A STUDY ON FINANCIAL PRODUCTS PROVIDED BY MY MONEY MANTRA

ABSTRACT
Financial Statement Analysis is a very vital instrument of good management decision-making
in business enterprise. Good decisions ensure business survival, profitability and
growth. Without financial statement analysis in investment decisions, an enterprise is likely to
make decisions, which could spell its doom. Poor or lack of qualitative financial statement
analysis could lead to investment returns, low profitability and even inability to identify viable
investment opportunities.

The main objective of this project is therefore, was to determine how customers could use loans
and products available under my money mantra to make better decisions for claiming loans
with different banks under my money mantra as a single sector.

The project is pertained to the company’s data available for the past five years. The
conclusions are drawn from the analysis done with the ratios, comparative, common size
study. The study elucidates the financial position of the company with respect to the past five
years. It helps the company to place itself among various other competitive companies.

The study through the analysis reveals the pros and cons of the company’s financial status. It
enables the reader to understand the various financial aspects of a bank through uncomplicated
interpretation and findings for study purpose.

INTRODUCTION

Study conducted by Crouhy et al ( 2017) recommends that bank should analyse three different categories of
variables- quantitative, qualitative and legal while assigning grade to a particular loan application. The
quantitative analysis includes financial analysis and is based on the firm‘s financial reports. The four major
quantitative variable used in this model are net income, total operating income, total equity capital and total asset
value. These variables are used to calculate various ratios like Return on Equity ( ROE), Return on Assets
(ROA), Assets Utillization (AU) etc. For loans like overseas loans or export/import loans, country risk is also
taken into account. Main concern of qualitative analysis is the quality of the borrower‘s competitiveness and the
growth potential of the industry in which borrower is operating. Legal analysis ensures that the borrower has the
power to sign the credit agreement and that it gets the first claim on the collateral .Banks also need to ensure that
the borrower is legally liable to borrow the loan amount. According to Jay T. Fitts, Executive Vice
President, LaSalle Bank, FSB, credit appraisal for working capital is a process in the course of shifting,
both in how we approach it and what we need to have done. He states that lenders are driving this business to a
low cost commodity activity .Peters on and Rajan (2006) discovered that under the conditions of certainity, firms
have little reason to hold more working capital than a minimum level. Larger amounts would increase the level
of operating assets, increase the need for external funding, resulting in lower return on assets and a lower return
in equity, without any increase in profit .Brigham and Houston (2012) focused on understanding how IPO
companies manage their working capital and other balance sheet items. They examined the effect of working
capital management on these companies. They discovered that maintaining control over level of cash, securities,
inventory, fixed assets and accounts payables is associated with higher operating performance. According to
Payle (2014), banks have various credit policies which guide them in the process of credit appraisal.
These policies guide the banks on who should access credit, when and why one should obtain the credit
including repayment arrangements and necessary collaterals. The method of assessment and evaluation of risk
of each prospective applicant are part of a credit control policy .Bonin and Huang (2015) discovered that a firm‘s
credit policy may be lenient or stringent. In the case of a lenient policy, the firm lends liberally even to those
whosecredit worthiness is questionable. This minimizes costs and losses from bad debts but might reduce
revenue earning from loans, profitability and cash flow. Chen and Shimerda (2016) classified 100 financial
indicators out of which 65 are financial ratios. Their final model ,however, includes only seven financial
indicators whileidentifying the bankrupt firms. These indicators are return on investment, debt ratio,current ratio,
cash position, net working capital turnover, inventory turnover andaccounts receivable turnover. The bankruptcy
model for industrial companies developed by Gombola and Ketz (2016) adds to these factors a cash flow
measure. Sun and Li (2015) have developed a model to predict companies‘financial distress, testing 35 financial
ratios for 135 pairs of listed companies. Their final distress prediction model includes net profit growth rate,
liabilities to tangible net assets, accounts receivable turnover, liabilities to cash flow, liabilities to equity market
value, total asset turnover and gross profit margin.Giacomino and Mielke (2018) propose nine cash flow ratios
to evaluate a company'sperformance and use than to evaluate US companies in the chemical, food andelectronic
industries, calculating three-year averages per industry. The industries were chosen had the largest number of
companies among the Fortune 500

COMPANY PROFILE

My Money Mantra is India‘s leading financial services distributor, having more than two decades of
experience and leverage its domain expertise to bring unmatched value toits clients. It offers a wide
product menu and reputed partnerships to bring the best toits customers. They partnered with over 35 banks to
provide these financial services. The company has a team of around 1500 dedicated professionals across several
citiesincluding Delhi NCR, Mumbai, Pune, Bangalore, Chennai, Kolkata and Chandigarh.Their products and
services range includes loans, credit cards and insurance.
Loans:
Home loan: A home loan is a type of loan where the consumer borrows money from a lender which would
typically be a Bank, an NBFC or a housing finance company, topurchase a residential property and offers the
same property to the lender as a security. Home loan: A home loan is a type of loan where the consumer borrows
money from alender which would typically be a Bank, an NBFC or a housing finance company, topurchase a
residential property and offers the same property to the lender as a security. Buying a house is one of the
biggest achievements of human's life. It nearly takes an entire life span to fulfill the dream of
purchasing own house. It is a huge task to buy the best house and involves a lot of research
and planning. One of the grave tasks is to arrange funds for the same. In that case, you will
either use your savings or borrow funds at a certain rate of interest. Earlier, the borrowing of
the funds was a cumbersome process but today the lending institutions have simplified the
entire cycle of availing a home loan. The banks are providing home loans with the several
benefits that include low and attractive interest rates, high loan amount, quick turnaround
period and easy repayment options.

Home Loan from the respective bank or financial institution for the following:

 Buying a property within the residential development which is currently under

construction.
 Purchasing a ready-made property from a builder or the current owner of the property.
 Purchasing a plot in a private development, from a current owner or from a government
development authority
 For the construction of the property one owns.
 Purchasing a plot as well as financing the construction of the home on it.

Loan against property: Popularly known as LAP in the financial services circles, these loans are a convenient
means to access funds at interest rates which are lower than personal loans or other forms of unsecured .Loans
for NRIs: In case of NRIs who are salaried individuals, it is possible not only topurchase properties in India but
also to avail loans for funding these purchases.

Loan Against Property (LAP) is a type of secured loan. A secured loan is a loan where the
borrower mortgages his or her asset or property as collateral to the bank or the other lending
institution. Loan Against Property could be used for several personal and professional needs
such as house renovation, business expansion, purchase of a new machinery and other
requirements. Typically the banks and other lending institutions offer loan against residential,
commercial and industrial property. A borrower usually gets a fixed percentage of the property
value known as LTV (Loan to Value) as loan amount against the property. The loan to value
(LTV) varies from one bank to another. Usually, the loan to value ranges from 40% to 70% of
the property value. The borrower can continue using the property that is mortgaged with the
bank for its respective use.

However, both Loan Against Property and Personal Loan could be used for personal and
professional needs but the interest rates of LAP are comparatively lower than a Personal Loan.
This loan variant can be availed by salaried, self-employed professionals and self-employed
business owners. The banks offer LAP either at the fixed rate of interest or at an adjustable
rate.

Purpose of Loan Against property

Loan Against Property could be used for several purposes mentioned below:

 Business Expansion
 Purchase of a new property
 Purchase of raw material
 For immediate working capital requirement
 Acquiring a new machinery
 Investment in new technology for business
Personal loans: Personal loans are no-questions-asked unsecured loans given to individuals on the basis of their
profile only i.e. income, nature of employment, years of work experience etc. Such loans, unlike property based
loans or car loans do not require the borrower to give any kind of security or collateral to the bank. Most banks
do not question the purpose for which the loan is required, but you would still be required to state the purpose on
the application form. Almost universally, banks do not allow these loans to be taken for speculative purposes
e.g.: investing in stocks etc. This product is mostly for salaried individuals only.

Unsecured business loan: Unsecured business loans have no requirement for a security or collateral to be
submitted and are offered purely on the current financial strength and past credit record of the borrower.
The growth and sustainability of a business depend on the continuous inflow of funds. The
funds might be required to expand the business or purchasing an equipment. The funds can be
borrowed in the form of a loan from banks and other financial institutions. Business Loans are
typically unsecured in nature which means no collateral or security is required to borrow a loan.
Business Loan is a debt provided to the company or the self-employed professionals or business
owners that are to be repaid along with the principal amount. The rate of interest is usually per-
the determined by the lending institutions. Business Loan in India is offered at the competitive
interest rates, with low processing-fee and without any security or collateral. Several leading
banks and NBFCs including HDFC Bank, ICICI Bank, Capital First, Citibank, Fullerton India,
Tata Capital, etc. are offering business loans.

Types of Business Loans

Some of the types of Business Loans are explained below:

Term Loans: Term Loans could be used for business expansion or capital infusion
requirement of an organization. Generally, a term loan is the loan offered for the acquisition of
long-term fixed assets including land or building, machinery and other business needs. The
interest rate can be either fixed or floating and are usually have a fixed repayment schedule.

Special Business Loan Scheme for Women Entrepreneurs: Today banks are offering
attractive business loan scheme for women entrepreneurs that includes the attractive and low
rate of interest. However, women entrepreneurs having business ownership of less than 50%
are not eligible for the special loan schemes.
Working Capital Loans: These types of loans are offered to meet the daily operating expenses
of the business. These loans can be further classified in secured and unsecured loans. The key
advantage of taking Business Loan from my money mantra is the support the team offers even
after the loan disbursement. You can apply for the best loan deal with my money mantra and
get the easy disbursement into your account.

Gold loan

Gold Loan is a secured form of loan in which the borrower has to pledge gold ornaments or
gold coins as collateral with the lender. However, the loan against gold depends on the value
of the gold offered for a mortgage. The loan obtained should be repaid in instalments along
with the fixed rate of interest charged by the lender. Usually, Gold Loan is offered for short to
medium tenor. Gold loan is one of the good options for instant liquidity that could be used for
several personal and professional needs including wedding expenses, educational expense,
business expansion, and others.

Unlike the other secured loans, Gold Loans are not offered on the basis of the credit history or
the repayment track on the past loans and credit card bill dues. The gold loan is offered based
on the value of gold pledged as collateral. However, CIBIL Score will still be checked by the
lender.

Key facts about gold loans

To know more about the gold loans refer to all the key facts explained below:

 Loan Amount: The borrower can borrow a minimum of Rs.1000 as a gold loan.
However, the amount of loan entirely depends on the value of the gold pledged as
collateral with the lender.
 Shorter Loan Tenor: A Gold loan is offered for the short tenor that ranges from 6
months to 5 years.
 Fixed Rate of Interest: The lending institution charges a fixed rate of interest on the
Gold Loans. The prevailing gold loan rate of interest is 8.96%.
 Quick Loan Disbursement: The turnaround period for a Gold Loan is short as
compared to any other loan type. Usually, a Gold Loan is disbursed within an hour of
the submission of all the required documents and the said gold.
  Collateral or security: To obtain a Gold Loan the borrower has to pledge gold
ornaments or gold coins as collateral with the bank or the other lending institution.
 Loan Repayment: A Gold Loan can be repaid via fixed Equated Monthly Installments
(EMI).
 Pre-Payment: The banks and other financial institutions facilitate the pre-payment of
a gold loan. However, banks and NBFCs charge pre-payment charges that may go up
to 5% of the outstanding loan amount.
 Documentation: The documentation involved to take a Gold Loan is comparatively
lesser to another type of secured loans.
 Loan to Value: The loan amount varies on the basis of the value of the gold. However,
the loan to value may go up to 75% of the gold value.
 Processing Fee: The lending institution charges a minimal charge as processing fee
that can go up to 2% of the total loan amount.
 Gold Forfeiture in case of failure in the repayment of loan amount: In case the
borrower fails to repay the loan amount to the lender, the lender forfeits the pledged
gold and after melting auctions it within 18 months. However, in some cases, the banks
may wait for a relevant period before auctioning the gold in the market.
 Loan Guarantor: Unlike another type of loans, no guarantor is required for a Gold
Loan.

Gold Loan Documents

The following documents for a Gold Loan are required:

 Aadhar Card
 Passport (Valid)
 Driving License
 PAN Card
 Voter ID
 Photo ID
 2-3 Passport size photographs

Health Insurance:
Everyone is aware that health is wealth, but what do we do to ensure a good health? Physical
fitness, healthy diet, and positive mind can improve your overall well-being, but they cannot
protect you from any unexpected illness or accident. What should you do to ensure that you
and your family remain protected against all the health-related worries? Avail a Health
Insurance policy and safeguard your entire familys health.

Health Insurance is a type of insurance policy that can secure you and your family members
against medical emergency expenses through cashless treatments or reimbursement of incurred
expenses arising from any injury or illness that leads the policyholder to hospitalization.

Health Insurance premiums paid by the insured individual are exempt from taxes under Section
80D of the Income Tax Act, 1961. So, with the assurance of reimbursement of medical
expenses, you can also save claim tax benefits too.

You can avail attractive Health Insurance policies through mymoneymantra. We have several
Health Insurance partners associated with us who provide Group Health Insurance policies as
well as individual Health Insurance policies to insure your employees and their families and
secure them against all unforeseen medical expenses. We can help you choose the right Health
Insurance cover as per yours.

Main Benefits of Health Insurance Policy

 Plans that can be tailored according to your requirements

 Family Floater feature that enables any family member of the insured to avail Insured
Floater Sum
 Availability of cashless service at all network hospitals and nursing homes
 Provision of extended cover for major critical illness
 Additional Cover for pre-existing diseases

Life Insurance
In India, the second most populated country in the world, only 20% of the entire insurable
population is covered. Most people have still not understood the importance of Life Insurance
as they ought to have. Let's explain what is Life Insurance and why should you take it.

About Life Insurance Policy

Life Insurance policy is a contract that promises payment of sum assured (SA) to the
beneficiary/nominee of the Life Insured (LI) on his/ her demise or other mishappenings covered
in the contract.

In case of sudden demise of Life Insured, the amount received as sum assured can help his
family meet their financial needs like daily living expenses, medical expenses, school fees of
your kids, etc.

Life Insurance helps in eliminating risk and provides a timely aid to the family of the insured
person in the unfortunate event of his/ her death. If the insured is the sole breadwinner in the
family, Life Insurance is utmost necessary. Life Insurance is an effective solution to take care
of financial issues caused by untimely death, leaving your dependent family to look out for
themselves.

Credit Card:

There are different types of credit cards available like cash rewards, airline &travel rewards, fuel rewards,
shopping rewards, business cards and life style cards .Depending on the usage of customer he needs to choose
that type of card. For example if a person travels a lot then he/she can choose airline &travel rewards that earns
airline miles or privileges that can makes traveling more comfortable .Credit Card also is known as plastic
credit is issued by the bank or other financial institution that gives an authority to the borrower
to borrow funds at the point of sale. Credit Cards are the convenient substitute for cash and
primarily used for short-term financing. A credit card is issued based on the eligibility factors
that include monthly income, credit history, CIBIL Score, company category and other related
factors. The lending financial institution draws a credit limit for each borrower based on his/
her credit profile. Usually, the borrower has to pay back the credit to the bank within the 45
days of the purchase. In case, he fails to pay back the amount or delays it the bank charges
interest as a penalty.

Objectives
The objective of this project is to gain an insight of the Credit Appraisal Process adopted by
the banks in order to provide the Working Capital Loans to the SME Sector. This study is
conducted in following three parts:

1) Detailed study of the credit facilities and products provided by the banks for working capital
finance.

2) Detailed study of the credit appraisal process and techniques adopted by the banks to provide
working capital loans.

3) A survey was conducted to understand the customer satisfaction with the credit facilities and
credit appraisal process of the banks for working capital finance.

For first two objectives, both primary and secondary research is conducted. Under primary
research, first hand information is collected from the mortgage and credit departments of My
Money Mantra and various partner banks which include ICICI Bank, HDFC Bank, Axis Bank,
Citibank, HSBC, YES Bank and ING Vaisya. Direct interview with bank employees as well as
My Money Mantra employees is also conducted for this purpose. Secondary research is
conducted through internet, various journals and books.

For the third objective, a detailed questionnaire is prepared for customer satisfaction analysis.
More than 100 firms were interviewed and were requested to fill the questionnaire. These firms
are SMEs located in the Delhi NCR region and most of the firms are the clients of the Chartered
Accountants with whom we have established channel partnership during the project. Finally
100 completely filled questionnaires were selected for the analysis of Customer Satisfaction
with credit facilities provided by the banks.

Literature Review

According to Treacy and Carey (2000), a bank should consider various factors while designing
a Credit Appraisal System. These factors include cost ,information gathering, rating
consisitency, staff incentives etc. They noticed that a rating system with more rating categories
is better than the system with less categories, however it leads to greater operating cost.

Study conducted by Crouhy et al ( 2001) recommends that bank should analyse three different
categories of variables- quantitative, qualitative and legal while assigning grade to a particular
loan application. The quantitative analysis includes financial analysis and is based on the firm’s
financial reports. The four major quantitative variable used in this model are net income, total
operating income, total equity capital and total asset value. These variables are used to calculate
various ratios like Return on Equity ( ROE), Return on Assets (ROA), Assets Utillization (AU)
etc. For loans like overseas loans or export/import loans, country risk is also taken into account.
Main concern of qualitative analysis is the quality of the borrower’s competitiveness and the
growth potential of the industry in which borrower is operating. Legal analysis ensures that the
borrower has the power to sign the credit agreement and that it gets the first claim on the
collateral. Banks also need to ensure that the borrower is legally liable to borrow the loan
amount.

According to Jay T. Fitts, Executive Vice President, LaSalle Bank, FSB, credit appraisal for
working capital is a process in the course of shifting, both in how we approach it and what we
need to have done. He states that lenders are driving this business to a low cost commodity
activity.

Peterson and Rajan (2007) discovered that under the conditions of certainity, firms have little
reason to hold more working capital than a minimum level. Larger amounts would increase the
level of operating assets, increase the need for external funding, resulting in lower return on
assets and a lower return in equity, without any increase in profit.

Brigham and Houston (2008) focused on understanding how IPO companies manage their
working capital and other balance sheet items. They examined the effect of working capital
management on these companies. They discovered that maintaining control over level of cash,
securities, inventory, fixed assets and accounts payables is associated with higher operating
performance.

According to Payle (2010), banks have various credit policies which guide them in the process
of credit appraisal. These policies guide the banks on who should access credit, when and why
one should obtain the credit including repayment arrangements and necessary collaterals. The
method of assessment and evaluation of risk of each prospective applicant are part of a credit
control policy.

Bonin and Huang (2011) discovered that a firm’s credit policy may be lenient or stringent. In
the case of a lenient policy, the firm lends liberally even to those whose credit worthiness is
questionable. This minimizes costs and losses from bad debts but might reduce revenue earning
from loans, profitability and cash flow.
Chen and Shimerda (2016) classified 100 financial indicators out of which 65 are financial
ratios .Their final model ,however, includes only seven financial indicators while identifying
the bankrupt firms. These indicators are return on investment, debt ratio, current ratio, cash
position, net working capital turnover, inventory turnover and accounts receivable turnover.
The bankruptcy model for industrial companies developed by Gombola and Ketz (1983) adds
to these factors a cash flow measure.

Sun and Li (2017) have developed a model to predict companies’ financial distress, testing 35
financial ratios for 135 pairs of listed companies. Their final distress prediction model includes
net profit growth rate, liabilities to tangible net assets, accounts receivable turnover, liabilities
to cash flow, liabilities to equity market value, total asset turnover and gross profit margin.

Giacomino and Mielke (2018) propose nine cash flow ratios to evaluate a company's
performance and use than to evaluate US companies in the chemical, food and electronic
industries, calculating three-year averages per industry. The industries were chosen had the
largest number of companies among the Fortune 500

METHODOLOGY

Research Design

The Study is divided into following three parts:

a) Detailed study of the Credit Facilities provided by the banks for working capital loans.

b) Detailed study of the Credit Appraisal Process and Credit Appraisal techniques adopted
by the banks

c) Customer Satisfaction analysis for these credit facilities and process adopted by the
banks.

Data Collection Methods

1. Primary Data
First hand information is collected from the mortgage and credit departments of my Money
Mantra and various partner banks which include ICICI Bank, HDFC Bank, Axis Bank,
Citibank, HSBC, YES Bank and ING Vaisya. Direct interview with bank employees as well as
My Money Mantra employees is also conducted for this purpose.
A detailed questionnaire is prepared for customer satisfaction analysis.

2. Secondary Data
Secondary data is collected from internet, various journals, books and company records.

Sampling and Field Work

Sample Size: 100

Sampling Technique: Convenient Sampling
Region: Delhi NCR
More than 100 firms were interviewed and were requested to fill the questionnaire. These firms
are SMEs located in the Delhi NCR region and most of the firms are the clients of the Chartered
Accountants with whom we have established channel partnership during the project. Finally
100 completely filled questionnaires were selected for the analysis of Customer Satisfaction
with credit facilities provided by the banks.

Analysis and Result

1) Findings of the study conducted to understand the Credit Facilities provided by the banks
for working capital loans

As per my study, majorly following types of Working Capital Facilities are provided by the
banks for working capital finance:
 Fund Based Non Fund
Credit based credit

Letter of
Term Loan
Credit

Cash Credit Bank

Limit Guarantee

Bill
discounting

Credit facilities are classified as fund based and non fund based.
Fund Based Credit:
a) Term loan- In this facility, the repayment is to be made in fixed pre determined
installments. This type of loan is normally given to the borrowers for acquiring long term
assets.
b) Cash Credit Limit- Cash credit limit is a loan offered against collateral security such as
residence, industrial or commercial property. This loan is mainly offered to the companies to
meet working capital requirements. The lender examines a company’s turn over, company
financials and value of stock owned by the company to judge the eligibility criteria of the
borrower. The borrower can withdraw money from his or her current account up to the limit
sanctioned by the lender.

c) Bill Discounting- Under this facility, a borrower can obtain credit from the bank against
bills. The bank purchase or discount the borrower’s bills. The amount provided under this
agreement is covered under the overall cash credit limit or overdraft limit.

2) Non-Fund based Credit:

 a) Letter of Credit- Suppliers, particularly the foreign suppliers, insist that his buyer should
ensure that his bank will make payment if his fails to honour his obligation. This is ensured
through a letter of credit arrangement.

b) Bank Guarantee- Under this facility, there will be a guarantee by the bank to the
beneficiary to make payment if the customer on whose behalf the bank is guaranteeing defaults.
Until then bank is not required to part with any money to the beneficiary.

2) Findings of the study conducted to understand the Credit Appraisal Process and Credit
Appraisal techniques adopted by the banks

Following steps are involved in credit appraisal process

Login of Credit
File

Feasibility
Analysis

Preparation of
the note

Appraisal By the
Risk Department

Sanction Letter

Step 1: Login of credit File

At this step, sales team of the bank gets the cases on the basis of their preferences and the data
in their hand. After that it will handle over the case to the credit department along with the
necessary documents for further process.
Following is the list of necessary documents required to log in a case:
 Duly filled application form
 Audited Financials of last three years
  Provisional financials of last year ( if audited is not available)
 Bank Statement of last six months
 ITR
 Sanction Letter of prevailiong limit
 CIBIL Form
Once all the documents are completed for log in, the case is shown in MIS as a log in
by credit department.

Step 2: Feasibility Analysis

At this step, initially a checkup of financials and other documents is done by the credit team.
Following are the major elements and ratios on which credit team pays special attention while
deciding whether the case is doable or not:

 Leverage
𝐿𝑒𝑣𝑒𝑟𝑎𝑔𝑒 = 𝑇𝑜𝑡𝑎𝑙 𝑂𝑢𝑡𝑠𝑎𝑡𝑎𝑛𝑑𝑖𝑛𝑔 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑦 ÷ 𝑇𝑎𝑛𝑔𝑖𝑏𝑙𝑒 𝑁𝑒𝑡 𝑊𝑜𝑟𝑡ℎ
For leverage, 3 to 5 is a good figure

 Current Ratio
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜 = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 ÷ 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
Current Ratio of 1.5 is an ideal figure

 MPBF ( maximum Permissible Bank Finance)

 Drawing Power
Drawing Power is the amount of Working Capital funds the borrower is allowed to
draw from the Working Capital limit allotted to him. Drawing Power is calculated as
follows:

𝐷𝑟𝑎𝑤𝑖𝑛𝑔 𝑃𝑜𝑤𝑒𝑟 = ( 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 + 𝐷𝑒𝑏𝑡𝑜𝑟𝑠 − 𝐶𝑟𝑒𝑑𝑖𝑡𝑜𝑟𝑠) × 0.75

 DSCR ( Debt Security Coverage Ratio)

 The debt service coverage ratio (DSCR), also known as "debt coverage ratio," (DCR)
is the ratio of cash available for debt servicing to interest, principal and lease payments.
It is a popular benchmark used to access the firm’s ability to produce enough cash to
cover its debt payments. The higher this ratio is, the easier it is to obtain a loan
𝐷𝑆𝐶𝑅 = 𝑁𝑒𝑡 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐼𝑛𝑐𝑜𝑚𝑒 ÷ 𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡 𝑆𝑒𝑟𝑣𝑖𝑐𝑒

 Profitability Ratio
Major profitability ratios which are calculated are:

𝐺𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡 𝑚𝑎𝑟𝑔𝑖𝑛 = 𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡 ÷ 𝑆𝑎𝑙𝑒𝑠

𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑃𝑟𝑜𝑓𝑖𝑡 𝑀𝑎𝑟𝑔𝑖𝑛 = 𝐸𝐵𝐼𝑇 ÷ 𝑆𝑎𝑙𝑒𝑠
𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝐴𝑠𝑠𝑒𝑡𝑠 = 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 ÷ 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝐸𝑞𝑢𝑖𝑡𝑦 = 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 ÷ 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠 𝐸𝑞𝑢𝑖𝑡𝑦

Step 3: Note Preparation

Once the case is approved by the credit team, it is sent for the note preparation.
Note summarizes following details of the borrower:

 Business Background
 Comment on financial statement of the company
 Future projections
 Bank Statement Analysis
 Promoters Background
 Industry Scenerio
 Details of the sanction
 Rate of interest and processing fee
 Other terms and conditions

Step 4: Appraisal by the risk department

At this step, the risk department scrutinizes the whole proposal and sends a list of query to the
credit department. The credit department works along with the sales team to solve out the
queries.
After all the queries are resolved, the case is uploaded for sanction to the appropriate authority
as per the delegation of power by the bank.
Step 5: Sanction
At this stage, various observations are performed by the appropriate authority and the authority
decides whether to sanction or not. Once the sanction is approved, Credit Agreement Letter
(CAL) are prepared and issued to the customers.