Credit Assessment of SME using both Template and Non-Template Structures

SIP Project Report Submitted in Partial Fulfilment of the Requirements for the PGDM Programme

By Atul Pranay
2013066

Supervisors: 1. Mrs. Shilpa Rane 2. Dr. Rajnandan Patnaik

Institute of management Technology, Nagpur
2013-14

Acknowledgement
I feel a deep sense of gratitude in thanking all those who helped me to carry out this project to its eventual accomplishment.

I sincerely thank Axis Bank for giving me this opportunity. It has been a wonderful experience to work in this esteemed organization and with the people of amazing calibre. I would like to thank Mr. Sanjay Wadhwa, Vice President, Axis Bank for his guidance and support throughout the duration of the project. I would also like to thank Mrs. Shilpa Rane (AVP-SME), Mrs. Pallavi Sallian (SM-SME) and Mr. Ajay Kamath (DM-SME) without whose help and support it would not have been such a learning experience.

Last but not the least, this acknowledgement would not be complete without thanking Dr. Rajnandan Patnaik who has not only given valuable suggestions but also motivated me to take up the project with a varied perspective.

I also extend my gratitude to my parents and all those who have helped me in some way or the other in the completion of this project.

Table of Content

1. Introduction...................................................................................................................5

2. Analysis……………………………………………………………………………….7 3.1. RBI Definition 3.2.1. Manufacturing Enterprises………………………………………………..8 3.2.2. Services Enterprises………………………………………………………8 3.2. Categorization of SME Centers…………………………………………………..9 3.3. Organization Structure…………………………………………………………....9 3.4. Credit Selection Strategy………………………………………………………….9 3.5. Migration of Account…………………………………………………………….10 3.6. Negative List……………………………………………………………………..10

3. Types of Lending 4.7. Fund Based……………………………………………………………………….12 4.8. Non-Fund Based………………………………………………………………….12 4. Credit Proposal Structure…………………………………………………………….14

5. The Proposal………………………………………………………………………….15 6.9. Application Details……………………………………………………………….18 6.10. Ownership and Management Details…………………………………………….22 6.11. Existing Banking Relationship…………………………………………………..24 6.12. Performance Details……………………………………………………………..25 6.13. Credit Scoring……………………………………………………………………29 6.14. Score Sheet……………………………………………………………………….30 6.15. Proposal Details…………………………………………………………………..32 6.16. Observation & Recommendation………………………………………………..38 6.17. Terms & Conditions……………………………………………………………..40

6. Conclusion……………………………………………………………………………47

7. References……………………………………………………………………………48

LIST OF ABBREVATIONS

1. A/c - Account 2. BR - Base Rate 3. CC - Cash Credit 4. CBS - Core Banking Solution 5. CD Ratio - Credit Deposit Ratio 6. CGMSE - Credit Guarantee Fund for Micro and Small Entrepreneurs 7. CGTMSE - Credit Guarantee Trust Fund for Micro and Small Entrepreneurs 8. EMI - Equated Monthly Installment 9. FGMO - Field General Manager Office 10. FB - Fund Bases 11. GOI - Government of India 12. HDFC - Housing Development Finance Corporation 13. ITR - Income Tax Return 14. ICICI - Industrial Credit and Investment Corporation of India 15. LIC - Life Insurance Corporation 16. MSEs - Micro and Small Entrepreneurs 17. MSMEs - Micro, Small and Medium Entrepreneurs 18. NEFT - National Electronic Funds Transfer 19. NBFC - Non-Banking Financial Companies 20. NFB - Non-Fund Based 21. NPAs - Non-Performing Assets 22. pa - Per Annum 23. PAN - Permanent Account Number 24. RBI - Reserve Bank of India 25. RAM - Risk Assessment Module 26. SBI - State Bank of India 27. T/L - Term Loan 28. WC - Working Capital

1. Introduction

Axis Bank began its operations in the year 1994, because of Government of India allowing establishment of new private banks. The bank was initially promoted jointly by Administrator of the Unit Trust of India (UTI-I), Life Insurance Corporation of India (LIC), The Oriental Insurance Corporation and United India Insurance Company, along with other such institutions. Axis bank opened its registered office in Ahmedabad and corporate office in Mumbai in December 1993.

In India: As on March 31st 2014, the Bank had a network of 2402 branches and extension counters and 12922 ATMs (largest among private banks in India).
International: The bank has seven international offices with branches at Singapore, Hong Kong, Dubai (2), Colombo, Abu Dhabi and Shanghai.

The Bank operates primarily in 4 segments: Treasury operations, Retail banking, Corporate or Wholesale banking and other banking business.

Treasury Operations: The Bank’s treasury operation services include investments in sovereign and corporate debt, equity and mutual funds, trading operations, derivative trading and foreign exchange operations on the account, and for customers and central funding.

Retail banking: In this category, the bank offers services such as lending to individuals/small businesses subject, card services, Internet banking, automated teller machines (ATM) services, depository, financial advisory services, and Non-resident Indian (NRI) services.

Corporate/wholesale banking: The Bank offers to corporate and other organisations services including corporate relationship not included under retail banking, corporate advisory services, placements and syndication, management of public issues, project appraisals, capital market related services and cash management services.

NRI services: Products and services for NRIs which could facilitate investments in India.

Business banking: The Bank accepts income and other direct taxes through its 214 authorised branches at 137 locations and central excise and service taxes (including e-Payments) through 56 authorised branches at 14 locations.

Investment banking: Bank’s Investment Banking business comprises activities related to Equity Capital Markets, Mergers and Acquisitions and Private Equity Advisory. The bank is a SEBI-registered Category I Merchant Banker and has been active in advising Indian companies in raising equity through IPOs, QIPs, and Rights issues etc. During the financial year ended 31 March 2012, Axis Bank undertook 9 transactions including 5 IPOs and 2 Open Offers.

Agriculture banking: 759 branches of the Bank provide banking services, including agricultural loans, to farmers. As on 31 March 2013, the Bank’s outstanding loans in the agricultural sector was INR 148 billion, constituting 7.5% of its total advances.

Lending to small and medium enterprises: Axis Bank SME business is segmented in three groups: Small Enterprises, Medium Enterprises and Supply Chain Finance. Under the Small Business Group a subgroup for financing micro enterprises is also set up. In 2011–12, Axis Bank set up 6 SME centres and SME cells each across the country, taking the total number to 32 SME Centres.

2. Analysis
2.1 RBI definition of Micro, Small and Medium Enterprises segment (MSME):
MSMEs are classified into two classes:

2.1.1 Manufacturing Enterprises:

i. Micro (manufacturing) Enterprises
Enterprises engaged in the manufacture/production, processing or preservation of goods and whose investment in plant and machinery does not exceed Rs. 25 lakh.

ii. Small (manufacturing) Enterprises:
Enterprises engaged in the manufacture/production, processing or preservation of goods and whose investment in plant and machinery is more than Rs. 25 lakh but does not exceed Rs. 5 crore.

iii. Medium (manufacturing) Enterprises:
Enterprises engaged in the manufacture/production, processing or preservation of goods and whose investment in plant and machinery is more than Rs. 5 crore but does not exceed Rs. 10 crore.

2.1.2 Service Enterprises: i. Micro (service) Enterprises:Enterprises engaged in providing/rendering of services and whose investment in equipment (original cost excluding land and building and furniture, fittings and other items not directly related to the service rendered or as may be notified under the MSMED Act, 2006) does not exceed Rs. 10 lakh. ii. Small (service) Enterprises:Enterprises engaged in providing/rendering of services and whose investment in equipment (original cost excluding land and building and furniture, fittings and other items not directly related to the service rendered or as may be notified under the MSMED Act, 2006) is more than Rs. 10 lakhs but does not exceed Rs. 2 crore. iii. Medium (service) Enterprises:Enterprises engaged in providing/rendering of services and whose investment in equipment (original cost excluding land and building and furniture, fittings and other items not directly related to the service rendered or as may be notified under the MSMED Act, 2006) is more than Rs. 2 crore but does not exceed Rs. 5crore.SME Lending at Axis Bank Segment | Budgeted | Small Enterprise Group | 40% of SME Portfolio | Medium Enterprise Group | 45% of SME Portfolio | Supply Chain Financing | 15% of SME Portfolio | |

The SME business continues to be a profitable segment of the Bank recording a y-o-y growth of 26%. The performance under SME can be considered satisfactory even under stressed market conditions during FY13. The SME business is a focus area for the Bank, as it generates higher yields and helps to disperse risk. SMEs offer good business potential both for fund and non fund based products, as well as for cross selling of products of other businesses of the Bank.

During FY 13 the SME Department proactively took various measures like strengthening the credit processes, rationalizing the business segments by actively pursuing vendor/dealer funding and forming research/collection teams with a view to address the requirement to grow and also have control on the quality of the portfolio. Focussed business segments within the Group – SEG(Templated products), MEG (Non-Templated products) and Supply Chain Finance and comprehensive strategies on specific industry segments has largely contributed towards the overall growth of SME business.

Changed to be made by Strategy Team TO BE C

Changed to be made by Strategy Team TO BE C

2.2 Categorization of SME Centres

Changed to be made by Strategy Team TO BE C

Changed to be made by Strategy Team TO BE C

Changed to be made by Strategy Team TO BE C

SME Centres are of two categories viz. 1) CAT-A Centres with fund based exposure level more than or equal to Rs.750 crores and 2) CAT-B Centres with fund based exposure level less than Rs.750 crores. This has been done to create a focused approach in credit processing and delivery.

MEG proposals of CAT-A Centres (of geography locations i.e. Mumbai, Delhi, Chennai, Kolkata) shall be done at Geography Office.

CAT-A Centres – non-geography locations (i.e. Pune, Ahmedabad, Bangalore, Hyderabad, and Coimbatore), would be processing all types of MEG/SEG/SCF credit proposals. All credit proposals even over Rs 25 crores for the MEG verticals would be handled at these CAT A Centres.

CAT-A Centres at geography locations (Mumbai 1 / 2, Delhi 1/2, Kolkata & Chennai) will process all SEG proposals.

CAT-B centres would process all SEG credit proposals including those being put up to LCC/RCC/COCC committee due to exposure crossing Rs 5 Crores during the year. . MEG proposals of CAT B centres will be processed at the Geography Office.

The above approach shall bring more focus in processing of credit proposals and ensure a higher credit quality with a quicker turnaround time. It shall also optimize the usage of man power with pooling of expertise at Geography and Corporate Office for handling higher exposures. The existing Centers have been classified as under:

CAT A Centers | Centres with business levels over Rs 750 cr , viz., Mumbai 1 and 2, Delhi 1 and 2, Chennai 1 and 2, Bangalore, Kolkata, Hyderabad, Coimbatore, Pune, , Kochi, and Ahmedabad. (New Centre proposed in FY14 – Chennai 2). | CAT B Centers | Centres with business levels less than Rs 750 cr , viz., Bhubaneswar, Madurai, Indore, Rajkot, Chandigarh, Raipur, Guwahati, Nagpur, Hubli, Vishakhapatnam, Agra, Bhopal, Nashik, Kolhapur etc. (New Centres proposed in FY14 - Jalandhar, Hissar, Jodhpur, Patna and Vadodara). |

The Centres shall be supported by SME Cells having 2/3 officers to source and maintain large number of proposals other than at SME Centers at following locations:

SME Cell | Dehradun, Thiruvanantapuram, Siliguri, and Gandhidham. (New Cells proposed – Ganganagar, Kanpur, Jabalpur, Aurangabad, Warangal, Bilaspur, Rourkela, Thane, Navi Mumbai, Panaji, and Thrissur). |

2.3 Organisation structure

* SME Business is currently being delivered through 32 SME Centers. 6 New Centers are proposed during FY14. * 12 new SME Cells are proposed during FY14. SME cells shall be doing both processing and relationship management. * SME business shall be supported by 4 risk department units at Mumbai, Delhi, Kolkata and Chennai.

2.4 CREDIT SELECTION STRATEGY

Axis Bank’s strategy to project itself as a banking partner to its clients to provide sustainable competitive advantage in the medium to long term will continue. With a view to having a consistent and transparent credit selection process, the following criteria will be continued:

* Acceptable internal credit rating/external rating. * Appropriate pricing. * Opportunities for boosting return on capital from ancillary businesses. * Significant probability of credit rating enhancement in the medium term. * Healthy cash flows, rather than mere security backing. * Satisfactory quality of management in terms of past track record of performance, competence, integrity and corporate governance practices. * Sustainability of business model in the long term. * Likely market share. * Likely leadership in the emerging businesses. * Acceptable underlying security and credit enhancement measures.
2.5 MIGRATION OF ACCOUNTS:

The guidelines for migration of account within the SME groups is as following 1. The relationships shall be classified into SEG / MEG / SCF at the beginning of the year (based on exposure as on 31st March of the previous year)

2. Irrespective of the exposure going beyond the respective business group exposure norms, the relationships shall continue to remain in the same group during the year.

3. All SEG customers where total Exposure > Rs. 5 crs will get migrated to MEG.

4. Where the customer has only LRD exposure, the migration criteria is Rs. 20 crs instead of Rs. 5 crs.

5. Where the customer has LRD facility combined with any other facilities / products, the migration criteria continues to be Rs. 5 crs.

6. There will be no migration from / to SCF.

7. There will be no reverse migration from MEG to SEG.

8. Relationships which are already classified as NPA, restructured in past two years, with a conduct rating below 4, marked for Exit or identified as PNPAs shall not be shifted out of the group.

2.6 Negative List

Activities for which credit exposures should be avoided are * * Restriction on certain types of advances

In terms of RBI guidelines, there are certain restrictions/provisions for certain special types of advances. The same have been covered in Section 8.12 of Part – I (General Provisions) of Corporate Credit Policy 2013-14.

Exposures not to be handled by SME Vertical Credit exposures in respect of the following sectors, irrespective of size of proposed exposure, shall be referred to LC Department as per applicable guidelines:

a) Roads (Infra) b) Power (Infra) c) Ports (Infra) d) Metro and Urban Development (Infra) e) Airports (Infra) f) SEZ (Infra) g) Telecom (Infra) h) NBFCs and all other entities engaged in financial services (LC) except companies engaged in operating lease and Micro Finance companies. MFIs would be handled by Agri whereas Operating Lease companies will be handled by SME.

Commercial Real Estate Exposure:

Prior administrative approval for templated and non-templated commercial real estate exposure above Rs 5 crores shall be obtained from Business Head at CO before putting up to appropriate Sanctioning Authority. Deviations not mentioned in the Deviation Grid of Power Rent Scheme shall be referred to respective Business Head at C.O. for approval.
Pricing:

A risk based pricing metric has been derived after taking into account the base rate (presently 10.25 % p.a), operational expenses and risk premium derived out of probability of default based on rating and tenor as under:

Calculation of ROC shall be done as per ROC calculation sheet prescribed by Risk Department using pricing given in FTP curve.

3. Types of Lending

There are basically 2 two types of lending processed at Axis Bank

3.1 FB (Fund Based) – In this case the borrower is provided with the approved/requested fund at a certain rate of interest as per the credit policy of the bank and credit rating given to the firm and the borrower. There are two types to FBs lending involved:-

3.1.1 TL (Term Loan) – Term Loan is advance cash facility given by the bank to a business for a period ranging between 1 to 10 years.

3.1.2 WC (Working Capital) – These are cash facilities given by the bank for a period of one year and it can be renewed based on the scenario.

3.2 NFB (Non-Fund Based) – In this case there is no real financial transaction involved between the bank and the borrower. There are two types of NFBs involved:-

3.2.1 LC (Letter of Credit) – When a client A purchases goods on credit from client B it has an option to provide a letter of credit to B from the bank guaranteeing that the money will be paid in due time. Bank issues the letter of credit on meeting of certain strict regulations and criteria.

3.2.2 BG (Bank Guarantee) – A bank guarantee is an assurance given by the bank to the borrower’s customer to reduce the losses just in case the financial transaction between borrower and the customer is not successful.

When running a business, one might come across a situation that the client may ask you to provide a financial guarantee from a third party.

In such circumstances, one can approach the bank and ask it to stand as a guarantor on his behalf. This concept is known as bank guarantee (BG).

This is usually seen when a small company is dealing with much larger entity or even a government across border. Let us take an example of a company XYZ bags a project from, say, the Government of Ethiopia to build 200 power transmission towers.

In this case, companies all over the world would have applied. The selection would be made on the basis of lowest cost and track record as submitted in the proposal form.

However, the government has limited ability to assess all companies for financial stability and credit worthiness.

To ensure the project is done satisfactorily and on time, the government puts a condition that company XYZ will have to furnish a guarantee given by one or more banks.

In banking nomenclature, company XYZ is an applicant, its bank is the issuing bank and the Government of Ethiopia is the beneficiary.

Usually, the BG is for a specified amount, which is a percentage of the total money required for the contract.

Obviously, the bank will not just issue such guarantee with its own due diligence. The bank does its own thorough analysis of the financial well being of company XYZ to assess the amount of guarantee it can issue. After all, the bank is at a risk too, in case the client defaults. This amount is called a limit.

Here too there is a catch. The bank will issue guarantee provided the company has not exceeded its overall limit for BGs. And if the Government of Ethiopia is not satisfied with the performance of the contract at a later date, it can invoke the BG.

In this situation, the bank will have to immediately release the amount of the BG to the government.

BGs can be broadly classified into Performance and Financial BGs. As the name suggests, Performance BGs are the ones by which the issuing bank, also known as the Guarantor, guarantees the ability of the applicant to perform a contract, to the satisfaction of the beneficiary.

4. Credit Proposal Structures

There are two types of structures adopted by Axis Bank:-

4.1 Templated Structure – In this case there is a set template and guidelines, sufficing which the loans are processed.

4.2 Non-Templated Structure – This a more flexible in nature as far as the guidelines and criteria are concerned for sanctioning of loan.

Further Templated Structures are classified into 6 different schemes

4.1.1 MSE Power – Under this scheme working capital or term loans are provided to SME involved in manufacturing sector upto a limit of 5 Crs.

4.1.2 Services Power - Under this scheme working capital or term loans are provided to SME involved in services sector upto a limit of 5 Crs.

4.1.3 SME Power - Under this scheme working capital or term loans are provided to SME involved in trading upto a limit of 5 Crs.

4.1.4 LCBN (Letter of Credit Bank Negotiation) – In this case bank accepts LC issued by other bank in order to provide the customer with a cash facility upto 5Crs.

4.1.5 MPower OD - This is similar to Services Power but in this case over draft facility is provided to the borrower upto 5Crs and the money can be used for general business purposes.

4.1.6 MPower Term Loan - This is similar to Services Power but in this case term loan facility is provided to the borrower upto 5Crs and the money can be used for general business purposes.

5. THE PROPOSAL

Company Name: XYZ Industries

Industry: Engineering Services

5.1. Foreword
XYZ Group (Name Changed) is an engineering services firm. All the key names have been changed in lieu with the confidentiality issues. The financial data has been kept same as the actual report. XYZ Group was founded by Mr. Ravi Kumar to provide specialised services to the hydrocarbon exploration, petrochemical and power industries. The company renders several services such as control systems integration (hydrocarbon fire and gas detection, SCADA Systems, etc), operation and management of Oil/Gas processing complexes, platforms and oilfields with equipment and crew on turnkey basis, along with technical back up from world leaders. The applicant company XYZ Industries Pvt. Ltd. has been involved in diversified fields ranging from Oil/Gas, Power generating plants, related operations, Access control systems, water treatment, intrusion detection systems and fire/gas detection systems.

SME CENTRE, Mumbai II

For Sanction of SEG (RCC)

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Head Geography (West)
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Head Risk (West)
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SME Centre Head Mumbai II Credit Head (West)
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Templated Advances M/s XYZ Industries (P) Ltd- New Relationship
Branch – Ghatkopar (W) B R Ambedkar Road Branch SOL ID- 1704
Service Power scheme
Priority Sector Lending
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Rating –AB EA as per ABS of FY 13

Date: May 24, 2014

5.1 Applicant Details | Present Proposal | a. Sanction of BG limit of Rs.350.00 lacs for a period of 12 months b. Sanction of CC limit of Rs.50.00 lacs for a period of 12 months | Name of the Applicant | M/s XYZ Industries Pvt Ltd | Regd. OfficePh. No.Email IdPAN No. | 1 Dadar Bhavan, MG Road, Andheri (West), Mumbai 400 021.8715214529 Ravi Kumarxyzpetro@gmail.comDMTCO0648K |

Constitution | Pvt Ltd Co | Date of Establishment | 13.06.1996 | Nature of Business | Engineering services in Oil, gas and Power sector, Trading and petrol pump business. | Brief Background of the company | XYZ Group was founded by Mr. Ravi Kumar to provide specialised services to the hydrocarbon exploration, petrochemical and power industries. The company renders several services such as control systems integration (hydrocarbon fire and gas detection, SCADA Systems, etc), operation and management of Oil/Gas processing complexes, platforms and oilfields with equipment and crew on turnkey basis, along with technical back up from world leaders. The applicant company XYZ Industries Pvt. Ltd. has been involved in diversified fields ranging from Oil/Gas, Power generating plants, related operations, Access control systems, water treatment, intrusion detection systems and fire/gas detection systems. Group companies The following are the group companies of XYZ Group * MNO petroleum (P) Ltd * GHI Engineering (P) Ltd is a 100% owned subsidiary of XYZ Industries * First City Capital Investments Ltd is 30% owned company in resorts and property development business. Following are the services of M/s XYZ Industries Pvt Ltd: a. Turnkey Management of Oil/Gas processing complexes The turnkey responsibilities include supply of complete team of specialized personnel, creating infrastructure for their accommodation, food, catering, housekeeping, entertainment and transport. The scope of work also includes supply of various logistics support equipments tools, tackles and specialised test equipments for the plant. In addition to the above, the company is also responsible for making purchases of various items required for the plant on behalf of the customers and preparing operating manuals incorporating hourly levels of safety checks, preventive maintenance programs, routine operational spare parts cost/inventory control and yearly shutdown maintenance plan/spare parts list. b. A to Z Pumping Services such as i. Cementing ii. Stimulation iii. Hydro testing of cross country pipeline iv. BOP Testing v. Fracturing c. Production Testing services d. Design/Engineering/Fabrication of Skid mounted EPS, Pneumatic Bulk plant, various other equipments etc needed for Oil/Gas and Power industry. e. Equipment Rental services (Bulk Plant) f. Drilling/Rig Charter Hire g. Operational/Maintenance services of rig, cementing equipments, stimulation equipments and offshore stimulation vessels, etc owned by oil companies h. Cementing Lab servicesThe company has tie up with the following establishments a. JKL Petroleum Services Company L.LC b. ABC supplies Dubai – owns rigs and equipment for stimulation/cementing/production testing/slick line services. The company has signed up lease purchase agreement with the borrower for supply of land/work over rig drilling rigs, cementing equipments, stimulation equipment, Production testing equipments etc. c. DEF Singapore for Floating Early production system charter hire servicesMr. Ravi Kumar has got wide experience in these fields. XYZ group in past has executed many contracts with reputed companies like UVW and R1. However, due to health issues, Mr. Kumar was not actively involved in the bidding contracts from last 2-3 years and was looking after Petroleum activities of the pump located at Nanded, Maharashtra. So during all these years, the main income earned is from Petrol Pump. However, with the addition of new directors and experience of Mr. Kumar, the company is again bidding for the project contracts of UVW, R1 and S2 India Ltd etc. The group has executed the following contracts: (Rs in lacs) Name of the customer | Description | Location | Amount of contract | Period | R1 | Operation and complete plant maintenance services for power plant | Delhi | 334.00 | From 01.04.11 to 30.11.11 | Bird Petroleum technology Company WLL | Routine and break down maintenance | North Dakota | 17.40 | Start date: 01.05.09Duration: 1-2 years | Green Exploration Company | Turnkey operations and maintenance services and | Wardha | 267.91 | | IconResources Pvt ltd | Turnkey Operations and Maintenance services | Aurangabad | 14.30 | | Z India Ltd | Hire of cementing unit with crew and accessories, Turnkey operations and maintenance services | Asangaon | 4608.00 | From 01.04.1998 to 30.04.2003 | UVW | Operational maintenance | Surat | 5097.72 | Many projects have been completed and 1 is Ongoing, which was Started on 20.08.2012 | | 5.2 Ownership & Management Details | Ownership / Share-holding Pattern | The Authorised and paid up share capital of the company consists of 10,00,000 equity shares of Rs.10/- each consisting of Rs.100.00 lacs Shareholding pattern is as follows: Name of the shareholder | No of shares | Din No | Percentage | Mr. Ravi Kumar | 996000 | 00990402 | 99.60% | Mr. Vijay Kumar | 4,000 | 01179260 | 0.40% | Total | 10,00,000 | | 100.00% | | Management Details | The entire day to day affairs of the company are take care by Mr. Ravi Kumar. He is Chairman and Managing Director, aged 64 years and mechanical engineer by profession and has also undergone specialized study of Cementing services, stimulation services and reservoir evaluation.He has over 30 years of experience in all activities of petroleum exploration/power generation industry in middle east, far east and India.Mr. Vijay Kumar aged 58 years is the Director of the company. He is a commerce graduate and having more than 30 years of experience in the said industry.The company is in the process of incorporating Mr. Shyam Kapur as the additional director. He is electronic engineering by profession.Mr. Ravi Kumar is ably assisted by the following key personnel:Mr. Sunil Kumar who is a mechanical engineer and has started his carrier in the Indian Navy and served for 15 years. He is in the said company for last 12 years. | Personal Net worth of Directors/Guarantors | The personal net worth of Mr. Ravi Kumar is Rs.6653.95 lacs as on 31.03.2014 The Company is advised to submit the self-certified net worth certificate of Mr. Vijay Kumar and Mr Shyam Kapur as on 31.03.2014 before disbursement of limits. | Comments on the market reputation of the promoters. | CustomerName of the company- R1Name of the contact person- Mr Rajeev Tandon (Vice President)Contact number- 09223575213Observations: Satisfactory. Known to Mr. Ravi Kumar for more than 3 years. Name of company- S2 EnergyName of the contact person- Mr R Subramanian (GM) with Rajasthan unit of S2 Energy India for last 14 years.Contact number- 09840040224Observations- Satisfactory. Known to XYZ Industries for more than 10 years. Cairn energy uses the services OFS for supply of man power for their rigs, power plants, production and insulation in oil and gas industry. | 5.3 Existing Banking Relationships (Rs in lacs) | Banking Relations | Bank and Branch | Account Type | Limit | Rate of Interest | Period | Cr Summations | Bal.O/s29.7.13 | | O2 Bank, Nellayi Branch Thrrissur, Kerala # | CC | 15.00 | 14.00% | Jan to July 2013 | 764.36 | 7.55 | | O2 Bank | IPS(Term loan) | 65.00 | 12% +PF+VF | -- | -- | 0.00 | | # The company is to close this facility from its own funds and submit ‘No Dues Certificate’ before disbursement of limits. | Comments | Note - We are holding the sanction letter dated 11.07.2005. Company has informed that the same limit has been renewed every year and they do not receive any fresh sanction letter. Operations in the account are satisfactory.SecurityCC: Hypothecation of stock in trade as HSD, motor spirit, lubriants etcIPS (1) Hypothecation of equipments/furniture of the petrol pump (2)-(Building/Fixed assets)- EM of building, canopy, compound wall located at Door no Vi/54,55 Near Apollo Tyres, Durgamba, Thrissur, Adateri Village.CollateralEM of building canopy, compound wall other developments to be constructed located at Door no Vi/54,55 Near Apollo Tyres, Durgamba, Thrissur, Adateri Village. |

5.4 Performance Details | Financial(Rs in lacs) | Year Ending | 31.03.11 | 31.03.12 | 31.03.13 | 31.03.14 | | Audited | Audited | Audited | Provisional | Net sales | 53.61 | 1108.18 | 1610.39 | 3211.45 | Other Income | 12.45 | 8.20 | 8.70 | 0.00 | Total Income | 66.06 | 1116.38 | 1619.09 | 3211.45 | PBDIT | 9.90 | 22.69 | 43.68 | 105.62 | Depreciation | 0.76 | 2.72 | 6.21 | 4.90 | Interest | 0.00 | 0.97 | 3.35 | 8.53 | Profit before tax | 9.14 | 19.00 | 34.12 | 92.19 | Taxes | 2.72 | 5.97 | 12.30 | 30.42 | PAT | 6.42 | 13.03 | 21.82 | 61.77 | PBDIT/Net sales % | 14.99% | 2.03% | 2.70% | 3.29% | NP/net sales % | 9.72% | 1.17% | 1.35% | 1.92% | Cash accruals | 7.18 | 15.75 | 28.03 | 66.67 | Paid Up Capital | 1.00 | 1.00 | 1.00 | 1.00 | Reserves & Surplus | 19.66 | 32.69 | 54.21 | 146.71 | DTA/DTL | 0.18 | 0.25 | 0.00 | 0.00 | TNW | 20.84 | 33.94 | 55.21 | 147.71 | Unsecured loans | 31.49 | 40.83 | 0.00 | 0.00 | Loan funds | 4.89 | 17.68 | 11.48 | 4.61 | Total funds | 57.22 | 92.45 | 66.69 | 152.32 | Net F.A. | 4.62 | 25.49 | 20.01 | 52.05 | Non-current assets | 15.19 | 14.57 | 29.39 | 25.56 | Current assets | 108.93 | 101.54 | 113.95 | 264.62 | Current liabilities | 71.52 | 49.15 | 96.66 | 189.91 | NWC | 37.41 | 52.39 | 17.29 | 74.71 | Total deployment | 57.22 | 92.45 | 66.69 | 152.32 | TOL | 107.90 | 107.66 | 108.14 | 194.52 | TOL/TNW | 5.22 | 3.20 | 1.96 | 1.32 | Adj TOL/TNW | 1.46 | 0.89 | 1.96 | O | Current Ratio | 1.43 | 1.83 | 1.11 | 1.36 | | Comments on financials | Sales- XYZ group in past has executed many contracts with reputed companies like UVW and R1. However, due to health issues, Mr. Ravi Kumar was not actively involved in the bidding contracts from last 2-3 years and was looking after Petroleum activities of the pump located at Durgamba, Thrissur. So during all these years, the main income earned is from Petrol Pump. The turnover of the company has increased from Rs.1218.25 lacs in FY13 to Rs.1345.02 lacs. This turnover of the firm mainly consists of sale from petroleum pump products only. The company has achieved a turnover of Rs.345.89 lacs from October 2013 to December 2013. However, with the addition of new directors and experience of Mr. Kumar, the company is again bidding for the project contracts of UVW, R1 and S2 India Ltd etc. The company is in talks with the following customers and is expecting to receive orders very shortly. Company name | Type of order | Amount of order | S2 india | Operation and maintenance Manpower services for pipeline operations & maintenance for Bhogat Terminal | Rs.507.72 lacs | H1 Gas | Mumbai Shorebase, drilling rigs for Panna/Tapti Platform | Rs.1142.16 lacs | S5 India Ltd | Service contract for operational assistance for powerplants, Yard piping, at Vijaipur | Rs.192.00 lacs | MIT Mumbai | Operation and Maintenance of IIT Mumbai 1 MW Solar Termal Power Plant at Gurgaon | Rs.300.00 lacs | Gati Power | Operation and maintenance of Bawana Power Plant | Rs.200.00 lacs | S2 India Ltd | Maintenance of 33KV OHL at Rajasthan block | Rs.1020.51 lacs | | Total | Rs.3362.39 lacs |
Based on the above contracts and petrol pump income, the company is expecting turnover of Rs.2500.00 lacs in FY 14. This income consists of Rs.1000.00 lacs from bidding projects and Rs.1500.00 lacs from petrol pump.Profitability- PBDIT margin (%) of the company has improved from 1.14% in FY12 to 1.16% in FY13 on account of efficient use of resources. PAT margin of the company is negative at -0.12%. Leverage- Leverage of the company is comfortable at 0.03 in FY 13. With the increase in borrowing, the gearing is expected to increase to 0.10 in FY 14 but is still at satisfactory level. Break up of TOL and TNW as on FY13 is as follows: TNW | Rs in lacs | TOL | Rs in lacs | Capital | 100.00 | CC from Federal Bank | 12.20 | Reserves& Surplus | 3314.24 (*) | Unsecured loan from Director | 3.71 | Def Tax liability | 0.93 | Other loan | 5.49 | | | Def Sundry Balances | 70.00 | | | Sundry creditors | 2.80 | | | Short term provisions | 1.07 | Total | 3415.17 | Total | 95.27 |
(*) Revaluation reserve- The company has revalued the petrol pump at Kerala. Revaluation reserve is Rs.3300.00 lacs. If the same is not considered part of Reserves & Surplus, then Adj TOL/TNW becomes 0.83 which is satisfactory.Current Ratio: Current ratio of the company was low at 0.42 in FY13. Current ratio is low due to utilization of short term funds for long term purposes. However, with the plough back of funds into the business the current ratio has improved to 1.36 in FY 14. Current assets | Rs in lacs | Current liabilities | Rs in lacs | Stock | 19.32 | CC from Federal Bank | 12.20 | Debtors | 8.96 | Unsecured balances | 70.00 | Cash | 6.65 | Creditors | 2.80 | Loans and advances | 0.84 | Short term provisions | 1.07 | Total | 35.77 | Total | 86.07 |
Net Fixed Assets- Net fixed assets as on FY13 of the company consists of the following. Land and Building | Rs.2579.47 lacs | Equipment | Rs.1.03 lacs | P&M | Rs.314.00 lacs | Vehicles | Rs.3.53 lacs | | Audit Remarks | There are no material adverse remarks observed as per ABS of FY 13 |

5.5 Credit Scoring Credit Score Rating | Parameters | Score | Financial | 12.00 | Business and Management | 36.67 | Industry | 11.66 | Overall | 60.33 |

AB EA (acceptable) as per ABS of FY13. The rating is satisfactory & acceptable. | | Criteria | Factor | Response | Promoters | If proprietor/all partners are more than 65 years and have proper succession plan in place | No. (*) | | Defaulter with any bank | No | | OTS with any bank or financial institution (for less than 5 years) | No | Entity | Filing 3 years ABS at one time (current filing date) | No | | Negative net worth of the entity and not a new entity (more than 3 years old) | No | | Expected closure of business | No | | Borrower has filed insolvency petition | No | Default Behaviour | Entity or promoter’s name appears in RBI defaulters list (willful and non willful) | No | | Group entity’s name appears in RBI/ECGC defaulter list (willful and non-wilful) | No | | Account is NPA with other bank or financial institution | No | | Entity name appears in CIBIL commercial willful defaulter list | No | |

5.6 Score Sheet

Score Sheet for XYZ Industries Pvt. Ltd. Risk Entity Name | Score | Grade | Overall Company Score (New Account) | 66.52 | SME 4(Not acceptable) | Type : Company | | | BUSINESS RISK | 59.13 | SME 5 | Credit Period Allowed (Days) | 17.46 | | Credit Period Availed (Days) | 14.45 | | Product Related Risk | AA | | In the next one year, how many of the following pose a significant risk to the main product or service? | B | | Price Related Risk | AA | | What is the entity’s ability to set the price for the main product? | B | | Competence to Innovate | B | | Quality of internal Processes and Systems | B | | No. Of Years in Business | D | | Nature of Clientele Base | AA | | Which is the highest contributor to sales? | C | | How many customers contribute to 75% of total sales | B | | What % of sales (by value) are to long term customers (long term means> years) | B | | FINANCIAL RISK | 68.18 | SME 4 | Net Sales | 16.1 | | Net Sales Growth Rate (%) | 375.24 | | PBDIT Growth Rate (%) | 76.52 | | PBDIT/Net Sales (%) | 2.73 | | Return on Capital Employed – (%) | 50 | | TOL/TNW (Adjusted) | 1.96 | | Interest Coverage Ratio | 14.67 | | Current Ratio | 1.07 | | Operating Cash Flow | B | | Realisability of debtors | AA | | What is the total share of receivables that is either disputed or is bad debt for the entity? | B | | Trend in Cash Accruals | A | | MANAGEMENT RISK | 66.02 | SME 4 | HR Policy / track record industrial unrest | B | | Track record in payment of statutory and other dues | B | | Market Report of Management Reputation | AA | | Does any of the group entities have an NPA a/c with any bank? | B | | In the last 6 months, how many instances have there been of inward cheque return? | B | | Capability to raise resources | AA | | What is the legal structure/constitution of the entity? | A | | Is the entity owned by another entity? If yes, what is the ownership % | A | | What is the type of the largest institutional shareholder in the entity? | C | | Technical and Managerial Expertise | AA | | Who is the key person in the entity? | B | | What is the total work experience of the key person? | B | | What are the educational qualifications of the CFO/Chief Accountant/Head of Finance? | B | | How well is the inventory organized? | B | | Is there a clear succession plan for the entity? | D | | INDUSTRY RISK | 68.34 | SME 4 |

Purpose of Loan | 5.7 Proposal DetailsWorking capital purpose | Limit Assessed | A. Assessment of BG limits: The company is in the business of providing specialized oil field services to help oil companies to explore and produce crude oil/gas. The company has tie up with leading companies like UVW, and R1 etc. These companies publish tenders in newspapers and invite bid. The borrower has to submit bid bond/EMD/ Security deposit etc. Once the bid is accepted then Letter of Intent/Work order/Purchase order is awarded and the company has to submit Performance Bank Guarantee for the same. Company name | Type of order | Amount of order | S2 india | Operation and maintenance Manpower services for pipeline operations & maintenance for Bhogat Terminal | Rs.507.72 lacs | H1 Gas | Mumbai Shorebase, drilling rigs for Panna/Tapti Platform | Rs.1142.16 lacs | S5 India Ltd | Service contract for operational assistance for powerplants, Yard piping, at Vijaipur | Rs.192.00 lacs | MIT Mumbai | Operation and Maintenance of IIT Mumbai 1 MW Solar Termal Power Plant at Gurgaon | Rs.300.00 lacs | Gati Power | Operation and maintenance of Bawana Power Plant | Rs.200.00 lacs | S2 India Ltd | Maintenance of 33KV OHL at Rajasthan block | Rs.1020.51 lacs | | Total | Rs.3362.39 lacs | Apart from the above projects, the company is also in talks with Cairn India, Gail etc. for their other projects of oil rigging and the customer is expecting the said projects also. Total estimated projects to be received | Rs.3362.39 lacs | 2% bid bond guarantee/EMD | Rs.67.25 lacs | Performance guarantee is 10% of the estimated cost of the projects | Rs.336.24 lacs | Total BG required | Rs.403.49 lacs | The company has requested for BG amount of Rs.350.00 lacs and the same is recommended for approval. B. Assessment of Cash Credit Limit The company is projecting to reach a turnover of Rs.2500.00 lacs for FY14 which consists of income of Rs.1000.00 lacs from bidding projects and Rs.1500.00 lacs from Petrol pump. The company has already achieved a turnover of Rs.345.89 lacs from October 2013 to December 2013 which pertains to only sale from petroleum pump. Considering the past trends, bidding contracts in hand and turnover already achieved, the projected turnover seems achievable and the same may be accepted for assessment of limits. By applying 20% margin over the estimated turnover of Rs.2500.00 lacs, the firm is eligible for a limit of Rs.500.00 lacs. However, the company has requested for the CC limit of Rs.50.00 lacs and the same has been recommended. | Property value Criteria: The company has offered the land and building located at Kerala, the details of which are given below. The property is valued by M/s K A Fernandes as per valuation report dated Property details | Valuation report of Ms K A Fernandes Rs in lacs. | | Market value | Distress value | Govt value | Land and building located at S.F.No/T.S.No/R.S No 211/1 of Kalletumkara, Adateri village, Mukundapuram Taluk, Thrissur/Kodakara, Door no Vi/ 54,55Near Apollo Tyres, Durgamba, Thrissur, Adateri Village owned by the company and admeasuring 68.27 cents (Land). Building constructed- 1985Land acquisition date by Mr. Kumar - 12.03.2003 | 893.25 | 687.30 | 27.63 (Land) |
Security coverage Value of the properties (a) | Rs.893.25 lacs | Proposed loan amount (b) | Rs.400.00 lacs | Security coverage available(a/b) | 2.23 | Security coverage required as per MSE Power scheme | 1.00 |
We note to initiate second valuation of the property. | Limit Proposed | Facility | Limit | BG | Rs.350.00 lacs | CC | Rs 50.00 lacs | | Rate of Interest & Validity of Limits | Cash Credit Base Rate+ 3.25% i.e. 13.50% p.a. payable at monthly rests Validity of limits- One year | Margin | Cash Credit 25% on stock and receivables Receivables upto 90 days are eligible for drawing power calculation Bank Guarantee 15% cash margin in the form of Fixed deposit | Security Details | Cash Credit: Primary Security: Hypothecation of entire current assets of the company both present and future. Bank Guarantee: Primary Security: i) Counter guarantee of the company ii) Hypothecation of entire current assets of the company both present and future. Collateral security for all the limits: Mortgage of the following commercial property Land and building located at S.F.No/T.S.No/R.S No 211/1 of Kalletumkara, Adateri village, Mukundapuram Taluk, Thrissur/Kodakara, Door no Vi/ 54,55Near Apollo Tyres, Durgamba, Thrissur, Adateri Village owned by the company and admeasuring 68.27 cents (Land). Personal Guarantee for all the limits: Mr. Vijay Kumar Mr. Ravi Kumar Mr. Shyam Kapur | Visit Report | The unit was inspected by K.C. Fernandes, AVP & Branch Head and the same was found satisfactory. The inspection report is enclosed for the reference. | Title Search Report | The Legal and title search has been received from advocate M/s Balamurali Associates. They have opined vide their report dated 24.01.2014 that the title holder i.e. M/s XYZ Industries Pvt Ltd has an absolute, clear and marketable and binding title over the property and equitable/simple registered mortgage in favour of the bank can be created. Presently the property is mortgaged to Federal Bank Ltd and there are no other mortgages/charges/encumbrances whatsoever as could be seen from the encumbrance certificate for the period 01.01.1995 to 23.02.2014. | Processing Fees | Non-refundable processing fees of 1.00% of the limit (plus applicable taxes) i.e. Rs.4,00,000/- plus taxes * By cheque favouring Axis Bank - Processing fee A/c No: 1704149003114 or * By specific Debit Advice to the Bank for debiting the company's account maintained with the Bank and crediting Axis Bank - Processing fee A/c 1704149003114. | Mortgage Charges | As per bank guidelines | Inspection Charges | As per bank guidelines | Documentation Charges | As per bank guidelines | Deviations (if any) | Deviation | As per norms | Proposed | Sanctioning authority | Rate of interest for Cash credit limit | Rate of Interest on Cash Credit: Base rate +4.50% i.e. 14.75% p.a. | Rate of Interest on Cash Credit: Base Rate+3.25% i.e. 13.50% p.a. payable at monthly rests | SME Centre Head Mumbai II | * The company is a fresh SME Client. * The company comes under the definition of Priority Sector lending. * The security coverage for the exposure is 2.23 times as per Service Power scheme * The company is presently having CC limit with Federal Bank at Kerala at ROI of 14.00% and the company has requested for competitive pricing. * The company has already approached our Chalakudy branch for setting up of our bank’s ATM * The borrower has promised to open saving account of all his family members including him with our bank. * The current account has already been opened at Chalakudy branch and the entire turnover will be routed through our bank only. * ROC of the account is 77.37%. In view of the above, we recommend for concession in rate of interest. | Sourcing Reference | Ghatkopar (W) B R Ambedkar Road Branch | Documentation | As per standard documentation under Service Power scheme | Other Conditions | a) The borrower should undertake not to divert working capital funds for long- term purposes. b) The borrower will maintain its net working capital position equal to or above the levels furnished in its projections for working capital finance. In the event of difference of opinion arising as to what constitute current assets and current liabilities, the Bank’s decision will be final and binding on the borrower. c) The company is to route the entire transactions through our bank only. d) Board resolution for the credit facilities to be availed by the company to be obtained. e) Certificate of compliance with statutory obligations, wherever required is to be submitted from Chartered Accountant/ Company Secretary before disbursement’ f) The company is to close the credit limits with Federal Bank from its own funds and submit ‘No Dues Certificate’ before disbursement of limits. g) Company to submit the self-certified net worth certificate of Mr. Vijay Kumar and Mr Bharat Kapur as on 31.03.2014 before disbursement of limits. h) Second valuation of the property to be done before disbursement of limits. i) Non-compliance of any terms of sanction shall attract penal charges of 2% plus taxes. j) If the total availment of the CC limit is less than 50% of the sanctioned limit, commitment charges of 0.50% (on the un-availed portion) will be levied. |

Defaulter List | 5.8 Observations & RecommendationsWhether the names of the borrower or any of the promoters/directors appear(s) in: - Sr. No. | Particulars | Date | Position | 1 | RBI Defaulters list | 31.03.2013 | The name of the company or directors is not featuring in the list | 2 | RBI wilful defaulters list | 30.06.2013 | The name of the company or directors is not featuring in the list | 3 | RBI Caution list (Exporter) | 31.12.2013 | The name of the company or directors is not featuring in the list. | 4 | ECGC Specific Approval List | 31.01.2014 | The name of the company or promoter director is not featuring in the list. | 5 | RBI Caution advise list | 31.01.2014 | The name of the company or promoter directors is not featuring in the list | 6 | UNSCR | 05.12.2013/ 28.12.2013 | The name of the company or directors is not featuring in the list. | 7 | CIBIL Check: Consumer | 13.02.2014 | Satisfactory (Copy Enlosed) Vijay Kumar | -1 | Ravi Kumar | 825 | | 8 | Cibil Check: Company | 20.02.2014 | Satisfactory. (Copy enclosed) | 9 | MCA Site | 25.02.2014 | a. Names of two directors i.e. Mr. Ravi Kumar and Mr. Vijay Kumar is reflecting b. No charge is being reflected but Federal Bank has sanctioned CC limit of RS.15.00 lacs. c. The authorised capital and paid up capital of the company is RS.1.00 crore which tallies with the balance sheet | | Recommendations: a. M/s XYZ Industries is a pvt ltd company established in the year 1996 by Mr. Ravi Kumar. b. The main business of the company is sale of petroleum products, lubricants and the company is having petrol pump at Kerala which is the main source of income. c. The company is planning to expand its business by venturing into oil and gas rigging by tieing up with leading oil and gas companies like UVW, R1 etc. wherein the company will depute its manpower for oil and gas rigging, exploration, maintenance of power plant etc. d. The company has approached our bank for BG and CC requirement. e. Overall security coverage available is 2.23 times which is much higher than the scheme parameters. f. ROC of the account is 77.37%. In view of the foregoing, we are of the opinion that the proposal is a fair banking risk with rating AB-EA (overall Score 60.33). We recommend for sanction of working capital limits of Rs.400.00 Lacs (Rupees Four hundred lacs only) under “Service Power scheme” for a period of 12 months. Processing Fees: 1.00% of the sanctioned limit i.e. Rs.4,00,000/- plus applicable taxes. |

Certification – We have verified the credentials of the applicant. The applicant’s standing is good and we are of the view that this is a fair banking risk. To the best of our knowledge the information given above are correct and the valuation given by the valuer is reasonable. RBI instructions / Central Office instructions including instructions on documentation/ instructions of other regulatory authorities / local laws etc. have been / will be compiled with. Recommended by

DM (SME-CA) Sr Manager and Sales Manager AVP and CM(SME)

5.9 Terms & Conditions
M/S XYZ Industries (P) Ltd

Facility II | Bank Guarantee (Inland) | Amount | Rs. 350.00 Lacs (Rupees Three Hundred Fifty lacs Only) | Purpose | Performance Guarantee in lieu of advance/security deposits/ earnest money deposits in favour of Companies, government bodies for tenders or any other in connection with the engineering services in Oil, Gas and Power sector. | Security | Primary: i) Hypothecation of Current assets of the Company both present and future ii) Counter guarantee of the borrowerCollateral: Mortgage of the following commercial property: Land and building located at S.F.No/T.S.No/R.S No 211/1 of Kalletumkara, Adateri village, Mukundapuram Taluk, Thrissur/Kodakara, Door no Vi/ 54,55Near Apollo Tyres, Durgamba, Thrissur, Adateri Village owned by the company and admeasuring 68.27 cents (Land). Personal Guarantee: Mr. Vijay Kumar Mr. Ravi KumarMr. Shyam Kapur | Commission | As per Bank’s standard charges | Cash Margin | 20 % in the form of FDR duly discharged in Bank’s favour100% for disputed liabilities | Period | Maximum up to 36 months inclusive of claim period. | Other covenants | i. Guarantees to be executed in a format acceptable to the Bank and with quantum and duration of the liability clearly specified in unequivocal terms. ii. The guarantee should contain our usual limitation clause. iii. Opinion/status report on the overseas/domestic party shall be obtained, if found necessary by the Bank, at the cost of the borrower. iv. Commitments under the guarantee will be honoured by the borrower from its own resources. v. Guarantees should not contain any Onerous Clause. |

Facility II | Cash Credit | Limit | Rs.50.00 lacs (Rupees Fifty Lacs only). | Purpose | For working capital purpose | Period of sanction | One year | Rate of interest | Base Rate +3.25% i.e.13.50% p.a. payable at monthly rests. | Security | Primary: Hypothecation of Current assets of the Company both present and futureCollateral: Same as of BG Personal Guarantee: Same as of BG | Margin | Raw materials, stock in process, finished goods, stores & spares | 25.00% | | Book debts (upto 90 days) | 25.00% | Repayment | On Demand |

Other Terms & Condition Validity of sanction | The sanction shall be valid upto 3 months from date of sanction, during which time, the terms of the facility would have to be accepted by the Borrower. | Processing Fee | 1.00% of the sanctioned limit i.e. Rs.4.00 lacs plus applicable taxes | Inspection charges | As per Banks guidelines issued from time to time. | Mortgage charges | As per Bank’s standard charges | Security Creation | Upfront before disbursement of limits | Documentation charges | As per Bank’s standard charges | Documents | As per Bank’s standard set of documents under MSE Power Scheme. | Insurance | The charged security shall be comprehensively insured with Bank hypothecation clause. | Inspection | At quarterly intervals by the Bank at the cost of the firm. | Penal Interest | * Non-payment of interest / installment on the due date will attract penal interest @ 2.00% + applicable taxes on the overdue interest / installment. * Non-creation of security within stipulated time frame will attract penal charges @2.00% + applicable taxes. * Delay/non submission of stock statement/FFR will attract penal interest @ 2% p.a. from the date of default on the outstanding amount. | Basis of Valuation Finished GoodsBook-Debts | At Cost of Sales or Controlled Price or Market Price, whichever is lower.At invoice Value. | Stock Statement | To be submitted latest by the 07th of every quarter failing which penal interest to be applied @ 2% p.a. for delayed period.The value of unpaid stocks (e.g under LCs/purchased on credit) or slow moving stocks will not be considered for computation of drawing power.) | Other covenants | a) The borrower should undertake not to divert working capital funds for long- term purposes. b) The borrower will maintain its net working capital position equal to or above the levels furnished in its projections for working capital finance. In the event of difference of opinion arising as to what constitute current assets and current liabilities, the Bank’s decision will be final and binding on the borrower. c) The company is to route the entire transactions through our bank only. d) Board resolution for the credit facilities to be availed by the company to be obtained. e) Certificate of compliance with statutory obligations, wherever required is to be submitted from Chartered Accountant/ Company Secretary before disbursement’ f) The company is to close the credit limits with Federal Bank from its own funds and submit ‘No Dues Certificate’ before disbursement of limits. g) Company to submit the self-certified net worth certificate of Mr. O K Jose and Mr Shyam Kapur as on 31.03.2013 before disbursement of limits. h) Second valuation of the property to be done before disbursement of limits. i) Non-compliance of any terms of sanction shall attract penal charges of 2% plus taxes. j) If the total availment of the CC limit is less than 50% of the sanctioned limit, commitment charges of 0.50% (on the un-availed portion) will be levied. | General Covenants: a) Non-refundable (whether limits are availed or not) processing fees of 1% plus applicable taxes payable upfront. The fee may be paid by either of the following ways : * By cheque favouring Axis Bank - Processing fee A/c No: 1704149003114, or * By specific Debit Advice to the Bank for debiting the company's account maintained with the Bank and crediting Axis Bank - Processing fee A/c 1704149003114 b) The collateral security charged to the Bank to be comprehensively and adequately insured with the regular bank clause. The original policy to be deposited with the bank. c) Form 8 to be filed with ROC within 30 days of documentation. d) The Bank at its sole discretion may recall the entire advance upon any irregularity/ non-compliance of any of the terms and conditions or if any declaration/ statement/ information given by the firm at any time is found to be false or untrue or if any material information is suppressed. e) The Bank will have the right to examine the books of accounts of the firm and to have the offices/sites inspected from time to time by officers of the Bank and/or outside consultants. Any expenses incurred by the Bank in this regard will be borne by the firm. f) The Bank may at its sole discretion disclose such information to such institution(s) in connection with the credit facilities granted to the firm. g) During the currency of the Bank’s credit facilities, the company shall not, without the prior approval of the Bank in writing: - * Effect any major change in its capital structure. * Formulate any scheme of amalgamation/ reconstitution. * Invest by way of share capital in or lend or advance funds to or place deposits with any other concern. Normal trade credit or security deposits in the usual course of business or advances to employees, etc., are, however, not covered by this covenant. * Undertake guarantee obligations on behalf of another firm/ concern/ company, subsidiary * Grant loans to promoters/partners h) The company shall provide ancillary business wherever possible to the Bank such as CMS, Salary Accounts, credit card acquisition business, etc. i) The company should not make any drastic change in its management set up without the Bank’s permission j) The company will keep the Bank informed of the happening of any event, likely to have a substantial effect on their production, sales, profits, etc., such as labour problem, power cut, etc., and the remedial steps proposed to be taken by it. k) The company will keep the Bank advised of any circumstances adversely affecting the financial position of its subsidiaries/sister concerns (if any) including any action, taken by any creditor against any of the subsidiaries. l) In the event of the firm committing default in the repayment of dues or has any other irregularity, AXIS Bank shall have an unqualified right to disclose the names of the Borrower to the Reserve Bank of India (RBI)/CIBIL. The firm shall give its consent to AXIS Bank and/or to the RBI/CIBIL to publish its name as defaulter in such manner and through such medium as AXIS Bank in addition to and not in derogation of any other rights available under the Agreement or the General Conditions as the case may be. m) The company should furnish to the Bank, every year, two copies of audited financial statements immediately on being published/signed by the auditors. n) The company to complete all documentation and security creation formalities before release of credit facilities. o) Important events like suspension of activities; fire, troubles, strikes or any other event likely to affect the firm should be brought into the notice of the Bank explaining the reasons to such an eventuality and the steps taken to overcome it. p) The Processing Fees and Administrative fees are non-refundable and on application being rejected by the bank for any reason whatsoever, or the same being withdrawn by applicant the Bank shall not be entitled for refund of the same either in part or in full. q) The Bank reserves the right to get the loan rated by external agencies. The cost of the same shall be borne by the borrower. The borrower would extend necessary co-operation in this regard.

r) Pre-closure penalties of 2% p.a. of the sanctioned limit plus applicable taxes will be applicable if loan is taken over by some other bank/FI. s) The Bank reserves the right to revise the spread over Base Rate on the loan, i) If the Reserve Bank of India revises the standard provision on assets and/or ii) If the Reserve Bank of India enhances the risk weights for assets and/or iii) Any external rating agency downgrades the loan. t) The company shall be required to submit financial statements duly audited as and when completed. The reports/notices of the sales tax/income tax and/or any other reports/notices from any government authority/agency should also be produced for our verification. The firm will be also be required to submit any such information as may be asked by the Bank periodically and /or from time to time. u) The company is advised to route entire sales transactions through our account. v) The firm to obtain NOC from Axis Bank prior to starting any business banking relationship with any other / Financial Institution. w) The borrower should not pay any consideration by way of commission, brokerage, fees or in any other form to guarantors directly or indirectly. x) The interest per annum means interest for 365 days irrespective of leap year. y) The bank reserves and unconditional right to cancel the undrawn/unused/unavailed portion of the loan/facility sanctioned at any time during the currency of the loan/facility, without any notice to the borrower, for any reason whatsoever. z) As per RBI Master Circular No. DOBD.No.Dir.BC.13/13.03.00/2010-11 dated July 1, 2010, the directors /promoters of company to undertake that the directors/promoters of the borrowing company/concern are not related to any of the directors/senior officers of the Bank and if the declaration made by the borrower was found to be false, then the bank will be entitled to revoke and /or recall the credit facility. {) As per RBI Master Circular No. DOBD.No.Dir.BC.13/13.03.00/2010-11 dated July 1, 2010, the company to undertake that none of the director is a director or specified near relation of a director of a banking company.

6. Conclusion
SME department, which had a share of 15 % in the Bank’s asset book as on 31.3.2013, contributes significantly to the priority sector achievement of the Bank as also to the Bank’s profitability.

With the asset book of the Bank growing at a fast pace, there is a regulatory need to also grow the priority sector lending. In terms of RBI master circular No: RPCD.CO.Plan. BC. 13 /04.09.01/ 2012-13 dated 20th July, 2012 and RPCD.MSME & NFS.BC. No. 54/06.02.31/2012-13 dated December 31, 2012 the following regulatory prescriptions have to be complied with in respect of SME lending:

Segment | Regulatory target | Total priority sector | 40 per cent of Adjusted Net Bank Credit (ANBC) or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher. | Micro and Small Enterprises advances (MSE) | Advances to micro and small enterprises sector will be reckoned in computing performance under the overall priority sector target of 40 per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher. (i) 40 per cent of total advances to micro and small enterprises sector should go to micro (manufacturing) enterprises having investment in plant and machinery up to Rs 10lakh and micro (service) enterprises having investment in equipment up to Rs. 4lakh; (ii) (ii) 20 per cent of total advances to micro and small enterprises sector should go to micro (manufacturing) enterprises with investment in plant and machinery above Rs 10 lakh and up to Rs. 25 lakh, and micro (service) enterprises with investment in equipment above Rs. 4 lakh and up to Rs. 10 lakh. (Thus, 60 per cent of micro and small enterprises advances should go to the micro enterprises). |

Taking into account the above regulatory requirements, developments in the economy, the contribution of the department to the overall profitability of the Bank, and the vision for the department for 2015, the primary business goals have been fixed as under:

* Growth in asset level by 25 %, net of provisions / write offs

* Growth in fee based income by 29 %

* Cross selling of products of various SBUs in order to maximize ROE * Establish a sustainable model for delivery of loans under Priority Sector.

7. References

1. RBI Guidelines for MSME - http://rbidocs.rbi.org.in/rdocs/notification/PDFs/96010713MSFL.pdf 2. RBI guidelines on priority sector lending: http://rbidocs.rbi.org.in/rdocs/notification/PDFs/107010713PSLFL.pdf 3. Axis Bank, About Us, [Online], Available from: http://www.syndicatebank.in/scripts/aboutus.aspx [Accessed April 20, 2014] 4. Wikipedia: The Free Encyclopaedia, Axis Bank,[Online], Available from: http://en.wikipedia.org/wiki/Axis_Bank [Accessed April 20, 2014] 5. Wikipedia: The Free Encyclopaedia, Banking In India,[Online], Available from: http://en.wikipedia.org/wiki/Banking_in_India [Accessed April 23, 2014] 6. Sanjay Kumar Hansda for RBI, Nov 2013,Report on Trend and Progress of Banking in India 2012-13,[Online] Mumbai:JayantPrintery, Available from: http://www.rbi.org.in/scripts/AnnualPublications.aspx?head=Trend%20and%20Progress%20of%20Banking%20in%20India [Accessed April 28, 2014] 7. Axis Bank Corporate Credit Policy- 2013, by Credit Policy and Procedures Division, Risk Management Department, Corporate Office, Mumbai, [Circular] Jan 1, 2013, Mumbai. 8. Shyamala Gopinath, Deputy Governow, Reserve Bank of India at the IBA- Banking Frontiers International Conference on “Retail Banking Directions: Opportunities & Challenges”, [Online] Mumbai, May 28, 2005, Available from http://www.rbi.org.in/scripts/BS_SpeechesView.aspx?Id=198 [Accessed April 26, 2014] 9. Inaugural Address by Dr. K. C. Chakrabarty, Deputy Governor, Reserve Bank of India on "What, Why and How of Retail (Mass) Banking: Issues and Challenges", [Online] at Bank CEOs Roundtable organised by CAFRAL, Udaipur, October 2, 2013, Available from: http://www.rbi.org.in/scripts/BS_SpeechesView.aspx?id=84[Accessed April 30, 2014] 10. Axis Bank, Loan Products, [Online], Available from: http://www.axisbank.com/personal/loans/loans.aspx [Accessed May 8, 2014] 11. HDFC Bank, Loan Products, [Online], Available from http://www.hdfcbank.com/personal/products/loans [Accessed May 8, 2014] 12. SBI, Products, [Online], Available from: https://www.sbi.co.in [Accessed May 9, 2014] 13. RBI,Banking - Frequently Asked Questions, [Online], Available from: http://www.rbi.org.in/scripts/FAQDisplay.aspx?dId=49 [Accessed April 20, 2014] 14. ICRA, Rating & Current Scenario in Industry Profile, [Online], Available from: http://www.icra.in/rating.aspx?ck=Al1zZU0jCxnnNzwL5uegv51SunCAzjibP90119011LmJ/6f51frNv4O20q817AT6vj7uD7zgB5S7SpB90119011BsvYRThFKdceSw5wtMJoS7TCRCwkxWOcj89rMclWC/tTXvdrc/Ibusm [Accessed May 12, 2014]