Lesson No. 35 – Monitoring

Good Evening Saturday 12/3/2016
We are meeting after a break of 4/5 days.

We will discuss one more experience in respect of a manufacturing unit.
The unit was overall showing satisfactory working from the transactions in the account.
The position of account was
Limit Sanctioned Rs.30 lac
Debit balance Rs.24.50 lac
Stock. RM Rs.4.75 lac
WIP Rs.24.90 lac
FG Rs. 2.50lac
Debtors. Rs.7.50lac
DP Rs.29.60* lac

{*4.75+24.90+2.50+7.50=39.50 - 9.90(margin 25%)= Rs 29.60}
The unit was with branch for over an year and was manufacturing chemicals such as Silver Nitrates Silver chloride etc.
I observed that mostly the stock was in WIP form in all the earlier statements.
On visit the young entrepreneur welcomed me.We discussed overall process his Suppliers and his Customers,then he shown me RM and FG stock.The stock was stored properly , banks board was there.
I observed following shortcomings:- 1. In case of emergency proper water sprinkler system was not available.
2.Fire extinguisher and First Aid not available.
3.Most of the chemicals were handled manually.
4.The exhaust and proper gas effluence system was not available.
Then I questioned him about the whole process of manufacture.
In short Silver and other Chemicals were put in 4 reacting vessels and heated by electricity or only some chemicals were mixed in acidic or basic medium stirred and kept for a particular time period.Then after filtering they were stored in glass bottles and then despatched to the customers.
He informed that since the costly Silver content is very high in the solutions the value of WIP is very high.
Then I requested him to show me the methods to determine the Silver content. He was reluctant and told plainly, 'Sir, it is through some chemical process only it can br found and you will not understand.' Yes , yes I do agree but you perform it and I will observe I persuaded.He took me to his laboratory in the factory and started, I requested to take specimen from Reaction vessel 'C' out of A to D.He angrily took it in a small test tube and started processing.Sir it is a complex chemical process and will take hours.I stood by and said time is no problem but I am curious.
My entrepreneur friend was not knowing that Chemistry was a major subject of studies while graduating and what he was referring is known as simple titration and takes hardly 20 to 30 minutes.
I just asked him,what reagents you are using ? Now it was his time to be taken aback.
He sat slowly limped in the chair and said, "Sir, you are the first person in the branch to ask and verify the details. You must be well versed with chemistry. Sir total Silver content in all the 4 reacting vessels is about 17.00 KGS valuing about 33000*17 = Rs 5,61,000/-.
Thus WIP was overvalued by Rs.24.90- 5.61=19.29 lac and DP was thus exceeded by
Stock+Debtors= Rs20.36
Revised DP. = Rs,16 lac against the outstanding of Rs 24.50 lac.
Account was overdrawn by Rs.8.50 lac.
The entrepreneur was literally slumped in the chair and looking at me for some solution. Sir it was our mistake that we were wrong reporting for nearly 8 months.But we are running the unit in a cut throat competition. Sir we purchased one reacting vessel from our CC account costing Rs.9.75 lac. which was absolutely necessary. He requested me to help him out.
I reported the entire episode to BM. He was also a very Senior and experienced banker.He was convinced that the circumstances forced him to take such steps and his case need to have a re-look at unit and its credit facilities.
(We ultimately sanctioned a Term Loan Limit after reappraisal and took additional securities.)
He understood the mistake and gravity of the situation and resolutely said ,henceforth we will always revel everything to our bankers.

Presently it is a a Rs.250 Crores turnover Company.
Such a bridge of Trust between a Banker and Customer is required. This may appear to be a dream story under the Present Circumstances (KF).
The young bankers, I can say with full confidence that if you speak with any Senior Bankers you will get similar type of feed back.I can say with full conviction this is how a true Banker Customer relationship and Banking should be.

Thank you.

Waman Gokhale
7350901500
waman.gokhale@gmail.com

 
 
 

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