Srikanth 08154

MIP

PHASE

II

RE PO RT

A NA LY S I S O F S M E R I S K P RO F IL E AXIS BANK, COIMBATORE

Faculty Guide: Prof. S. Shijin Industry Guide: Mr. H. Sathyamoorthy

Submitted in partial fulfillment of the Post Graduate Programme in Management at TAPMI, Manipal by: Name: R. Srikanth Roll No: 08154 Batch: 2008-10 Date: 17/08/2009 T A PAI MANAGEMENT INSTITUTE, MA N IPA L, KA R N ATA KA- 57 6 10 4

MIP PHASE

II REPORT

A NA LY S I S O F S M E R I S K P RO F IL E AXIS BANK, COIMBATORE

Faculty Guide: Prof. S. Shijin Industry Guide: Mr. H. Sathyamoorthy

Submitted in partial fulfillment of the Post Graduate Programme in Management at TAPMI, Manipal by: Name: R. Srikanth Roll No: 08154 Batch: 2008-10 Date: 17/08/2009

CERTIFICATE

This is to certify that the project report titled Analysis of SME risk profile – Axis bank, Coimbatore is a bonafide work carried out by R. Srikanth under my guidance for partial fulfillment of Post Graduate Diploma in Management.

Signature Name of Faculty Guide: Prof. Shijin Date: 17th August 2009

T A PAI MANAGEMENT INSTITUTE, MA N IPA L, KA R N ATA KA- 57 6 10 4

ACKNOWLEDGMENTS

I express my gratitude towards my guide Prof. Shijin for his guidance in the course of my project. I would like to thank Mr. H. Sathyamoorthy (Vice President, SME cell, Coimbatore) for showing the direction and providing the necessary resources to carry out my project work. I convey my special thanks to Mr. C Venugopal (Axis bank) for sharing his knowledge about the processes, policies and procedures at the SME cell of Coimbatore. His interest motivated me to zealously work towards my project objectives. I would also like to thank Mr. Ram Anand(Axis bank)

for patiently

explaining certain basic concepts of credit analysis. Finally, I am grateful to all the team members of SME cell, Coimbatore for contributing to my learning and for making my stay at the centre pleasant and memorable.

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Analysis of SME Risk Profile

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EXECUTIVE SUMMARY

The primary focus of the project was to measure the concentration risk in lending to various industries and then recommend strategies to minimize the concentration risk. Evaluation of this concentration risk was also extended to locations, nature of organizations and loan schemes. Prevalence of the textile industry within the scope of this SME centre necessitated a special focus on its subsectors. An analysis of the customers under high risk category and the ones under watch list/exit list gave insights on the industries to be focussed on for lending and the ones to be avoided. A comparison of the industry wise percentage exposure of Axis bank with the overall credit potential in Coimbatore district was carried out with the objective of market expansion.

This comparison was enriched

by a study of the growth potential of industries prevalent in Coimbatore coupled with a focus on the risk posed by present customers within that industry. Finally, an analysis of high value customers who underwent downward migration in internal ratings reinforced the negative impact of recession in the developed countries on their performance.

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TABLE OF CONTENTS

1. Introduction............................................................................................................................4

2. Objectives of the study ..........................................................................................................9

3. Scope of the study ...............................................................................................................11

4. Methodology .......................................................................................................................13

5. Analysis of Concentration risk.............................................................................................14

6. Risk analysis.........................................................................................................................33

7. Analysis of customers with downward migration................................................................47

8. Market expansion.................................................................................................................51

Limitations ..............................................................................................................................56

Conclusion ...............................................................................................................................58

References................................................................................................................................59 R Srikanth

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Appendix..................................................................................................................................61

A N A LY S I S O F S M E R I S K P R O F I L E

1. INTRODUCTION Axis Bank is one of the fastest growing banks in the country and has an extremely competitive and profitable banking franchise evidenced by: Comprehensive portfolio of banking services including Corporate Credit, Retail

Banking,

Business

Banking,

Capital

Markets,

Treasury

and

International Banking. Axis Bank is committed to adopting the best industry practices internationally in order to achieve excellence. The Bank today is capitalized1 to the extent of Rs. 359.0 crores with the public holding (other than promoters) at 57.60%. Axis Bank Ltd. has been promoted by UTI, one of the largest financial institutions in the country. The Bank was set up with a capital of Rs. 115 crore, with UTI contributing Rs. 100 crore, LIC - Rs. 7.5 crore and GIC and its four subsidiaries contributing Rs. 1.5 crore each. Axis Bank has a sound technological platform in place with centralized database and operations enabling anytime and anywhere banking, in order to render the best customer service to its 4.5 million

customer

base. Citing instances, in Mar-08 Axis Bank launched Platinum Credit Card, India's first EMV2 chip based card. Core banking solution is provided by 1

www.axisbank.com The name EMV comes from the initial letters of Europay, MasterCard and VISA the three companies which originally cooperated to develop the standard. 2

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Finacle (version 7.0.18) from Infosys. With a mission of Customer Service and Product Innovation tuned to diverse needs of individual and corporate clientele, Axis bank focuses on continuous technology up gradation, maintaining

human

values,

progressive

globalization,

achieving

international standards, sustaining efficiency and effectiveness built on ethical practices.

The bank strives to achieve customer satisfaction by

providing quality service effectively and efficiently, periodic customer service audits, maximization of stakeholder value and success through teamwork, integrity and people.

1.1 Services offered: Axis bank offers services to customers in the following categories: Personal, Corporate, NRI and Priority Banking. A summary of the various services offered to each of the categories is given in the table below: Table 1. Services offered by Axis bank Category Service

Personal

Corporate

NRI

√ √ √ √ √ √ √ √

√

√ √

Accounts Deposits Loans Cards Investments Insurance Payments Other Services Credit Capital Market Treasury Cash Management Services Govt Business

Priority Banking

√

√ √ √ √ √ √ √ √

√

√

√ √ √ √ √

Remittances

Source: Axis Bank website

1.2 Credit: At Axis bank, comprehensive portfolio of banking services including Corporate Credit, Retail Banking, Business Banking, Capital Markets, R Srikanth

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Treasury and International Banking. Credit is a core banking function that enables attainment of the fundamental objective of assets transformation between its clients. The function is executed by way of extending fund based and non-fund based credit facilities to different clients. The Credit department endeavours to extend different products in the above two categories to the corporate clients in the country. The department is the major contributor to the top line as well as bottom line of Axis Bank. It is the SBU earning highest operating profit in the Bank. The department has been at the forefront of launching innovative corporate credit products. Credit facilities can be fund based or non-fund based. The fund-based limits are those where outlay of the Bank’s funds is involved. Such limits are also known as borrowing limits. Non-fund based limits are those where the Bank has to meet the commitment / promise made by a borrower and endorsed by the Bank, only if the borrower fails to honour it. Main types of facilities under fund based limits are overdraft and cash credit, demand loans, bills purchased/discounted, export credit and term loan. The nonfund based limits are Letter of Credit and Bank Guarantees 1.3 SME: SME is one of the lines of business under Credit function. In 2008-09, based on the recommendations of Mckinsey & Company, Agri Business was hived off from Advances Cells and SME Centres were entrusted with handling SME business only3. SME accounts are classified as those with a turnover upto Rs.125 crores or those with aggregate credit exposure with the bank upto Rs. 25 crores. An account should satisfy both the conditions in order to be classified as an SME account. SME segment would now comprise of MSME (as per RBI definition) and other borrowers, satisfying both the conditions of turnover and exposure. Both MSME and other borrowers will have schematic and non-schematic sub-groups. The SME business is driven through 25 SME Centres located at SME business intensive locations across India. These SME Centres are the 32

Corporate Credit Policy 2009-10 of Axis bank

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marketing and processing hubs for SME credit proposals. The SME Centre Heads are supported by a sales team headed by a Senior Sales Officer (SSO) and a credit team headed by Senior Credit Officer (SCO). The sales team comprises Relationship Managers (who manage accounts with an exposure of Rs.2.00 crores and above), Sales Officers and Assistant Relationship Managers. The credit team consists of Credit Analysts. Customer acquisition is driven through sales officers mapped to branches across the country.

There are three SME centers in Tamil Nadu – Chennai, Madurai and Coimbatore. The SME cell at Coimbatore caters to Erode, Salem, Karur, Tirupur, Pollachi and Nilgiris apart from Coimbatore district. Major type of SMEs located in Coimbatore district include Textile Mills, Power looms, Handlooms, Hosiery Units, Motor, Pumps and Foundry Units, Wet grinder and accessories Units, Coir Industries, Textile/Automobile Machinery / Engineering Industries4. 1.4 Concentration risk: Concentration risk is a banking term5 denoting the overall spread of a bank's outstanding accounts over the number or variety of debtors to whom the bank has lent money. This risk is calculated using a concentration ratio, which explains what percentage of the outstanding accounts each bank loan represents. For example, if a bank has 5 outstanding loans of equal value each loan would have a concentration ratio of .2; if it had 3, it would be .333. Various other factors enter into this equation in real world applications, where loans are not evenly distributed or are heavily concentrated in 4 5

http://www.diccoimbatore.com/Nutshell.html www.wikipedia.org

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certain economic sectors. A bank with 10 loans, valued at 10 dollars a piece would have a concentration ratio of .10; but if 9 of the loans were for 1 dollar, and the last was for 50, the concentration risk would be considerably higher. Also, loans weighted towards a specific economic sector would create a higher ratio than a set of evenly distributed loans because the evenly spread loans would serve to offset the risk of economic downturn and default in any one specific industry damaging the bank's outstanding accounts. Risk of default is an important factor in concentration risk. The basic issue raised by the concept of default risk is: does the risk of default on a bank's outstanding loans match the overall risk posed by the entire economy or are the bank's loans concentrated in areas of higher or lower than average risk based on their volume, type, amount, and industry. Concentration risk in credit portfolios6 comes through an uneven distribution of bank loans, investments and other exposures to individual borrowers (single-name/ borrower-wise concentration) or industry and services

sectors

(industry

concentration) and

geographical

regions

(sectoral concentration). Concentration risk can result in significant losses because these exposures are affected by changes in similar risk factors and any adverse movement in underlying factors would impact a large portfolio. The effective monitoring, measurement and management of concentration risk by the Bank is, therefore, of fundamental importance. 1.5 Overview of the study:

The primary focus of the project was to measure the concentration risk in lending to various industries and then to recommend sectors to which the bank can lend or avoid lending. Further, a comparison with the credit potential for Coimbatore district was done. In the high-risk category, the areas of focus were identified, which would help in the reduction of default risk. This was followed by clear insights into enterprises under watch

6

Corporate Credit policy of Axis bank 2009-10

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list/exit list7. Finally, the effects of recession on the downward migration in the internal ratings were studied.

2. OBJECTIVES OF THE STUDY 1. The primary objective of the study is to measure concentration risk prevalent in the SME centre of Axis Bank. The specific objectives of the study include: 1.1 To examine the industry wise concentration risk for the overall SME centre and the major locations under the purview of the centre 7

Watch list/exit list is released by the Corporate Credit office of Axis bank. This contains the list of customers to be closely monitored in the current year. R Srikanth

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1.2 To examine the concentration risk of sub sectors with special focus on textile industry 1.3 To compare the relative disbursement of credit to various locations within the centre 1.4 To examine credit allocation for various loan schemes and type of organizations 1.5 To compare credit allocation to each sector with overall credit potential of respective sector within Coimbatore district 2. To analyze the borrowing spectrum based on internal credit rating 3. Analysis of enterprises under watch list/exit list 4. To examine whether the incorporation of internal rating into concentration risk by assigning weights makes any difference 5. To analyze the migration effects due to economic downturn on the industries under watch list 6. To identify industries with growth potential and favorable internal rating at Coimbatore district

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3. SCOPE OF THE STUDY The concentration risk has been measured on the basis of sanction limit and not on the basis of outstanding amount with the customers. Industries with low concentration risk (less than 1%) have been grouped into the ‘others’ category. For each location, while measuring the concentration risk industry wise, only the following places were considered: Coimbatore, Salem, Erode, Karur and Tirupur because of the sizeable exposure that Axis bank has in these places. The data from NABARD indicates the credit potential in the Coimbatore district, but there is no information on how much of the credit needs can actually be met. Risk analysis of borrowal spectrum based on internal rating encompassed the ratings SME 5 and below only, since these ratings pose a relatively higher risk. Risk analysis of customers under watch list/exit list was done only for customers who received advances before a period of two years. The analysis of migration is a sample study and included ten high value enterprises

from

different

industries,

including

three

from

textile

industries8. Market expansion focussed on ten industries based on coherence between prevalent industries in Coimbatore, internal data of Axis bank and general knowledge.

8

Prevalence of textile industries in Coimbatore led to the choice of three textile industries for this study. R Srikanth

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4. METHODOLOGY To measure concentration risk, the credit data to each customer was summarized using a Pivot Table9. The summarized data was further defined to obtain the concentration risk for each industry, location, loan scheme and nature of organisation etc. This data was then compared with the industry potential data from NABARD10. From the concentration risk measurement, customers under high risk category were selected and analysed. Further, on the same lines analysis of customers under watch list/exit list was also carried out. This was followed by a sample analysis of ten high value companies which underwent downward migration in internal ratings to ascertain the effects of recession on their performance. Lastly, from the industries prevalent in Coimbatore about ten were chosen; their growth potential and the risk levels of their present customers were studied with an intention of understanding whether further lending can be done to that industry.

9

Used in MS Excel, a PivotTable report is an interactive table that you can use to quickly summarize large amounts of data. 10 NABARD releases an annual document called Potential Linked Credit Plan which indicates the credit potential available at a location R Srikanth

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5. ANALYSIS OF CONCENTRATION RISK As outlined in the project objectives, the measurement and analysis of concentration risk has been done industry wise, location wise, loan scheme wise and nature of organization wise. There is also a special focus on the textile industry. The total fund based sanction limit for the nonschematic enterprises of SME centre (Coimbatore) is about Rs. 860 crores (as on 31st March 2009). All the percentages given below indicate the proportion of the credit sanctioned to industries, locations etc. For example, 2% towards engineering industry means that the exposure towards the industry is 2% of Rs. 860 crores.

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Industry wise: Industry Concentration risk SME Centre, Coimbatore

ENGINEERING 2%

Others 12%

2% 3% 3%

TEXTILES: COTTON 44%

4%

4% 4% FOOD PROCESSING 5% REAL ESTATE 5%

IRON & STEEL 5%

EDUCATION & TRAINING 7%

ALCOHOLIC BEVERAGES & TOBACCO AUTO ANCILLARIES EDIBLE OILS INFRASTRUCTURE CONSTRUCTION: OTHERS TRADE CHEMICAL & CHEMICAL PRODUCTS

The above chart depicts the industry wise concentration risk for SME Centre, Coimbatore. The various concentration risks in this SME centre are measured with data upto 31st March 2009 for Non Schematic enterprises only. We observe that the textile industry has a concentration risk of 45%. This can result in significant losses for the bank, because this exposure would be affected by changes in similar risk factors and any adverse movement in underlying factors would impact this industry – thereby enhancing the possibility of NPAs for the centre. Even though the credit portfolio at the SME centre is healthy, any adverse situation can increase the % NPAs in the centre. R Srikanth

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Industry wise – for major locations:

INFRASTRUCTURE CONSTRUCTION: OTHERS AUTO , 7% ANCILLARIES , 8%

Concentration risk - Coimbatore FOOD PROCESSING , 6% 5%

REAL ESTATE , 11%

ENGINEERING

5% 4% 4%

INFRASTRUCTURE CONSTRUCTION - ROADS

3%

IRO N & STEEL , 12%

EDUCATION & TRAINING

2% 5%

CHEMICAL & CHEMICAL PRODUCTS OTHER METAL & METAL PRODUCTS

TEXTILES: COTTON , 28%

TRADE Others

Concentration risk - Salem IRON & STEEL 8% EDUCATION & TRAINING 14%

TELECOMMUNICATI ON SERVICES 6% ENGINEERING 6% OTHERS 6% TEXTILES: OTHER

AUTOMOBILES 15%

TRADE 4%

TEXTILES: COTTON 34%

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4% MINING AND MINING PRODUCTS 1%

CHEMICAL & CHEMICAL PRODUCTS 1%

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Concentration risk - Erode CHEMICAL & CHEMICAL PRODUCTS 1%

LEATHER & LEATHER PRODUCTS 4%

OTHERS 8%

INFRASTRUCTURE CONSTRUCTION: OTHERS 2%

EDIBLE OILS 26%

TRADE 10%

FOOD PROCESSING 12% REAL ESTATE 2%

TEXTILES: COTTON 33% PETROCHEMICAL & PETROLEUM PRODUCTS 2%

LOGISTICS 0.4%

Concentration risk - Karur

EDUCATION & TRAINING 16%

TEXTILES: OTHER 6%

AUTO ANCILLARIES 2%

CHEMICAL & CHEMICAL PRODUCTS 2% ENGINEERING 1% OTHERS 1% TRADE 1% TEXTILES: COTTON 71%

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PETROCHEMICAL & PETROLEUM PRODUCTS 0.2%

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Concentration risk - Tirupur POWER GENERATION & DISTRIBUTION 3% CHEMICAL & CHEMICAL PRODUCTS 3% TEXTILES: OTHER 1%

TEXTILES: COTTON 93%

MINING AND MINING PRODUCTS 0.5%

OTHERS 0.5%

Coimbatore: Axis bank SME centre has a balanced portfolio in Coimbatore district with Textiles: Cotton having a concentration risk of 27% (by sanction limit). Compared to the other major locations, the default risk of textile industries is lower in Coimbatore district. The other industries with major exposures are Iron & steel (12%) and Real estate (11%). On the other side, Trade has the lowest concentration risk. With the increase in disposable incomes across India, the lending to this sector can be enhanced. Apart from this, lending to enterprises in the services sector (like established hospitals) can be looked at.

Salem: Salem has a higher percentage exposure towards textile industry (compared to Coimbatore). But otherwise, the industry portfolio is balanced

with

other

major exposures

being in

the

industries

of

automobiles (15%) and Education and training (14%). Even though the concentration risk towards education and training is a little high, additional lending to this sector can be done because of the relatively lower risk associated with this sector. The industries with lower exposures R Srikanth

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are Trade (4%), Mining & mining products (1%) and Chemical products (1%). Similar to Coimbatore, in Salem lending to the Trade sector can be further enhanced for reasons mentioned above.

Erode: Erode has the same percentage exposure as Salem towards the textile industry. But a high exposure towards edible oils (26%) is a cause for concern. Towards the lower side, we observe lower exposure towards Real estate (2%), but lending to this sector should be done cautiously, considering the volatility factor. In Erode also, lending towards education & training, hospitals can be focused on.

Karur: At Karur, exposure towards textile industry (main home textile industries) is extremely high (71%), a signal of trouble for the bank, incase the textile industry does not perform well. Exposure towards Education & training (16%) is healthy while the potential industries for enhanced lending are auto ancillaries, engineering and trade, all having lower concentration risks.

The attractive avenues for lending at Karur are the bus body

builders and education & training.

Tirupur: About 93% of the lending by SME centre in Tirupur is towards Textile industry. If the industry does not perform well, the possibility of NPAs for the centre would increase drastically. Since reducing the exposure levels to healthy levels (15-20%) seems impossible in Tirupur

(given the

prevalence of textile industry), sourcing of new customers should be done with utmost caution. Textile industry: The prevalence of textile industries in this region has necessitated a closer look. The breakup of subsectors within the textile industries for the SME R Srikanth

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centre (overall) is given below. Out of the 45% exposure to textile industry, we observe that Apparels and Cotton spinning are subsectors with major exposures, followed by Madeup textiles (8%).

Textile industry - Coimbatore SME centre - Overall

PREPARATION AND SPINNING OF COTTON , 13.3%

MFR. OF MADE-UP TEXTILE ARTICLES & TARPA, 8.2%

OTHER WHOLESALE (INCL. SPECIALIZED WHOLE MFR. OF KNITTED AND CROCHETED FABRICS

MFR. OF THREADS, NETS, ROPES, TAPES,NEWA

MFR. OF WEARING APPARELS, READY MADE GAR, 19.8% 0.5%

0.4%

0.3% 0.2% 0.2%

0.5%

0.1% Non textile in dustries, 55.1%

3.6%

0.7%

0.8%

MFR. OF MACHINERY FOR TEXTILE,APPAREL & DRESSING AND DYEING OF FUR,MFR. OF ARTIC TEXTILES, CLOTHING & FOOTWEAR & OTH HOUS EMBROIDERY WORK, MAKING OF LACES AND FRI

View in this order

COTTON

WHOLESALE OF OTH INTERMEDIATE PRODUCTS,

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Concentration risk - Subsectors of Textile industry - Coimbatore MFR. OF KNITTED AND CROCHETED FABRICS 0.3%

PREPARATION AND SPINNING OF COTTON 12%

MFR. OF WEARING APPARELS, READY MADE GAR 14%

COTTON 0.4%

MFR. OF THREADS, NETS, ROPES, TAPES,NEWA 0.2% MFR. OF MADE-UP TEXTILE ARTICLES & TARPA 0.2%

Other 2%

(Industries other than textiles)

Non textile industries 73% MFR. OF MACHINERY FOR TEXTILE,APPAREL & 1.2%

Concentration risk - Subsectors of textile industry - SALEM

OTHER WHOLESALE (INCL. SPECIALIZED WHOLE 10% PREPARATION AND SPINNING OF COTTON 18%

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MFR. OF MADE-UP TEXTILE ARTICLES & TARPA 5%

Non textile industries 67%

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Concentration risk - Subsectors of textile industry - Erode MFR. OF WEARING APPARELS, READY MADE GAR 2.1% MFR. OF KNITTED AND CROCHETED FABRICS 4.2%

TEXTILES, CLOTHING & FOOTWEAR & OTH HOUS 1.0%

PREPARATION AND SPINNING OF COTTON 24.4%

Non textile industries 68.3%

(Industries other than textiles)

Concentration risk - Subsectors of Textile industry - Karur

MFR. OF MADE-UP TEXTILE ARTICLES & TARPA 68.9%

DRESSING AND DYEING OF FUR,MFR. OF ARTIC 0.3%

(Industries other than textiles) 0.8%

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Analysis of SME Risk Profile Non textile industries 30.4%

OTHER WHOLESALE (INCL. SPECIALIZED WHOLE 0.5%

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Concentration risk - subsectors of textile industry - Tirupur

MFR. OF WEARING APPARELS, READY MADE GAR 67.9%

PREPARATION AND SPINNING OF COTTON 18.2%

MFR. OF THREADS, NETS, ROPES, TAPES,NEWA 2.1%

DRESSING AND DYEING OF FUR,MFR. OF ARTIC

0.6%

1.0%

0.3% 0.2%

3.9%

EMBROIDERY WORK, MAKING OF LACES AND FRI TEXTILES, CLOTHING & FOOTWEAR & OTH HOUS WHOLESALE OF OTH INTERMEDIATE PRODUCTS,

1.9%

(Industries other than textiles)

Non textile industries 8.0%

GEN. OF ELECTRICITY: HYDRO, COAL, OIL, A

Coimbatore: At Coimbatore, the percentage exposure towards Apparels (14%) is lower, compared to that of this SME centre as a whole (19%), which is a healthy picture. The exposure for spinning is in line with that of the centre (overall). Other subsectors with minor exposures are mainly towards manufacturing. Among all the locations, Coimbatore has the highest proportion of non-textile industries (industries other than textiles). Salem: There is no exposure towards Apparels at Salem, while the exposure towards spinning is higher (18%) than the value for the overall SME centre (13%). Erode: Exposure towards apparels is much lower at Erode (2%), when compared to the overall value for the Coimbatore SME centre. But the proportion of R Srikanth

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cotton spinning is very high (24%), again compared to the overall value. After Coimbatore, Erode has the second highest exposure (68.3%) towards non-textile industries, followed by Salem (67%). Karur: Extremely high exposure (almost 69%) towards one subsector (Mfr. Of Made-up textile articles and tarpa) is observed at Karur, which is a dangerous sign – especially with the continuing recessionary trends in Europe and US (the areas to which maximum exports from Karur are headed to). Tirupur: Similar to Karur, Tirupur also has very high exposure (almost 68%) towards Apparels. The recessionary trends discussed above also apply to Tirupur. On the other hand, exposure towards non-textile industries is lowest in Tirupur (8%), followed by Karur (30%). Location wise:

Concentration risk - Location wise

Others 8%

SALEM 7%

COIMBATORE 39%

TIRUPUR 21%

KARUR 11%

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From the above chart, we observe that 39% of the exposures are concentrated towards enterprises at Coimbatore. Any adverse effect on the economic climate of Coimbatore would have its toll on the performance of the SME Centre. Considering the favourable conditions for industries at places like Salem and Erode there is ample scope for diversifying the credit portfolio for the centre.

Loan scheme wise

Concentration risk by loan scheme

Working capital 47%

Export finance 11%

Misc. 0.3%

Term loan 42%

More than the working capital, the concentration risk towards term loan (42%) is a cause of concern, considering the nature of the loan scheme. If this exposure towards term loan is reduced to 30%, then the credit portfolio would be having a healthy outlook. Even though the exposure towards working capital is less risky, the SME centre can focus more on export finance so that there is sufficient diversification to mitigate the R Srikanth

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credit risk. An ideal combination would be Term loan (30%), working capital (40%), Export finance (25%) and miscellaneous (5%).

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Nature of organization wise Concentration risk - Nature of organisation wise

Public Ltd Com panies 7%

Sole Proprietorship 11% Trust-Educational Institutions 4%

OTHERS 4% Private Ltd Cos 51% Partnership Firm 23%

In the above chart, more than the private limited companies, the causes of concern are sole proprietorship and partnership firm. This is because of the key man risk factor. – the dependence of an enterprise on a single person for its day-to-day working and strategic planning. Since sufficient exposure is present towards private limited companies (51%), the focus can be on public limited companies and trusts which do not have the constraint of key man risk and are therefore much safer.

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Comparison with industry data (NABARD) Our next analysis will be a comparison of the credit data of Axis bank with the overall potential for Coimbatore district (2009-10). As per the policy directive of RBI, the annual credit plans (ACP) prepared by the banks should be based on the Potential Linked Credit Plan (PLP) prepared by National Agricultural Bank for Rural Development. The projection of potentials for ground level investments through bank credit during the year 2009-10 have been arrived at by estimating the balance potential available for exploitation in Coimbatore district and taking into account the human and natural resources endowment factors, infrastructure and support services available and likely to be created. NABARD has projected a credit potential of Rs 7328.87 crores in the coming year for Coimbatore district.

Broad sector wise PLP projections for Coimbatore (2009-10) Total=Rs. 7328.87 crores

Agri and agri related 17%

Other priority sector 18%

Non farm sector 65%

In the above chart, agricultural and related industries do not come under the purview of the SME centre. Included under non farm sector are: Food based; beverages; tobacco and tobacco based; cotton textile based; wool, silk and synthetic fibre textiles; jute, hemp and mesta textiles; Hosiery and garments; Wood and wooden products; Paper and paper products; R Srikanth

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Leather based; Plastic and rubber based; Chemicals and chemical based; Non metallic mineral products; Basic metal and alloy products; Metal products;

Machinery

and

machine

tolls,

electrical

machinery

and

apparatus; Transport equipments. The following are included under other priority sector: transport operators, retail trade & small business. Remaining items under this category do not come under the purview of the SME centre. To start with, in each of the sectors that Axis bank has currently lent, the overall estimated credit potential for Coimbatore district is shown in the table below: Table 2 – Comparison of Axis bank credit with overall estimated potential of Coimbatore Axis bank credit 08-09 for

Sector

Coimbatore (Rs. Lakhs)

Textiles:handloom & powerloom Food based Beverages, tobacco and tobacco

Overall Estimated Credit Potential for Coimbatore 2009-10

100.0 1966.5

lakhs) 4202 13500

based Cotton textile based Wool, silk and synthetic fibre

0.0

1050

4137.6

41216.4

textiles; jute hemp and mesta

75.0

1486

textiles Hosiery and garments Wood and wooden products Paper and paper products Leather based Plastic and rubber based Chemicals and chemical based Non metallic mineral products Basic metal and alloy products Metal products Machinery and machine tolls,

1273.5 0.0 384.7 0.0 125.0 500.0 0.0 1805.5 2692.0

156874 6030 12784 7018.5 14138.2 6069.2 6683.9 9827.5 22261.7

1461.1

53300

electrical machinery and apparatus R Srikanth

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(Rs.

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Transport equipments Transport operators Retail trade & small business

2893.6 0.0 1202.4

21110 54750 20250

With the objective of understanding whether lending to a particular sector should be increased or decreased, a comparison was carried out for each sector, between the percentage exposure of axis bank (2008-09) and the exposure of that sector as a percent of the overall estimated potential for Coimbatore district (2009-10). This analysis is based on the assumption that the banks at Coimbatore are likely to lend to the various sectors on a proportionate basis. For e.g. if potential for cotton textiles is 5.6% of the overall credit potential, then the banks are likely to lend in the same proportion. The comparison has been done in two parts, the sole purpose being a clearer graphic representation of the data.

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On a proportionate basis, we observe that the potential for exposure to cotton textile based industries is lesser than the present exposure level of Axis bank - an indication that future lending to that sector has to be minimized. Though there is potential for hosieries and garments at Coimbatore, considering the concentration risk towards these subsectors, it is not advisable to lend to enterprises in this subsector beyond a stipulated level. From a marketing perspective, one should not focus on food based industries considering the lower proportion of lending potential available in that sector.

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Marketing efforts for lending to enterprises can be toned down for basic metal and alloy products, other metal products and transport equipments. With the ongoing technological improvements, there is lot of scope for lending towards the subsector of machinery & machine tools, electrical machinery and apparatus. So the sales team at the SME centre can focus on enterprises which fabricate or use these machinery. A significant fact to be noted is that for Axis bank, there is no exposure towards transport operators. But data suggests that there is huge potential in this area. Considering the nature of the business, the SME centre can take a call on whether or not to lend to the transport operators.

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6 . R I S K A N A LY S I S

Risk analysis was carried out under the following heads: •

Analysis of borrowal spectrum based on internal credit rating

•

Analysis of enterprises under watch list/exit list

•

Internal rating weighted concentration risk

Analysis of borrowal spectrum based on internal credit rating: With respect to internal credit rating, Axis bank presently follows eight grade (SME 1 to SME 8) rating symbol system. While SME 1 is considered as highly safe, SME 8 is extremely risk prone. In this analysis, enterprises with rating only SME 5 and below (which come under the high-risk category) have been included. The difference with the earlier analysis is that the former included all enterprises without any reference to internal rating.

About 4.1% (Rs. 35.6 crores) of the total fund based credit

exposure (Rs. 860 crores) fall under this category. Similar to the previous section, this study was also done industry wise, nature of company wise, loan scheme wise and location wise.

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Industry wise analysis of high-risk category

Under the high-risk category (with fund based sanction limit = Rs.35.6 crores), 71% of the exposure is towards textile industry, definitely not a

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healthy sign for the SME centre. For better insights, analysis within the above mentioned industries was carried out as shown below:

We are able to observe that within engineering industry, 41% of loan exposure is under the high-risk category. This is an indication that future exposures to engineering enterprises should be done with utmost caution. Location wise analysis of high-risk category:

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We observe that 45% of the exposure under high-risk category belongs to Karur – an indication that future exposures to industries in Karur should be thoroughly reviewed.

The graph above shows the percentage of exposure under high-risk category within the locations Karur, Erode and Coimbatore. Again, we observe that within Karur town, 17% of exposure falls under the high-risk category. R Srikanth

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Nature of organization wise analysis of high-risk category

Nature of organisation wise contribution to high risk category SOLE PROPRIETORSHIP 2%

PARTNERSHIP FIRM 10%

PRIVATE LTD COMPANIES 88%

The low proportion of sole proprietorships and partnership firms in the high risk category is a good sign considering the key man risk factor. Loan scheme wise contribution to high-risk category

Loan scheme wise contribution to high risk category Export finance 32%

Working capital 46%

Term loan 22%

Again, the low proportion of term loans under high risk category is a healthy sign. The SME centre should focus on sustaining this proportion of

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term loans to ensure a low probability of default by enterprises that are enjoying term loans. Enterprise wise contribution to high-risk category:

The above chart shows the contribution by various enterprises to the high risk category. Considering the case of Veera Home Tex, we observe that if the enterprise defaults, then it will have an adverse impact on the NPA (Non Profitable Asset) level of the SME centre as a whole. So such accounts have to be regularly monitored to avoid the risk of default.

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Analysis of enterprises under watch list/exit list: Out of the total 255 customers, the Zonal Risk committee placed 40 under watch list/exit list. About 12.1% (Rs. 104 crores) of the sanction limit came under this category. This study is separate from the analysis above based on internal credit rating. To identify the priority areas for monitoring risk of default, a Pareto analysis was also done among industries, enterprises etc. Industry wise:

Similar to the previous analysis, even here we observe that of the sanction limit under watch list/exit list, 50% belongs to the textile industry. Also, another significant observation is that 77% of the sanction limit under watch list/exit list is contributed by just three industries: Textiles R Srikanth

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(Cotton), Iron & Steel and Engineering, necessitating more focus on enterprises belonging to these industries. To have a clearer picture, the within industry analysis is shown below:

Within industry - % under watch list 60% 50%

53% 51% 39%

40%

24% 23%

30% 20%

16% 14% 13%

12%

10%

1%

S R E H T O R H :O S IL X E T

N O :C S IL X E T

T S L A E R

& L A IC M E H L IA M E H C Y R L W J & S M E G

L E T S & N O IR

IR G N E

S E R IL C N O T U A

D A G IN M

S T C U D O R P

E D A R T

…

0%

7%

A significantly disturbing feature is that within the mining and mining products industry, 53% of the exposure is under watch list followed by engineering (51%). Another heartening feature is that only 13% of the exposure within textile industry is under watch list. Location wise

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Considering the relatively lower sanction limit towards enterprises at Karur, a figure of 24.3% is a disturbing feature. To understand the impact of 50.4% for Coimbatore, the within-location analysis was done as shown below:

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Within location - % of sanction limit under watch list 30%

26% 25%

23%

20%

15% 15%

10%

6% 5%

3%

M E L A S

E R T A B IM O C

P U IR T

U R A K

D O R E

0%

Having a look at the chart, we can conclude that Karur remains the area of prime focus, with 26% of the sanction limit given to enterprises at Karur under watch list. Even the figure of 15% within Coimbatore is a cause of concern considering the larger proportion of sanction limit lent to enterprises in that district.

Enterprise wise

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Enterprises - % contribution to sanction limit under watch list 80%

68%

70% cumulative

60% 50% 68% of exposure under watch list contributed by 25% of enterprises

40% 30% 20%

13.11%

10%

9.58% 8.40% 6.73% 5.89% 5.34% 5.20% 5.05% 4.77% 4.27%

D M L E T A IV R P N T S C IE D R A IE N A S D L U O M R M L E T V R P A D IN

) (P L X E T K A IV R S

M O U A R G E T IN ) D (IN X T M O H A R E V

S T R O X E P M A H C

D T L S E T N K M IR V A

T U D IN M H S E R

L T V )P A D (IN

D L T V P

D L T V P

S IL M G K

0%

The enterprise wise contribution of the sanction limit under watch list is shown for the top 10 firms in the chart above. We observe that about 68% of the sanction limit under watch list is contributed by just these 10 firms (out of the 40 firms in watch list). This is an example of how individual firms can even make a significant impact on the SME centre’s credit portfolio.

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Internal rating weighted concentration risk: A realistic picture of the concentration risk of each industry would emerge if the risk measured is weighted with the internal ratings given to all the enterprises within that industry. To understand whether this internal rating creates any difference in the concentration of the industries, the following weights were applied. The weights added were similar to the ones given in the report released by Basel Committee on Banking Supervision11. The weights are given below: Table 3: Weights for internal ratings Internal rating

Weightage

SME 1 to SME 2 (including SO)

20%

SME 3 to SME 4 (including SO)

50%

SME 5 to SME 7

150%

A sample calculation of the internal rating adjusted sanction limit is shown below. The difference arising after the weights are applied is to be noted. Table 4: Sample calculation of adjusted sanction limit IR Percent Industr y

Enterpri se Name

Internal rating

Sancti

age of

on

total

Limit sanction limit

Auto

A

SME 3

315000

ancillari 11

Weighta ge based on internal

74%

00

rating

50%

adjuste d sanction limit (sanctio n limit * weighta ge) 1575000

Percenta ge of total adjusted sanction limit

37%

0

International Convergence of Capital Measurement and Capital Standards, A

Revised framework (June 2006) R Srikanth

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es Textile Iron & steel Auto ancillari

B

SME 6

C

SME 2

D

SME 4

570000 0 415000 0 120000 0

es

13%

150%

8550000

20%

10%

20%

830000

2%

3%

50%

600000

1%

425500

2573000

00

0

The increase/decrease in sanction limits (after adjustment) for each enterprise, on summing up would give rise to the modified sanction limit for each industry as a whole. From the modified sanction limit, the percentage exposure to each industry can be calculated (which is nothing but the concentration risk). The summary of the calculations are shown in the table below: Table 5: Comparison of normal and adjusted sanction limits Normal Adjuste Industry (1)

GEMS & JEWELLERY INFRASTRUCTURE CONSTRUCTION: ROADS INFRASTRUCTURE CONSTRUCTION: OTHERS POWER GENERATION & DISTRIBUTION ALCOHOLIC BEVERAGES & TOBACCO EDIBLE OILS FOOD PROCESSING TELECOMMUNICATION SERVICES REAL ESTATE IRON & STEEL LOGISTICS OTHER METAL & METAL PRODUCTS PETROCHEMICAL & PETROLEUM PRODUCTS AUTO ANCILLARIES TEXTILES: COTTON TEXTILES: OTHER TRADE EDUCATION & TRAINING PAPER & PAPER PRODUCTS LEATHER & LEATHER PRODUCTS MINING AND MINING PRODUCTS R Srikanth

Sanctio

d

Differenc

n limit Sanction e (3)-(2) (2) Limit (3) 0.66% 0.75% 1.65% 1.57% 3.50% 3.32% 0.63% 0.96% 2.82% 3.66% 3.68% 3.59% 4.05% 4.67% 0.43% 0.41% 4.32% 4.86% 4.43% 5.15% 0.06% 0.06% 1.23% 1.16% 0.34% 0.45% 3.72% 3.63% 46.33% 44.89% 1.11% 1.17% 2.93% 2.88% 6.36% 6.92% 0.63% 0.60% 0.37% 0.59% 0.21% 0.20%

Analysis of SME Risk Profile

0.09% -0.09% -0.18% 0.34% 0.84% -0.09% 0.62% -0.02% 0.54% 0.73% 0.00% -0.06% 0.11% -0.09% -1.44% 0.06% -0.05% 0.56% -0.03% 0.22% -0.01%

Page 45 of 50

RUBBER & RUBBER PRODUCTS OTHERS AUTOMOBILES CHEMICAL & CHEMICAL PRODUCTS DRUGS & PHARMACEUTICALS ENGINEERING

0.15% 2.34% 1.10% 2.60% 0.03% 4.27%

0.15% 2.32% 1.04% 2.48% 0.03% 2.45%

-0.01% -0.02% -0.06% -0.12% 0.00% -1.82%

We are able to observe that there is no appreciable difference after weighting the sanction limit with internal ratings (except in the case of Engineering and Textiles: Cotton). Risk Adjusted Return on Capital (RAROC): With the intention of increasing ROC by minimizing capital requirements for individual enterprises (necessitated by credit risk), a study of the first pillar of Basel 2 norms (June 2006 revision) was first carried out. If the capital allocation is reduced, this results in increased profits for the bank. Approved by Basel norms, one approach for minimizing capital allocation was through an internal rating based approach. Under the First Pillar (Minimum Capital Requirements), a model based on Internal Ratings was chosen to reduce the capital allocation to be done by the bank. But since capital allocation for the credit exposures at Axis bank took place at the Central level, obtaining data on the allocated capital for Coimbatore zone was not possible. So this attempt at calculating risk adjusted return on capital (RAROC) was discontinued.

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7 . A N A LY S I S O F C U S T O M E R S W I T H D O W N WA R D M I G R AT I O N

For this analysis, a sample of 10 high value enterprises was selected across industries (with three enterprises in textile industry). After a thorough understanding of the firms, information which is significant for this analysis have been summarized below: Table 6: Details of customers who underwent downward migration

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For each enterprise, the following information has been included: •

Line of activity

•

Change in ratings

•

Location of major suppliers and customers and

•

Factors affecting migration: o Demand side o Financial performance (2008-09 provisional) o Specific factors (includes supply side also)

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Observations: 1. Ratings: In the sample under study, conduct ratings have gone down in more cases than the financial ratings. Included under conduct rating are frequent overdrawing, irregularities under term loan account etc. 2. Major customers: Enterprises with overseas customers have been impacted more than the domestic customers. 3. Demand side: Order postponement and deferring of payments are phenomenon commonly observed in the demand side. 4. Financial performance (2008-09 provisional): Performance affected across industries. Textile industry worst hit followed by the automobile industry & real estate. 5. Specific factors: a. Power shortage and advance payment demanded by suppliers are factors that occur more frequently than the others. b. Irregularities by companies (working capital, cheque returns) also contribute to downward ratings. Considering all the above observations, we can conclude that the much talked about downturn did have an impact on the performance of enterprises. Power shortage is one important factor that is not related to the downturn, but still has affected the turnover and profit margins of companies.

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8 . M A R K E T E X PA N S I O N

From the previous sections, we get an idea on which industries to lend to and which industries to avoid when seen from the risk perspective. In this section, we take a look at the industries which are prevalent in Coimbatore district and understand their growth potential while still retaining the risk perspective. To judge the growth prospects of the industry, the following factors were considered12: •

Potential Increase (decrease) in sales %

•

Potential Increase (decrease) in PAT %

•

Short term outlook

•

CAGR

•

Sectoral p/e

With the intention of balancing growth with risk management, the following factors give an understanding of the present risk level of the industry (based on the customers associated with the SME centre of Coimbatore currently): •

Percentage exposure for Coimbatore centre (Concentration risk)

•

Internal rating spectrum for current customers

•

Companies under Watch list (as on March 31, 2009)

The prevalent industries in Coimbatore were consolidated from various sources like internal data of Axis bank, the website of District Industries Centre, Coimbatore and based on the general knowledge of industries in 12

Source: Industry Analysis Service (CMIE) and Crisil Research website

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Coimbatore. The following ten industries were shortlisted so that the above mentioned factors are in coherence with each other: Gems & jewellery, plastics, building materials (Construction), paper,

auto

ancillaries,

engineering,

retail

electronic

trade,

goods,

hospitals

and

hospitality. The table in the next page summarises the risk and market expansion factors for each industry. IAS - Industry Analysis Service, CMIE Centre for Monitoring Indian Economy. Table 7: Data on industries prevalent in Coimbatore

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IAS - Industry Analysis Service, CMIE - Centre for Monitoring Indian Economy

S.No

1

2

Industry

Gems & Jewellery

Plastics

Percentage exposure for Coimbatore centre (Concentration risk)

0.75%

2.48%

Green (SME 1 to SME 3 S0)

100%

4

5

Electronic goods

Paper

4.88%

0.10%

0.60%

77%

100%

0%

75%

Orange (SME 4)

0%

23%

0%

100%

25%

Red (SME 5 to SME7)

0%

0%

0%

0%

0%

20% (1)

8% (1)

0%

0%

0%

QoQ: (2-4%)

11.50%

37-40%

41% (LCD TV)

6.50%

profit margins under pressure

4.30%

14-17% (PBDIT)

sluggish

good

positive

positive

sluggish

CAGR

-

-

13%

-

6.30%

Sectoral p/e present (previous in bracket)

11.9 (10.7)

-

-

-

15.9 (13.3)

Remarks

Going through a rough patch because of poor demand from US - the largest market

Plastics are largely used in agriculture and construction sectors which are expected to clock decent growth in 200910

Infrastructure spending by stable government to aid growth

Increased average disposable income in India

moderate growth, but less volatility

Recommendation

Don’t lend

Lend

Lend

Lend

Lend

Source

IAS (CMIE)

IAS (CMIE)

CRISIL research

IAS (CMIE)

IAS (CMIE) & CRISIL research

Internal rating

Companies under Watch list:Percentage (number of companies in bracket)

Potential Increase (decrease) in sales %

Growth potential

Potential Increase (decrease) in PAT % Short term outlook

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7

8

9

10

Engineering

Retail Trade

Hospitals

Hospitality

8.41%

2.45%

2.88%

0.43%

0.02%

Green (SME 1 to SME 3 S0)

43%

50%

88%

100%

100%

Orange (SME 4)

29%

38%

12%

0%

0%

Red (SME 5 to SME7)

29%

12%

0%

0%

0%

43% (3)

25% (2)

12% (2)

0%

0%

Potential Increase (decrease) in sales %

YoY: 9.6%

17%

20%

23-27%

8.60%

Potential Increase (decrease) in PAT %

QoQ: 4-7%

7.5-10%

43% (PBDIT)

Short term outlook

slow growth

healthy

Slow growth

Healthy

sluggish

CAGR

-

14%

14%

-

-

Sectoral p/e present (previous in bracket)

-

9.4 (7.7)

87.3

-

12.3 (9.7)

Remarks

Coupled with good growth for automobiles

Coupled with good growth expected for automobiles and consumer durables industries

Short term opportunity for unorganised retail as organised retail will grow slowly in the next 2 years.

Huge scope for penetration of healthcare services

Increased average disposable income in India will lead to growth in the long term

Recommendation

Lend

Lend

Lend for short term only

Lend

Lend

Source

IAS (CMIE)

IAS (CMIE)

CRISIL Research

IAS (CMIE)

CRISIL Research

S.No

Industry Percentage exposure for Coimbatore centre (Concentration risk)

Internal rating

Companies under Watch list:Percentage (number of companies in bracket)

Growth potential

6 Auto ancillaries

LIMITATIONS Concentration risk:

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•

Concentration risk measured only for fund based sanction limits. Non fund based sanction limits have been excluded from the present study.

•

If allocation of industry, subsector etc. to an enterprise is done wrongly at the time of entry into MIS, we will not give the accurate concentration risk.

•

NABARD’s potential credit does not take into account the factor of concentration risk towards a particular industry. Risk analysis:

•

Under watch list/exit list, only enterprises that have been associated with SME centre for the past two years have been included. This has been done because of the inherent constraint in the rating system which gives lower ratings to newly associated enterprises (lack of adequate data).

•

Under internal rating weighted concentration risk, the present weights allocation is subjective. A change in weights may alter the concentration risks. Analysis of migration:

•

The short listed companies underwent downward migration from 2006-07 to 2007-08.

•

Rating based on Annual balance sheet of 2008-09 not done, so provisional figures for theyear have been included. An accurate picture would have emerged if the rating was done based on 200809 balance sheet.

•

This analysis has been done for a sample only. More specific factors may have had an effect on the performance of enterprises not included in the present sample.

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Market expansion:

• Only ten industries have been included in this study for market expansion. Other industries may exist which have growth potential. CONCLUSION The textile industry with a concentration risk of 45% (overall SME centre) may result in significant loss for the bank under adverse economic conditions. Under textile industry, apparels/garments have the highest concentration risk followed by Cotton spinning. Coimbatore has the highest concentration risk location wise, followed by Tirupur. Under loan schemes, 42% towards the term loan poses the highest risk. Consider the nature of organizations, sole proprietorships with an exposure of 11% are a cause of concern because of the key man risk factor. Looking at the credit potential for Coimbatore district (NABARD), lending towards the subsector of machine tools and transport operations seems to be an attractive option. 4.1% of the total sanction limit is under high-risk category – the main contribution being from the cotton textiles and engineering industries. Karur poses the highest risk location wise when we consider the internal ratings SME 5 and below. 77% of the exposure under watch list/exit list is contributed by just 3 industries: Textiles, Iron & Steel & Engineering. Also, ten customers of the SME centre contribute to about 68% of exposure under watch list/exit list. Considering the effects of recession on the industries in this region, we observe from the sample study that textile industry appears to be the one worst hit by the recession followed by the real estate and automobile ancillaries. Power shortage is another important factor that affected the margins of customers in this SME centre. When it comes to market expansion, gems & jewellery is one industry where the SME centre may avoid lending atleast in the short term. R Srikanth

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Care should be taken while allocating the industry, subsector etc. to the industry, as wrong allocation may portray additional exposure towards the industry and hence increase the concentration risk. The relationship managers associated with the SME centre should encourage the Textile enterprises to go in technological improvements, to achieve the objectives of reduced cost, increased efficiency and margins. Another general observation is that the collaterals based on real estate are volatile, which necessitates frequent valuation to decipher the market value. A more accurate picture of the concentration risk would emerge if the Lead bank at Coimbatore shares the exposure data of all the banks combined. Also, when this analysis of concentration risk is seen together with the yield from the individual customers, the SME centre will have the convenience of managing credit risk without affecting the interest and other incomes. Thus, the project has identified the areas of focus for the SME centre in its endeavor to manage credit risk. Added to this, suggestion of new avenues for lending gives a marketing angle to the project and is believed to help the SME centre in market expansion. REFERENCES Books

1. NABARD, Potential Linked Credit Plan, Coimbatore district, Tamil Nadu Regional office, 2009-10 2. Corporate Credit policy, Axis Bank, 2009-10 Internet articles

1. District Industries Centre, Coimbatore http://www.diccoimbatore.com/ 2. About Axis bank http://www.axisbank.com/aboutus/aboutaxisbank/About-Axis-Bank.asp

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3. Basel committee on banking supervision, International Convergence of Capital Measurement and Capital Standards (A revised framework), June 2006 www.bis.org/publ/bcbs128.pdf Internal data

1. Data for Non-schematic enterprises, SME centre, Coimbatore, 31 st March 2009. 2. Companies under watch list/exit list, March 2009 3. Latest proposals of various enterprises

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APPENDIX 1. Estimates from Potential Linked Credit Plan for Coimbatore district (Released by NABARD) 2009-10 Total credit flow projection for the year

732857.2 lakhs 2009-10 is Investment credit (Rs.

Sector Textiles:handloom Textiles:powerloom

Lakhs) Financial Bank loan outlay 577.5 433.1

Working capital (Rs.

Total

Lakhs) WC assessment 1886.5

Potential for Percentage

Bank loan

2009-10

1509.2

1942.325

0.3%

1000.0

750

1886.5

1509.2

2259.2

0.3%

574.2

430.6

774.8

619.8

1050.4

0.1%

22528.4

16896.3

30400.1

24320.1

41216.4

5.6%

603.9

453.0

815.0

652.0

1104.9

0.2%

jute hemp and mesta textiles

208.4

156.3

281.2

225.0

381.3

0.1%

hosiery and garments

85745.9

64309.4

115706.2

92565.0

156874.4

21.4%

wood and wooden products

3296.1

2472.1

4447.8

3558.2

6030.3

0.8%

paper and paper products

6987.8

5240.8

9429.4

7543.5

12784.3

1.7%

leather based

3836.3

2877.2

5176.7

4141.3

7018.5

1.0%

plastic and rubber based chemicals and chemical

7727.8

5795.9

10428.0

8342.4

14138.2

1.9%

3317.4

2488.0

4476.5

3581.2

6069.2

0.8%

3653.4

2740.0

4929.9

3943.9

6683.9

0.9%

Beverages, tobacco and tobacco based Cotton textile based wool, silk and synthetic fibre textiles

based non metallic mineral products basic metal and alloy products metal products

5371.6

4028.7

7248.5

5798.8

9827.5

1.3%

12168.0

9126.0

16419.6

13135.7

22261.7

3.0%

machinery and machine tolls

20708.1

15531.1

27943.7

22355.0

37886.1

5.2%

8425.3

6319.0

11369.2

9095.3

15414.3

2.1%

11538.5

8653.9

15570.2

12456.2

21110.1

2.9%

263702.6

472887.4

64.5%

Transport operators

54750

7.5%

Retail trade & small business

20250

2.8%

electrical machinery and apparatus transport equipments Non farm sector

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