 3 years.
The security in this case goes as follows: Primary Hypothecation of stocks and book-
debts Collateral Mortgage of Unencumbered residential house/flat, commercial or
industrial property with a clear marketable title in the name and possession of the
borrower/Proprietor/ Partner/s/Director/s either self occupied or vacant.
The Rate of interest is PLR+1% with monthly rests. The term loan (against mortgage of
immovable property) from a minimum Rs. 0.50 lacs to maximum Rs. 50 lacs or 30 times
net monthly income whichever is lower. The security is the Mortgage of the
unencumbered residential house/flat, commercial or Industrial property with a clear
marketable title in the name and possession of borrower/proprietor or partner/s/Director/s
either self occupied or vacant with a security cover of 1.5 times the amount of loan. The
Rate of Interest is PLR+2.5% with a repayment period of 60 months.

Factors to be taken into consideration while determining

requirements for working capital:

Production Policies

27
A sugar factory which belongs to a seasonal industry would obviously have its working
capital need affected by the length of the crushing season. The production schedule i.e.
the plan for production, has great influence on the level of inventories. In some cases raw
material can be procured only in a particular season and have to be stocked for the
production of the whole year. In many others, the production cycle is limited to a part of
the year and raw materials have to be accumulated throughout the year. In all such cases
the need for working capital will vary according to the production plans. Similarly, the
decision of the management regarding automation, etc, also affects working capital
requirements. In a labor- intensive process, the requirements of working capital will be
higher. In the case of highly automatic plant, the requirements of long-term funds would
be greater.

Nature of the business

The shorter the manufacturing process, the lower is the requirements of working capital.
This is because, in such a case, inventories have to be maintained at a low level. Longer
the manufacturing process, higher will be the requirements of working capital. This is the
reason why highly capital-intensive industries require large amount of working capital to
run their sophisticated and long production process. Similarly, a trading concern requires
lower working capital than a manufacturing concern.

Credit policy

The credit policy of the company also determines the requirements of working capital. A
company, which allows liberal credit to its customers, may have higher sales but
consequently will have large amount of funds tied up in sundry debtors. Similarly a
company, which has very efficient debt collection machinery and offers strict credit
terms, may require lesser amount of working capital than the one where debt collection
system is not so efficient or where the credit terms are liberal. The credibility of a
company in the market also has an effect on the working capital requirements. Reputed
and established concerns can purchase raw material on credit and enjoy many other

28
services also like door delivery, after sales service etc. This would mean that they could
easily have large current liabilities; therefore the required working capital may not be
very high.

Inventory policy

The inventory policy of a company also has an impact on the working capital
requirements since a large amount of funds is normally locked up in inventories. An
efficient firm may stock material for a smaller period and may, therefore, require lesser
amount of working capital.

Abnormal factors

Abnormal factors like strikes and lockouts also require additional working capital.
Recessionary conditions necessitate a higher amount of stock of finished goods
remaining in stock. Similarly, inflationary conditions necessitate more funds for working
capital to maintain same amount of current assets.

Market conditions

Working capital requirements are also affected by market conditions like degree of
competition. Large inventory is essential as delivery has to be off the shelf or credit has to
be extended on liberal terms when market competition is fierce or market is not very
strong is a buyer’s market.

Conditions of supply

If prompt and adequate supply of raw materials, spares, stores etc. is available it is
possible to manage with small investments in inventory or work on the just in time (JIT)
principle. However if the supply is erratic, scant seasonal, channel zed through

29
government agencies etc., it is essential to keep large stocks increasing working capital
requirements.

Business Cycle

Business fluctuations lead to cyclical and seasonal changes in production and sales and
affect the working capital requirements.

Growth and expansion

The growth in volume and growth in working capital go hand in hand. However, the
change may not be proportionate and the increased need for working capital is felt right
from the initial stages of growth.

Level of taxes

The amount of taxes paid depends on taxation laws. These amount usually have to be
paid in advance. Thus need for working capital varies with tax rates and advance tax
provisions.
Dividend policy

Payment of dividend utilizes cash while retaining profits acts as a source of working
capital. Thus working capital gets affected by dividend policies.

Price level changes

Inflationary trends in the economy necessitate more working capital to maintain the same
level of activity.

30
Operating efficiency

Efficient and coordinated utilization of capital reduces the amount required to be invested
in working capital

Securities Required in bank finance

Banks generally do not provide working capital without adequate security. The following
are the modes of security which a bank may require:

31
Hypothecation

Under hypothecation, the borrower is provided with working capital finance by the bank
against the security of movable property, generally inventories. The borrower does not
transfer the property to the bank; he remains in the possession of property made available
as security for the debt. Thus hypothecation is a charge against property for an amount of
debt where neither ownership nor possession is passed to his creditor. Banks generally
grant credit hypothecation only to first class customers with highest integrity. They do not
usually grant hypothecation facility to new borrowers.

Pledge

Under this arrangement, the borrower is required to transfer the physical possession of
the property for the payment of debt. In case of mortgage, the possession of the property
may remain with the borrower, with the lender getting the full legal title. The transferor
of interest (borrower) is called mortgager, the transferee (bank) is called mortgagee, and
the instrument of transfer is called the mortgage deed.
The credit granted against immovable property has some difficulties. They are not self
liquidating. Also, there are difficulties in ascertaining the title and assessing the value of
the property. There is limited marketability and therefore security may often b difficult to
realize. Also, without the court’s decree the property can not be sold. Usually, for
working capital finance, the mode of security is either hypothecation or pledge.
Mortgages may be taken as additional security.

Lien

Lien means right of the lender to retain property belonging to the borrower until he
repays credit. It can be either a particular lien or general lien. Particular lien is a right to
retain property until the claim associated with the property is fully paid. General lien, on

32
the other hand, is applicable till all dues of the lender are paid. Banks usually enjoy
general lien.

33
 Case
Studies
Assessment of Working Capital /Cash Credit
Facility/Term Loan

M/S Quality Crafts Store

M/S Quality Crafts Store Proprietor Mr. Shah Alam Mateen 256-D 1st floor, Green
Towers, established in the year 2002, is engaged in retail business of Kashmiri shawls
particularly trading of Pashmina and woolen shawls and allied items. The party has been

34
in connection with and dealing with the J&K Bank Lajpat Nagar branch since year 2006
with satisfactory dealings and good conduct. The turnover of account is encouraging. The
party has established good trade connections and is involved in related trade. No negative
complaints has been registered or found against the party ever since the opening of
account with the bank branch. The amount is frequently routed through the account and
the performance of account is good.

Borrower’s Information

Name of Applicant Borrower : Mr. Shah Alam Mateen

Address of the Head/Regd. Office : 256-D 1st floor, Green Towers
Constitution : Individual
Date of Establishment : Year 2002
Period since dealing with branch : Year 2006
Net worth as on 31.10.2007 : Rs. 9.00 lacs

General Information of the Proposal

Existing Banking Arrangements : Sole Banking

Proposed Banking Arrangements : Sole Banking
Sanction Comes Under Powers of : Branch Head
Activity : Trading of Pashmina, woolen
shawls etc.
Sector : Trading
Present Facilities by the Applicant : Nil
Facility Requested by the Applicant : Cash Credit
Purpose of Borrowing : For Expansion of Existing Business
Amount Requested : Rs. 5.00 Lacs.

Securities Proposed for the Facility

35
Primary Security
Hypothecation of stocks and Book Debts

Collateral Security
Third Party Guarantee of two persons:
1. Mr. Azam Ahmad S/o Mr. Naseeruddin Ahamad
2. Mr Shoeb Tak S/o Mr. Younis Tak

Both the guarantors are dealing with the J&K Bank Branches. As reported Both are
availing cash credit facility with their respective branches and with a satisfactory
performance.

Financials of the Firm (Amt. in Rs. Lacs)

Particulars 31/03/2007 31/03/2008

Projected
Sales 6.12 19.00
Purchases 4.12 17.53

36
% of Sales Growth 325.00
Net Profit 1.42 2.23

Liabilities

Share Capital 2.64 3.30

Total Term Liabilities 2.64 3.30

Current Liabilities

Working Capital 0.00 8.00

Sundry Creditors 0.38 1.20
Expenses Payable 0.23 0.65
Borrowings 0.00 0.00
Other liabilities 0.00 0.00

Total Current Liabilities 0.61 9.85

Tolal Liabilities 3.25 13.15

Assets

Investments 0.00 0.00

Fixed Assets 0.24 0.72
Total Fixed Assets 0.24 0.72

Current Assets

Stocks 1.24 8.50

Sundry Debtors 0.52 3.16
Cash in hand/Bank Balance 1.25 0.77
Loans/Advances 0.00 0.00

Total Current Assets 3.01 12.43

Total Assets 3.25 13.15

Financial Indicators
Particulars 31/03/2007 31/03/2008
Net Working Capital (In Rs. Lacs) 2.40 2.58
Current Ratio 4.93 1.26
Stocking Velocity ( Days) 108 175
Debtors Velocity (Days) 31 60
Creditors Velocity (Days) 33 25

37
Apart from the above financials of the party, the account statement reveals the following
transactions of the party with the Bank Branch (Amt. in Rs. Lacs) :

Debit Summation Credit Summation

From 01/04/2006 to 31/03/2007 (1 year) 6.52 6.50
From 01/04/2007 to 31/10/2007 (7 months) 11.62 11.10

Comments and Observations:

Financial Indicators has been calculated as follows:

a) Net Working Capital: Total Current Assets less Total Current Liabilities.
b) Current Ratio: Total Current Assets divided by Total Current Liablities.
c) Stocking Velocity: Stock for the year divided by Cost of Goods Sold or Credit
Purchase during the year multiplied by 360 days.
d) Debtors Velocity: Average Receivables or Debtors for the year divided by Credit
Sales during the year multiplied by 360 days.
e) Creditors Velocity: Average Payables or Creditors for the year divided by Credit
Purchase during the year multiplied by 360 days.
Other Comments and observations:
f) The party has projected to achieve a sales target of Rs. 19.00 Lacs over previous
year achievement of Rs. 6.12 Lacs. The projected sales target seems to be
achievable owing to the fact that up to 31/10/2007 (7 months) the party has a sales
turnover of Rs. 11.62 lacs through the account.
g) Stock Velocity reveals the part of sales always invested in stock during the year or
in other words it refers to the period of sales sans obstacles out of the current
stock in case the production halts due to strike or other reason.

38
 The stocking period of 175 days is on higher side hence its been accepted at 90
days level.
h) Debtors Velocity reveals the duration within the debtors are expected to be
realized. The projected debtors’ period seems reasonable hence accepted for
assessment as projected.
i) Creditors Velocity reveals the duration within the creditors are expected to be
paid. Lesser the days better is the position of the firm. The projected creditors
velocity is at a lower level, keeping the kind of stocks in trade into consideration,
the velocity has been accepted at 50 days level.

Assessment of MPBF (Amt. in Rs. Lacs)

Particulars Amount
Accepted Sales 19.00
Accepted Purchase 17.53

Current Assets
Stock (17.53*19÷360) 90 days 4.38
Debtors (19*60÷360 60 days 3.16
Cash in hand 0.54
Loans & advances 0.00
Total Current Assets (a) 8.08

Current Liabilities
Creditors (17.53*50÷360) 50 days 2.50
Other liabilities 0.00
Total Current liabilities (b) 2.50

Working Capital Gap (a-b) 5.58

Margin (as projected by the party) 2.58
MPBF 3.00

39
Recommendations of Bank Branch

In view of above, it is proposed, if agreed, to allow Cash Credit Facility of Rs. 3 Lacs
(Rupees three lacs only) in favor of M/S Quality Crafts Store Prop. Mr. Shah Alam
Mateen for a period of one year subject to renewal after review against securities as
discussed.

Rate of Interest : PLR presently 13 % with monthly rests or any other rate
This may be prescribed by the Bank from time to time.

Margin : 40% on Stocks

50% on Book-Debts (excluding book debts older than
6 months).
.

40
 M/S A.M. CLASSIC

M/S A.M. Classic Proprietor Mr. Saleem Siddique E-115 Cannought Circle New Delhi,
established in the year 1997, is engaged in wholesale and retail trading of shawls,dress
material and artificial jewelries. The party has been in connection with and dealing with
the J&K Bank Lajpat Nagar brannch with satisfactory dealings and good conduct. The
turnover of account is encouraging. The party has established good trade connections and
is involved in related trade. No negative complaints has been registered or found against
the party ever since the opening of account with the bank branch. The amount is
frequently routed through the account and the performance of account is good. The party
was maintaining current account with J&K Bank Lajpat Nagar Branch and was
accommodated by way of cash credit facility of Rs. 5.50 lacs in December 2005 against
collateral security of 3rd party guarantee of two persons. The said C/C limit was renewed
on 31/01/2007.

Borrower’s Information

Name of Applicant Borrower : Mr. Saleem Siddique

Address of the Head/Regd. Office : E-115 Cannought Circle New Delhi
Constitution : Sole Proprietorship
Date of Establishment : Year 1997

General Information of the Proposal

41
Existing Banking Arrangements : Sole Banking Arrangements
Proposed Banking Arrangements : Sole Banking Arrangements
Sanction Comes Under Powers of : Zonal Office Delhi
Activity : Trading
Sector : Handicrafts
Present Facilities by the Applicant : C/C facility of Rs. 5.50 lacs against
Collateral security of 3rd party
Guarantee of two persons.
Facility Requested by the Applicant : Cash Credit under bank’s scheme of
Mortgage loan for Trade & Service
Sector
Purpose of Borrowing : For Expansion of Existing Business
Amount Requested : Rs. 35.00 Lacs.

Securities Proposed for the Facility

Primary Security
Hypothecation of stocks and Book Debts

Collateral Security
Third Party Guarantee of two persons:
1 Existing : 3rd Party Guarantee of two persons
2 Offered : Mortgage of flat at F-87, First Floor, Connought Circle,
New Delhi

The security offered as mortgage comprises of residential flat at F-87, Connought Circle,
New Delhi standing in the name of Mr. Saleem Siddique S/o Mr. Shahid Siddique
(Proprietor of the Firm). As per the valuation report of P. Kumar, the market value of the
said flat is Rs. 54.00 lacs and the realizable value (Forced Sale Value) is less by 15% of
the cost. It is to be mentioned that the against said flat, the party is presently availing
Home Loan Facility from IDBI Bank and the party will adjust the said loan in full and

42
final prior to availing the fresh facility from the Branch. The papers regarding clearance
of title deeds in respect of flat to be offered as mortgage have been forwarded to Bank’s
approved lawyer/Legal Department Zonal Office New Delhi for Legal Opinion.

Financials of the Firm (Amt. in Rs. Lacs)

Particulars 31/03/2006 31/03/2007 31/03/2008

Sales 64.08 127.00 163.46

Purchases 60.32 115.40 151.48
% of Sales Growth 98.19 28.71
Net Profit 3.55 4.41 5.57

Liabilities

Share Capital 4.20 7.85 12.77

Car Loan- IDBI Bank 0.00 2.42 1.55
Home Loan- IDBI Bank 14.53 12.01 0.00
Unsecured Loans 0.00 6.00 6.00
Total Term Liabilities 18.73 28.28 20.32

Current Liabilities

Working Capital 0.00 0.00 39.51

Sundry Creditors 31.13 10.78 12.39
Expenses Payable 1.08 0.68 0.96
Sales Tax Payable 0.00 0.72 1.25
Other liabilities 0.00 0.00 0.00

Total Current Liabilities 32.21 12.18 54.11

Total Liabilities 50.94 40.46 74.43

Assets

Investments 0.00 0.52 0.84

Fixed Assets 16.96 19.31 17.87
Total Fixed Assets 16.96 19.83 18.71

Current Assets

43
Stocks 5.15 11.43 27.15
Sundry Debtors 22.43 3.46 28.52
Cash in hand/Bank Balance 6.20 5.74 0.05
Loans/Advances 0.00 0.00 0.00
Others 0.20 0.00 0.00

Total Current Assets 33.98 20.63 55.72

Total Assets 50.94 40.46 74.43

Financial Indicators

Particulars 31/03/2006 31/03/2007 31/03/2008

Net Working Capital (In Rs. Lacs) 1.77 8.45 1.61
Current Ratio 1.05 1.69 1.03
Stocking Velocity ( Days) 31 36 65
Debtors Velocity (Days) 126 10 63
Creditors Velocity (Days) 186 34 29

Apart from the above financials of the party, the account statement reveals the following
transactions of the party with the Bank Branch (Amt. in Rs. Lacs):

Months Debit Summation Credit Summation

April-2006 11.94 20.91
May-2006 7.67 1.50
June-2006 2.62 0.36
July-2006 2.99 0.00
August-206 6.52 6.53
September-2006 3.49 0.00
October-2006 3.40 4.69
November-2006 6.32 3.55
December-2006 12.58 13.04
January-2007 18.45 18.97
February-2007 14.87 32.41

44
March-2007 15.27 7.84
Total 106.12 109.80

Comments and Observations:

Financial Indicators has been calculated as follows:

a) Net Working Capital: Total Current Assets less Total Current Liabilities.
b) Current Ratio: Total Current Assets divided by Total Current Liablities.
c) Stocking Velocity: Stock for the year divided by Cost of Goods Sold or Credit
Purchase during the year multiplied by 360 days.
d) Debtors Velocity: Average Receivables or Debtors for the year divided by Credit
Sales during the year multiplied by 360 days.
e) Creditors Velocity: Average Payables or Creditors for the year divided by Credit
Purchase during the year multiplied by 360 days.

Other Comments and observations:

f) The party has achieved sales target of Rs. 127.00 lacs during the financial year
2006-2007, out of which Rs. 109.80 lacs has been routed through the C/C account
thorough the Bank Branch. It is about 86% of sales that have been routed through
the account.
g) The conduct of account has remained satisfactory.
h) The firm is running on profitable lines and capital of the firm is showing
continuous increasing trend.
i) The firm is availing Car Loan Facility from IDBI Bank and is regularly depositing
installments in the said account.
j) The proprietor of the firm is also availing Home Loan facility again from IDBI
Bank and the party intends to adjust the same.

45
 Assessment Of Working Capital : (Under Mortgage Loan
Scheme)

Particulars Amount (in lacs)

Sales achieved during the year 2006-2007 127.00
Projected Sales for the year 2007-2008 163.46
Accepted Sales 158.75
(Maximum 125% of the achieved turnover)
Permissible Limit 31.75 A
(20% of the accepted sales)
Market Value of property as per valuation report 54.00
Forced Value (85% of market value) 45.90
Permissible Limit 34.43 B
(75% of the forced Sale Value)
Maximum Permissible Limit 31.75
(Lower of A or B)
Limit Recommended by the branch 32.00

46
Recommendations of the Bank

In view of above, it is recommended to sanction Cash Credit Facility of Rs. 32.00 Lacs
(Rupees Thirty Two Lacs only) in favor of M/S A.M. Classic proprietor Mr. Saleem
Siddique under Bank’s scheme “Mortgage Loan for Trade and Service Sector” against
before said securities for a period of one year subject to renewal after review.

Rate of Interest : As per CAD guidelines

Validity : One year

Other Conditions
1. Prior to release of facility, the party shall have to adjust C/C facility of Rs. 5.50
lacs sanctioned under Normal Cash Credit Scheme of Bank.
2. Prior to release of facility, party to adjust Home loan facility with IDBI Bank in
full and final

47
 M/S Healthy Heart Hospital

M/S Healthy Heart Hospital (Popularly known as 3H) South Extension New Delhi is
headed by eminent cardiologist of the country Dr. Nasir. Dr. Nasir is the recipient of
various prestigious awards and has a rich expertise in treating heart ailments. The hospital
run with the specialization of treating heart ailments with all kinds of modern equipment
and infrastructure. There are four stake holders of the hospital one being Dr. Nasir
himself, apart from him, out of three stacke holders, two are doctors by profession and
both are the daughters of Dr. Nasir. The fourth partner Mrs. Zainab Kareem is teacher by
profession and is part of the family. All the three partner have 2% stake each in the
Hospital rest is lying with Dr. Nasir.
Dr. Nasir presently enjoying the facilities of Car Loan, and Housing Loan and he has
requested for sanction of mortgage loan of Rs. 100.00 lacs. The conduct of all the loan
accounts of Dr. Nasir is satisfactory.

Borrower’s Information

48
Name of Applicant Borrower : Healthy Heart Hospital (3H)
Address of the Head/Regd. Office : South Extension, New Delhi.
Constitution : Partnership
Date of Incorporation : Year 1995
Period since dealing with branch : Year 2002
Net worth : Rs.600.00 lacs. Approx.

General Information of the Proposal

Existing Banking Arrangements : 1. Working Capital Limit of Rs. 25.00 Lacs.

Presently Adhoc Facility of Rs.
25.00 lacs over and above the Regular
limit of Rs. 25.00 Lac.
2. Term Loan Facility of Rs. 396.00 Lac with
Outstanding Balance of Rs. 50.41 Lac as on
Date.
3 Term Loan facility of Rs. 15.00 lac for
Purchase of Machinery with O/S Balance
Of Rs. 3.99 lacs as on date of proposal.
4 Term Loan facility of Rs. 9.00 Lac with O/S
Balance of Rs. 7.13 lacs
Proposed Banking Arrangements : Enhancement in working capital limit of Rs.
25.00 lacs to Rs. 100.00 Lacs as Cash Credit
Limit under “Mortgage Loan under Trade
And Service sector”.

49
Sanction Comes Under Powers of : Zonal Office
Activity : Running Hospital with specialization in
Treating heart ailments.
Sector : Professionals
Present Facilities by the Applicant : Detailed above at the head Existing Banking
Arrangements
Facility Requested by the Applicant : Cash Credit limit under “Mortgage Loan
Under Trade and Service Sector”.
Purpose of Borrowing : For Expansion and growth of Business
Amount Requested : Rs. 100.00 Lacs.

Securities Existing/Proposed for the Facility

Primary
Hypothecation of stocks of medicine, machinery and receivables/Book debts.

Collateral
The property is commercial in nature and is one of the reputed hospitals of metropolis.
The property secured is none other than Healthy Heart Hospital itself. The full
description of property is :
Plot No-1 South Extension New Delhi with four storied building and basement. The
property has been valued to the tune of Rs. 889.58 Lacs as per recent valuation report
prepared by Mr. P Kumar, registered valuer on approved panel of the Bank. In view of the
fact that real estate has witnessed enormous price escalation particularly in preceding
years and the present property is enjoying placement at prime location the assessed value
seems reasonable.

Apart from above mentioned securities there is also personal guarantee of partners.

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Details of Credit Facilities Enjoyed By Dr. Nasir Partner M/S Healthy Heart
Hospitals (3H):

Serial Nature of Credit Limit Balance Security

No. Facility O/S
1. Car Loan 2.26 1.70 Hypothecation of Car
2. Housing Loan 15.00 9.90 Mortgage of Flat Purchased for
Rs. 56.33 Lacs
3. Housing Loan 102.00 60.00 Mortgage of House valued Rs.
154.00 Lacs

Financials of the Firm (Amt. in Rs. Lacs)

Particulars 31/03/2006 31/03/2007 31/03/2008

Audited Provisional Projected
Income 335.38 339.16 424.55
Net Profit 12.36 10.31 25.68
% of growth in sales

Liabilities

Share Capital 50.96 66.21 91.64

Term Loan-J&K Bank 84.57 54.21 38.21
Term Loan-Other Banks 39.15 41.19 32.24
Unsecured Loans 76.41 70.43 73.18
Total Term Liabilities 251.09 232.04 235.27

Current Liabilities

Working Capital 20.82 15.89 18.39

Sundry Creditors 73.88 70.30 84.37
Expenses Payable
Other liabilities 17.06 16.51 16.21

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Total Current Liabilities 111.76 102.70 118.97
Total Liabilities 362.85 334.74 354.24

Assets

Fixed Assets 346.53 321.88 297.26

Total Fixed Assets 346.53 321.88 297.26

Current Assets

Receivables 5.40 3.48 3.20

Cash in hand/Bank Balance 4.39 3.29 3.35
Loans/Advances 6.53 9.39 6.10
Others 44.33

Total Current Assets 16.32 16.16 56.98

Total Assets 362.85 338.04 354.24

Financial Indicators

Particulars 31/03/2006 31/03/2007 31/03/2008

Tangible Net worth (In Rs. Lacs) 251.09 232.04 235.27
Current Ratio 0.14 0.15 0.48

Comments and Observations:

a) The Hospital income has shown marginal increase over previous years income
(from 335.38 lacs to 339.16). However projected income (Rs. 424.55 Lacs) seems
achievable owing to proposed expansion program.
b) The current ratio has remained below bench mark, however keeping into account
the nature of engagement present level seems justified..

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 Assessment Of Working Capital : (Under Mortgage Loan
Scheme)

Particulars Amount (in lacs)

Provisional business income during the year 2006- 339.16
2007
Projected business income for the year 2007-2008 424.55
Accepted Income/Turnover 423.95
(Maximum 125% of the achieved turnover)
Permissible Limit 84.79 A
(20% of the accepted Income/Turnover)
Realizable Value of the property 889.58
Forced Value 889.58
Permissible Limit 667.19 B
(75% of the forced Sale Value)
Maximum Permissible Limit 84.79
(Lower of A or B)
Loan requested by applicant 100.00
Limit Recommended by the branch 100.00

Recommendations of Bank Branch

Keeping into consideration the reputation, satisfactory dealings and value of the property
the requested enhancement of present limit from Rs. 25.00 Lacs (Rs, Twenty Lacs) to Rs.
100.00 Lacs (Rs. One Crore only) is proposed in favour of the party under “Banks
Mortgage Loan Scheme For Trade and Service.
In view of past satisfactory working results and excellent track record supported by
sufficient collateral security, the sanction of Rs. 100.00 Lacs as cash credit facility is
recommended for sanction in favor of Healthy Heart Hospitals (3H). The facility allowed

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is for the period of one year subject of renewal after review of performance. However
present limit of Rs.25.00 lacs which the party enjoys will be withdrawn simultaneously
with the release of proposed facility. Apart from this all other terms and conditions
coming under the purview of mortgage loan scheme for trade and services will apply.

BIBLIOGRAPHY:

Reference-

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Websites: www.jkbank.org
www.google.co.in

Book : Financial Management

By Prasanna Chandra

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