Loans And Advances Management

ADVANCES MANAGEMENT INDIAN OVERSEAS BANK

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INDIAN BANKING INDUSTRY

BANK REFORMS

1991 NATIONALIZATION

1969-1991 EARLY PHASE

1786-1969

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INDIAN OVERSEAS BANK  FOUNDED ON FEBRUARY 10, 1937

 1st BANK TO ESTABLISH OPERATIONS OVERSEAS  1st PSB TO START MOBILE BANKING  ‘AA’ RATING BY CRISIL IN 2000  RANKED AS BEST PUBLIC SECTOR BANK IN 2007

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LOANS AND ADVANCES

The ideal advance is one that is granted to a ‘reliable’ customer for a legal purpose where he has enough experience for efficient utilization of the amount and repays the amount within a given time frame as per the agreement

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PROCEDURE FOR SANCTION

• comes up with a loan proposal • collateral security • financial details

BORROWER

LENDER (BANK) • verifies the purpose of loan • assess the credibility of borrower

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• verifies the proposal • either approves (final sanction) or rejects

REGIONAL OFFICE

FINANCIAL ANALYSIS ASSESSMENT OF: VERIFICATION OF:

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• • • • • • •

PROFITABILITY STABILITY SOLVENCY LIQUIDITY BALANCE SHEET INCOME STATEMENTS INCOME TAX RETURNS

CASE ANALYSIS: XYZ INFOTECH The borrower is into business since 1992, his existing branch of NIIT is working successfully. NIIT has offered him for opening a new unit at Kharagpur and he has paid more than Rs 10,00,000 as advance for starting the same. The borrower is one of the very old and regular client of the bank and needs another Rs. 20,00,000 as loan from the bank to start this new set up

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XYZ INFOTECH TNW

NET SALES

NWC

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• • • •

March, 07 -- 7.01 March, 08 – 7.57 March, 09 – 11.87 March, 10 -- 16.77

• • • •

March, 07 -March, 08 -March, 09 -March, 10 --

• • • •

March, 07 -March, 08 -March, 09 -March, 10 --

0.26 21 30 40

0.56 1.63 2.69 4.83

In Rs, Lacs

XYZ INFOTECH DER: TOTAL DEBT TOTAL EQUITY

Details of Ratios 3

DSCR: N. OPERATING Inc. T. DEBT SERVICE

2.5 2

 CR: CURRENT ASSETS CURRENT LIABILITIES

1.5 1 0.5 0 DE DSCR CR

MARCH, 07 MARCH, 08 MARCH, 09 MARCH, 10

2.83 1.4 1.55

2.7 1.53 1.59

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1.39 1.91 1.42

1.78 2.12 1.56

XYZ INFOTECH MULTIPLE DISCRIMINANT ANALYSIS: Z SCORE Z= 0.012X1 + 0.014X2 + 0.033X3 + 0.006X4 + 0.010X5 Z = discriminant function score of the firm X1= net working capital/total assets (%)

X2= retained earnings/total assets (%) X3= EBIT/total assets (%) X4= market value of total equity/book value of debt (%) X5= sales/total assets (times)

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where

XYZ INFOTECH Z SCORE 3 2.73 2.5 2

2.12

1.5 1

1.08

0.5

0 2008

2009

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2010

XYZ INFOTECH ASSESSMENT OF MPBF FOR CC A/c IN Rs. LACS

NWC

• • • •

March, 07 -March, 08 -March, 09 -March, 10 --

0.56 1.63 2.69 4.83

NWC CONSIDERED AS 3.00 MPBF = 25% of Sales – 5% as margin or 25% of Sales - NWC (whichever is lower)

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XYZ INFOTECH COLLATERAL/ GUARANTEE

TERM LOAN

MARGIN MONEY

CREDIT RATING

TERMS & REPAYMENT SCHEDULE DOCUMENTATION & FIANL SANCTION [email protected]

FURTHER PROCEDURE STANDARD ACCOUNT

FOLLOW UP & MONITORING

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NON • • PERFOMING ASSET •

SUBSTANDARD ASSET DOUBTFUL ASSET LOSS ASSET

TREATMENT OF N PA BANK PROCEEDINGS

UPGRADATION OF ACCOUNT

• LEGAL NOTICE • SARFESI ACT 2002 • FILING OF SUIT • WRITE OFF

• RENEWAL • RECOVERY • RESTRUCTURING

* SARFESI: SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT [email protected]

PREVENTIVE MEASURES IMPACT • DRAIN ON PROFIT • EFFECT ON CAPITAL ADEQUACY

EXTERNAL MEASURES • RELEASE OF DEFAULTER’s LIST • FORMATION OF CIBIL

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INTERNAL MEASURES

• DECLARATION OF SMA • RISK ASSESSMENT • FOLLOW UP

RECOMMENDATIONS  THOROUGH STUDY OF CASE IN PRELIMINARY PHASE  ESTIMATION OF BANKRUPTCY APPLYING Z SCORE FOLLOW UP SINCE DECLARATION OF SMA

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THANK YOU Presented By

Soniya Sinha

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