STATE BANK OF INDIA

Project Financing .
CONTENTS

SECTION I
Executive Summary 4-7
Industrial Profile 9 -12
SECTION II
Company Profile 13-21

SECTION III
Theoretical Background for the project work 22- 49
- Introduction to project financing
- Project financing risks
- Project Financial Appraisal
Project in Brief- SL flow controls 50- 53

SECTION IV
Financial Analysis 54-74
Measures taken by SBI when the repayment is not possible 75

SECTION V

Analysis 76
Findings 77 -78

Recommendations
Limitations
Conclusions
Bibliography 79

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Executive Summary

Title of the project

Financial Appraisal Of the Project Financed By SBI

As a part of curriculum, every student studying MBA has to undertake a project on a

particular subject assigned to him/her. Accordingly I have been assigned the project
work on the study of project financing in Banking Sector.

As it is rightly said that finance is the life blood of every business so every business
need funds for smooth running of its activities and bank is the one of the source through
which the business get funds, before financing the bank appraise the projects and if the
projects meet the requirement of the bank rules than only they will finance.

Project financing is commonly used as a financing method in capital-intensive

industries for projects requiring large investments of funds, such as the construction of
power plants, pipelines, transportation systems, mining facilities, industrial facilities
and heavy manufacturing plants.

The core area of this project focuses on the financial appraisal of SL flow controls, who
has started Manufacturing of industrial valves which is financed by SBI
.
This project has been undertaken at State Bank of India, Hubli branch which is one of
the largest bank in India having vast domestic network of over 9000 branches. SBI
deals with all financial activities which involves all types of deposits, advances
including project financing, mutual funds etc

Financial appraisal which mainly leads to the feasibility study consisting of ratio
analysis and capital budgeting calculations.

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Main Objective

Financial appraisal of project

Sub Objectives -
1. To know the projects financed by SBI.
2. To know the policies of SBI towards the project financing.
3. To know the risks involved in projects financing.
4. To appraise the projects using financial tools.
5. To know the measures taken by bank when the clients fail to repay the amount.

Methodology

Data collection method: The report will be prepared mainly using secondary data viz,

Secondary data

www.sbi.com.
Company manuals.
Commercial Banks Book.

The techniques, which would be used for the study:

1. Discussions with Bank guide and customers.

2. By studying projects reports

.
3. Using Project Techniques:

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Analysis:-

This analysis part is related to the financial viability of the project SL Flow
Controls:-

Through ratio analysis I analyzed that the liquidity position of the firm is
good and it is maintaining the standard ratio..
Debt Equity ratio is in decreasing trend, it shows that the firm is reducing its
liability portion by paying the loan year on year so the financial risk less.

Findings :- These are related to bank in general

State bank of India is strictly following the guidelines of RBI on Project

Financing
Sanctioning for the projects is approved by RASMECC (Retailed Assets
Small And Medium Enterprises Credit Cell).

The bank finances the projects only through term loans.

Interest rates are fixed depending upon the projects which is known as State
Bank advance rate.

Recommendations:-

Bank check only financial, technical and commercial feasibility of the

project and it should not consider sensitivity analysis and social cost benefit
analysis of the project so bank should consider this because these are also
important from the point of view of risk and economy growth.
Bank should be caution about the availability of security and ensure
honesty of both borrower and guarantor so as to avoid the account
becoming the loss assets.

Limitation of the study:-

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Some of the information are confidential in nature that could not divulged for study.

Industrial Profile

HISTORY OF BANKING IN INDIA

Without a sound and effective banking system in India it cannot have a healthy
economy. The banking system of India should not only be hassle free but it should be
able to meet new challenges posed by the technology and any other external and
internal factors.

For the past three decades Indias banking system has several outstanding
achievements to its credit. The most striking is its extensive reach. It is no longer
confined to only metropolitans or cosmopolitans in India. In fact, Indian banking
system has reached even to the remote corners of the country. This is one of the main
reasons for Indias growth. The governments regular policy for Indian bank since 1969
has paid rich dividends with the nationalization of 14 major private banks of India.

The first bank in India, though conservative, was established in 1786. From 1786 till
today, the journey of Indian Banking System can be segregated into three distinct
phases. They are as mentioned below:

Early phase from 1786 to 1969 of Indian Banks.

Nationalization of Indian Banks and up to 1991 prior to Indian.

Banking sector Reforms.

New phase of Indian Banking System with the advent of Indian.

Financial & Banking Sector Reforms after 1991.

Phase I

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The General Bank of India was set up in the year 1786. Next came Bank of Hindustan
and Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of
Bombay (1840) and Bank of Madras (1843) as independent units and called it
Presidency Banks. These three banks were amalgamated in 1920 and Imperial Bank of
India was established which started as private shareholders banks, mostly European
shareholders.

In 1865 Allahabad Bank was established and first time exclusively by Indians, Punjab
National Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and
1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian
Bank, and Bank of Mysore were set up. Reserve Bank of India came in 1935.

Phase II

Government took major steps in this Indian Banking Sector Reform after independence.
In 1955, it nationalised Imperial Bank of India with extensive banking facilities on a
large scale specially in rural and semi-urban areas. It formed State Bank of India to act
as the principal agent of RBI and to handle banking transactions of the Union and state
government all over the country.

Seven banks forming subsidiary of State Bank of India was nationalised in 1960 on 19 th
July 1969, major process of nationalisation was carried out. It was the effort of the then
Prime Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in the country
were nationalized.Second phase of nationalisation Indian Banking Sector Reform was
carried out in 1980 with seven more banks. This step brought 80% of the banking
segment in India under Government ownership.

The following are the steps taken by the Government of India to Regulate Banking
Institutions in the Country:

1. 1949: Enactment of Banking Regulation Act.

2. 1955: Nationalisation of State Bank of India.

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3. 1959: Nationalisation of SBI subsidiaries.

4. 1961: Insurance cover extended to deposits.

5. 1969: Nationalisation of 14 major banks.

6. 1971: Creation of credit guarantee corporation.

7. 1975: Creation of regional rural banks.

8. 1980: Nationalisation of seven banks with deposits over 200 crores.

After the nationalization of banks, the branches of the public sector bank India raised to
approximately 800% in deposits and advances took a huge jump by 11000%. Banking
in the sunshine of Government ownership gave the public implicit faith and immense
confidence about the sustainability of these institutions.

Phase III

This phase has introduced many more products and facilities in the banking sector in
its reforms measure. In 1991, under the chairmanship of M Narasimham, a committee
was set up by his name, which worked for the Liberalization of Banking Practices.

Banking in India originated in the first decade of 18 th century with The General Bank
Of India coming into existence in 1786. This was followed by Bank of Hindustan. Both
these banks are now defunct. The oldest bank in existence in India is the State Bank Of
India being established as The Bank Of Calcutta in Calcutta in June 1806. Couple of
Decades later, foreign Banks like HSBC and Credit Lyonnais Started their Calcutta
operations in 1850s. At that point of time, Calcutta was the most active trading port,
mainly due to the trade of British Empire and due to which banking actively took roots
there and prospered. The first fully Indian owned bank was the Allahabad Bank set up
in 1865.

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By 1900, the market expanded with the establishment of banks like Punjab National
Bank in 1895 in Lahore; Bank of India in 1906 in Mumbai-both of which were founded
under private ownership. Indian Banking Sector was formally regulated by Reserve
Bank Of India from 1935. After Indias independence in 1947, the Reserve Bank was
nationalised and given broader powers.

SBI Group

The Bank of Bengal, which later became the State Bank of India. State Bank of India
with its seven associate banks commands the largest banking resources in India.

Nationalization

The next significant milestone in Indian Banking happened in late 1960s when the then
Indira Gandhi government nationalized on 19th July 1949, 14 major commercial Indian
banks followed by nationalisation of 6 more commercial Indian banks in 1980.

The stated reason for the nationalisation was more control of credit delivery. After this,
until 1990s, the nationalized banks grew at a leisurely pace of around 4% also called as
the Hindu growth of the Indian economy.

After the amalgamation of New Bank of India with Punjab National Bank, currently
there are 19 nationalized banks in India.

Liberalization-

In the early 1990s the then Narasimha rao government embarked a policy of
liberalization and gave licences to a small number of private banks, which came to be
known as New generation tech-savvy banks, which included banks like ICICI and
HDFC. This move along with the rapid growth of the economy of India, kick started the
banking sector in India, which has seen rapid growth with strong contribution from all
the sectors of banks, namely Government banks, Private Banks and Foreign banks.
However there had been a few hiccups for these new banks with many either being

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taken over like Global Trust Bank while others like Centurion Bank have found the
going tough.

working for traditional banks. All this led to the retail boom in India. People not
just demanded more from their banks but also received more.

Banking in India

1 Central Bank Reserve Bank of India

State Bank of India, Allahabad Bank, Andhra Bank,

Bank of Baroda, Bank of India, Bank of
Maharastra,Canara Bank, Central Bank of India,
2 Nationalised
Corporation Bank, Dena Bank, Indian Bank, Indian
Banks
overseas Bank,Oriental Bank of Commerce, Punjab and
Sind Bank, Punjab National Bank, Syndicate Bank,
Union Bank of India, United Bank of India, UCO
Bank,and Vijaya Bank.

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Bank of Rajastan, Bharath overseas Bank, Catholic

Syrian Bank, Centurion Bank of Punjab, City Union
Bank, Development Credit Bank, Dhanalaxmi Bank,
3 Private Banks
Federal Bank, Ganesh Bank of Kurundwad, HDFC Bank,
ICICI Bank, IDBI, IndusInd Bank, ING Vysya Bank,
Jammu and Kashmir Bank, Karnataka Bank Limited,
Karur Vysya Bank, Kotek Mahindra Bank, Lakshmivilas
Bank, Lord Krishna Bank, Nainitak Bank, Ratnakar
Bank,Sangli Bank, SBI Commercial and International
Bank, South Indian Bank, Tamil Nadu Merchantile Bank
Ltd., United Western Bank, UTI Bank, YES Bank.

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Structure of Indian Banking

Reserve Bank of India is the regulating body for the Indian Banking Industry. It is a
mixture of Public sector, Private sector, Co-operative banks and foreign banks. The
private sector banks are further spilt into old banks and new banks.

Reserve Bank of India

Scheduled Banks

Scheduled Commercial Scheduled Co-operative

Banks Banks

Public Sector Private Sector Foreign Regional

Banks Banks Banks Rural Banks

Nationalized SBI & its Scheduled Urban Scheduled State co-

Banks Associates cooperative operative Banks
Bank

Old private sector New private sector

Banks Banks

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Bank Overview

STATE BANK OF INDIA

Not only many financial institution in the world today can claim the antiquity and
majesty of the State Bank Of India founded nearly two centuries ago with primarily
intent of imparting stability to the money market, the bank from its inception mobilized
funds for supporting both the public credit of the companies governments in the three
presidencies of British India and the private credit of the European and India merchants
from about 1860s when the Indian economy book a significant leap forward under the
impulse of quickened world communications and ingenious method of industrial and
agricultural production the Bank became intimately in valued in the financing of
practically and mining activity of the Sub- Continent Although large European and
Indian merchants and manufacturers were undoubtedly thee principal beneficiaries, the
small man never ignored loans as low as Rs.100 were disbursed in agricultural districts
against glad ornaments. Added to these the bank till the creation of the Reserve Bank in
1935 carried out numerous Central Banking functions.

Modern day management techniques were also very much evident in the good old days
years before corporate governance had become a puzzled the banks bound functioned
with a high degree of responsibility and concerns for the shareholders. An unbroken
records of profits and a fairly high rate of profit and fairly high rate of dividend all
through ensured satisfaction, prudential management and asset liability management
not only protected the interests of the Bank but also ensured that the obligations to
customers were not met.

The traditions of the past continued to be upheld even to this day as the State Bank
years itself to meet the emerging challenges of the millennium.

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ABOUT LOGO

THE PLACE TO SHARE THE NEWS ...

SHARE THE VIEWS

Togetherness is the theme of this corporate loge of SBI where the world of banking
services meet the ever changing customers needs and establishes a link that is like a
circle, it indicates complete services towards customers. The logo also denotes a bank
that it has prepared to do anything to go to any lengths, for customers.

The blue pointer represent the philosophy of the bank that is always looking for the
growth and newer, more challenging, more promising direction. The key hole indicates
safety and security.

MISSION STATEMENT:

To retain the Banks position as premiere Indian Financial Service Group, with world
class standards and significant global committed to excellence in customer, shareholder
and employee satisfaction and to play a leading role in expanding and diversifying
financial service sectors while containing emphasis on its development banking rule.

VISION STATEMENT:

Premier Indian Financial Service Group with prospective world-class

Standards of efficiency and professionalism and institutional values

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Retain its position in the country as pioneers in Development banking.

Maximize the shareholders value through high-sustained earnings per Share.

An institution with cultural mutual care and commitment, satisfying and

Good work environment and continues learning opportunities.

VALUES

Excellence in customer service

Profit orientation

Belonging commitment to Bank

Fairness in all dealings and relations

Risk taking and innovative

Team playing

Learning and renewal

Integrity

Transparency and Discipline in policies and systems.

Organization Structure

MANAGING DIRECTOR

CHIEF GENERAL MANAGER

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G. M G.M G. M G.M G.M

(Operations) (C&B) (F&S) (I) & CVO (P&D)

Zonal off Functional Heads

Regional officers

Theoretical Background for the project work

Project Financing

INTRODUCTION-

Project financing is an innovative and timely financing technique that has been used on
many high-profile corporate projects, including Euro Disneyland and the Euro tunnel.
Employing a carefully engineered financing mix, it has long been used to fund large-
scale natural resource projects, from pipelines and refineries to electric-generating
facilities and hydroelectric projects. Increasingly, project financing is emerging as the
preferred alternative to conventional methods of financing infrastructure and other
large-scale projects worldwide.

PRINCIPLE ADVANTAGE AND OBJECTIVES-

NON RECOURSE

The typical project financing involves a loan to enable the sponsor to construct a
project where the loan is completely "non-recourse" to the sponsor, i.e., the sponsor has
no obligation to make payments on the project loan if revenues generated by the project
are insufficient to cover the principal and interest payments on the loan. In order to
minimize the risks associated with a non-recourse loan, a lender typically will require

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indirect credit supports in the form of guarantees, warranties and other covenants from
the sponsor, its affiliates and other third parties involved with the project

MAXIMIZE LEVERAGE

In a project financing, the sponsor typically seeks to finance the costs of

development and construction of the project on a highly leveraged basis. Frequently,
such costs are financed using 80 to 100 percent debt. High leverage in a non-recourse
project financing permits a sponsor to put less in funds at risk, permits a sponsor to
finance the project without diluting its equity investment in the project and, in certain
circumstances, also may permit reductions in the cost of capital by substituting lower-
cost, tax-deductible interest for higher-cost, taxable returns on equity.

OFF-BALANCESHEET TREATMENT

Depending upon the structure of a project financing, the project sponsor may not
be required to report any of the project debt on its balance sheet because such debt is
non-recourse or of limited recourse to the sponsor. Off-balance-sheet treatment can
have the added practical benefit of helping the sponsor comply with covenants and
restrictions relating to borrowing funds contained in other indentures and credit
agreements to which the sponsor is a party.

MAXIMIZE TAX-BENEFITS

Project financings should be structured to maximize tax benefits and to assure that all
available tax benefits are used by the sponsor or transferred, to the extent permissible,
to another party through a partnership, lease or other vehicle.

DISADVANTAGES-

Project financings are extremely complex. It may take a much longer period of time to
structure, negotiate and document a project financing than a traditional financing, and
the legal fees and related costs associated with a project financing can be very high.

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Because the risks assumed by lenders may be greater in a non-recourse project
financing than in a more traditional financing, the cost of capital may be greater than
with a traditional financing.

PROCESS OF PROJECT FINANCING

Feasibility Study

As one of the first steps in a project financing is hiring of a technical consultant and he
will prepare a feasibility study showing the financial viability of the project. Frequently,
a prospective lender will hire its own independent consultants to prepare an
independent feasibility study before the lender will commit to lend funds for the
project.

Contents

The feasibility study should analyze every technical, financial and other aspect of the
project, including the time-frame for completion of the various phases of the project
development, and should clearly set forth all of the financial and other assumptions
upon which the conclusions of the study are based, Among the more important items
contained in a feasibility study are:

1. Description of project
2. Description of sponsor(s).

3. Sponsors' Agreements.

4. Project site.

5. Governmental arrangements.

6. Source of funds.

7. Feedstock Agreements.

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8. Off take Agreements.

9. Construction Contract.

10. Management of project.

11. Capital costs.

12. Working capital.

13. Equity sourcing.

14. Debt sourcing.

15. Financial projections.

16. Market study.

17. Assumptions.

THE PROJECT COMPANY

Legal Form

Sponsors of projects adopt many different legal forms for the ownership of the
project. The specific form adopted for any particular project will depend upon many
factors, including:

The amount of equity required for the project

The concern with management of the project

The availability of tax benefits associated with the project

The need to allocate tax benefits in a specific manner among the project
company investors.

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The three basic forms for ownership of a project are:

1. Corporations-

This is the simplest form for ownership of a project. A special purpose

corporation may be formed under the laws of the jurisdiction in which the
project is located, or it may be formed in some other jurisdiction and be
qualified to do business in the jurisdiction of the project.

2. General Partnerships-

The sponsors may form a general partnership. In most jurisdictions, a

partnership is recognized as a separate legal entity and can own, operate and
enter into financing arrangements for a project in its own name. A
partnership is not a separate taxable entity, and although a partnership is
required to file tax returns for reporting purposes, items of income, gain,
losses, deductions and credits are allocated among the partners, which
include their allocated share in computing their own individual taxes.
Consequently, a partnership frequently will be used when the tax benefits
associated with the project are significant. Because the general partners of a
partnership are severally liable for all of the debts and liabilities of the
partnership, a sponsor frequently will form a wholly owned, single-purpose
subsidiary to act as its general partner in a partnership.

3. Limited Partnerships-

A limited partnership has similar characteristics to a general partnership

except that the limited partners have limited control over the business of the
partnership and are liable only for the debts and liabilities of the partnership
to the extent of their capital contributions in the partnership. A limited
partnership may be useful for a project financing when the sponsors do not

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have substantial capital and the project requires large amounts of outside
equity.

Limited Liability Companies-

They are a cross between a corporation and a limited partnership.

Project Risks

Project finance is finance for a particular project, such as a mine, toll road, railway,
pipeline, power station, ship, hospital or prison, which is repaid from the cash-flow of
that project. Project finance is different from traditional forms of finance because the
financier principally looks to the assets and revenue of the project in order to secure and
service the loan. In contrast to an ordinary borrowing situation, in a project financing
the financier usually has little or no recourse to the non-project assets of the borrower
or the sponsors of the project. In this situation, the credit risk associated with the
borrower is not as important as in an ordinary loan transaction; what is most important
is the identification, analysis, allocation and management of every risk associated with
the project.

Types of Risks

Basically different types of projects are posed to different risks. Similarly the risks
mentioned below are related to this particular project.

1) Completion Risk-

Completion risk allocation is a vital part of the risk allocation of any project. This phase
carries the greatest risk for the financier. Construction carries the danger that the project
will not be completed on time, on budget or at all because of technical, labour, and

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other construction difficulties. Such delays or cost increases may delay loan repayments
and cause interest and debt to accumulate. They may also jeopardize contracts for the
sale of the project's output and supply contacts for raw materials.

Commonly employed mechanisms for minimizing completion risk before lending takes
place include:

(a) Obtaining completion guarantees requiring the sponsors to pay all debts and
liquidated damages if completion does not occur by the required date;

2) Operating Risk-

These are general risks that may affect the cash-flow of the project by increasing the
operating costs or affecting the project's capacity to continue to generate the quantity
and quality of the planned output over the life of the project. Operating risks include,
for example, the level of experience and resources of the operator, inefficiencies in
operations or shortages in the supply of skilled labour.

3) Market Risk-

Obviously, the loan can only be repaid if the product that is generated can be turned
into cash. Market risk is the risk that a buyer cannot be found for the product at a price
sufficient to provide adequate cash-flow to service the debt. The best mechanism for
minimising market risk before lending takes place is an acceptable forward sales
contact entered into with a financially sound purchaser.

4) Credit Risk-

These are the risks associated with the sponsors or the borrowers themselves. The
question is whether they have sufficient resources to manage the construction and
operation of the project and to efficiently resolve any problems which may arise. Of
course, credit risk is also important for the sponsors' completion guarantees.

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5) Technical Risk-

This is the risk of technical difficulties in the construction and operation of the project's
plant and equipment, including latent defects. Financiers usually minimise this risk by
preferring tried and tested technologies to new unproven technologies. Technical risk is
also minimized before lending takes place by obtaining experts reports as to the
proposed technology. Technical risks are managed during the loan period by requiring a
maintenance retention account to be maintained to receive a proportion of cash-flows to
cover future maintenance expenditure.

6) Regulatory or Approval Risk-

These are risks that government licenses and approvals required to construct or operate
the project will not be issued (or will only be issued subject to onerous conditions), or
that the project will be subject to excessive taxation, royalty payments, or rigid
requirements as to local supply or distribution. Such risks may be reduced by obtaining
legal opinions confirming compliance with applicable laws and ensuring that any
necessary approvals are a condition precedent to the draw down of funds.

Appraisal

Project Financing-

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The SBI has formed a dedicated Project Finance Strategic Business Unit to assess
credit proposals from and extend term loans for large industrial and infrastructure
projects. Apart from this, project term loans for medium sized projects and smaller
clients are delivered through the CAG and the NBG.

Project finance strategic business unit-

A one-stop-shop of financial services for new projects as well as expansion,

diversification and modernization of existing projects in infrastructure and non-
infrastructure sector.

Expertise

Being India's largest bank and with the rich experience gained over generation, SBI
brings considerable expertise in engineering financial packages that address
complex financial requirements.
Project Finance SBU is well equipped to provide a bouquet of structured financial
solutions with the support of the largest Treasury in India (i.e. SBI's), International
Division of SBI and SBI Capital Markets Limited.

The global presence as also the well spread domestic branch network of SBI
ensures that the delivery of your project specific financial needs are totally taken
care of.

Synergy with SBI caps (exchange of leads, joint attempt in bidding for projects,
joint syndication etc.). In a way, the two institutions are complimentary to each
other. We have in house expertise (in appraising projects) in infrastructure sector as
well as non-infrastructure sector. Some of the areas are as follows: Infrastructure
sector:

Infrastructure sector-

Road & urban infrastructure

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Power and utilities

Oil & gas, other natural resources

Ports and airports

Telecommunications

Non-Infrastructure sector-

Manufacturing: Cement, steel, mining, engineering, auto components, textiles,

Pulp & papers, chemical & pharmaceuticals
Services: Tourism & hospitality, educational Institutions, health industry

Expertise

Rupee term loan

Foreign currency term loan/convertible bonds/GDR/ADR

Debt advisory service

Loan syndication

Loan underwriting

Deferred payment guarantee

Other customized products i.e. receivables securitization, etc.

Why project finance SBU?

Since its inception in 1995 the Project Finance SBU has built-up a strong reputation for
it's in-depth understanding of the infrastructure sector as well as non-infrastructure
sector in India and we have the ability to provide tailor made financial solutions to meet

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the growing & diversified requirement for different levels of the project. The recent
transactions undertaken by PF-SBU include a wide range of projects undertaken by the
Indian corporate.

Eligibility-
The infrastructure wing of PF SBU deals with projects wherein:
the project cost is more than Rs 100 Crores. The proposed share of SBI in the term loan
is more than Rs.50 crores. In case of projects in Road sector alone, the cut off will be
project cost of Rs.50 crores and SBI Term Loan Rs. 25 crores, respectively.

The commercial wing of PF SBU deals with projects wherein:

The minimum project cost is Rs. 200 crores (Rs. 100 crores in respect of Services
sector). The minimum proposed term commitment is of Rs. 50 crores from SBI.

Process of sanctioning-

1) Proposal- The bank usually asks the firm to give the following details Nature of
the proposal The purpose for which the term loan is required ( whether for
expansion, modernization, diversification etc..)
2) Brief History- In case of an existing company essential particulars about its
promoters, its incorporation, subsequent corporate growth to date, major
developments or changes in management.

3) Past Performance- A summary of past performance in terms of

licensed/installed or operating capacities, sales, operating capacities, and sales
and net profit for the three years should be analyzed. The figures relating to
sales and profitability should be analyzed to ascertain the trend during the 3
years. In sum, the companys past performance has to be assessed to study if
there has been a steady improvement and growth record has been satisfactory.

4) Present financial position- The Companys audited balance sheets and profit
and loss account have to be analyzed. If the latest audited balance sheet has

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more than 6 months old, a pro-forma balance sheet as on a recent date should be
obtained and analysed.

5) Project- Here the technical feasibility and the financial feasibility of the project
is studied.

6) Project implementation schedule- Examine the project implementation

schedule with reference to Bar Chart or PERT/CPM chart(if proposed to be used
by the company for monitoring the implementation of the project) and in the
light of actual implementation schedules of similar project

Pre sanction process-

Appraisal

1. Preliminary appraisal-

The following aspects have to be examined if the proposal is to Financing a

project-

Whether the project cost is prima facie acceptable.

Debt and equity gearing proposed and whether acceptable

Promoters ability to access capital market for debt/ equity support

Whether critical aspects of project- demand, cost of production, profitability

etc.are prima facie in order.

After undertaking the preliminary examination of the proposal, the branch will arrive at
a decision whether to support the request or not. If the branch finds the proposal
acceptable, it will call for from the applicants, a comprehensive application in the
prescribed pro-forma, along with a copy of project report, covering specific credit
requirements of the company and other essential data/ information. Demand and supply

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projections based on the overall market prospects ogether with a copy of market
research report . The report may comment on the geographic spread of the market
where the unit proposes to operate, demand and supply gap , the competitors
share, competitive advantage of the applicant , proposed marketing arrangement.

Appraisal report from any other bank/financial institution in case appraisal has been
done by them,

NO Objection Certificate from term lenders if already financed by them and

Report from Merchant bankers in case the company plans to access capital market,
wherever necessary.

In respect of existing concerns, in addition to the above particulars regarding the history
of the concern, its past performance, present financial position, etc. Should also be
called for. This data should be supplemented by supporting statements such as:

Audited profit and loss account and balance sheet for the past three years
Details of existing borrowing arrangements, if any,

Credit information reports from the existing bankers on the applicant company

Financial statements and borrowing relationship of associate firms/group

companies.

2. Detailed Appraisal-

The viability of a project is examined to ascertain that the

company would have the ability to service its loan and interest obligations out of cash
accruals from the business. While appraising a project all the data/ information
furnished by the borrower is counter checked and wherever possible, inter-firm and
inter-industry comparisons should be made to establish their veracity.

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The appraisal of the new project could be broadly divided into the following sub
heads-

Promoters track record;

Types of fixed assets to be acquired;

Technical feasibility

Repayment period and debt service coverage;

Funds Flows statement ;and

Rates of return.

If the proposal involves financing of a new project, the commercial, economic and
financial viability and other aspects are to be examined as indicated below-

Statutory clearance from various government depts/agencies

License/ clearance /permits as applicable

Details of sources of energy requirements, power, fuel etc..

Pollution control clearance

ojections/estimates of sales cost of production and profit covering the period of

repayment.

Break-even point in terms of sales value and percentage of installed capacity

under a normal production year.

ompetence, track record

Companys structure and systems.

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Also examine and comment on the status of approvals from other term lenders, project
implementation schedule. A pre-sanction inspection of the project site or the factory
should be carried out in the case of existing units.

3. Present relationship with the Bank:

The banks also take into consideration the relationship of the firm or the customer with the
banks. It takes into account the following aspects-

Credit Facilities now granted.

Conduct of the existing accounts.

Stock turnover, realization of book debts.

Value of accounts with breakup of income earned. Pro-rata share of

non-fund and foreign exchange business.

Concessions extended and value thereof.

Compliance with other terms and conditions.

Action taken on comments /observations contained in

RBI inspection Reports.

CO inspection and audit reports.

Verification Audit Reports.

Spot Audit Reports.

Long Form Audit Report (statutory Report).

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4. Credit risk Rating-

Draw up rating for Working Capital and Term Finance.

5. Opinion Reports- Compile opinion Reports on the company, partners/ promoters

and the proposed guarantors.

6. Existing charges on assets of the unit-If the company, report on search of charges
with proposed guarantors.

7. Structure of facilities and Terms of Sanction-Fix terms and conditions for

exposures proposed facility wise and overall:

Limit for each facility- sub limits.

Security- Primary & collateral, Guarantee.

Margins- for each facility as applicable.

Rate of interest.

Other standard covenants.

8. Review of the proposal-Review of the proposal should be done covering Strengths

and weaknesses of the exposure proposed Risk factors and steps proposed to mitigate
themDeviations if any, proposed from usual norms of the bank and the reasons thereof.

9. Proposal for sanction- Prepare a draft in prescribed format with required back-up
details and with recommendations for sanction.

Financial analysis

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Ratio Analysis:-

An integral aspect of financial appraisal is financial analysis, which takes into account
the financial features of a project, especially source of finance. Financial analysis helps
to determine smooth operation of the project over its entire life cycle.

The two major aspects of financial analysis are liquidity analysis and capital
structure. For this purpose ratios are employed which reveal existing strengths and
weakness of the project.

1) Liquidity ratios- Liquidity ratio or solvency ratios measure a projects

ability to meet its current or short-term obligations when they become due.
Liquidity is the pre-requisite for the very survival of a firm. A proper balance
between the liquidity and profitability is required for efficient financial
management. It reflects the short-term financial strength or solvency of the firm.
Two ratios are calculated to measure liquidity, the current ratio and quick ratio.
a) Current ratio-

The current ratio is defined as the ratio of total current assets to total current
liabilities. It is computed by,

Current assets

Current ratio

Current liabilities

Particulars 2009 2010 2011 2012 2013

Current assets 91.47 101.72 112.76 128.7 145.25

Current liabilities 144.32 127.66 121.59 96.05 80.09

Noble0.634
College Sagar
Current ratio 0.767 0.927 1.339 1.8134
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 STATE BANK OF INDIA
Project Financing .

Interpretation-

It is an indicator of the extent to which short term creditors are covered

by assets that are expected to be converted to cash in a period corresponding to the
maturity of claims. The ideal current ratio is 2:1. The firm current ratio indicate that the
firm is in a position to meet its short term obligation because the ratio is in increasing
trend , by observing the above table we can say that though the firm does not maintain
ideal current ratio, it is still in a position to meet its current obligations. After clearing
all the dues the firm is still in a position to maintain liquidity.

b) Acid test or quick ratio-

It is a measure of liquidity calculated dividing current assets minus

inventory and prepaid expenses by current liabilities. Since inventories among current
assets are not quite liquid (means not quickly converted into cash), the quick ratio
excludes it. The quick ratio includes only assets, which can be readily converted into
cash and constitutes a better test of liquidity. It is often called as quick quick ratio

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because it is a measurement of a firms ability to convert its assets quickly into cash in
order to meet its current liabilities.

Particulars 2009 2010 2011 2012 2013

Quick assets 60.47 67.65 75.28 87.47 99.9

Current liabilities 144.32 127.66 121.59 96.05 80.09

Current ratio 0.534 0.53 0.62 0.911 1.247

Interpretation-

Acid test ratio is a rigorous measure of firms ability to service short term liabilities.
The usefulness of the ratio lies in the fact that it is widely accepted as the best available
test of liquidity position of a firm. Generally an acid test ratio of 1:1 is considered
satisfactory as a firm can easily meet all its current claims. In the case of the above firm
the quick ratio is in increasing trend by year on. So it shows that firm is capable of
paying its quick short term obligations

2. Capital structure ratio

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The long-term lenders/creditors would judge the soundness of a firm on the basis of the
long term financial strength measured in terms of its ability to pay the interest regularly
as well as repay the installment of the principal on due dates or in one lump sum at the
time of maturity. The long term solvency of firm can be examined by using leverage or
capital structure ratios. The leverage or capital structure ratios may be defined as
financial ratios which throw light on the long term solvency of a firm as reflected in its
ability to assure the long term lenders with regard to (i) periodic payment of interest
during the period of the loan and (ii) repayment of the principal on maturity or in
predetermined installments at due dates.

a) Debt equity ratio- This ratio measures the long term or total debt to
shareholders equity. This ratio reflects claims of creditors and
shareholders against the assets of the firm. Debt Equity Ratio is given
by:

Long term debt

Debt Equity Ratio =

Shareholders equity

Particulars 2009 2010 2011 2012 2013

Debt 82.00 61.50 41.00 20.05 0.00

Equity(Promoter contribution) 56.38 54.07 56.88 68.94 84.49

Debt equity ratio 1.454 1.14 0.721 0.291 0.00

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Interpretation-

The debt equity ratio is an important tool of financial analysis to appraise the financial
structure of the firm. The ratio reflects the relative contribution of creditors and owners
of the business in its financing. A high ratio shows a large share of financing by the
creditors of the firm; a low ratio implies the a smaller claim of the creditors. Debt
Equity ratio indicates the margin of safety to the creditors. The debt-equity ratio is in
decreasing and in 2008 it become nil, which implies that the owners are putting up
relatively more money of their own.

3. Profitability ratios related to sales-

These ratios are based on the premise that a firm should earn sufficient profit on each
rupee of sales. If adequate profits are not earned on sales, there will be difficulty in
meeting the operating expenses and no returns will be available to the owners.

A. Net profit margin-

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It is also known as net margin. This measures the relationship between the net
profits and sales of a firm. Depending on the concept of net profit employed. , this
ratio can be computed as follows-

Earnings after tax

Net Profit ratio = 100

Net sales

Particulars 2004 2005 2006 2007 2008

Earnings after tax 10.68 17.82 27.05 35.56 43.75

Net sales 265.49 292.04 321.24 353.36 388.7

Net profit margin 4.023% 6.102% 8.420% 10.06% 11.25%

Interpretation

The net profit margin is indicative of managements ability to operate the business with
sufficient success not only to recover from revenues of the period, the cost of services,
the operating expenses and the cost of borrowed funds, but also to leave a margin of
reasonable compensation to the owners for providing their capital at risk. A high profit
margin would ensure the adequate return to the owners as well as enable the firm to
withstand adverse economic conditions. A low net profit margin has the opposite
implications. With respect to the above firm the net profit margin is increasing trend so
it will show that the company is in good condition and the demand for the product is
increasing.

4 . Profitability ratios related to Investments-

Return on Investments-

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Return on investments measures the overall effectiveness of management in
generating profits with its available assets. There are three different concepts of
investments in financial literature: assets, capital employed and shareholders
equity. Based on each of them, there are three broad categories of ROIs. They are

I. Return on assets,
II. Return on total capital employed.

Return on assets-

The profitability ratio is measured in terms of relationship between net profits and
assets. The ROA may also be called profit-to-asset ratio. It can be computed as follows-

Net profit after tax

Return on Assets = 100

Average total assets

Particulars 2009 2010 2011 2012 2013

Earnings after tax 10.68 17.82 27.05 35.56 43.75

Average total assets 208.39 199.54 195.9 200.54 208.34

ROA 5.125% 8.93% 13.81% 17.73% 20.99%

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Interpretation-

Return on assets employed is favorable. That means the firm is in a position to employ
its assets in an efficient manner.

Return on Capital Employed-

It is similar to ROI except in one respect. Here the profits are related to the total capital
employed. The term capital employed refers to long term funds supplied by the lenders
and owners of the firm. It is given by the formula-

EBIT

Return on Capital employed = 100

Average total capital employed

Particulars 2009 2010 2011 2012 2013

EBIT 34.82 42.24 52.66 62.04 70.99

total capital employed 203.39 199.54 195.90 200.54 208.34

ROCE 17.2% 21.16% 28.92% 30.9% 34.07%

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Interpretation:-

The capital employed basis provides a test of profitability related to the source of long
term funds. The higher the ratio, the more efficient is the use of capital employed. From
the above table we can say that the ROCE is quite high. Compared to previous years
ratio. It is good for the company.

Repayment Period and debt service coverage

A) Projections of performance and profitability

particulars 2009 2010 2011 2012 2013

A) Sales 300.00 330.00 363.00 399.30 439.23

Less: Excise 34.51 37.96 41.76 45.94 50.53

Net sales 265.49 292.04 321.24 353.36 388.70

B) cost of Production

1.Raw material consumed 185.84 204.42 224.87 247.35 272.09

2.Power & Fuel 6.00 6.60 7.26 7.99 8.78

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3.Direct labor & wages 12.24 13.46 14.81 16.29 17.92

4.consumable stores 0.60 0.66 0.73 0.80 0.88

5.Repair & Maintenance 1.20 1.32 1.65 2.48 3.47

6.Othermanufacturingexpences 0.72 0.79 1.11 1.55 2.17

7.Depreciation 24.97 19.10 14.66 11.30 8.75

8.Preliminary expenses w/off 2.40 2.40 2.40 2.40 2.40

Total Cost of Production 233.47 248.76 267.49 290.16 316.46

Add: Opening stock 0.00 4.50 4.78 5.14 5.58

Less: Closing Stock 4.50 4.78 5.14 5.58 6.09

D)Cost of goods sold 229.47 248.78 267.13 289.72 315.96

E) Gross Profit (B-D) 36.02 43.56 54.11 63.64 72.74

F) Interest on

1) Term Loan 12.80 10.03 7.26 4.50 1.73

2) Working Captial 6.75 6.75 6.75 6.75 6.75

Total 19.55 16.78 14.01 11.25 8.48

G) Selling, administration Exp 1.20 1.32 1.45 1.60 1.76

H)Profit Before Taxation(E- 15.27 25.45 38.65 50.80 62.51

(F+G))

I) Provision for Taxation 4.58 7.64 11.59 15.24 18.75

J) Profit after tax (H-I) 10.69 17.82 27.05 35.56 43.75

K) Depreciation 24.97 19.10 14.66 11.30 8.75

L) Net Cash accruals( J+K) 35.66 36.92 41.72 46.86 52.5

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Project Financing .
B) Projected Cash Flow Statement

SL.NO Particulars 2004 2005 2006 2007 2008

A) Sources of funds

1.Net profit before interest and tax 34.82 42.24 52.66 62.04 70.99

2. Depreciation 24.97 19.10 14.66 11.30 8.75

3.Promoters capital 51.38

4.own contribution towards 5.00

5.term loan 102.50

6.working capital loan 50.00

7.Sundry creditior 7.74 0.77 0.85 0.94 1.03

8.Amortisationofpreliminaryexpences 2.40 2.40 2.40 2.40 2.40

Total: 278.8 64.52 70.58 76.68 83.17

B) Application of funds

1. Buldings 25.00

2. Land 22.00

3.Macinary 83.38

4.Electrification 6.50

5.Electricity Deposit 5.00

6.Preliminary Expenditure

6. Increase in receivables 44.25 4.42 4.87 5.35 5.89

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7.incerase in stock of material 30.97 3.10 3.41 3.75 4.12

9.increase in stock of finished goods 4.50 0.28 0.36 0.44 0.51

10.Drawing/ Dividend 3.00 10.00 15.00 15.00 20.00

11.interest on loans 19.55 16.78 14.01 11.25 8.48

12.income tax 0.00 4.58 7.64 11.59 15.24

13.Repayment of term loans 20.5 20.5 20.5 20.5 20.5

Total 276.65 59.67 65.79 67.88 74.74

Surplus/deficit 2.15 4.85 4.79 8.80 8.43

Opening Balance 0.00 2,15 7.00 11.80 20.6

Add: surplus/ deficit 2.15 4.85 4.79 8.80 8.43

Closing Balance 2.15 7.00 11.80 20.6 29.03

Projectd Balance Sheet

SL.NO Particulars 2004 2005 2006 2007 2008

A Captial & Liability

Promoter captial 0.00 64.07 71.88 83.94 104.49

Own contribution 56.38 0.00 0.00 0.00 0.00

Less Drawings 3,00 10.00 15.00 15.00 20.00

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Equity 53.38 54.07 56.88 68,94 84.49

Retained Earning 10.69 17.82 27.05 35.56 43.75

64.07 71.88 83.94 104.49 128.25

Term loan(Debt) 82.00 61.50 41.00 20.50 0.00

Sundry creditors 7.74 8.52 9.37 10.31 11.34

Working Captial loan 50.00 50.00 50.00 50.00 50.00

Provision for tax 4.58 7.64 11.59 15.24 18.75

Grand Total 203.39 199.54 195.90 200.54 208.34

Assets:

Fixed assets 89.91 70.81 56.14 44.84 36.09

land 22.00 22.00 22.00 22.00 22.00

Electricity deposit 5.00 5.00 5.00 5.00 5.00

Cash & Bank Balances 2.15 7.00 11.80 20.6 29.03

Receivables 44.25 48.67 53.54 58.89 64.78

Stock of material 30.97 34.07 37.48 41.23 45.35

Stock of finished goods 4.50 4.78 5.14 5.58 6.09

Preliminary expences not w/off 9.60 7.20 4.80 2.40 0.00

Grand Total 208.39 199.54 195.9 200.54 208.34

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Debt Service Coverage Ratio:(DSCR)

year Net profit for the year Interest on term loan Repayment of term loan It is
2004 35.66 19.55 20.5

2005 36.92 16.78 20.5

2006 41.72 14.01 20.5

2007 46.86 11.25 20.5

2008 52.50 8.48 20.5

considered a more comprehensive and apt measure to compute debt service capacity of
firm. It provides the value in terms of the number of times the total debt service
obligations consisting of interest and repayment of principal in installments are covered
by the operating funds available after the payment of tax : earnings after taxes,
EAT+interest+Depreciation+Other non cash expenditure like amortization.

EAT+inter
Particulars 2004 2005 2006 2007 2008
est+Depre ciation+Ot
her Non Net Cash Accruals 35.66 36.92 41.72 46.86 52.50 cash

Instalment 20.5 20.5 20.5 20.5 20.5

DSCR 1.74 1.80 2.03 2.29 2.56

expenditure

DSCR =

Installments

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Interpretation:-

The higher the ratio, the better it is, A ratio of less than one may be taken as a sign of
long term solvency problem as it indicates that the firm does not generate enough cash
internally to service debt. in general, lending financial institution consider 2:1 as
satisfactory ratio.

In this project DSCR is in increasing trend it shows that firm is able to meet its debt
obligation.

Capital investment evaluation methods

Successful completion of a project mainly depends on the selection criteria adopted

while choosing the project in the initial phases itself and the choice of a project must be
based on a sound financial assessment and not based on impressions. Among the
several criteria available for financial assessment of projects, Discounted Cash Flow
(DCF) techniques are being widely used in both public and private sectors. Usually the
basic criterion used in project appraisal is Internal Rate of Returns (IRR), which is the
most popular DCF technique used in the country. However, in most of the projects of
the projects , the actual returns are vastly different from the expected returns based on

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IRR, necessitating looking for alternative project appraisal criteria. Therefore, an
attempt is made to analyse other alternative project appraisal methods available for
catering to the requirements of vivid circumstances. Emphasis is given for DCF
techniques as they were proved to be the best techniques for project appraisal all over
the world.

1) Pay Back Period (PBP) Method:

Pay back period is the minimum period required to cover the initial cost and a
project with minimum PBP is acceptable in this model. This is a very useful tool to
decide rapidly if it is worth to do a small investment by a local manager and also helps
to reduce the risk of bad choices. But the basic economic principles involved in PBP
method are not as reliable as the other methods like NPV etc. The most important
drawback of PWP method is, it is insensitive to changes in timing with in the payback
period and ignores the cash flows beyond the PBP. This method also lacks a natural
bench mark against which comparisons can be made among various projects.
Discounted PBP method gives a more accurate period to cover the initial cost but
doesnt overcome the above drawbacks. However this is a very good method to use in
combination with other methods.

Year Cash Flows (in lakhs) Cumulative cash flows

2004 35.66 35.66

2005 36.92 72.58

2006 41.72 114.3

2007 46.86 161.16 Total cash

outflow 2008 52.50 213.66

Pay Back Period =

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Annual cash inflow

The recovery of the investment is in the 3rd year and 0.64 month.

Interpretation-

The Pay back period is a measure of liquidity of investments rather than their
profitability. Since the period within which the total cost of the period is less than the
completion period, the project can be accepted. It means that the firm will be able to
pay the dues out of their inflows. Therefore the project is said to be feasible.

2. Average Rate of Return-

The average rate of return (ARR) method of evaluating proposed capital

expenditure is also known as the accounting rate of return method. It is also known as
Return on Investment, as it uses the information revealed by financial statements, to
measure the profitability of an investment. The accounting rate of return can be found
out by dividing the average after-tax profit by the average investment. It is given by the
formula-

Average annual profit after tax

Average rate of return = * 100

Average investment

213.66/ 5

Average rate of return = * 100

152.5/ 2

42.732

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Average rate of return = * 100

76.25

Average rate of return = 56.04%.

Interpretation-

Here the ARR is more consistent as the ARR is quite higher ( more than average) and
the project can be accepted.

3. Net Present value-

It is calculated by discounting the future cash flows of the project to the present value
with the required rate of return to finance the cost of capital. A project is acceptable if
the capital value of the project is less than or equal to the net present value of cash
flows over the operating life cycle of the project.

Year Cash Flows(lakhs) PV factor @10% Total present value

1 35.66 0.909 32.414

2 36.92 0.826 30.495

3 41.72 0.751 31.290

4 46.86 0.683 32.005

5 52.50 0.621 32.603

Total PV - 158.807

Less- Initial outlay 152.5

Net Present Value - - 6.307

Interpretation-

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The acceptance rule using NPV method is to accept the investment proposal if its net
present value is positive (NPV > 0) and to reject it if the NPV is negative (NPV<0).
Positive NPVs contribute to the net wealth of the shareholders which should result in
the increased price of a firms share. The positive net present value will result only if
the project generates cash inflows at a rate higher than the opportunity cost of capital .
Since the Net Present Value of the above project is positive, the proposal can be
accepted.

4 . Profitability Index-

It is also known as Benefit Cost Ratio. It is similar to NPV approach. The

profitability index approach measures the present value of returns per rupee invested,
While the NPV is based on the difference between the present value of the future cash
inflows and the present value of cash outlays. It may be defined as the ratio which is
obtained dividing the present value of cash inflows by the present value of cash outlays.
It is given by the formula:

Present value of cash inflows

Profitabillity Index =

Present value of cash outflows

158.807

Profitabillity Index =

152.5

Profitability Index = 1.041

Interpretation-

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Using the profitability index, a project will qualify for acceptance if its PI exceeds one
(PI>1). When PI is greater than or equal to or less than 1, the net present value is
greater than or equal to or less than zero respectively. Since the Profitability Index of
the above project shows the PI greater than 1 and hence the project should be accepted.

Year CashFlows(lakhs) PV factor @10% present value

1 35.66 0.909 32.414

2 36.92 0.826 30.495

3 41.72 0.751 31.290

4 46.86 0.683 32.005

5 52.50 0.621 32.603

Total PV - 158.807

Less- Initial outlay 152.5

Net Present Value - - 6.307

B)
Year Cash flows PV factor @ 12% Present value
0.893 31.84
1 35.66
0.797 29.43
2 36.92
0.712 29.70
3 41.72
0.636 29.80
4 46.86
0.567 29.76
5 52.50
150.53
Total PV
152.53
Less- Initial outlay
-1.97
Net Present Value -

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A
Internal rate of return = L+ {H-L}
A- B

6.307
Internal rate of return = 10 + (12-10)
6.307-1.97

6.307
Internal rate of return = 10+ {2}
4.337

Internal rate of return = 10 + 2.908

Internal rate of return = 12.91%

Interpretation-

Since the expected rate of return is 10% so the project is said to be accepted.

Measures taken by SBI when the repayment is not possible

1) Firstly they send a notice to the clients stating therein to pay their dues.
2) When there no improvements in the repayments even after the notice being sent
then the bank will forward the legal notice stating the clients to make
payments

3) Third is the compromise dealing wherein both the parties sit together and
decide what measures has to be taken which means whether the clients make
the payments, or whether to file a suit or decide to sell the Properties etc..

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Analysis:-

This analysis part is related to the financial viability of the project SL Flow
Controls:-

Through ratio analysis I analyzed that the liquidity position of the firm is
good and it is maintaining the standard ratio..
Debt Equity ratio is in decreasing trend, it shows that the firm is reducing its
liability portion by paying the loan year on year so the financial risk less.

Profitability ratios related to sales and capital employed are in increasing

trend, it shows that the sales are increasing and the firm using its resources
efficiently.

Debt Service Coverage Ratio is also in increasing trend, it shows that the
firms ability to make the loan repayments on time over the debt life of the
project.

The payback period is within the debt life of the project.

The net present value of the project is positive, The positive net present
value will result only if the project generates cash inflows at a rate higher

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than the opportunity cost of capital . Since the Net Present Value of the
above project is positive, the proposal can be accepted.

The internal rate of the return is higher than what accepted so the project is
accepted.

Findings :- These are related to bank in general

State bank of India is strictly following the guidelines of RBI on Project

Financing
Sanctioning for the projects is approved by RASMECC (Retailed Assets
Small And Medium Enterprises Credit Cell).

The bank finances the projects only through term loans.

Interest rates are fixed depending upon the projects which is known as State
Bank advance rate.

When the clients fail to pay the interest, 3 months from the due date the term
loan granted will be treated as Non Performing Assets.

If the interest is due further 3 more months then it will be treated as doubtful
assets and interest rates becomes zero.

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Again for further 3 months it goes as loss assets and the bank write off the
account.

Every firm starting up a new project should make an insurance policy with
the same bank itself.

Recommendations:-

Bank check only financial, technical and commercial feasibility of the

project and it should not consider sensitivity analysis and social cost benefit
analysis of the project so bank should consider this because these are also
important from the point of view of risk and economy growth.
Bank should be caution about the availability of security and ensure
honesty of both borrower and guarantor so as to avoid the account
becoming the loss assets.

Limitation of the study:-

Some of the information are confidential in nature that could not divulged for study.

Conclusion:-

The project undertaken has helped a lot in understanding the concept of project
financing in nationalized bank with reference to state bank of India. The project
financing is an important aspect which helps in increasing the profit of the banks.

Project financing is a vast subject and it is very difficult to apply all the aspect in all
type of project when bank want to finance, and it is very difficult to cover all aspect in
this project.

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 STATE BANK OF INDIA
Project Financing .
To sum up it would not be out of way to mention here that the state bank of India has
given a special impetus on Project Financing .the concerted efforts of the
management and staff of state bank of India has helped the bank in achieving
remarkable progress in almost all important aspects.

Finally the success of project financing would mostly depend on the proper analysis of
the projects before financing.

Bibliography

The data is collected from the list of books and web site given below
www.sbi.com.
www.Google.com
Company manuals.

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