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Credit Application

Essay by   •  January 29, 2011  •  5,970 Words (24 Pages)  •  1,300 Views

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CREDIT APPLICATION

(cover page)

BORROWER Bajaj Electricals Ltd.

BRANCH

DATE OF C.A.

C.A. REFERENCE NO.

CUSTOMER ID

RELATIONSHIP MANAGER

APPROVING CREDIT COMMITTEE * IA / IB / II / III / IV / Board

DATE OF DISPOSAL BY C.C. *

NATURE OF DISPOSAL * Approved as recommended / Approved with modifications / Deferred / Declined

RESOLUTION REFERENCE NO. *

REPORTED TO NEXT LEVEL ON *

IDBI BANK LTD

RECOMMENDATION *

REGIONAL HEAD / CORPORATE BANKING, CORPORATE OFFICE

RECOMMENDATION OF RH:

BAJAJ Electricals is a white goods company working under BAJAJ group. It has a good growth prospects with expected turnover of Rs. 2000 Crores by FY10. Turnover of the company is expected to grow at more than 25%. The company has a good credit history. It is planning some acquisitions and major expansions in future years and may need loans for the same. Liquidity conditions of the company are good. The White Goods Consumer Durables industry was one of the few industries which grew even in the period of recession and is also expected to have good growth in future years.

Considering the same, we propose giving loans to the company in terms of Project Finance to finance expansion of the acquired company, Letter of Credit to finance Fixed Assets purchase and Bank Guarantee to finance future projects

ADDITIONAL CONDITIONS PROPOSED BY RH:

As we are not in the consortium of the company’s banks, we will give a limited exposure to the company and give secured loans.

(REGIONAL HEAD)

RECOMMENDATION OF CB, CO:

ADDITIONAL CONDITIONS PROPOSED BY CB, CO:

(CORP BKG, CO)

OBSERVATIONS OF CORPORATE RISK *

INDUSTRY SPECIFIC:

The consumer durables industry is affected by the income levels and the affordability of the goods. The consumer durables has been growing with the economy given the rising income levels in the urban and semi-urban parts of the nation. The industry does not face any immediate danger because of steadily rising levels in the country. The stress on the infrastructure and electrification of roads and villages is fuelling many large scale lighting and lamination projects. The industry is though exposed to the risk of the government withdrawing funding to various infrastructure projects. Though this seems highly unlikely, given the political implications of these.

BORROWER RELATED:

Though company has been doing good in the past, it has never set unrealistic goals for itself. It is making profit in an industry where most of the other players are incurring losses. If we go by this, it has been fair in meeting its conservative sales and profit projections.

BIPL has recently bagged an order of 120,000 ceiling fans order for Iraq Government. Apart, it has sole over 50000 fans in retail market there. An US$ 1.3 Million Order received from a reputed brand for their Middle East Market for Ceiling Fans & Fluorescent Tube Lights (FTL). It has in this way tried to minimize sale fluctuations by entering into long term contracts.

CREDIT STRUCTURING:

The debt to equity ratio shows that the relative contribution of creditors (including banks) is more as compared to the promoters. As this value has increased over the previous year, we as creditors will enjoy a lower degree of protection. However, we have to keep in mind that the book value of equity as the assets considered are taken as :

Equity = Par value * No. of outstanding shares

However as the loans taken out are short term loans as well as long term (in equal percentage), which are all protected by charges on specific assets, the creditors still enjoy a high degree of protection. Most long term loans are secured against fixed assets in specific plant locations while short term loans are protected by stock of inventories as well as current assets.

CREDIT POLICY COMPLIANCE:

It has never been involved with any contract failure obligations or any obligation for that matter. It has recently made a bonus issue, issued interim dividend to its shareholders.

PROPOSAL

FACILITY

FB:

CC/WCDL/STL/FCNR (B)/EPC

Term Loan

Unsecured Loans

Total FB

NFB

Bank Guarantee

LC

Total NFB Outstanding

115

55

65

235

...

...

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