LESSON No 3- Credit Appraisal

The following aspects are embodied while drawing reports. It should not be a casually drawn report but an in depth study of 1 Status of the borrower 2 Business report 3 Credit in the market 4 Dealings with Buyers and Suppliers 5 Financial wort of the borrower.
We obtain Assets and Liabilities of the borrower/guarantors.They should be properly supported by documents such as Documents of Immovable properties, IT Returns Wealth Tax returns,Bank account Statements,Details of Insurance policies, Holding statement of Shares, Debentures, MF, Govt securities, Nsc/Kyc etc. Movable properties such as vehicles etc. The loans outstanding and due from banks/financial institutions/others. Balance sheets of the concerns.
For an Individual Net worth will be Market value of the Assets ( Immovable and movable) + Financial assets (cash+ bank balance+Nsc/KVP etc+ PV of policies+Bank /company deposits+ Shares debentures etc),+ capital invested in firms. LESS All types outstanding liabilities such as Housing/Personal loans/ borrowing from market etc.Remember it is an approximate financial worth and may be rounded off in Lacs or Thousand say Rs5.50 lacs.(Do not say Rs 5,48,715.75).
Appropriate mention about guarantee given be mentioned. This is the non crystalized amount.
Net worth of a Company will be Capital+Reserves LESS Intangible Assets.(A note of P V of Immovable Assets may be mentioned if revaluation exercise had not been carried out.Mention about the guarantee given on behalf of the companies and contingent liabilities be explained with details.
In all cases of disputed claims about IT/ST/VAT/GST/CST /PF etc must be given in all Reports.
Worth of a Firm will be equal to Net wort as per BS + individual with of partners(of course individual capital should
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0 more on Qualitative aspects of report than the value of securities and the Financial worth.The sources of collecting the information are
Market information
1 Management practices adopted by the borrower.
2 Their manner of dealing with their buyers,sellers,suppliers.
3 Collecting reports on trends in commodity market by liaison with Trade/Industry associations.
4 Collecting information from Credit information/Rating Companies such as ICRA, CRSIL, Dun and Bradstreet and other International Credit/Rating companies etc. Information from units/firms/companies/persons dealing in the similar or same line of business. Sometimes even the non line people also give good ,valuable information.
5 Credit/Confidential reports from the other banks who had or have accounts.This is also called ad Exchange of info between banks.
6 Banks experience while dealing with existing account holder and operations in the account say about cheque honour/dishonor, bills a/c, BG/LC transactions/submission of stock/MSOD/QIS/financial statements/review/renewal proposals. The ease while executing documents/repaying dues on due dates(EMIs etc)/other compliances as E/M etc.
Thus we gather info regarding Quality of Management; Group;flag ship companies/group support in the period of crisis.;Technical/Managerial personnel and dependence thereon. Know how,collaboration, Expertise,quality conscious ness,;Preventive safety maintenance/environment/welfare and safety measures/fire fighting/pollution control measures etc. The continuity in case of Single person company.
@@ History of FEMA/Fera violations ; ED/Electricity thefts/IT/CST/GST/Excise/violations ;evasions. Hawala/other raids/acts against our country. Default in statutory dues /contractual dues/legal dues.
(Please also study the claims against the companies not acknowledged as debts and contingent liabilities as per notes to balance sheet/Audit observations always called as Below the line adjustments.
7 Comments on past performances about Production,Sales ,Profits etc. vis a vis projections.

MY "Y" gen friends will argue that where is the time to undertake this big list.But remember we have to include all these aspects in our report where our Credit risk is high. One should have the Knowledge of highest order.But as a Doctor that much dose should be prescribed and in-taken as necessary.
A proposal with Rs 5,000/- Rs 50,000/- Rs 5 lac;Rs5 Crorers; Rs50 Crores ........exposure of banks need different depth of studies and our engagement of time and efforts.

$$$ That is why Decision Making is not only the Science but an Art also.$$$

### Ultimate aim is to arrive the decision whether it is worth while and safe to sanction fund and non fund based limits. ###
We may now close our discussion on above aspects of Credit/Financial/Due diligence report. But I am forced to repeat the formula of - 20 % to Financials 60% to Integrity Pillar and 20 % Operational pillar
It is said "A reliable Borrower will make all out efforts in case of difficult circumstances but an unreliable Borrower (willful defaulter) with money in hands may not pay." My Senior colleagues may quote umpteen examples.
I pen off with this heavy dose.
Thank u. (Time invested 2hrs 20 minutes)

Waman Gokhale
Quarries/value additions /contributions are solicited.
(Writer of Banking Beyond Books and A Kit on Documentation. Mob n 7350901500
mail ID- waman.gokhale@gmail. com)

It takes a long time to traverse a long distance;to stich a quilt; to scale a mountain peak; to acquire knowledge; to amass the wealth . Success too has to be achieved slowly and steadily!