NBFC - Study and Analysis of Project Viability, Credit Appraisal and Npa Policies Under Commercial Vehicle Segment of Magma Fincorp LTD - Isha Gulati

A PROJECT REPORT
ON
“NBFC: STUDY AND ANALYSIS OF PROJECT

VIABILITY, CREDIT APPRAISAL AND NPA POLICIES
UNDER COMMERCIAL VEHICLE SEGMENT”
OF MAGMA FINCORP LTD
UNDER THE GUIDANCE OF:
Mr. RAJIV GOPINATHAN
SUBMITTED BY:
ISHA GULATI
Specialization: PGDM-MBA/Finance
INSTITUTE OF MANAGEMENT TECHONOLOGY

(CENTRE FOR DISTANCE LEARNING)
Institute Of Management and Technology GZB Page 1

TABLE OF CONTENT
Sr. No PARTICULARS Page No

I ACKNOWLEDGEMENT
II CERTIFICATE
III GUIDE PROFILE
IV DECLARATION
V PROJECT SUBMISSION FORM
VI IMT-CDL IDENTITY CARD
VII SYNOPSIS
1 INTRODUCTION 3
1.1 INTRODUCTION TO THE PROJECT 3
1.2 CREDIT APPRAISAL PROCESS 4
1.3 PROJECT VIABILITY ANALYSIS 6
1.4 NON PERFORMING ASSETS 6
1.5 OBJECTIVES 8
1.6 METHODOLOGY 8
1.7 LIMITATIONS 9
1.8 SCOPE 10
2 ECONOMY INDUSTRY ANALYSIS 11
2.1 NON BANKING FINANCIAL COMPANIES 11
2.2 MARKET STRUCTURE 13
2.3 SECTORIAL CHARACTERSTICS 14
2.4 COMPETITION IN INDUSTRY 15
2.5 COMMERCIAL VEHICLE INDUSTRY 16
3 INDUSTRY ANALYSIS 18
3.1 PESTEL ANALYSIS 18
3.2 POTERS’S FIVE FORCE 21
4 COMPANY ANALYSIS 23

5 PROJECT SPECIFIC ANALYSIS 43
5.1 FILE FLOW IN MAGMA FINCORP 48
5.2 CIBIL REPORT 50
5.3 FIELD INVESTIGATIONS 51
5.4 TELEPHONIC REFERENCE CHECK 52
5.5 RISK CONTAINMENT UNIT RECORD 53
5.6 NON PERFORMING ASSETS OF COMPANY 55
5.7 CASE STUDIES 57
6 LEARNING FROM PROJECT 67
7 RECOMMENDATIONS 68
8 REFERENCES 69

1. INTRODUCTION
1.1 INTRODUCTION TO THE PROJECT
The project covers the three main topics which are very important in retail credit underwriting
and its subsequent monitoring. They are:
1. Credit Appraisal Process,
2. Project Viability Analysis and
3. Non-performing assets policies
This includes understanding of credit approval process, estimation of credit worthiness of

customer, project viability calculation and measures for non-performing assets and delinquent
clients. These processes are supported by analyzing and understanding of different services
offered by the company and to which target market they are offered and then taking a call on
whether to approve the credit proposal or reject the same. This process includes analysis of
various reports and their findings. The report will then covers the analysis of project viability
which is very important to establish the repayment capability of the client and ensures that timely
payment of Equated monthly installments (EMIs) by the client from the cash flow generated by
the financed asset. The report will further includes the Non-Performing Asset polices followed in
the case of default made by the client in the repayment process.

1.2 CREDIT APPRAISAL PROCESS
Credit risk is a risk related to non-repayment of the credit obtained by the customer of a NBFC. It
is necessary to appraise the credibility of the customer in order to mitigate the credit risk. Proper
evaluation of the customer is performed which checks the financial condition and the ability of
the customer to repay the loan on time which can be interpreted by observing the previous track
record of the client. Credit Appraisal is a process to ascertain the risks associated with the
extension of the credit facility. It is generally carried by the financial institutions which are
involved in providing funding to its customers Credit appraisal means an
investigation/assessment done by the company prior to providing any loans & advances/project
finance & also checks the commercial, financial & technical viability of the project proposed its
funding pattern & further checks the primary & collateral security cover available for recovery of
such funds.
In Short: The assessment of the various risks that can impact on the repayment of loan is credit
appraisal. In short, you are determining "Will I get my money back?" Depending on t h e
purpose of loan and the quantum, the appraisal process may be simple or elaborate. For small
personal loans, credit scoring based on income, life style and existing liabilities may suffice. But
for project financing, the process comprises technical, commercial, marketing, financial,
managerial appraisals as also implementation schedule and ability coupled with the due-diligence
of the appraising officer.

FIGURE 1: CREDIT APPRAISAL PROCESS

1.3 Project Viability Analysis
The process of project viability is the analysis in which the credit department at magma fincorp
ltd considers the feasibility of the proposed asset deployment method projected by the client, the
business ideas must stand the scrutiny from techno-economic, financial and legal perspectives.
This whole process is required to know whether the client would be able to pay off the EMI from
the income generated by the financed asset or not. Customer Viability determines the ability of
the customer to repay the EMI as per his schedule, which depends on deployment capabilities of
the asset so funded by the company. Any delay in payments from the client will decrease the
profitability of the company and on the other hand this will lead to increase in the risk for the
company.
The process of finding the project viability is as follows:
Total Cash to be Total Expense to be Net Free Cash Flow from

generated by the incurred during the = the Asset
Asset deployment of Asset
Net cash flow from the asset is then divided by proposed EMI to get free cash flow to EMI
ratio. If that occurs to be more than 1.5:1 then the project is duly approved.
1.4 Non-performing Assets (NPA)
A Non-performing asset (NPA) is defined as a credit facility in respect of which the interest
and/or installment of principal has remained past due‟ for as specified period of time.
NPA is a classification used by financial institutions that refer to loans that are in jeopardy of
default. Once the borrower has failed to make interest or principle payments for 90 days the loan
is considered to be a non-performing asset. Non-performing assets are problematic for financial
institutions since they depend on interest payments for income. Troublesome pressure from the
economy can lead to a sharp increase in non-performing loans and often results in massive write-
downs.

FIGURE 2: TYPES OF NPA
NPA‟s are integral part of any lending system and magma fincorp‟s retail finance business is no
exception to this. Studying the NPAs of the commercial vehicle segment is the part of the project
and analyzing them will give a proper insight into the core problems concerning NPAs.
Standard Assets: Standard asset is one which does not disclose any problem and which does
not carry more than normal risk attached to the business. Such an asset is not an NPA.
Substandard Assets: A sub-standard asset is one, which has remained NPA for a period less
than or equal to 12 months.
Doubtful Assets: an asset is classified as doubtful if it remained in the sub-standard category

for 12 months. A loan classified as doubtful make collection or liquidation in full, on the basis of
currently known facts, conditions and values, highly questionable and improbable.
Loss Assets: A loss asset is one where loss has been identified by the bank or internal or
external auditors or the RBI Inspectors but the amount has not been written off, wholly.

1.5 OBJECTIVES OF THE PROJECT
The project has following objectives:
• To carry out the Financial Analysis/Appraisal of the borrower/Project.
• To analyze the Technical and legal due diligence in the entire credit process.
• To review the loan documentation and creation of security interest and collateral
requirements.
• To analyze the process of project viability.
• To analyze the Non-Performing Assets and various reasons that leads an account to
become an NPA
1.6 METHODOLOGY
Sources of Data
Data is collected from primary and majorly from secondary sources.
Primary Sources:
• Credit Risk Rating by Risk Assessment Model.
• Appraising Officers in Credit Administrator Division.
Secondary Sources:
• RBI‟s guidelines.
• Data from Basel Committee on Banking Standard (BCBS)
• RCU Report and F.I Report
• CIBIL Report

• Techniques:
• Techniques adopted for the project will be:
• Exploratory and Analytical.
1.7 LIMITATIONS OF THE PROJECT
1. The initial data about the client is collected by the sales team of the company and then it
is forwarded to the credit department so there are still some chances that quality of
data so received is not free from errors.
2. Some of the documents were written in local language and many of the markings and
foot notes in the case files are done by the employees in local language so there is slight
chance that I may miss some of pecuniary details.
3. Many of the clients belongs to rural and semi-‐urban areas of the state, language is again
a problem as we need to know local language to communicate with the customers and
also during the TVR process.
4. The use of internal records and files of the company are restricted for the interns.
5. RCU Report and FI Report are provided by independent third party agency, therefore
there may be chances of risk of data integrity.

1.8 SCOPE OF THE PROJECT:
The title of the project states that it is a decision making process regarding the granting of credit
facilities to the client by way of approving the credit proposal for the funding of asset.
It relates to determination of the Risk of Default and repayment capability of the client which is
nothing but the risk the borrower that he may be unwilling to honor his obligations under the
terms of contract.
A major part of the asset of a NBFC consists of loan portfolio. They suffer maximum loss when
their assets turn into NPA.
It is at this stage that the credit risk is quantified in terms of default probabilities and also
recovery rates are determined. The credit risk is thus a major concern on management of asset
portfolio of any NBFC.

2. Economy Industry Analysis
2.1 Non-Banking Financial Companies
A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act,
1956 engaged in the business of loans and advances, acquisition of various security instruments
issued by Government or local authority or other marketable securities of a like nature, leasing,
hire-purchase, insurance business, chit business but does not include any institution whose
principal business is that of agriculture activity, industrial activity, purchase or sale of any goods
(other than securities) or providing any services and sale/purchase/construction of immovable
property. NBFCs offer most sorts of banking services, such as:
• Loans and credit facilities,
• Retirement planning,
• Trading in money markets,
• Underwriting stocks and shares,
• Managing Investment portfolios,
• Advice on merger and acquisition activities etc.

The number of non-banking financial companies has expanded greatly in the last several years as
venture capital companies, retail and industrial companies have entered the lending business.
Nonbank institutions also frequently support investments in property and prepare feasibility,
market or industry studies for companies. However they are typically not allowed to take
deposits from the general public and have to find other means of funding their operations such as
issuing debt instruments. Various types of NBFCs are:

2.2 Market Structure
FIGURE 4: MARKET STRUCTURE
FY15 has proved to be a challenging year on account of subdued economic activity, high interest
rates, rising fuel and vehicle prices for the auto financiers. With slowdown in economic
conditions, most of the auto space segments reported either a tepid credit growth or a decline in
volumes.
Likewise, FY15 proved a challenging year for the infrastructure financiers too. As the domestic
saving and investments plummeted, the private investment in infrastructure came to almost a
standstill. Regulatory uncertainties, policy issues, execution challenges and eroding confidence
impacted the business dynamics of the infrastructure finance companies.

For housing companies, the fiscal incentives provided in the Union Budget brought respite to the
first time homebuyers who are now allowed an additional one-time benefit of interest deduction
up to Rs 100,000 on a home loan. Furthermore, with rising disposable incomes, increasing
urbanization and improving demographics, worst is behind for the housing finance market in
India.
FY15 also witnessed increased funding cost pressures and negative asset-liability match that
dampened the earnings performance of NBFCs.
The RBI is looking at monitoring the NBFC sector to a greater extent now, especially on account
of the sharp increase in finance to the space. This is primarily due to the higher possibility of
risks getting transferred from the more leniently regulated NBFC sector to the banking sector
and concerns over protection of depositors' interests.
As at the end of March 2015, the total credit managed by NBFCs stood at Rs 3.7 trillion (Source:
ICRA).
Cost of funds for NBFCs remained elevated for major part of FY14 given the higher proportion
of bank funding in the overall borrowings. With higher base rates of banks, the funding costs are
expected to remain high even in the coming periods. That said, few NBFCs managed to contain
costs by raising funds through pass through certificates (PTC) routes by securitizing pools that
qualify for priority sector lending at attractive rates.
I believe, going ahead, defying the macroeconomic headwinds, NBFCs with retail focused
business models backed by penetration in hinterlands should show up robust performance.
2.3 Sectorial Characteristics
NBFCs' growth had been constrained due to lack of adequate capital. Going forward, we believe
capital infusion and leverage thereupon would catapult NBFCs' growth in size and scale. A
number of NBFCs have been issuing non-convertible debentures (NCDs) in order to increase
their balance sheet liquidity. Also to address this purpose, especially in the infrastructure

financing space, a new category of NBFCs was formed called Infrastructure financing companies
(IFCs).
NBFCs are not required to maintain cash reserve ratio (CRR) and statutory liquid ratio (SLR).
Priority sector lending norm of 40% (of total advances) is also not applicable for them. While
this is to their advantage, they do not have access to low-cost demand deposits. As a result their
cost of funds is always high, resulting in thinner interest spread.
The credit costs for NBFCs continued to rise in commensurate with the rise in delinquencies
during FY14. Moreover, operating costs are also expected to remain elevated on account of
rigorous recovery efforts and slower growth.
Therefore, unless the NBFCs increase their lending rates and improve operational efficiencies,
the return ratios are expected to remain under pressure. Currently, housing finance companies are
in favour given the positive asset-liability position, limited asset quality risks and modest return
ratios.
However, the other asset financier such as the infrastructure and automobile financiers, the
scenario still stands grim. Subdued economic environment, higher loan-to-value (LTV) ratios
and profitability pressures faced by the CV users have spurted asset quality risks for NBFCs.
Moreover, higher interest rates, negative asset-liability position, declining collection efficiencies
and increase in re-possession rates have marred the performance of these asset financiers.
2.4 Competition in the Industry
The major Non-Banking Financial Companies (NBFCs) in India have their relative
specializations, for e.g. HDFC (mortgage loans), IDFC (infrastructure loans), and Mahindra
Finance, Magma fincorp ltd (Commercial vehicle loans), Power Finance Corporation (power
financer) & Shriram Transport Finance (auto loans). The trend of segmental monopoly is
changing as banks are entering long-term finance and FIs also meeting the medium and short
term needs of the business masses. Today, NBFCs are present in the competing fields of vehicle
financing, housing loans, hire purchase, lease and personal loans. NBFCs have emerged as key
financial intermediaries particularly for small-scale and retail sectors. With easier sanction
procedures, flexibility, low operating cost and focus on core business activity, NBFCs stand on a
surer footing vis-a-vis banks. Therefore, the credit needs of customers are met adequately. As
looking towards the industry scenario the competition among the entities is moderate to high
depending upon the segments of their funding expertise.
FIGURE 5: FUNDING PROFILES OF NBFCS
2.5 Commercial vehicle industry
India is the fourth largest Commercial Vehicle market of the world. The major players being Tata
Motors & Ashok Leyland holding a total market share of approx. 91 %.With lots of
Improvements & developments in the Infrastructural projects, the demand for Heavy commercial
vehicles has seen a spurt .Though; the industry is facing a severe competition from Railways
which is a cheaper mode of transport comparatively. It also said that if diesel prices continue to
rise, the CV operators are likely to see operating margins shrinking further. Delays in industrial
recovery and subdued private consumption expenditure will continue to put pressure on the
freight demand of medium, heavy and light commercial vehicles till at least the first half of
FY15, At the same time the economy is surging ahead at a moderate growth rate and there is a
lot of untapped market hitherto a domain of railways which could be tapped into and not to
mention the export segment. Certain factors that might pose a problem in short term are
increasing interest rates for financing, and need for higher expenditure on R&D to meet the
environmental norms and competition. Segment-wise performance has been characterized by a
wide dispersion in growth rates. While the light commercial vehicle (LCV) segment continued to
sustain its growth momentum with an increase of 12.5% YoY in 2014-15.
Major Players in the Field of Commercial Vehicles are:
• Tata Motors
• Ashok Leyland
• Swaraj Mazda
• Mahindra & Mahindra
• Volvo Motors
• Eicher Motors
• Force Motors
Commercial Vehicles are divided into 3 main segments:
• Light commercial vehicle
• Medium commercial vehicle
• Heavy commercial vehicle
Growth Enablers of Commercial Vehicle Industry:
• Freight generating sectors registered robust growth
• High demand potential replacements with stricter emission norms
• Introduction of more economical and fuel efficient vehicles
• Improved profitability of fleet operators by shrinking replacement cycle for CVs
• Strict implementation of Overloading ban means increased volumes.

3. INDUSTRY ANALYSIS
3.1 PESTEL ANALYSIS
Political: Political factors affecting the Banking industry are like Focus on regulation of
government, Budget and budget measures, Foreign Direct Investment limits Indian banking
sector is least affected as compared to other developed countries- thanks to robust policy
framework of RBI. Government affects the performance of banking sector most by legislature
and framing policy government through its budget affects the banking activities securitization act
has given more power to banking sector against defaulting borrowers.
Stricter prudential regulations with respect to capital and liquidity give India an advantage in
terms of credibility over other countries. To support capitalization, the government has infused
Rs 23,200 crore (US$ 5.2 billion) into state-owned banks during the last three fiscals The move
to increase Foreign Direct Investment FDI limits to 49% from 20% during the first quarter of this

fiscal came as a welcome announcement to foreign players wanting to get a foot hold in the
Indian Markets by investing in willing Indian partners who are starved of net worth to meet CAR
norms.
Economy: Indian economy has registered a high growth for last three years and is expected to
maintain robust growth rate as compare to other developed and developing countries.
Banking Industry as a whole is directly related to the growth of the economy. The growth rate of
different sectors like Agriculture: 18.5% Industry: 26.3% Services: 55.2%. It is great news that
today the service sector is contributing more than half of the Indian GDP. It takes India one step
closer to the developed economies of the world. Earlier it was agriculture which mainly
contributed to the Indian GDP. This increases the avenues of investment by the industrial sector.
This would further increase the borrowings by the industry’s leading to the banking Industry• In
regards with the service sector, as the income of the people will increase, lending and savings
will increase leading to increased business for the Financial entities.
Social: It includes cultural aspects and health consciousness, population growth rate, age
distribution, career attitudes and emphasis on safety. earlier people of India were used to borrow
money local moneylenders, shahukars, shroffs. They were used to charge higher interest and also
mortgage land and house. But after emergence of banking industry the attitude of people was
changed and they have started lending from the banks or NBFCs Life style of India is changing
rapidly. They are demanding high class products. They have become more advanced. People
needs and wants are increasing day by day and this has opened opportunities for banking sector
to tap this change. This has made things available easily to everyone. Increase in population is
one of the important factor, NBFCs would open their branches after looking into the population
demographics of the area. Newer branches are coming to serve the increasing population. This
incentive to banks comes on the back of the continuing need to open more branches in these
States in order to ensure more uniform spatial distribution.
Technological: Technology plays a very important role in NBFCs internal control mechanisms as
well as services offered by them. Through the use of technology new products and service are
introduced. It include technological aspects such as R&D activity, automation, technology
incentives and the rate of technological change. Some of the technological changes which

brought radical changes in banking industry as a whole are described below: The latest
developments in terms of technology in computer and telecommunication have encouraged the
bankers to change the concept of branch banking to anywhere banking. Automatic voice
recorders now answer simple queries, currency accounting machines makes the job easier and
self-service counters are now encouraged.
Some of the financial entities have also started home banking through telecommunication
facilities and computer technology by using terminals installed at customers home and they can
make the balance inquiry, get the statement of accounts, give instructions for fund transfers, etc.
Today NBFCs are also using SMS and Internet as major tool of promotions and giving great
utility to its customers. Technology advancement has offered 24X7 services even giving faster
and secured.
Environmental: This aspect has a thinner impact on the industry as compaired to other mentioned
factors in this analysis. Surely environment plays important role in day to day life of everybody
and thus a impacting factor.
Legal: RBI is the main controlling authority in india for NBFCs, there are many legislations in
the pipeline which would affect the NBFC industry as whole. The Usha Tharoot Committee
which is set up to look into the matters of NBFCs industry is expected to come up some
favorable changes.

3.2 PORTER’S FIVE FORCE MODEL
FIGURE 7: PORTER‟S FIVE FORCE MODEL
Supply:
Plenty to meet personal finance needs but not enough to meet long-term infrastructure needs.
Demand:
India is a growing economy, demand for long-term loans, especially infrastructure and personal
finance is high
Barriers to entry:
Licensing requirement, investment in technology, skills required for project finance, distribution
reach, minimum capital requirements, etc
Bargaining power of suppliers:
Providers of funds could be more demanding, base rate requirements are applicable. As in this
sector quality of services provided with minimum time matters a lot.

Bargaining power of customers:
High, as banks have also forayed into long-term finance and consumer finance.
Competition:
Competition is high. There are public sector, private sector and foreign banks along with non-
banking finance companies competing in similar markets.

4. COMPANY ANALYSIS
COMPANY HISTORY
Magma Fincorp Limited (MFL) is a Kolkata based non-banking financial company registered
with the Reserve Bank of India as an Asset Finance Company. The company operates 280+
branches across 21 states and a union territory and has a strong presence in rural and semi- rural
India. The Company, having started operations over two decades back, is listed on the Bombay
Stock Exchange Limited and the National Stock Exchange in India.
Magma provides a bouquet of financial products including financing of Utility Vehicles & Cars,
Commercial Vehicles, Construction Equipments, Used Commercial Vehicles, Tractors and SME
Loans. It has also entered Affordable Housing Finance, General Insurance and Gold Loans
segments. Magma has a dedicated base of around 4.5lac active customers and has Total Loan
Assets of INR 17877 crore. The company has 274 branches in 21 states / 1 UT and employs
around 9800 people.
Magma Fincorp Limited (formally known as Magma Leasing Limited) was incorporated in 1988
and commenced operation in 1989. In 1992, the company merged with Arm Group Enterprises to
strengthen its presence and later in 1996 entered retail financing business for vehicles and
construction equipment. In the year 2000, with the Acquisition of Consortium Finance Ltd,
Magma expanded its network across Northern India. In 2007, Schrachi Infrastructure Finance
merged with Magma increasing the company's footprint in southern and western India. Same
year, the company formed a joint venture with International Tractors Limited (ITL) to enter
tractor finance business. In 2008, Magma completed a major re- branding exercise and renamed
itself as Magma Fincorp Limited. In 2009, Magma inked a joint venture with German insurer
HDI Gerling to enter general insurance business.

VISION STATEMENT: “TO BECOME INDIA‟S LARGEST RETAIL ASSET FINANCE
COMPANY.”
MISSION STATEMENT: “TO CONTINUE TO PROVIDE SERVICE EXCELLENCE IN

RETAIL-FINANCING TO BRING HAPPINESS AND PROSPERITY TO ALL.”
BUSINESS MODEL
For most of the NBFCs the business model is based upon the funds they get from larger financial
entities such as banks, mutual funds, private equity funds etc but the problem with this is that
these days banks and mutual funds are reluctant to advance funds to nbfcs due to liquidity crunch
in the whole financial system owing to the inflation and cost of funds going up for banks too
The cost of capital for NBFCs is usually 2-3 percentage points higher than that for banks, but
these firms can leverage up to eight times on their equity. NBFCs typically leverage five-six
times, sourcing funds from banks, MFs, wholesale markets and retail deposits to generate 13-
14% return on equity.
Magma strengthened its business model through competent derisking in the following ways:
• Geographic Derisking: It widened its geographic presence, derisking them from an

excessive dependence on any single location. The result is that no Indian state contributes
more than 13 percent to its revenues. Besides, no zone contributes more than 29 percent
to topline and no region contributes less than 18 percent. This indicates that revenue
model is based on a broad nation-wide presence rather than the growth coming out of
limited pockets, which could affect it in the event of any selective downturn.
• Product Derisking: Since it finances products that are cyclical, they expanded their
portfolio to ten products, which is an effective cushion against deceleration in any single
product vertical. Three of the products enjoy margins higher than the rest and expected to
grow their contribution in the revenue mix. Magma also expects to create new refinancing
verticals in existing products, opening a new opportunity.

Magma Fincorp Ltd expects to leverage its distribution spread, customer network, management
bandwidth, knowledge capital and technologically- strengthened processes to overcome size
handicap and widen the delta between growth and sectorial performance. In our financial
services industry, one year of bad asset origination can potentially stagger growth for years at
best and wipe a company out at worst. This became particularly relevant in this case as the
company is not supported by any financial house that would bail it out with a large cash infusion.
Magma converted this reality into strength; they derisked their business model in a specific way:
instead of making everyone a multi-functional all-rounder, they focused on creating centres of
functional excellence across origination, underwriting, back-office and collections. Thereafter,
each vertical concentrated on improving its key performance metrics: they set targets for each,
reported stretch performances and devised roadmaps to strengthen these further. When we put
these competencies together, the result was a record benchmark-enhancing performance.
ORGANISATIONAL STRUCTURE
FIGURE 8: ORGANIZATIONAL STRUCTURE

Departments and Functional Structure:
• Information Technology Department
• Human Resource Department
• Sales Department
• Credit Department
• Operations Department
• Accounts Department
• Recovery & Legal Department
• Insurance Department
• Administration Department
Product and Services of the Company
Magma Fincorp Limited has a "diversified product portfolio" and has a strong presence in semi-
urban and rural areas. Magma has a bunch of financial products including:
• Commercial Vehicles Finance
• Cars & Utility Vehicles Finance
• Construction & Strategic Construction Equipment Finance
• Tractor Finance
• SME Loans
• Suvidha (Refinance)

• Gold Loans
• Housing Loans
• Insurance
• Auto Lease Loans
Commercial Vehicle Finance Segment
• Magma finances new commercial vehicles.
• Magma focuses on first time buyers across semi – urban and rural areas.
• Magma emerged as a preferred financing partner for vehicle manufacturers like Tata
Motors, Mahindra & Mahindra, Ashok Leyland, Volvo and Eicher Motors among others.
• Magma also provides escorts services for old vehicles which are off the road for at least
3 years.
• They are also planning to start diesel loans and tyre loans for old vehciles.
Major Competitors
Major Compititors of Magma fincorp Ltd includes:
• Shriram transport finance company ltd
• Cholamandalam investment and finance company ltd
• SREI infrastructure finance company Ltd
• Mannapuram Finance
• Mahindra and Mahindra Finance

In the CV segment, which accounts for 31% of the total retail credit of NBFCs (as of December
31, 2014), asset quality is closely linked to the state of the economy and industry, both of which
have been under pressure in the recent past. Pressures on freight availability, route viability and
delay in the receipt of payment have adversely impacted the cash flows of CV operators, with the
result that the delinquency rates in the segment have risen considerably over March to December
2013.The increase in delinquency is more acute in the new CV segment where 90+
delinquencies have increased to over 7% in December 2014 from around 3% in March 2014;
within the new CV segment, the heavy commercial vehicle (HCV) sub-segment has reported the
weakest performance because of a sharp contraction in industrial loads and the stretching of
working capital cycles. While the used CV segment has also reported deterioration on the
delinquency front, the extent in its case is lower with the 90+ dpd delinquency increasing to
around 7.4% in December 2014 from 5% in March 2014.
FIGURE 9: NBFC PERFORMANCE TRENDS
Market Strategy:
Magma Fincorp Ltd has a strong hold in semi urban and rural areas as they target the untouched
segment of customers where banks and other financial institutes do not have their branches. The
marketing strategy of the company directs its efforts towards the customers by organising social
activity camps such as blood donation camps health check-up camps establishing schools in rural
areas contributing towards the mid-day meal program all these activities gives magma a strong
exposure in the target segment. Magma Fincorp Ltd also ties up with tractor manufacturers for
giving loans to desired parties which gave them the visibility of their brand at tractor dealerships

and business places which are very helpful in reaching to customers at a very effective way.
Organizing marathon race in Mumbai and celebrating the world environment day gave them the
desired exposer at national level.
Best Practices
Over the years, progressive organizations have displayed sustained commitment towards
Corporate Social Responsibility initiatives and have become harbingers of social change and an
inspiration to others. Magma has also demonstrated several laudable examples of responsible
corporate action for social development. It has been a continuous endeavour of Magma to take
small but purposeful initiatives to reach out to touch the lives of various sections of the society.
These Best practises also carried forward in the organisation too by supportive HR practises,
financial rewards on best performance done by the employees and continuous performance
appraisal which paves way for the growth in careers of the people working in magma Fincorp
Ltd. Through events like Grandparents‟ Day Out and the Midday Meal Program and also green
initiatives like cleaning of the Lake Purbasthali, They do a notable part to preserve precious
traditions of family, the environment and fellow feeling. By way of sponsoring “one teacher
schools” at tribal areas that is Ekal Vidhyalayas, Company nurture our future generation. Its our
way of saying to society – we care. Through their health initiatives, company offer better living
to people across zones. Free Health and eye check-up camps at truck halts make drivers more
aware of their health and safety. Blood collected from Blood Donation Camps help the needy at
an hour of crisis.

Financial Analysis
• NETWORTH
NETWORTH
1500 1335.05 1378.24
1223.96
1000
722.14
NETWORTH
500
0
Mar'11 Mar'12 Mar'13 Mar'14
FIGURE 10: NETWORTH
Company has shown a very good year on year growth in terms of net worth growth. Net worth is
the amount by which assets exceed liabilities. Net worth is a concept applicable to individuals
and businesses as a key measure of how much an entity is worth. A consistent increase in net
worth indicates good financial health
• TOTAL CURRENT ASSETS , LOANS AND ADVANCES
Total CA, Loans & Advances

11282.04 10815.12
15000 7783.05
5463.77
10000
Total CA, Loans & Advances
5000
0
FIGURE 11: TOTAL CURRENT ASSETS, LOANS AND ADVANCES

Magma is into funding business and it is very good for the company but its loans and advances
decreased, in the year 2014 it declined to 4.13%.
• NET CURRENT ASSET
Net Current Asset

4913.53 6826.37 9597.37 8305
100%
80%
60%
Net Current Asset
40%
20%
0%
Current assets are important component of any company, net current assets are the amount
remaining after deducting all the current liabilities. Magma has shown a growth rate of 30% in
2011, 39% in 2012 and 41% in 2013 which is commendable but declined in 2014 to 13.46%.
• NET OPERATING PROFIT PER SHARE
Net OperaHng Profit Per Share

97.14
100
79.54
80 61.67
52.01
60
Net Operaeng Profit Per Share
40
20
0
FIGURE 12: NET OPERATING PROFIT PER SHARE

This ratio shows the earning gained by per share before tax and interest payment. In year 2014
the growth in this ratio is of 22.12% growth.Net Operating profit per share is a measurement of
what proportion of a company's revenue is left over after paying for variable costs of production
such as wages, raw materials, etc. A healthy operating margin is required for a company to be
able to pay for its fixed costs, such as interest on debt.
• NET PROFIT MARGIN
NET PROFIT MARGIN

15 13.5
10 7.64 7.22
6.23
NET PROFIT MARGIN
5
0
In the year 2014 company has shown a decreasing trend of -5.49% on yoy basis. Though in the
2012 its profit showed a decrease of -54%.Profit margin is a measurement of what proportion of
a company's revenue is left over after paying for all costs of production such as wages, raw
materials and non-production costs such as interest, taxation etc.
• ASSET TURNOVER RATIO
Asset Turnover RaHo

0.25
0.2
0.15
0.1 Asset Turnover Raeo
0.05
0
FIGURE 13: ASSET TURNOVER RATIO

A financial ratio of net sales to fixed assets. The fixed-asset turnover ratio measures a company's
ability to generate net sales from fixed-asset investments - specifically property, plant and
equipment (PP&E) - net of depreciation. A higher fixed-asset turnover ratio shows that the
company has been more effective in using the investment in fixed assets to generate revenues.
• RETURN ON CAPITAL EMPLOYED
Return on Capital Employed

15
10
14 Return on Capital Employed
5 9.64 10.6
0
Mar'12 Mar'13 Mar'14
FIGURE 14: RETURN ON CAPITAL EMPLOYED
A higher ROCE indicates more efficient use of capital. ROCE should be higher than the
company's capital cost; otherwise it indicates that the company is not employing its capital
effectively and is not generating shareholder value.
• QUICK RATIO
Quick RaHo
100%
50% Quick Raeo
0%
FIGURE 15: QUICK RATIO

As per the standard this ratio should be 1:1 and in the case of magma it is sufficiently high which
shows company is financially very strong to honor its short term liabilities. Indicator of a
company’s short-term liquidity. The quick ratio measures a company’s ability to meet its short-
term obligations with its most liquid assets. For this reason, the ratio excludes inventories from
current assets.
• DEBTOR'S TURNOVER RATIO
DEBTOR'S TURNOVER RATIO
200
180
160
140
120
100 DEBTOR'S TURNOVER RATIO
80
60
40
20
0
FIGURE 16: DEBTORS TURNOVER RATIO
An accounting measure used to quantify a firm's effectiveness in extending credit as well as

collecting debts. The receivables turnover ratio is an activity ratio, measuring how efficiently a
firm uses its assets.

• TOTAL DEBT TO OWNERS FUND
Total Debt To Owners Fund

7.57
8 5.51
5.97
6
4
2 Total Debt To Owners Fund
0
Total Debt To Owners Fund
Mar'12
Mar'13
Mar'14
FIGURE 17: TOTAL DEBT TO OWNER'S FUND RATIO
A measurement of a company's financial leverage, calculated as the company's debt divided by

its total capital. Debt includes all short-term and long-term obligations. Total capital includes the
company's debt and shareholders' equity, which includes common stock, preferred stock,
minority interest and net debt.
• SALES TURNOVER
Sales Turnover
2000 1846.78
1510.95
1500
986.75
1000
Sales Turnover
500
0
FIGURE 18: SALES TURNOVER

Sales turnover is the net sales the company registered in a particular year. The graph shows that
magma has consistent growth on yoy basis.
• INTEREST EXPENSE
Interest Expense
1200 1055.16
1000 887.4
800 598.52
Interest Expense
600
400
200
0
FIGURE 19: INTEREST EXPENSE
For every financer interest cost is important component of its business. As we now know that
magma borrows its funds from other institutions for funding its clients it becomes very
important for us to look into this matter. Yoy growth of interest cost shows that magma is
aggressively funding its clients and thus the interest cost in showing a increase on yearly
basis.

• EQUITY DIVIDEND
Equity Dividend
20
15.2 15.21
15 11.38
10
Equity Dividend
5
0
FIGURE 20: EQUITY DIVIDEND
Magma is regularly paying the dividends to its share-holders, in the year 2014 it has given
dividend of .06. Dividends may be in the form of cash, stock or property. Most secure and stable
companies offer dividends to their stockholders. A distribution of a portion of a company's
earnings, decided by the board of directors, to its shareholders.

Financial Analysis of the company:
• The balance sheet of the company shows that the net asset of the firm declined by
12.42% from previous year which has a very high growth of 43%.
• The net revenue and net earnings for the year 2014 stands to Rs.1846.78 millions and
135.75 million respectively.
• When we take 2010 as base year and compare the performance of company on all the
fronts such as net revenue and earnings figures we see a constant rise in the figures.
• The average growth in Revenue earnings is about 30% on year on year basis.
• Talking about the net earnings, here too the performance is remarkable with a growth
of 11% in financial year 2014.
• The profitability is constantly growing YoY (year on year) basis even after the economic
slow-‐down has slowed the pace of retail finance industry.
• Magma fincorp Ltd registered highest growth in financial year 2014 as compared to its
competitors in the NBFC sector.
• The Net sales saw a growth of 22% as compared to previous year which is far more and
better than its close competitors.
• The company earned a remarkably high net profit of Rs. 135.57 Millions.
• The company also showed highest growth in terms of increase in Net profit among its
peer group.
• The performance of equity shares of the company showed a stable movement in the
share market and appeared to be range bound.
• But as compared to Shree-‐ram transport company and Cholamandalam the market price
of the share is low but we must see that the face value of the magma fincorp share is Rs.
2 where as that of its competitors is Rs.10

• My outlook for next financial year is very much positive as company has posted good
quarter results.
• Talking in terms of ratios the company maintains the main ratios well above the
standard level which shows its high financial stability.
Comparison of Magma Fincorp Ltd with its competitors:
1,846.78
MAGMA FINCORP LTD

CHOLAMANDALAM
3261.78
7880.10 SREI INFRA LTD
SHRIRAM TRANSPORT
1798.97
FIGURE 21: SALES TURNOVER
The above graph shows the sales-turnover of major competitors of magma and their sales
turnover, we can see that shree-ram transport has the highest sales turnover among the others.
Growth in Sales Turnover
20% 22% Magma Fincorp
Cholamandalam
8% Srei Infra
Shri Ram
27%
FIGURE 22: GROWTH IN SALES TURNOVER

Where-as this graph shows the year on year (yoy) growth of sales-turnover. Magma here has
shown the second highest growth among its peer group members.
Net Profit Growth
-‐7%
10.65%
Magma Fincorp
Cholamandalam
18.95% Srei Infra Ltd
-‐37.23%
Shriram Transport
FIGURE 23: NET INCOME OR NET PROFIT GROWTH
Above graph is related to the growth of net income on yoy basis, this chart specially shows the
growth shown in the year 2014 by all four companies, we can see that magma has shown Second
highest growth which is 10.65%, Cholamandlam being the first.

Share Performance
140
120
100
80
60
40
20
0
Share Performance
FIGURE 24: SHARE PERFORMANCE
This graph is showing the movement of share price of magma for a period of one year that is
from 1-4-2014 to 31-3-2015. We can see that stock is trading in a range and appears to be range
bound, there is not much of the fluctuation and stock looks to be stable. The Company, having
started operations over two decades back, is listed on the Bombay Stock Exchange Limited and
the National Stock Exchange in India.

SWOT ANALYSIS
• Credit Appraisal Expertise • Company focus more on Semi-‐

• Collection Expertise Urban and Rural Areas.
• Well defined customer
Identification • Focus on Commercial Vehicle as
• Prudent Product Portfolio mix compression to car segment
• Wide geographical Presence
• Increased cost of external fund
• Steady Capacity Addition
borrowings
• More than 70% Indian population • Growing competition and lower

lives in urban or semi urban areas so profitability
more opportunity to grow in tractor
• Increase in commercial vehicle
finance ,sme loans and general
prices
insurances
• Growth in NPAs.
• Government's so many programs
running in semi urban or urban • Increasing rate of interest
areas so company have big
opportunity to develop financial
program with government

5. PROJECT SPECIFIC ANALYSIS
CUSTOMER CATEGORIES IN CV SEGMENT
The transportation finance target market would constitute the entire Road Transportation
industry. The Road Transportation industry is identified by the usage of Commercial Vehicles i.e.
mechanized movables assets registered with R.T.O. and utilized for transportation of goods,
material, people and for providing transportation services.
The size of customers in this industry depends on the revenues earned through deployment of
assets. The revenue earning capacity, and hence the repayment capability of the customers in this
segment, is directly dependent on the productive assets‟ fleet owned by them. The customer
segments in this target market have been broadly classified as under:
FIGURE 26: RETAIL SEGMENTATION

FIGURE 27: STRATEGIC SEGMENTATION
• First Time Buyer (FTB): These are transport operators who have limited prior
experience in transportation asset usage. This segment would comprise of customers who
do not own or own only one commercial vehicle.
• Small Fleet Operators: This segment would comprise of operators with ownership
between 2 and 5 vehicles with a couple of years‟ of experience in operating and
maintaining vehicles.
• Medium Fleet Operators: This segment would comprise of operators with ownership
between 6 and 9 vehicles with several years‟ of experience in operating and maintaining
vehicles.
• Market load Operator: This segment comprises of operators with ownership of >=10
vehicles for several years of experience in operating and maintaining vehicles. These are
established operators owning a few free assets in the fleet.
• Bus Operators: This target segment would comprise of owners and operators of buses
with several years‟ experience with fleet ownership between 1 and 9 buses. This segment

would address route bus operators, stage carriers, contractor operators and tours and
travels operators.
• Large Fleet Operators: This target segment would comprise of vehicle fleet owners
who own 10 or more vehicles and are established and seasoned market operators.
• Freight Booking Company (FBCs): Freight Booking Companies have transportation

contracts with a large number of principals and are involved in providing transportation
services. They hire commercial vehicles from other transport operators to execute these
contracts
• Captive Users: Captive users could be buyers of vehicles who will service the debt
through cash flows of the existing business and not out of the earnings of the vehicles
being procured. For example, a cement dealer will be buying a vehicle for distribution of
cement bags to the sub-dealer and distributor points.
The geographical area of Operations of a Branch / R.O. should be such that there is a viable
cluster of customers (existing and/ or potential) and the place is easily accessible all through the
year. The customer should reside and work within 125 km radius for CV

CV Grading Levels in Magma:
Commercial vehicles are graded in groups as per their features and properties, which helps in
taking decision when there arises any deviation in a client’s file on to accept or reject the case.
FIGURE 28: ASSET GRADING
Asset Types GVW Example

SCV less than 4 Ton Bolero Pick Up, Mahindra Genio
LCV 4Tonto7Ton Tata 407, Tata 709
ICV 8 Ton to 11 Ton LPT 909,Ecomet 1012
MCV 12 Ton to 16 ton SE1613,AL1616
HCV above 16 Ton AL2516,AL2518
FIGURE 29: TYPES OF ASSETS

FIGURE 30: ASSET GRADING

5.1 FILE FLOW IN MAGMA FINCORP LTD
FIGURE 31: FILE FLOW IN MAGMA

Credit appraisal process in Magma:
• Stage 1: Sales team –sourcing.
• Stage 2: Operation team- CIBIL check/customer history valuation.
• Stage 3: Third party field investigation.
Risk control unit report ensures authenticity of document.
• Stage 4: Credit team – Telephone verification appraisal.
• Stage 5: Sales team – post sanction process.
• Stage 6: Operation team- payment processing.
• Stage 7: Head office- audit.
• Stage 8: Agreement execution.
De-dupe Report
All the cases successfully logged in qualify for de-duping. De-duping is a three-step process and
is performed by the Credit OPS officer. During De-dupe, the database of existing and past
borrowers of Magma‟s, Other Banks / Agencies and CIBIL are examined to verify if the
applicant / co-applicant / guarantor is an existing defaulter. The following tasks need to be done
during De-dupe:
Internal De-Dupe Report
Customer information is checked with Magma‟s internal database, every case is searched using
the parameters listed in the following table.
The output of the querying is analyzed and the De-dupe report is prepared and included in the
loan file. Two types of De-dupe reports that can be prepared:

• Positive De-dupe: A positive De-dupe report is prepared when the Applicant has not
defaulted on repaying his existing/past loans.
• Negative De-dupe: A negative De-dupe report is prepared when the Applicant has
defaulted in repaying his existing / past loans.
The Credit OPS officer takes the system-generated printout of the internal De-dupe report and
attaches it with the loan file. If the internal De-dupe report is positive or approved, it is processed
further.
5.2 CIBIL REPORT
CIBIL Report: The CIBIL report is an important determinant of an individual's financial

credibility. They are used by lenders to judge a person's creditworthiness. They also help the
person concerned to narrow down on the financial problem areas. CIBIL report is a document,
which comprises detailed information about the credit payment history of an applicant. It is
mostly used by the lenders to determine the credit worthiness of an applicant. This assists one to
take crucial business related decisions. People can also assess the amount of business risk
associated with a client and then decide whether the company would be comfortable in providing
the client with credit facilities. The degree of interest that would be shown by investors in their
company can also be gauged from the business credit reports as they can get an idea of the
conception of their customers regarding themselves. Since these records are updated at regular
intervals of time they enable people to identify the risk levels associated with a business as well
as its future. CIBIL allows users to query the database using parameters such as:
• Name,
• Date of Birth,
• Gender,
• Address
• State
• PAN card Number

• Voter ID
• Passport
• Telephone Number
• Mobile Number
If outcome of the CIBIL report says „STD‟ in the last 12 months then the credit officer or credit
head should verify the delay in repayment as „STD‟ includes a delay between 1-89 days. The
same can be done as follows:
The Credit officer conducts a financier reference check through his/her counterpart OR
Applicant has to furnish his loan repayment track
5.3 FIELD INVESTIGATION
Field Investigation (FI): All the cases that pass through de-duping qualify for field investigation
which is performed by Magma‟s dedicated FI team. As soon as the de dupe is cleared and routed
for FI by Ops, the details (name, residence and/or office address with PIN code, contact number,
nearest landmark) of hirer and/or co-hirer and/or guarantor are reflected on the screen of FI
team-leader. The FI team leader based on the location of the party “allocates” the enquiry for FI
to the FI executive who receives the party information on his POC terminal. Field Investigation
(FI) is conducted to check whether the applicant/co- applicant/guarantor is staying at the given
address provided while applying a loan. This involves a site visit to the residence and office
address of the applicant by Magma‟s field verifier in order to assess the following:
• Identity check
• Check for correctness of address
• Stability of Residence & Office
• Neighborhood check

• Profile check
FI once done will be valid of six months for repeat funding or 60 days for the first disbursal
Objectives of field investigation
• Field investigation establishes the presence of the customer at the given residence and
office; frauds are therefore minimized.
• It derives neighborhood reference checks and provides third party inputs to the decision
making process.
• Financier Reference Check (FRC)
• Type of Loan
• Original Loan Amount and Principal outstanding with peak exposure details
• Seasoning of the Loans and number of live loans
• Number of Defaults including bounces
• Peak and Average Delay in repaying EMIs
• Levy of penal charges (if any) and amount due thereof
• Any other points that the Credit Officer would like information on the customer
5.4 Telephonic Reference Report (TVR)
A reference TVR is mandatory for all the cases and is conducted on references (provided by the
Applicant) to obtain third party inputs on the applicant and cross check the information provided
by the Applicant. The Credit Officer calls the references provided by the Applicant at the
telephone numbers mentioned in the application form and obtains information as per the TVR
report template. Telephonic Verification is mandatory for all cases and it is undertaken to verify
the Applicant‟s contact-ability at the telephone numbers provided by him and TVR is also used
by the credit underwriter as a Credit underwriting tool. The Credit Officer calls the customer at
the mentioned telephone numbers and gets information as per the TVR report template. The
credit officer also resolves critical loan related queries that might arise after examining the loan
file.
5.5 Risk Containment Unit Report (RCU)
RCU is nothing but diligently checking of authenticity of documents and information provided
by client. Documents such as Voter ID, PAN card, Driving License, Bank Statements, Property
tax receipt, Aadhar card, Employee ID etc are checked in this process and report is than
submitted to operations department. In magma RCU is done by third party which are empanelled
by the company. RCU report can be positive , negative, fraud or refer to credit. Documents
which pass the authenticity check are stamped with RCU SCREENED seal where-as RCU
SAMPLED is stamped when the document is picked for further checking.
Project Viability Analysis Procedure
In Magma project‟s economic viability is checked before sanctioning of loan, in this procedure
the economic viability of the proposed deployment of vehicle is to be funded is checked by
calculating the net income that can be generated by this deployment after paying off all the
expenses that are likely to arise.
The process of project viability analysis is the process in which the credit department in magma
fincorp ltd considers the feasibility of the proposed asset deployment method projected by the
client and for which he is taking the finance from the company, the business idea must stand the
scrutiny from techno-economic, financial and legal perspectives.
For Example: Mr.A approaches the magma fincorp ltd for a loan of
Rs.1000000 by which he wants to purchase a TATA Maximo for employing the proposed asset
in goods transport business in which he wish to carry the vegetables and fruits to and fro from his
village that is shankarpally to Hyderabad market. On receiving the file the credit department
would prepare the monthly provisional income and expenditure statement taking in the prevailing
market fare that would MR.A will get for the transportation business as income and would
deduct all the probable expenses that are likely to occur like fuel expenses, repairs, helper salary

etc on deducting all these expenses from the income generated by that particular asset the
remaining amount would be left with Mr.A for paying of the EMI and for providing for himself
and family. The remaining amount is known as free cash flow and if that comes more than 1.5
times of proposed EMI than the credit department would approve the file.
This whole process is required to know whether the client would be able to pay off the EMI from
the income generated by the financed asset or not that is, is it economically viable.
Credit department through its various sources maintains a database for prevailing rates in the
market for particular model of vehicle depending upon its load taking capacity and also the
demand scenario of the product that is intended to be transported. They also maintains
information about prevailing fuel rates, servicing expenses of the vehicle, Mileage of the vehicle,
helper‟s expense, tyre repurchasing cost, any legal constraint likely to occur etc, all this help in
taking the decision about the case under consideration.
Basis of decision making rests on various criteria but main is the analysis of free-cash-flow to
EMI ratio FCF: EMI RATIO, Guidelines for that are:
TENURE OF > 24 MONTHS,FCF:EMI RATIO SHOULD BE GREATER

LOAN THEN 1.3:1
TENURE OF < 24 MONTHS,FCF:EMI RATIO SHOULD BE GREATER
LOAN THEN 1.5:1
Managerial feasibility is also checked as Personnel play a key role in directing the working of
the business. It is important for an business to have a efficient owner who bear the capacity to
bail it out from crisis situation and work towards optimum utilization of resources. Such capacity
of the personnel can be determined by having complete details on following key aspects:
• Source of margin money the client is paying,
• Previous track record
• Market reputation on the promoter / management of the company

• Hands on experience of the management personnel in the industry / Business
5.6 Non-performing asset policy of the company
Magma follows the standard procedure as given by the reserve bank of india, of classifying an
asset into NPA when the interest payment is due for more than 90 days. Uniquely magma
monitors each and every client on its EMI payments and if any client fails to pay any particular
installment the credit department takes a follow up of the situation at client‟s end and
encourages/advice them on the matter underlying the problem. Credit analyst regularly keeps in
touch with the clients who are likely to become delinquent or are already lagging behind their
repayment schedule. Internally clients are grouped according to days passed from the due date
for EMI payment as per prepayment schedule, standardized into a 30 day period and multiple
their-of. It is known as bucket, like if a client is not paying the EMI for last 2 months, then that
client is under 60 days bucket. 90+ days bucket cases are referred to the legal and recovery
department of the company where appropriate procedures are followed. Each such case which is
again checked for what went wrong during its appraisal process, if any useful insight appears in
the case than a recommendation is made by the Area credit Manager to the higher authorities and
subsequent changes takes place in the polices for diligent working of the department which in-
turn benefits the company as a whole.
The company recognizes NPA at 4 months default as compared to the RBI requirement of 6
months as also makes a higher provisioning for standard assets. As a result, including the
reversal of income on such early recognized NPA contracts the company has made an additional
provision of Rs.40.47 crores. In addition to the above and in line with the RBI guidelines, the
Company recognizes income on the securitization and direct assignment transactions only when
redeemed in cash, even if they are standard assets, and as a consequence the gross income on
securitization and assignment of loans is lower by Rs 74.36 crores on a consolidated basis.
Securitization is a process by which assets are transferred and assigned to a remote special
purpose vehicle (SPV) in return for an immediate cash payment. In simpler terms it means
“selling a portfolio of loan assets and assignment of the underlying future receivables” Due to

securitization, banks can acquire bulk assets without incurring any extra costs or overheads and
are able to treat these assets as a part of their advances book. Thus, securitization facilitates
transfer of priority sector loans directly to acquirer‟s loan book and thereby fulfilling priority
sector lending requirement. As an asset finance company, securitization serves as an effective
tool for Magma with regards to resource mobilization. The banking sector is inclined to buy
Magma‟s securitized assets for several reasons. Firstly, as credit growth has been sluggish this
year, buying portions of Magma‟s portfolio provides banks an easy way to have a growth in their
loan-books. Secondly, since a large proportion of Magma‟s loans are classified as Priority Sector
Loans (PSL), it helps the banks reach their PSL targets. Finally, Magma continues the
Receivables Management service for the securitized portfolio which serves as an advantage,
especially in the geographical areas where Magma has immense experience. This year, Magma
will securitize its assets more as a Treasury Tool than as an instrument for managing its funding
requirement. In the past Magma have been securitizing over 50% of its total disbursements in a
year, to various banks and institutions. However, in the current fiscal, it does not expect the
volume to exceed 30% of the total business for the year. This change in policy can be primarily
attributed to the capital infusion of approximately Rs.500 crore during the year of 2011 as a
result of which holding capacity has increased and it is in a position to grow its own books. Total
Assets Under Management, On-Book Assets totaled RS 17877 crore at the end of Mar 2015.
The Capital Adequacy Ratio (CAR) of the Magma Fincorp Ltd stood at 16.6% as on 31st March
2015.

5.7 CASE STUDIES
CASE STUDY 1
PLACE: DELHI
CUSTOMER NAME: Mr.X YZ
PROPOSED VEHICLE: TATA MOTOR LTD LPT 3118
DATE: 04-04-2015
BREIF INTRODUCTION:
• Client MR. X is having experience of commercial vehicle deployment that is putting it to
use since 2003 and Existing Magma customer since Dec'2010
• Customer is native of Karol Bagh, Delhi and was residing in own house since by birth.
• He is owner cum driver.
• He has 2 vehicles funded by Magma and seri infra.
• Having excellent track record (ETR) with Magma and seri infra.
• Deployment was confirmed as for rice transportation from Delhi to Rajasthan
• Wife is standing as Internal Guarantor
Deviations: NIL
Concerns: The other Vehicle funded by seri infra was maintained by 3rd Party
Initially the deal was rejected by Credit based on reason of handing over the vehicle to 3rd Party
which was confirmed through Seri Infra. But the call was taken and approved by ZCM based
strong recommendation from sales being 3rd party as part of the deal

Credit appraisal of the case:
All the necessary documents are checked and screened.
TVR process and FI is all positive.
Proposed deployment is confirmed during TVR process.
CIBIL report is not showing any default done by the client.
Project Viability analysis: For rice transportation from Delhi to Rajasthan
INCOME:
TONES PER TRIP 16
RATE PER TONE 2100
TRIPS PER MONTH 5
TOTAL INCOME 168000
EXPENSES
FUEL EXPESES ON 5 TRIP 20000
EXPENSES ON MAINTAINACE 3000
INSURANCE /12MONTHS 8600
OPERATOR EXPENSES 3000
TOTAL EXPENSES 34600
SURPLUS 133400
EMI:
ASSET COST 1200000
DOWNPAYMENT 15% 180000
FINANCE AMOUNT 1020000
TENURE IN MONTHS 25
INTEREST RATE 16%
EMI 54400
SURPLUS AFTER EMI PAYMENT 79000
FCF:EMI RATIO 1.45

Project is economically viable and thus should be approved and sanctioned. My take: Approve
the case.Credit analyst take: Approve the case.

CASE STUDY 2
PLACE: HARAYANA
NAME OF THE CLIENT: MR.PQR
PROPOSED ASSET: TATAEX 200LC DATE: 18-04-2015
BRIEF INTODUCTION:
• Customer is residing in Sonipat, Harayana in parental own house.
• His father was taken as co applicant in the deal.
• They are having 5 acres of agriculture land in his name.
• His friend who is having 20 months ETR track was taken as Guarantor in the deal.
• Customer is having EX 200 at time of appraisal validated by invoice and sale deed.
Proposed Deployment: Deployment for local crushing units on hiring.
Credit appraisal of the case:
• All the necessary documents are checked and screened.
• TVR process and FI is all positive.
• Proposed deployment is confirmed during TVR process.
• CIBIL report is not showing any default done by the client

Project Viability analysis: deployment in hiring on crusher units.
INCOME:
NUMBER OF HIRING HOURS 12
RATE PER HOUR 500
DAYS PER MONTH 26
TOTAL INCOME 156000
EXPENSES
FUEL EXPESES PER MONTH 44000
EXPENSES ON MAINTAINACE 6000
INSURANCE /12MONTHS 4600
OPERATOR EXPENSES 5000
TOTAL EXPENSES 59600
SURPLUS 96400
EMI:
ASSET COST 1000000
DOWNPAYMENT 15% 150000
FINANCE AMOUNT 850000
TENURE IN MONTHS 25
INTEREST RATE 16%
EMI 45333
SURPLUS AFTER EMI PAYMENT 51067
FCF:EMI RATIO 1.12
Project is economically NOT viable and thus should be rejected

CASE STUDY 3 (NPA)
PLACE: Vijayawada
Name of the Customer: Mr. B
Proposed Vehicle: TATA MOTOR LTD LPT 3118
Date: 29-02-2015
Brief Information about the client:
• The Customer was residing in Own House in Vizag , Suburbs for over 20 Years, working as
driver with HTV Ltd for more than 5 years.
• Earlier owned one SK1613 Tipper from Shriram. Loan closed and sold out 8 years back
(at the time of appraisal).
Proposed Deployment: Deployment was confirmed in Cement & Sand Transportation.

Guarantor was a friend of customer and had 2 vehicles from Shriram with 12 months ownership
and 11 months ETR repayment
Deviations in the deal: NIL
REASONS FOR TURNING INTO NPA:
• Experience, capability & intention were not the issue as experience was sufficient. He
had paid 12 EMIs (out of 15 due) before surrendering the asset.
• Aggressive Capitalization: As current Cibil indicates, the customer has acquired 2 assets,
after 8 months and 10 months of our first funding.
• Market Impact: When we funded, the proposed deployment was in Sand & Cement. The
sharp deterioration of AP market since Q3 of 2012 and the subsequent months, due to

ban on sand, Telengana & market slow down further impacted the customer's business,
which failed.
• Low Value of Asset: The vehicle's condition is on the poorer side with 1 of the left axle
tyre missing and other tyres in practically scrap condition
• Secondary market of vehicles in AP has got impacted post 2012 due default from all
quarters and all financiers.
The case was funded in Feb 2014 and EMIs stopped coming from August 2014. The customer
had paid 12 EMIs (out of 15 due) before surrendering the asset. Latest CIBIL details: Total Over
Draft of 7.86 lacs. Had taken 2 more loans in Oct'14 and Dec'2014 For the vehicle taken in
Dec'14, 4 lacs OD. The Oct '14 vehicle seems to be a non-starter closed case.
LEARNINGS FROM THE CASE:
! Magma had implemented the Caveat on Sand in AP which address the even partial
deployment in sand, for FTB-‐0 customers Capitalization caveat can address recent
capitalization plan.
! However, there is no control over customer's capitalization, 3 quarters later, which

finally hastened his business failure in adverse market conditions. We cannot find
Intention of customer directly. However we have implemented comprehensive DFS and
TVR formats with valid reference checks. Independent reference check through own
Network will helps us finding out the end use of the asset"

CASE STUDY 4 (NPA)
PLACE: Vijayawada
Name of the Client: Mr. ABC
Proposed Vehicle: TATA MOTORS LTD LPT 3118
Date 07-Apr-13
Brief information about the client:
• Customer was native of Rly Kodur and residing in self-‐owned house since by birth.
• He was market load operator for more than 10 years and had vehicles since 2008.
• Had fleet of 20 vehicles funded by Magma, TMFL, SFL, Indiabulls and L&T with ETR
repayment.
Proposed deployment: Deployment was confirmed as for transportation of Fruits and

Vegetables from AP to Delhi and Chennai. He was also operating some of the fleet for Iron Ore
and Coal between Bellary and Krishnapatnam port.Customer was our existing customer since
2008.
Deviations in the deal: NIL
Reasons for turning into NPA:
• Experience, capability & intention was not the issue as experience was sufficient.
• As he had paid 22.5 EMIs (out of 26 due) paid till July 2013 before seizing the asset.
• Aggressive Capitalization: As current Cibil indicates Rs.27.74 Lakhs OD, the customer has
acquired a 10 assets -‐ within 6 months of our first funding. He has parallely applied with
different financiers at the same time and took as many vehicles based on the other
financier funding.

• Market Impact: When we funded, the proposed deployment was for vegetables, iron
ore and coal transportation.
• Due to bad market condition,
• Workers problems
• Aggressive expansion of fleet, customer could not able to maintain the vehicles. He sold
all the vehicles to third parties under continuous finance. Our vehicle was also sold to
3rd party. Both customer and 3rd party were not responding for payments, hence we
have repossessed the vehicle.
• At the time of seizing, customer paid 22.5 EMIs out of 26 EMIs. Other financiers like SFL,
TATA and L&T were settled some of their accounts with customer and having overdues
in other accounts which were handed over to 3rd party"
• The case was funded in April 2011 and EMIs stopped coming from July 2013.
• The customer had paid 22.5 EMIs (out of 26 due) before seizing the asset.
• Latest CIBIL details: Total OD of 27.74 lacs. Had taken 10 more loans within 6 months
from our funding. OD in our account is Rs.3.93 Lakhs and with other financiers is Rs.
23.81 Lakh.
LEARNINGS FROM THE CASE:
! Magma had stopped funding to Iron ore in AP which addresses the issue in iron ore
transportation.
! Capitalization caveat can address recent capitalization plan.
! However, there is no control over customer's capitalization later, which finally hastened
his business failure in adverse market conditions.

! We cannot find Intention of customer directly. However we have implemented
comprehensive DFS and TVR formats with valid reference checks. Independent
reference check through own Network will helps us finding out the end use of the asset"

6. LEARNINGS FROM THE PROJECT
As students many of us are completely ignorant of the work cultures of various corporate
Organizations. Summer Internship Programme is an attempt to provide us a practical corporate
exposure where we work in corporate organizations as interns. For me it was a good learning
experience. Major learning which I would like to mention are:
• Credit Appraisal is a process of appraising the credit worthiness of loan

applicants. The funds of depositor’s that is the general public are mobilized by
means of such advance / investment. Thus it extremely important for the lender
to assess the risk associated with credit.
• The process of project viability is the analysis in which the credit department at
magma fincorp ltd considers the feasibility of the proposed asset deployment
method projected by the client. Customer Viability determines the ability of the
customer to repay the EMI as per his schedule, which depends on deployment
capabilities of the asset so funded by the company
• Non-‐performing assets are problematic for financial institutions since they

depend on interest payments for income. So a sound policy is required to handle
the delinquency levels
• The working of Non-‐banking financial company and various influential factors

surrounding it.
• Came to know about the Organizational structure and working environment of

Magma fincorp Ltd.
• Credit Risk Assessment process as a whole.
• Credit & risk go hand in hand

7. RECOMMENDATIONS
These are the recommendations I would like to mention on the basis of Project made by me on
Magma Group.
Field Investigation (FI) is done by third party in magma, which poses a serious threat on the
integrity and quality of work done by the outside party. It is very likely that the third party
investigator can be influenced by the client which in-turn affects the judgment of concerning
authority. I would suggest that Magma should set up its own FI department which will be
beneficial as per the quality of work done as well as it will be cost effective too.
Telephone Verification is done to check the authenticity of information provided by the client
and for making a judgment upon the deployment capabilities of the client. But sometimes it is not
possible for a credit analyst to judge the intentions of the client on the matters of source of
margin money, residential stability and real deployment intentions of the client, so a periodic
training for doing a very diligent TVR process should be necessarily given to each and every
member to credit department which will in-turn ensures the health of loan book of the
organization.

8. REFERENCES
• Pecuniary details given by G.Satyanaran Sir (ACM, Retail Finance)
• Projects by Prasanna Chandra
• Financial Accountings by S.N.Maheshwari
• www.magma.co.in
• www.rbi.org
• www.investopedia.com
• www.moneycontrol.com
• www.equitymaster.com
• www.mca.gov.in
• Web.lan.magma.co.in (office intranet)
• http://finance.indiamart.com 6. www.smartinvestor.business-‐ standard.com
• www.icra.com
• http://www.moneycontrol.com/annual-‐report/mfl/directors-‐ report/mfl13#mfl13
• http://articles.economictimes.indiatimes.com/news/27573337_1_loan-‐eligibility-‐
creditappraisal-‐borrower
• http://www.rbi.org.in/scripts/WSSViewDetail.aspx?TYPE=Section&PA RAM1=4%0A
• http://www.caclubindia.com/experts/credit-‐monitoring-‐arrangement-‐ 770570.asp
• http://www.siamindia.com/scripts/market-‐share.aspx
• http://www.ibef.org/industry/automobiles.aspx

• http://articles.economictimes.indiatimes.com/news/30145280_1_carexpor ts-‐overseas-‐
• http://www.rediff.com/business/slide-‐show/slide-‐show-‐1-‐fdi-‐ inflowsindias-‐top-‐10-‐
• http://www.siamindia.com/scripts/export-‐trend.aspx
• http://www.2point6billion.com/news/india-‐foreign-‐investmentregulationsand-‐
• http://profit.ndtv.com/News/Article/

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A PROJECT REPORT

“NBFC: STUDY AND ANALYSIS OF PROJECT

UNDER THE GUIDANCE OF:

Mr. RAJIV GOPINATHAN

INSTITUTE OF MANAGEMENT TECHONOLOGY

Institute Of Management and Technology GZB Page 1

Sr. No PARTICULARS Page No

Institute Of Management and Technology GZB Page 2

Institute Of Management and Technology GZB Page 3

1.1 INTRODUCTION TO THE PROJECT

1. Credit Appraisal Process,

2. Project Viability Analysis and

3. Non-performing assets policies

This includes understanding of credit approval process, estimation of credit worthiness of

Institute Of Management and Technology GZB Page 4

Institute Of Management and Technology GZB Page 5

Institute Of Management and Technology GZB Page 6

The process of finding the project viability is as follows:

Total Cash to be Total Expense to be Net Free Cash Flow from

1.4 Non-performing Assets (NPA)

Institute Of Management and Technology GZB Page 7

Doubtful Assets: an asset is classified as doubtful if it remained in the sub-standard category

Institute Of Management and Technology GZB Page 8

The project has following objectives:

• To carry out the Financial Analysis/Appraisal of the borrower/Project.

• To analyze the process of project viability.

Data is collected from primary and majorly from secondary sources.

• Credit Risk Rating by Risk Assessment Model.

• Appraising Officers in Credit Administrator Division.

• Data from Basel Committee on Banking Standard (BCBS)

• RCU Report and F.I Report

Institute Of Management and Technology GZB Page 9

• Techniques adopted for the project will be:

• Exploratory and Analytical.

1.7 LIMITATIONS OF THE PROJECT

Institute Of Management and Technology GZB Page 10

Institute Of Management and Technology GZB Page 11

2.1 Non-Banking Financial Companies

• Loans and credit facilities,

• Trading in money markets,

• Underwriting stocks and shares,

• Managing Investment portfolios,

• Advice on merger and acquisition activities etc.

Institute Of Management and Technology GZB Page 12

Institute Of Management and Technology GZB Page 13

FIGURE 4: MARKET STRUCTURE

Institute Of Management and Technology GZB Page 14

2.3 Sectorial Characteristics

Institute Of Management and Technology GZB Page 15

2.4 Competition in the Industry

FIGURE 5: FUNDING PROFILES OF NBFCS

2.5 Commercial vehicle industry

• Mahindra & Mahindra

Commercial Vehicles are divided into 3 main segments:

• Light commercial vehicle

• Medium commercial vehicle

• Heavy commercial vehicle

Growth Enablers of Commercial Vehicle Industry:

• Freight generating sectors registered robust growth