Bank’s board is generally the apex authority in formatting credit policy of a bank
Appraisal Standards
Qualitative
Qualitative study taken about bank’s past experience with the industry if any, and experience with the promoters, if there is a track record to go by. Where it is a new connection for the bank but entrepreneurs are already in business, confidential opinion reports from existing bankers and published data if available are carefully perused.
Quantitative
Working Capital
- Liquidity
- Current Ratio – 1.33 will generally considered as benchmark level of liquidity.
- Net Working Capital
- Carefully study that working capital not use for long term uses purpose.
- Financial Soundness
- Total outside liability/Adjusted tangible net worth ratio 3.0 is reasonable but deviation in selective case for understandable reasons may be accept by the sanctioning authority
- Turnover
- Study the trend in quality and value wise tern-over
- Profit
- Non-operating income are excluded as there are usually one time or extraordinary income
- Credit Rating
- Apart from the bank’s internal credit risk assessment , whether the company has been rated by RBI approved external credit rating agency.
- Capital Market
- Company’s share are listed on stock exchanges, the movement of the price of its share, the market value of shares, response of public issue etc indicate the corporate image
- Liquidity
Term Loan
- Technical Feasibility
- For technical feasibility credit officer take opinion from the bank’s technical consultancy cell or from the consultants of the bank
- Promoters’ Contribution
- Promoter’s contribution of at least 20% is normally expected by the lending bank
- Debt Service Coverage Ratios
- Net DSCR not go below 2 and Gross DSCR not go below 1.75
- Margin on Security
- Margin on security depend on Debt : Equity gearing for the project.
- Other Parameters
- Other parameters like End use of fund, Interest rate slab, Credit rating etc.
- Technical Feasibility