The following is a great post from Mr.Prakash P. Joshi. I am very thankful to him for his great effort behind creating this article. You can contact him on ppj_2001@yahoo.com
PROPOSAL (OFFER) ABOUT CREDIT MONITORING OF LARGE BORROWERS’ “STANDARD” ACCOUNTS OF THE BANK.
Once, the Sanctioned Loan / Limit(s) is / are fully disbursed / released the Bank has a critical responsibility to oversee and ensure that at least all the “Large Borrowers’ Accounts” remains as “Standard” category during the currency of its exposure to receive smooth and regular income by way of Interest and other charges/fees etc.. Along with timely repayment of “Principal” (if, any). Further, the various Working Capital Limits [Fund + Non Fund based] are also mandatorily required to be reviewed / renewed once in a year on regular basis. Though, prima facie, this task appears to be of routine nature, it needs to be carried out very carefully and in a time bound manner. Further, the Borrowers’ accounts particularly having various Working Capital exposures are required to be monitored cautiously for keeping a proper control on its day to day transactions so as to ensure that operations therein are carried out in a most desirable manner. Stress and problem signals / symptoms (if, any) are to be understood and picked up quickly to diagnose the gravity and the reasons thereof and for taking suitable corrective remedial
action on the part of the Bank.
Though, theoretically, this appears to be very simple but in real practice this proves to be a very complex and time consuming ongoing responsibility on the part of a Banker who at times has equal or more responsibilities to handle on priority basis. Hence, even though the urge to do so is unable to give proper and timely justice to this task in day to day activities.
In order to make this important task easy, effective, meaningful, economical and speedy for the Bank, our Company has developed a very efficient and useful “System & Procedure” which, we hereby offer you for the benefit of the Bank. We request you to go thru it and offer your Valuable opinion / comments / suggestions.
The brief highlighted details of the same are enumerated and explained below. We can also alter / amend / modify it exactly as per your specific requirements and thus can be just tailor-made suitable for your Bank, if required.
BRIEF HIGHLIGHTED DETAILS OF MODUS OPERANDI
With the Co-operation of the Branch Head / Manager and other field functionaries we can together implement a suitable “System & Procedure” whereby, the controlling Head Office can get a precise jist of the monthly transactions’ affairs of the borrowers’ account pertaining to the previous calendar month. Given the predetermined set benchmarks a factual score sheet can be prepared which interalia will reflect / display a precise but comprehensive & meaningful picture of the state of affairs / transactions pertaining to the day to day running especially pertaining to Working Capital Limit(s) A / Cs of the Borrower. Aberrations / Variances / Stress signals (if, any) vis-à-vis predetermined set benchmarks gets highlighted and reported in time. The entire ongoing exercise enables a Banker to take suitable decision quickly and effectively. The facts / data / information in a prescribed “format” is forwarded & presented in a very compact but meaningful manner with our independent, unbiased and critical comments / opinion for the perusal of the decision making higher Authorities.
Further more, many a times, while undertaking annual review / renewal of various Working Capital Limits an attempt is made to assign suitable “ Credit Rating” to the borrowers’ Account for ascertaining “Credit Risk” and thus for deciding % ROI p.a. to be made applicable {being of a floating nature}. The said exercise amongst other factors is mainly based on two major factors i.e.
(1) Financial performance results of the borrower under the period of review, as on the previous last Financial Year’s Audited Annual Accounts and the various important “Ratios” reflected therefrom e.g. Current / Quick Ratio, DER, TOL: TNW Ratio, Sundry [trade] Debtors / Creditors Velocity Ratio, Stock Turnover Ratio, GP to Sales Ratio, NPBT & NPAT to Sales Ratio, Return on Capital / Total Funds Employed etc.. to name a few.
Further, by analyzing two consecutive F. Ys Balance Sheets [i.e. data pertaining to three consecutive F.Ys. ending] an attempt is also made to ascertain whether short term funds (sources) have been utilized for long term purposes creating an age wise mismatch in funds flow.
(2) Overall experience of the Bank about the day to day conduct of the borrowers’ account and the style of functioning, whether the borrower has been observing in various desirable ways financial disciplines etc... under the period of review. All these parameters are taken in to consideration & observed at the time of annual review / renewal exercise.
To facilitate all the above our Company has developed useful “System & Procedure” for implementing ongoing overall control, monitoring and assessment purpose on monthly basis, the jist of which is given below: ---
[We presume that Working Capital exposure; especially Cash Credit Limit against hypothecation of Stocks & Book Debts is more vulnerable and needs special attention on regular basis.]
We especially would like to REPORT on regular monthly basis as follows.
1) Record of frequency and reasons for forced Over Limit / Excess Drawals / Withdrawals Against Effects.
2) Record of repayment and servicing of Principal and Interest thru C/C limit A/C on Term Loan(s) if also, availed by the borrower.
3) Regularity of servicing of Interest thru C/C Limit A/c on Working Capital Limits enjoyed by the borrower.
4) “Average” utilization of Sanctioned C/C Limit(s).
5) Turnover as reflected in the Cash Credit Account vis-à-vis reported Sales turnover against estimated / projected one.
6) Record and reasons for Inward / Outward Return of Cheques.
7) End uses of Funds mend for Working Capital.
8) Unusually large Debit / Credit Cash transactions in the A/C.
9) Regularity and correctness in submission of “Stocks & Book Debts” Statements for calculation of Drawing Power for control purpose.
10) “Insurance” of Securities, (with Bank clause) charged to the Bank.
11) Record (if, any) of devolvement of L/Cs, invocation of BGs, non payment of Bills on due dates etc…
12) Temporary Over Limit(s) / Adhoc Additional Limit(s) not regularized in time, as per Sanctioned terms & condition.
13) Whether, there is a frequent & persistent wide gap between Sanctioned Limit and month to month Drawing Power available in the A/C for control purpose.
14) Importantly, whether operations in the A/C are kept well within Sanctioned Limit or Drawing Power whichever is less, on month to month basis.
15) Whether QIS / MSOD Statements (if, required) are being submitted regularly.
16) Whether Application with CMA data, complete and correct in all respect for the purpose of annual review / renewal of the various Working Capital facilities is being submitted well in time before due date.
17) Whether certified copy of the Annual Audited Accounts with all the relevant Annexure & Schedules etc. is being submitted in time.
18) Verify & confirm that the “Valuation Report(s)” obtained from the Approved Panel Valuers of the Bank{ in respect of immovable Assets / Properties ‘charged’ to the Bank}is/are not time barred [generally, the Valuation Report is considered as valid for a period of three(3) years from the date of actual valuation]
19) Any other, as specifically desired by the Bank.
It may be stated that most of the above items {fine tuned details & nitty gritties under each above items are many} are required to be monitored on regular monthly basis which, our developed “System” will easily facilitate very effectively.
Also, if specifically desired by you we shall, once in a year, on your behalf, also undertake to visit the Factory / Plant / Godown / Shop / Office of the borrower {not exactly for Stock Audit purpose} to ascertain the overall state of affairs touching various areas and submit our comprehensive visit “Report” preferably just prior to the Annual Review / Renewal of the facilities.
We undertake and ensure to handle the entire matter in a most appropriate manner in confidence, without any bias / prejudice.
AREA OF OUR OPERATIONS
Presently Mumbai Zone comprising of geographical territory falling between Colaba to Virar / Khopoli (via Karjat) / Kasara / Panvel i.e. where presently local suburban train services are available. {This may, in future, extend up to Dahanu Road also}
OUR PROFESSIONAL CHARGES [As lump sum in advance please!]
A] Rs. 24,000/-{Rupees Twenty Four Thousand only} [Yearly] per case (proposal) for the various Loan\Credit Limit(s) totally comprising up to Rupees 500.00 Lakhs.
B] Rs. 30,000/-{Rupees Thirty Thousand only} [Yearly] per case (proposal) for the various Loan\Credit Limit(s) totally comprising over Rupees 500.00 Lakhs.
[However, if, in a particular local case (proposal) it is felt necessary to visit outside the aforesaid mentioned area, we reasonably expect that the Bank will facilitate & arrange to provide the needful inputs to us in an appropriate manner]
TIME FRAME FOR SUBMISSION OF OUR MONTHLY “REPORT”PER BORROWER’S ACCOUNT
By and within Ten (10) working days in the next month, pertaining to the period of previous calendar month provided, we get complete inputs from the field functionaries at Branches within three (3) working days in the beginning of the month. However, please consider to give more time if the delay is due to some unavoidable / unforeseen circumstances and uncontrollable reason(s).
WE NOW LOOK FORWARD FOR OUR LONG TERM RELATIONS FOR OUR MUTUAL BENEFITS
THANK YOU!
