1. Industry Profile
Introduction
Without a sound and effective banking system in India it cannot have a
healthy economy. The banking system of India should not only be hassle free but it
should be able to meet new challenges posed by the technology and any other
external and internal factors. Banking in India has its origin as early as Vedic
Period. It is believed that the transition from money lending to banking must have
occurred even before Manu, the great Hindu Jurist who has devoted a section of his
work to deposits and advances and laid down the rules relating to rates of interest.
During the days of East India Company it was the turn of the agency houses to
carry on the banking business.
History
The banking system of India should not only be hassle free but it should be
able to meet new challenges posed by the technology and any other external and
internal factors. For the past three decades India's banking system has several
outstanding achievements to its credit. The most striking is its extensive reach. It is
no longer confined to only metropolitans or cosmopolitans in India. In fact, Indian
banking system has reached even to the remote corners of the country. The first
bank in India, though conservative, was established in 1786. From 1786 till today,
the journey of Indian Banking System can be segregated into three distinct phases.
They are as mentioned below:
 Early phase from 1786 to 1969 of Indian Banks
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2.  Nationalisation of Indian Banks and up to 1991 prior to Indian
banking sector Reforms.
 New phase of Indian Banking System with the advent of Indian
Financial & Banking Sector Reforms after 1991.
Phase I
The General Bank of India was set up in the year 1786. Next came Bank of
Hindustan and Bengal Bank. The East India Company established Bank of Bengal
(1809), Bank of Bombay (1840) and Bank of Madras (1843) as independent units
and called it Presidency Banks.
These three banks were amalgamated in 1920 and Imperial Bank of India
was established which started as private shareholders banks, mostly Europeans
shareholders. In 1865 Allahabad Bank was established and first time exclusively
by Indians, Punjab National Bank Ltd. was set up in 1894 with headquarters at
Lahore. Between 1906 and 1913, Bank of India, Central Bank of India, Bank of
Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up. Reserve
Bank of India came in 1935.
During the first phase the growth was very slow and banks also experienced
periodic failures between 1913 and 1948. There were approximately 1100 banks,
mostly small. To streamline the functioning and activities of commercial banks, the
Government of India came up with The Banking Companies Act, 1949 which was
later changed to Banking Regulation Act 1949 as per amending Act of 1965.
Phase II
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3. Government took major steps in this Indian Banking Sector Reform after
independence. In 1955, it nationalised Imperial Bank of India with extensive
banking facilities on a large scale specially in rural and semi-urban areas. It formed
State Bank of india to act as the principal agent of RBI and to handle banking
transactions of the Union and State Governments all over the country.
By the 1960s, the Indian banking industry has become an important tool to
facilitate the development of the Indian economy. At the same time, it has emerged
as a large employer, and a debate has ensued about the possibility to nationalise the
banking industry. Indira Gandhi, the-then Prime Minister of India expressed the
intention of the GOI in the annual conference of the All India Congress Meeting.
Seven banks forming subsidiary of State Bank of India was nationalised in 1960 on
19th July, 1969, major process of nationalisation was carried out.
A second dose of nationalization of 6 more commercial banks followed in
1980. The stated reason for the nationalization was to give the government more
control of credit delivery. With the second dose of nationalization, the GOI
controlled around 91% of the banking business of India. Later on, in the year 1993,
the government merged New Bank of India with Punjab National Bank. It was the
only merger between nationalized banks and resulted in the reduction of the
number of nationalised banks from 20 to 19.
Phase III
This phase has introduced many more products and facilities in the banking
sector in its reforms measure. In 1991, under the chairmanship of M Narasimham,
a committee was set up by his name which worked for the liberalisation of banking
practices.
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4. The country is flooded with foreign banks and their ATM stations. Efforts
are being put to give a satisfactory service to customers. Phone banking and net
banking is introduced. The entire system became more convenient and swift. Time
is given more importance than money.
The financial system of India has shown a great deal of resilience. It is
sheltered from any crisis triggered by any external macroeconomics shock as other
East Asian Countries suffered. This is all due to a flexible exchange rate regime,
the foreign reserves are high, the capital account is not yet fully convertible, and
banks and their customers have limited foreign exchange exposure.
Liberalisation
In the early 1990s, the then Narsimha Rao government embarked on a policy
of liberalisation, licensing a small number of private banks. These came to be
known as New Generation tech-savvy banks and included Global Trust Bank. This
move, along with the rapid growth in the economy of India, revitalized the banking
sector in India, which has seen rapid growth with strong contribution from all the
three sectors of banks, namely, government banks, private banks and foreign
banks.
The next stage for the Indian banking has been setup with the proposed
relaxation in the norms for Foreign Direct Investment, where all Foreign Investors
in banks may be given voting rights which could exceed the present cap of 10%,at
present it has gone up to 49% with some restrictions. Currently, banking in India is
generally fairly mature in terms of supply, product range and reach-even though
reach in rural India still remains a challenge for the private sector and foreign
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5. banks. In terms of quality of assets and capital adequacy, Indian banks are
considered to have clean, strong and transparent balance sheets relative to other
banks in comparable economies in its region. With the growth in the Indian
economy expected to be strong for quite some time-especially in its services
sector-the demand for banking services, especially retail banking, mortgages and
investment services are expected to be strong. One may also expect M&A,
takeovers, and asset sales. In March 2006, the Reserve Bank of India allowed
Warburg Pincus to increase its stake in Kotak Mahindra Bank (a private sector
bank) to 10%. This is the first time an investor has been allowed to hold more than
5% in a private sector bank since the RBI announced norms in 2005 that any stake
exceeding 5% in the private sector banks would need to be vetted by them.
Indian Banking system
The Indian Banking Industry can be categorized into non-scheduled banks
and scheduled banks. Scheduled banks constitute of commercial banks and co-
operative banks. There are about 67,000 branches of Scheduled banks spread
across India. As far as the present scenario is concerned the banking industry in
India is in a transition phase. The Public Sector Banks (Pubs), which are the
foundation of the Indian Banking system account for more than 78 per cent of total
banking industry assets. Unfortunately they are burdened with excessive Non
Performing assets (NPAs), massive manpower and lack of modern technology.
On the other hand the Private Sector Banks are witnessing immense
progress. They are leaders in Internet banking, mobile banking, phone banking,
ATMs. On the other hand the Public Sector Banks are still facing the problem of
unhappy employees. There has been a decrease of 20 percent in the employee
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6. strength of the private sector in the wake of the Voluntary Retirement Schemes
(VRS). As far as foreign banks are concerned they are likely to succeed in India
Reserve Bank of India
Commercial Banks Regional Rural Banks Co-operative Banks
Public Sector Private Sector
Banks Banks
State Co-operative
Banks
Indian Banks Foreign Banks
Central Co-operative
Banks
State Bank Nationalized
Group Banks
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7. State Bank of India Associate Banks Primary Credit
Indusland Bank was the first private bank to be set up in India. IDBI, ING
Vyasa Bank, SBI Commercial and International Bank Ltd, Dhanalakshmi Bank
Ltd, Karur Vysya Bank Ltd, Bank of Rajasthan Ltd etc are some Private Sector
Banks. Banks from the Public Sector include Punjab National bank, Vijaya Bank,
UCO Bank, Oriental Bank, Allahabad Bank, Andhra Bank etc.
ANZ Grindlays Bank, ABN-AMRO Bank, American Express Bank Ltd;
Citibank etc are some foreign banks operating in India.
Commercial banks
Commercial banks have been in existence for many decades. Commercial
Banks mobilize savings in urban areas and make them available to large and small
individual and trading units mainly for Working Capital requirements. After1969,
Commercial Banks are broadly classified into nationalized public sector banks and
private sector banks. The State Bank of India and its associate Banks along with
another 20 banks are the public sector banks. The private sector banks include a
small number of Indian Scheduled banks which have not been nationalized.
Public Sector Banks
Public sector banks are those which are owned by the Central Government
either directly or through the Reserve Bank of India. They are also known as
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8. Nationalised Banks. Eg: State Bank of India and its subsidiaries, Allahabad Bank,
Corporation Bank, Vijaya Bank, Canara Bank, Bank of Baroda, Punjab National
Bank, Syndicate Bank, the Oriental Bank of Commerce.
Private Sector Banks
Private Sector banks are those which are owned and controlled by private
entrepreneurs. Private sector banks are classified as Private sector Indian Banks
and Private Sector Foriegn banks.
Private Sector India Banks are those which are owned and controlled by
Indian Entrepreneurs. Indusland Bank was the first private bank to be set up in
Inda. IDBI, ING Vyasa Bank, HDFC Bank, ICICI Bank, UTI Bank (Now Axis
Bank), Centurion Bank.
Private sector Forign Banks are those which are owned and controlled by
foreign entrepreneurs. ANZ Grindlays Bank, ABN-AMRO Bank, American
Express Bank Ltd; Citibank etc are some foreign banks operating in India
Regional Rural Banks
The Regional Rural Banks (RRB) came into existence since the middle of
1970‟s with the specific objective of providing credit and deposit facilities
particularly to the small and marginal farmers, agricultural laborers and artisans
and small entrepreneurs.
Co-operative banks
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9. In India, co-operative Banks has assigned an important role in the
development of vital areas such as agriculture, rural and small-scale industry, retail
distribution; housing etc. the co-operative banking sector has been developed in the
country to replace the village moneylenders. They also promote savings of the
farmers and meet their credit needs for cultivation. The co-operative banking
sectors are not only in rural areas but now they have spread to urban areas also.
Scheduled banks and non-scheduled banks
Under the RBI Act, 1934, banks were classified as Scheduled banks and
non-scheduled banks. the scheduled banks are those which have are included in the
schedule(second)of RBI Act,1934.these banks have a paid up capital and reserves
of an aggregate value of not less than Rs.5 lakhs and which satisfy RBI that their
affairs are carried out in the interest of their depositors. Scheduled Banks comprise
commercial banks and the cooperative banks, In terms of ownership, Commercial
banks can be further grouped into nationalized banks, the State Bank of India and
its group banks, Regional Rural Banks and Private sector Banks (old, new,
domestic and foreign).These banks have over 67,000 branches spread across the
country. Non-scheduled banks are those which have not been included in the
second schedule of RBI Act, 1934.at present, there are three non-scheduled banks
in India.
Company Profile
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10. Corporation Bank is one of the oldest Banking Institutions in the Dakshina
Kannada district of Karnataka and one of the oldest banks in India. As the saying
goes on “A thousand mile journey starts with small step”. A step was taken by Shri
Khan Bahadur Haji Abdullha Haji Kasim Saheb Bahadur, a businessman of Udupi
way back on the 12th of March 1906 with a group of philanthropist founded the
„Canara Banking Corporation of Udupi Limited‟.
A handful of people representing the various interests decided to
promote the „Canara Banking Corporation of Udupi Limited‟. Eleven persons who
included 4 pleaders, 2 educationist, 1 insurance agent and 1 retired sub magistrate
where the first signatories of the Articles of Association and Memorandum of
Association of the bank who had in all 111 shares.
The need to start this bank was felt because there was no such facility at
Udupi, an important trading centre next to Manglore in Dakshin Kannada district.
The indigenous banking was largely in the hands of few rich private individuals
and some thing had to be done to provide relief to the common man from the
clutches of the money lenders who held fully swey. What inspired the founding
fathers was the fervor of swadeshism, for promoting the bank, the founder
president made an appeal saying, the primary object in forming the „Corporation
Bank‟ is not only to cultivate habit of thrifts amongst all classes of people, without
distinction of the cast or creed, but also habit of co-operation amongst all classes.
This is swadeshism, pure and simple and every lover of the country is expected to
come forward and co-operate in achieving the end in view. It was called through
co-operation of all, shorn of distinction of caste and creed “ The Canara Banking
Corporation Limited” as the institution was called then, started functioning as a
“Nidhi” with a humble beginning. The initial capital was Rs 5000.
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11. Corporation Bank which was founded in 1906 and today it is a “100 year
young bank”. The bank had its origin in the temple town, Udupi which was then a
part of Dakshin Kannada district. The credit of introducing the bank goes to the
Canara Banking Corporation of Udupi Limeted. Corporation Bank is a public
sector bank which has been silently creating waves among the domestic banks in
India. It is one of the Nationalised Banks in India.
The bank withstood the challenges of the financial sector reforms and has
emerged as the one of the financially and fundamentally strong, well capitalised,
technological sophisticated, efficient, effective and one of the most profitable bank
in India.
In the year 1952, Corporation Bank became the third bank in the country to
receive license from the Reserve Bank of India as „Scheduled Bank‟. In the year
1961, the bank of citizens was merged with the Corporation Bank. It was
nationalised in April 1980, which triggered the growth of the bank in terms of
geographical reach and business volumes. The name of the bank was changed from
Canara Banking Corporation of Udupi Limited to Corporation Bank in the year
1973 and the corporate office of the bank was shifted to Manglore.
Corporate Vision
“To evolve into a strong, sound and globally competitive financial system,
providing integrated services to customers from all segments, leveraging on
technology and human resources, adopting the best accounting and ethical
practices and fulfilling corporate and social responsibilities towards all stake
holders.”
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12. Corporate Mission
 To become a provider of World-Class financial services.
 To meet customer expectations trough innovation and technological
initiatives.
 To emerge as a role model with distinct culture identity, ethical values
and good corporate governance.
 To enhance share holder‟s wealth by sustained, profitable and
financially sound growth with prudent risk management systems.
 To fulfill national and social obligation as responsible corporate
citizen.
 To create environment, intellectually satisfying and professionally
rewarding to the employees.
Service Profile
The Corporation Bank will provide the different services with CARE
approach to the customer‟s. The service profile of the Corporation Bank is as
follows:
Personal Products
a. Deposit Products
i. Corp Pragathi Account: The account can be opened with an initial deposit of
Rs 10/- and will provide the account holder the basic banking facilities. No
penalty will be levied even if the balance in the account drops below Rs 10.
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13. ii. Centenary Year Gold coin: It is 8gm Centenary Year Gold coin of 999.9
purity, 24 carat. This gold coin is available at Corp Bank branches in select
cities across India to individuals or retailers at a competitive price.
iii. Saving Bank: Corp Bank SB account holder will get the facilities like any
Branch banking. Corp power cheque, Corp convenience card, Corp junior
account, Corp senior account.
iv. Kshemanidhi Cash Certificates: KCC is a money multiplier deposit. It is a
reinvestment Term Deposit scheme that can be opened for a period ranging
from 6 months to 10 years. The rate of interest depends on the period of deposit.
v. Money Flex: The flexible term deposit- it allows the customer to withdraw
money whenever he/she wants. The deposit can be made for a period ranging
from 6 to 120 months. The minimum deposit is Rs 5000.
vi. Fixed Deposit: The deposit can be made for period ranging from 15 days to 10
years. The rate interest depends on the period of deposit.
vii. Corp classic: It is an innovative technology-based account that combines
the hi-liquidity of a savings bank account and the high-returns of a Terms
deposit. The account works simply by fixing by fixing your savings from a
savings bank account to a term deposit and vice versa.
viii. Recurring Deposit: Best suite to the salaried class, the customer can save a
fixed sum every month for a period ranging from 12 months to 120 months.
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14. ix. Janatha Deposit: This deposit is for a period from 1 to 5. Our collection agent
will call at customers place to collect your savings at regular intervals even
daily.
b. Personal Loans Products
i. Corp Plus: It is a loan facility to meet the short term financial requirement.
This loan can be availed by professionals having gross income of Rs 80000 p.a.
The loan amount will be limited to the extent of 25% of borrower‟s net annual
income.
ii. Corp Rental: The loan may be availed for any productive purpose such as
taking up new projects, business or to meet domestic/personal/any other
commitments. The minimum loan amount is Rs 5 lakh.
iii. Education Loan: Under this scheme the bank finances the financial
requirements of the student for higher studies.
iv. Consumer Loan: This is a financial arrangement to finance the purchase of
consumer durables. This loan can be availed to any person having an income of
Rs 50000 p.a.
v. Home Loan + Insurance: Corp bank in association with the life insurance
corporation of India gives life insurance cover to the housing loan taken by the
customers. Maximum term assure under the scheme will be 3 years.
vi. Vehicle Loan: Corp Mobile offers the customer easiest motor cycle/car loans
with absolutely no hassles.
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15. vii. Corp Mortgage: Under this scheme an individual can avail a loan minimum
of Rs 1 lakh and maximum of Rs 25 lakh by mortgaging an asset as security.
viii. Other Personal loan Products: Corporation bank also offers few more
personal loan products such as Corp Mitra, Loan against shares and Corp Home
etc.
c. Corporate Products
Corporation Bank offers several corporate banking services. The bank offers
unique services tailor- made for the requirement of Corporate and large business
houses as well as small and medium enterprises.
i. Corp Fast: Corp fast is an innovative solution which facilities speedy
realization of outstation cheques and instruments using latest communication
technology.
ii. Project Finance: Corp Bank also finances the financial requirements for
certain projects on the basis of economic a technical feasibility of the project.
iii. Corp Rental: This facility helps the customer to encash the rent receivable
from the commercial properties.
iv. Forex: Corp Bank also offers Forex services to its customers.
v. Working capital: Corp Bank also provides the short term financial facility to
finance the working capital requirements.
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16. vi. Term Finance: The bank extends term loans for capital investment being made
by the clients on account of expansion of existing enterprises for establishment
of a new enterprise.
d. NRI Schemes
i. Corp Express Money: The bank has entered into a tie up with UAE Exchange
Center LLC for facilitating global money transfers into India from Gulf region.
With a view to facilitating the NRIs in the Gulf and Middle East to transfer their
earnings back home swiftly.
ii. NRI Loans: Corp bank is granting loans in rupees to NRIs against security of
shares, immovable property in India corp. It also provides housing loans to
NRIs.
iii. Forex Facility for Residents: Indian residents can get foreign exchange
assistance from Corporation bank for study in abroad, foreign travel, purchase
of air tickets and investments.
e. Internet Banking
i. Corp-E-cheque: It is an innovative product developed by Corp bank by
combining the power of Corp net the bank‟s Internet Banking Services with
EFT scheme.
ii. Corp Net: In the niche area of collection and payment services Corp bank has a
leadership presence in the country and caters exclusively to the cash
management requirements of the corporate.
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17. f. Other Services
i. Online Railway Reservation: The Bank has entered into a tie up with the
Indian railway catering and tourism corporation for online booking of railway
tickets.
ii. Corp Mediclaim: This is a group medical claim insurance offered by the Corp
Bank to its account holders. This product has been devised to meet the medical
insurance needs of banks customer.
iii. Corp Junior: It enables parents whose children are studying away from them
to remit money at periodic intervals in a hassle free manner.
iv. Corp Mobile Recharge: Electronic Recharge of pre-pad mobile phones is a
facility which customers having prepaid mobile phones to electronically
recharge their mobile phones cards by debiting their account through Corp bank
ATMs or through SMS from their mobile phones.
v. Corp Bullet RTGS Facility: It is a remittance facility, which enables customer
to transfer funds to anybody anywhere within India. The facility works on the
Real Time Gross Settlement (RTGS) platform developed by the RBI.
vi. Corp Power cheque Multi city cheque Facility: Multi city cheque is a facility
wherein the customer can issue cheques drawn at the base branch and payable
at selected remote centers. This cheques will thus, be treated as local cheques in
the remote center selected by the customer.
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18. Financial Results of the Bank
Table No 1: Financial Results of the Bank
(Rs in crores)
Particulars 31st 31st 31st
March March March
2006 2007 2008
Interest Earned 2659.69
Other income 461.34 3367.53 4516.58
Total Income 3121.03
635.57 702.08
Interest Expended 1413.88
Operating Expenses 751.05
4003.10 5218.16
Total Expenditure 2164.93
Operating Profit before provision 956.10 2054.46 3063.09
and
contingencies 283.88 804.47 892.26
Provisions (other than tax)
672.22 3955.35
PBT 229.22 2858.93
1263.31
Tax
443.00 1144.17
PAT 185.74
323.46
143.44 1077.57
Capital 3231.45 820.71 327.16
Reserves 32876.53 304.57
750.41
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19. Deposits 23962.43 516.19
Advances 10651.99
143.44
Investment
4139.78
143.44
55424.42
3622.01
39185.57
42356.89
16512.38
29949.65
14417.49
Key Ratios
Table No 2: Ratio analysis of Bank
Particulars 31st 31st 31st
March march March
2006 2007 2008
Capital Adequate Ratio (%) 13.92 12.26 12.09
Return on Avg Asset (%) 1.28 1.16 1.34
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20. Return on Equity (%) 13.12 13.71 17.51
Earnings per Share (Rs) 30.89 35.98 52.31
Book Value per Share (Rs) 235.29 262.51 294.79
Yield Spread 3.56 3.08 2.71
Non-interest income to total income 14.78 15.87 13.45
Gross NPA to Gross Advances 2.56 2.05 1.49
Ratio Analysis
1. Capital Adequacy Ratio
Capital adequacy ratio is the ratio that signifies the amount of capital on
Risk Weigted Asset of the Bank.
Chart No 1: Capital Adequacy Ratio
Capital Adequacy Ratio
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13.5
13
12.5
12
11.5
11
2006 2007 2008
The banks should have 9% capital adequacy ratio, the corporation bank has
much more than the standerd rate. Even the ratio is decreasing it is above the
standerd.
2. Return on Average Asset
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21. Return on average asset signifies that the ratio between net profit after
interest and tax to the average asset utilised by the bank to earn the returns.
Profit after Tax
Return on Average Asset = 100
Average Asset
Chart No 2: Return on Average Asset
Return on Avg Asset
1.35
1.3
1.25
1.2
1.15
1.1
1.05
2006 2007 2008
In the year 2006 the ratio was 1.28, but in the year 20 07 there was decrease
in the ratio. But in the year 2008 it goes to 1.34. It clearly shows that there is
increase in the returns. In the year 2008 there is only 25.5% increase in the asset
but there is a 45% increase in the returns.
3. Return on Equity
Return on equity shows the relationship between profit earned and equity.
Chart No 3: Return on Equity
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22. Return on Equity
20
15
10
5
0
2006 2007 2008
Profit after Tax
Return on Equity = 100
Equity + Reserves
Return on equity is increasing every year. The ratio is 13.12, 13.71 and
17.51 in the year of 2006, 2007 and 2008 respectively. There is increase of 45% in
returns against only 13% increase in the equity.
4. Earnings per Share
Earnings per share signify that the earnings available for the each share held
by the shareholder.
Profit after Tax
Return on Equity = 100
No of shares
Chart No 4: Earnings per Share
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23. Earnings per Share
60
50
40
30
20
10
0
2006 2007 2008
The ratio is increasing year by year. That shows the bank is earning
sufficient funds to its shareholders. From 2006 – 2008 the ratio has almost
increased by 70%, this is good indicator for its shareholders of the Bank.
5. Book value per Share
Book value per share signifies the value of the book of each equity share of
the bank. Book value consists of equity share capital and reserves of the bank.
Equity Share Capital + Reserves
Book Value Per Share =
No of shares
Chart No 5: Book Value per Share
Book Value per Share
300
200
100
0
2006 2007 2008
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24. There is increasing trend in the ratio, it because of the increase in the
reserves of the bank. It is good indication from the investor‟s point of view.
6. Yield Spread
It is the difference between yields on advances over cost of deposits. It is
useful to know the spread of yields over cost of deposit; more the spread bank is
more efficient in lending and accepting deposit.
Yield Spread = Yield on Advances- Cost of Deposits
Chart No 6: Yield Spread
Yield Spread
4
3
2
1
0
2006 2007 2008
The yield spread is decreasing year on year basis. This is because the
percentage increase in yield on advance is less than percentage increase in cost of
deposits of the bank. The bank is inefficient in earning high yield on the advances
granted by them.
7. Non Interest income to Total Income
This ratio indicates the relationship between non interest income and total
income. Non-interest income arises out of the activities other than the lending.
Chart No 7: Non Interest Income to Total Income
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25. Non Interest Income to Total Income
16
15
14
13
12
2006 2007 2008
The ratio was 14.78 in the year 2006, but there was slight increase in it in the
year 2007. It shows the bank earnings are increased out of lending business. But in
the year 2008 the ratio has decreased.
8. Gross NPA to Gross Advances
This ratio shows the relationship between Gross NPA to Gross Advances of
the bank. It states that the percentage of Non Performing Assets out of total
advances granted by the bank.
Chart No 8: Gross NPA to Gross Advance
Gross NPA to Gross Advance
3
2
1
0
2006 2007 2008
The ratio is decreasing from 2006 – 2008. It means the NPAs are decreasing
from year to year. It is good indication for the bank.
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26. Research Design
It is the conceptual structure within which the research is conducted. It
constitutes the blue print for the collection, measurement and analysis of data. The
design includes an outline of what the researcher will do from writing the
hypothesis and its operational implication to the final analysis of data. It constitutes
the steps taken beginning with the collection of data, classifying, analyzing and
interpretation, processing and finally putting in textual form. This is one important
chapter of project and can be considered as skeletal of project.
Statement of the Problem
Progressive deregulation and liberalization of the Indian financial sector
have offered banks tremendous business opportunities and brought in competition.
As there is growth in the economy many industry sectors like, Manufacturing and
Infrastructure etc are growing up. This provides a good business opportunity of
financing them. The long term or short term loan providing to the project is known
as Project Financing.
The banks should see the various risk related to the project before
sanctioning the loan for the project. The bank should see uncertainty involved in
the project. These risk and uncertainty may have an adverse impact on the Bank‟s
capital and earnings.
The project financing involves detailed and indepth analysis of the results of
the project. In this process the technical, the marketing, the organizational, the
financial, the economic and the social aspects of the Projects are examined to
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27. ensure technical feasibility, market necessity, financial viability, economic strength
and social desirability. The project financing is to identify measures, monitor and
control various risk arising for its lending.
When fierce competition is the rule, the banking sector is no exception.
Banks compete with each other to attract quality borrowers. In this scenario, a
hasty or adequate project appraisal will result in growth of NPA. There fore the
banks should have proper appraisal methods.
Objective of the study
 To understand the analytical framework of project financing and to
analyze the existing project appraisal mechanism at bank.
 To study the project financing of Corporation Bank
 To familiarize with the interrelationship among various aspects of
project finance.
 To understand the importance of project appraisal in sharpening the
ability of the bank to identify investment opportunities of the project
undertaken.
 To study the assessment of the various aspects of investment
proposition to arrive at a financing decision
Need for the study
 To have practical knowledge and experience towards project
financing.
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28.  To sharpen the ability of identification of various attractive
investment opportunities.
 To value the options embedded in the project
 To familiarize with the inter relationship among the various aspects of
project appraisal.
 To evaluate the project in order to give suggestions to the bank
Scope of the study
The scope of the study is limited to Project Finance Department of
Corporation Bank Head Office, to the area of project financing. It will give an
indepth theoretical and practical knowledge about the project financing. This study
also covers ratio analysis, cash flow from proposed project, risk involved in the
project, analysis of the financial statement and the data found in the appraisal
statement.
Methodology of Data Collection
As regarded to methodology, normally both quantitative and qualitative
approaches are adopted. In order to collect the data, this study brings a live
analysis based on the live data collected from secondary type of data. The
techniques of ratio analysis have been made use for the analysis of the financial
statement of the bank.
 Interacting with executives, functional in charge of various areas and
departments discussing informally.
28

29.  Referring to the secondary that is, various project reports prepared by
the bank and desk guides available with the bank.
 Visiting official website of the bank and other related websites.
 Referring to news papers and various business magazines.
Limitation of the study
 The study is limited to the Project appraisal department of
Corporation Bank. The investigator could not cover all the banks, who
are providing similar services.
 The data recorded was presumed to be authentic
 This study curtails comparison, as it is within the purview of only one
organization.
 The study is conducted on the data that are made available to the bank
by the concern.
Project Appraisal
29

30. Introduction
Project appraisal involves detailed and in-depth analysis of the results of the
project. In this process the technical, the marketing the organizational, the
financial, the economic and the social aspects of the projects are examined one by
one to ensure technical feasibility, market necessity, financial viability, economic
strength and social desirability.
It is a process where by a lending financial institution makes an independent
and objective assessment of the various aspects of investment proposition for
arriving at a financial decision. Appraisal exercises are aimed at determining the
viability of a project and some times helps in reshaping the project to upgrade its
viability. It is most crucial stage of project cycle at which the bank makes a critical
evaluation of all the parameter to determine the feasibility of the project and to
make a decision whether to finance or not.
Need for Appraisal
During recent times, not only have the number of projects increased, but the
size of projects have gone up substantially. The lenders are also concerned about
debt equity ratio and insist on promoters bringing in equity so that they have a
stake in the project. Now the ratio hovers at 4:1 for the infrastructure sector and 1:1
in other projects. This is opposed to the situation in the 1990‟s when the ratio used
to go even as high as 15.
Mega projects like Power Projects, Infrastructure are very common these
days. When the project is of such size, it is easy desirable that the project
30

31. Technical, Feasibility and Commercial possibility are assessed by the committee
member of lending institution to ensure to lend funds for the projects. Corporation
Bank is one such institution and has a vibrant and efficient team of professionals,
which are most capable in appraising projects.
Steps in Project Appraisal
The steps which are followed by the bank in appraisal of a project are as
follows.
 The borrower (promoter) approaches the bank with his project report
and gives a written request to bank to appraise the project.
 Bank quotes a fee for the appraisal (usually 0.25% of the total cost of
the project). Along with it bank also gives a questionnaire to
borrower. Questionnaire will cover all financial, economical and
technical factors of the project.
 If the borrower agreed over fee charges, term and condition of the
payment of fees as it is indicated by bank along with the reply of
questionnaire, then the bank has to study the report that is submitted
by the borrower.
 The appraising staff should visit the project site to make physical
verification.
Functions of Project Appraisal Group
31

32.  Undertake detailed techno-economic appraisal of large projects
seeking financial assistance from bank and preparation of appraisal
report by evaluating technical, managerial, financial and commercial
aspects of the project.
 Undertake regular evaluation of progress of implementation of large
projects assisted by the Bank.
 Peruse and furnish views/observations on project appraised by other
banks/reputed consultants, submitted by Cos/other groups of the wing.
 To undertake monitoring agency activity of companies going for IPO
as per SEBI guidelines.
 Upgrade project evaluation skills.
 Undertake unit visits and hold discussions with the official of the
company.
 Guiding User Sections of the wing on project appraisal skills.
 Undertake detailed techno-economic merchant appraisal of projects
going for IPO as per SEBI guidelines.
Project Appraisal – An Overview
Table No 3: An Overview of Project Appraisal
Technical Marketing Financial Economic Management
Appraisal Appraisal Appraisal Appraisal Appraisal
Manufacturing Demand Capital Ratio of Qualities of an
Process/Technology techniques cost of economic entrepreneur
for project appraisal
forecasting
Technical Supply Sources of Economic Various forms
32

33. Arrangements depth of finance rate of return of
competition organization
Size of plant Pricing Financial Exchange Organizational
policy projections rates of the setup
project or
resource cost
Product Mix Life cycle of Ratio Comparative Management
the product analysis study of problems
financial and
economic
rate of return
Selection of P/M Brand name Break Even
for the Point
product
Plant Layout Distribution
channels
Location of the Sales
Project promotion
Schedule of Project Sources of
Implementation market
information
Publication
to study
various
aspects of
mktg
33

34. Bank’s way of Appraisal:
The Branch should call for from the applicant an „Application‟ in the
prescribed format covering full particulars. The application should contain the
following essential data/information.
a. Particulars of the project along with the copy of project report
furnishing details of the Technology, Manufacturing Process,
Availability of Raw Material, Construction, Production facilities etc.
b. Estimate of costs of the project detailing assets acquired, to be
acquired inclusive preliminary expenses and working capital.
c. Details of the proposed means of financing, indicating the extent of
promoter‟s contribution, the share capital is to be raised from public
and borrowings.
d. Working capital requirement at the initial year
e. Project implementation schedule
f. Organization setup with list of Board of Directors, Qualification,
Experience and Competencies.
g. Demand projection based on the overall market prospectus together
with copy of market survey report if any.
h. Estimate of sales, cost of production, profitability.
i. Projected profit and loss a/c, balance sheet for the operating years
during banks assistance.
34

35. j. Proposed amortization schedule (repayment program)
k. Projected fund flow statement
l. Details of the nature and value of securities of fund.
Due deligence report shall be submitted in the prescribed format. Consent
from the authorities of the Pollution Control Board and any other information.
Brief History
In case of already existing company the bank will collect following
information,
 Essential particulars about its promoters and background
 Its incorporation
 Its subsequent corporate growth to the date
 Major developments/changes in its management
If the borrowing unit is new to the bank a credit report will be obtained by
bank to ascertain the credit worthiness of the company. The banks will carefully
scrutiny the MOA and AOA to ensure there is no limitations have been placed on
the companies borrowing power and operations.
Past Performance
A summery of company‟s past performance in terms of operating capacity,
sales, operating profit and net profit for the past 3 year will be analyzed by the
bank. The bank will analyze the sales and profitability for last 3 years. If the trend
is in ascending order the performance can be consider satisfactory.
Capacity Utilisation
35

36. If the actual production is less than the rated capacity, the reason for the
under-utilisation of the capacity should be examined. The bank will examine the
steps taken by the company to improve the capacity utilization. The bank will
examine the special important aspects relates to company‟s management labour
relation. Whether there was any strike, lock-outs or shut down during the past 3
years and how the labour disputes were settled.
Present financial position
The bank will analyze the company‟s Audited Balance Sheet and Profit and
Loss a/c for the last 3 years. A careful analyze and interpretation of the financial
statement would provide a reasonable clear picture of the company‟s financial
history, present position and future trend. The bank will look into Debt/Equity ratio
and Current Ratio.
The bank also collects the information regarding the following,
 The method of Depreciation
 Record of major defaults by the company
 The position regarding the company‟s tax assessment
 Pending suits by or against the company and their financial
implication
 Qualification/adverse remarks if any, made by the statutory auditors
on the company‟s accounts.
Technical Feasibility
If the project involve a new process or new technology, a technical
feasibility report by a competent agent will experienced in the line will be
36

37. essential. The bank will examine the technical feasibility of new project from the
following angle.
i. The suitability of the Technology
The bank will examine whether the proposed technology can be
successfully employed in local condition with regard to the availability of
resources, men and materials.
ii. The size of the Plant
The bank will examine the size of the plant in relation to the optimum
size warranted be technical factors, economies of scale and production cost
factor.
iii. The location of the plant
The bank will examine that whether it has ready accessibility to
critical inputs and utilities like raw materials, supplies, fuel, water etc.
iv. Technical arrangements
The arrangement made for obtaining the technical know how, design
and detailed engineering of plant and selection of suppliers of
machinery/equipment will be examined by the bank.
v. The bank will also examine the manufacturing process of the product.
Financial feasibility
a. Cost of the Project
Correct estimation of the total cost of the project is an important fact of
appraisal as it has bearing on the means of financing and profitability. The bank
37

38. will scrutinize the estimated cost with a view to ensuring that they have been
arrived at realistically after taking into account all relevant cost factors.
b. Total cost of the project
The various components of the total cost of given below will be studied by
the bank.
i. Land
The bank has to examine the suitability of the site. Topographical
features, Availability of Transport and the sources like water, power, labour,
raw materials and market for finished goods. Bank will examine that the
land will be sufficient to take care of present needs. The bank has to satisfy
itself that the price paid/payable for the land is comparable.
ii. Building
The bank will examine whether the building will be sufficient having
regard to the layout and it will permit and it will permit further addition if
needed.
iii. Plant and Machinery
The bank will examine the stated plant and machinery is required or
not according to the recommendations made in the technical feasibility
report in the project report and will see they will be suitable and adequate for
the production programme. The cost of the plant and machinery will be
examined by bank to ensure that the price paid is reasonable.
iv. Technical know-how
The bank will examine the basis of selection of technical consultants.
It should ensure that the promoters will not get any benefit out of it by
38

39. selecting subsidiary concern of the promoter as technical consultants. The
bank will ensure that the fees paid are reasonable to the service.
v. Preliminary Expenses
These are the expenses incurred before the incorporation of the
company. Expenditure incurred on project report, market survey in the initial
stage. The bank will examine the cost estimated are reasonable to the
organization.
vi. Working Capital
The bank has to estimate the working capital requirement of the
company during the 1st year operations and the provision has to be made to
meet the requirements.
Means of Financing
The bank will examine the mean proportion of debt and equity components
of means of financing of the project. The bank will comment on the project
debt/equity ratio is satisfactory and acceptable. As per group credit policy the
debt/equity ratio shall not exceed 2:1.
i. Share Capital
The bank will ensure that the promoter‟s of the company have
invested atleast 25% of the total cost. The investment should be made in
share capital.
ii. Internal cash accruals
The bank will examine whether the company will be able to meet its
expenses and working capital requirements. It will ensure that the remaining
39

40. part of the profit(cash accrual) will be possible to use it as part of financing
for project.
iii. Debenture
The bank will examine the terms of proposed issue of debentures such
as the nature of debenture, rate of interest, date of redemption and security
offered.
iv. Term Loans
The power of public company to borrow by way of term loans is
restricted to the amount of its paid-up capital and free reserves. The bank has
to ensure that the loan taken by the company under those limits only. If the
loan is provided by many lenders the information regarding that to be
collected.
v. Deferred payment facilities
The bank has to get the details of the deferred payment guarantee.
vi. Any other(Central/state sales tax loans, development loans)
Bank has to specify whether it is central/state sales tax loan and will
examine the term and conditions of granting the loan.
Project Implementation Schedule
The bank will examine the project implementation schedule with reference
to Bar chart or PERT/CPM chart by referring to actual implementation of similar
projects. The bank has to ensure that the t5ime schedule for construction of
building, installation of plant and machinery and commencement of commercial
production is reasonable and acceptable.
40

41. Production Factors
i. Manufacturing Process
The bank has to examine the basis of selection of the process in
relation to the other alternative process. If the technology is new to the
country, the appraiser has to ensure about the suitability of the
manufacturing process.
ii. Raw Material
The bank will list out the major raw materials required for the
company production programme. The bank will examine the continuity of
supply of the raw materials. The bank also examines the prices of the raw
material to ascertain whether the fluctuations in the past years have taken
into account while projecting the cost of production and profitability.
iii. Utilities and Essentials
The bank will examine the requirements of power, fuel, water,
transport and the arrangement made by the company.
Market and Demand Analysis
This constitutes a crucial aspect of project appraisal as the basic viability of
the project and consequently the repayment of the Bank‟s loan depends on the
marketability of its product. The bank will study this aspect under following heads.
i. Sales Prospectus
The bank will examine the company sales projections and the
underlying assumption with reference to the demand forecast made in the
41

42. publications and through market survey. It will examine also through past
consumption from imported sources and likely future trend. The bank will
examine the nature and extent of competition likely to be faced by the
project from the principal competitors. Bank also examines the competitive
ability of the company to penetrate the market and earn market share based
on price, quality etc.
ii. Selling price
The bank will examine the industry‟s general price trend to see that
the prices were stable in the past and will continue to be same in the future.
iii. Prospectus for export
The bank has to comment on the prospectus for export. The bank
should state how the company would meet the export commitments. The
bank should state whether any subsidy/cash incentives will be available to
company.
iv. Marketing organization
The appraiser has to give brief description of the company‟s
marketing organization. If the company selling its products through
distributors and selling agents bank has to examine the term of arrangement.
Commercial Viability and Profitability
Appraising profitability is the most crucial exercise in project appraisal. The
bank will examine estimated sales, cost of production and net profit furnished for
the project.
42

43. Inter firm comparison
The reasonableness of the financial projection may be cross checked by the
comparing the key financial parameters of the project with those of a similar
project or with the industry average.
Debt Service Coverage Ratio
The Debt Service Coverage Ratio is the „core test‟ ratio in project financing.
This ratio indicates the degree of viability of project and influence in fixing the
repayment period and the quantum of annual installments. Here „Debt‟ means
installments payable during the year and „Service‟ means cash accruals comparing
net profit plus depreciation and non cash write-off. It measures the extent of cash
accruals(service) available to cover the maturing term obligation(debt) during each
year.
Interest due and chargeable can be fully paid even in a year where the
project undergoes in loss. The bank will ensure that the profitability the project
does not fall to that extent where the interest can not be paid by the company. The
bank will ensure because of any genuine or valid reason the installment can be
post-phoned, but the project should be able to pay the interest as and when falls
due. The Bank Group Credit Policy is that the project shall give an average debt
service coverage ratio of 1.5:1.
Break Even Analysis
Fixed + Semi Fixed Expenses Production value
43

44. Break Even Sales =
Contribution
Fixed + Semi Fixed Expenses Capacity
Utilisation 100
Break Even Installed Capacity =
Contribution
Fund Flow and Cash Flow Statement
The statement which shows various sources of funds and their uses is called
fund flow statement and it‟s different from revenue statement of balance sheet. The
FFS can be based on two concepts, those are as follows.
i. Change in Working Capital concept
It is derived from the need for availability of liquidity and need for the
liquid funds. That is current assets and current liability.
ii. Change in Financial Position
A promoter/banker concerned with funds not only for the working
capital but for the entire funding needs. Their concern is to adding fixed
asset/repayment of long term loans as per their pre-fixed repayment schedule.
Movement of all the funds in the business has to be considered.
The fund flow statement should be carefully examined and
reasonableness of the various assumptions underlying the project should be
44

45. ascertained. On the long term side, it should be ensure that fund outflow for
essential expenditure on fixed asset, repayment obligation, taxes and dividends are
fully provided for that the cash generation will be adequate. On the short term side,
the projected increase in current liabilities/bank borrowings should be matched by
projected increase in the inventories/receivables.
Cash flow estimates
It is prepared to ensure that the unit will have necessary cash with it and it
will not face liquidity problem. It is necessary for the construction period also to
ensure availability of cash according to the requirement of the project.
Projected Balance Sheet
In the case of cost of production and profitability estimates and fund flow
projection, the projected balance sheet should be furnished by the company for the
entire period. While appraising the following points will be checked by the bank.
The cost of the project, means of financing, the profitability estimates and the fund
flow projection.
Others (Brief Comment)
i. Quality of Management
Appraiser will briefly comment on the company‟s management setup, the
composition of the board and the chief executive in-charge of the day-to-day
operations.
ii. Credit Rating
The bank will do the overall assessment of the company and rate the
company according to the assessment.
45

46. Disbursement:
Execution of loan agreement and other necessary legal documents is not
sufficient for disbursing the amount. Branch will ensure that the amount disbursed
is utilised for the purpose for which it has been sanctioned.
Supervision and Follow-up
Projected supervision and follow-up of assisted project during and after
implementation is indeed a important exercise to performed periodically by bank.
It not only safeguard the interest of the bank but also to ensure optimum returns on
the total investment in project. Even a project well accepted at the appraisal stage
may go bad due to lack of adequate care. There fore supervision and control during
implementation is necessary during and after project implementation it will be
done by the bank by following methods.
 Scrutiny of progress chart
 Analysis of annual financial results
 Visit/Inspection, regulatory control
 Discussion with management
Murali Industries Limited
46

47. The Murali Industries Limited, a Nagpur based company was initially
established on 2nd December 1991, in the name of Murali Agro Products Pvt Ltd to
process soyabean in a Solvent Extraction Plant to produce vegetable Oil and De-
oiled cakes with an installed capacity of 150 tonnes per day. On 5 th January 1993
the company was renamed as Murali Industries Limited when it raised funds from
capital market through its public offer.
The company entered capital market in the year 1993 through IPO and
expand the capacity of Solvent Extraction Plant to 250 tonnes per day. In the same
year the company acquired another soya plant to strengthen its stake in the
industry.
In the year 1997 MIL diversified into paper manufacturing by setting up 40
tonnes per day. Kraft paper manufacturing plant, which was sold in the year 2004
to SBM industries pvt ltd. In the year 2000 the company established Duplex paper
manufacturing unit with an established capacity of 60 tonnes per day.
In the year 2002 the company also set up a 70 tonne per day new print paper
manufacturing unit, along captive power plant with 3 MW capacity to meet the
power requirements of its paper units. In the year 2004-05 the company set up 150
tonne per day writing and printing paper unit along with 15 MW co-generation
units.
The company is also setting up a 2.14 million tonnes per annum cement
manufacturing plant together with 30 MW captive power plant at Chandapur in
Maharastra with capital outlay of Rs 578 cr, this plant is reportedly in the advanced
stage of implementation and the commercial production is expected in the current
financial year (2008-09).
47

48. MIL is has already into cement industry by setting up a 2.14 million tonnes
per annum cement manufacturing plant together with 30 MW captive power plant
at Candapur in Maharastra. In addition to this, company is also going in for setting
up of three more cement plants of 3 million tonnes per annum capacity each, along
with these 50 MW captive power plant in the state of Rajastan (village Barana),
Karnataka (Aloora) and Gujarath (Jujarpur).
The Rajastan plant shal have out lay of Rs 862.55 cr, Karnataka Rs 837.98 cr
and Gujarath 865.73 cr. The project will be financed by banks at these plants shall
be 575.04 cr, 558.65 cr and 577.15 cr respectively.
Present proposal
The credit sanctioned by the bank as under:
Limit Sanctioned Rate of Interest
Sl No Nature of
Existing Proposed Existing Proposed
Facility
1 Fund Based 150 13%
Banking Arrangements
The following Banks financed for the project.
Table No 4: Banks arrangements for Financing
Name of Banks Loan Amt Interest Rate
%
48

49. Corporation Bank 150 8.76
State Bank of India 300 17.54
State Bank of Mysore 90 5.26
State Bank of Patiala 150 8.76
State Bank of Bikaner and Jaipur 90 5.26
Punjab National Bank 300 17.54
Dena Bank 50.84 2.92
Bank of Baroda 300 17.54
Allahabad Bank 150 8.76
State Bank of Travancare 130 7.66
Security Coverage
Bank will change on the project specific factory Land & Building and Plant
& Machinery. The Corporation Bank share is 183.36 cr out of the total cost
2139.51 cr. The finance made by bank, interest there on and all amounts in respect
there of shall be secured inter alia by,
 A first mortgage/hypothecation and charge on all the project
immovable and movable properties both present and future infavour
of Bank
 Security interest by way of first mortgage/hypothecation, performance
bonds and any letter of credit in relation to the project that may be
provided by any party.
 A first mortgage/hypothecation of all insurance policies taken in
respect of the project asset.
49

50.  A first mortgage/hypothecation and charge in favour of the bank on
all the bank account in relation to the project.
Key Indicators
Table No 5: Key indicators
(Rs in
Crores)
Particular 31/3/2007 31/3/2008 31/3/2009
Audited Provisional Projected
Net Sales 523.93 646.47 931.15
% of Growth -- 23.39 44.04
Operating Profit 46.13 70.82 156.02
Operating Profit to Net Sales 7.84 8.61 14.89
%
Cash Accruals 59.5 77.17 169.47
Share Capital 9.61 10.24 21.40
Tangible Net Worth 129.53 221.63 911.90
Net Owned Funds 129.53 224.71 821.74
Debt/Equity Ratio 1.3 2.81 1.81
Current Ratio 1.78 2.79 1.79
NOF/ TFD % 29.27 23.61 30.39
Share Holding Pattern: The company has Paid-up Capital of Rs10.24 crores.
Table No 6: Share Holding Pattern of the company
Share Holder Category % Holdings
Promoters 51.77
50

51. Bodies, Corporate and Public 33.58
Individuals 9.82
Others 4.83
Compliance with Group Credit Policy Guidelines
Table No 7: Compliance with Group Credit Policy
Parameters Banks Actual
Norms Position
200 cr 150 cr
Entry Level per Borrower Exposure for FB and
NFB Facilities
547 cr 151.80
Maximum per Borrower Exposure (corporate)
10% of 2.6% of
Exposure to Industry/Sector
NBC NBC
1.25 2.79
Current Ratio
1.1 --
Current Ratio for Export Orient Units
2 2.81
Debt/Equity Ratio
1.5 1.66
DSCR
4 3.28
TOL/TNW
25% 19.66%
Promoters Contribution to Project cost
In this the company current position of Debt/Equity ratio is 2.81, where as
the banks norms are 2. It is less than the standard, which is not acceptable. But for
51

52. the project taken up by the company the Debt/Equity ratio will be below the norms.
So the project can be acceptable.
Summary of Financials
a. Financials
Table No 8: Financial Results of the company
Particulars 2007 2008 2009 2010
Net Sales 523.93 646.47 931.25 1688.69
% growth in net sales -- 23.39 44.04 81.36
Raw Material 371.22 457.59 555.72 764.17
RM consumed as % of COP 85.10 85.35 81.71 72.12
Cost of Sales 441.51 527.77 673.12 1059.03
Cost of Sales as % of Net 84.27 81.56 72.29 62.71
Sales
Operating Profit 46.13 70.82 156.02 355.28
Operating Profit % 8.80 10.95 16.76 21.04
Other Income 1.13 0.61 0.82 --
PBT 47.26 71.43 156.84 355.28
PAT 41.1 55.63 138.61 312.57
Net Profit Margin % 7.84 8.61 14.89 18.51
Cash Profit 59.50 77.17 169.47 372.17
Retained Profit 41.1 55.63 138.61 312.57
Paid-up Equity capital 9.61 10.24 21.40 21.40
Tangible Net Worth 129.53 221.63 911.90 1228.38
TOL/TNW 2.42 3.28 2.04 2.14
52

53. The company has achieved a sales growth of 23.39% during the year ended
31/3/2008, operating profit margin has improved from 8.80% to 10.95%, and net
profit margin has also improved from 7.84% to 8.61% as on 31/3/2008. Cash
accruals has improved substantially from Rs 59.50 cr to 77.17 cr. Total Net worth
of the company improved substantially from Rs 129.53 cr to 221.63 cr. Liquidity
position of the company is comfortable with net working capital showing Rs
188.84 cr and liquidity parameters may be considered satisfactory for financing the
project.
b. Financial Observation
i. Sales
Table No 9: Sales of products of the company
(Rs in crores)
Name of the Product 2006 2007 2008
Duplex Paper Unit 39.59 45.52 41.86
News Print Unit 54.76 69.37 70.27
Power 30.36 33.09 36.12
Pulp Mill Unit -- -- 25.5
Solvent Extraction Units 266.04 277.34 349.70
Writing and Printing Units 119.70 148.52 123.00
The company achieving a growth in the sales (except Duplex Paper Unit and
Writing & Printing Unit). The performance of the company in Solvent Extraction
Unit has been satisfactory with 53% growth. Even though there is negative growth
in the units. However overall growth in the turnover of the company with 23% will
be considered satisfactory.
53

54. ii. Production
Table No 10: Production and Capacity utilisation
Name of the Product Production % Production %
2007 Utilisation 2008 Utilisation
Solvent Extraction 1253 98.66 1480 116.54
Units
Duplex Paper Unit 26530 100.49 24757 93.78
News Print Unit 32647 123.66 32153 121.79
Writing and Printing 54475 110.05 42080 85.01
Units
Power Generation 82970 58.2 88786 62.28
Pulp -- -- 18444 37.26
The capacity utilised by the company is satisfactory except in the pulp
production unit.
iii. Profitability
During the year ended 31/3/2008 the company has earned operating profit of
70.82 cr at margin of 10.95% compare to Rs 46.13 cr at margin 8.8% for the
previous year. Net profit for the year ended 2008 is Rs 55.63 (8.61%) compared to
earlier year 2007 of Rs 41.1 cr (7.84%). Cash accrual for the year ended 31.3.2008
was Rs 77.17 cr compared to previous year 2007 of Rs 59.5 cr. The profitability of
the company during the year 2008 has increased and it is satisfactory.
iv. Net Owned Funds
54

55. Table No 11: Net Owned Fund
Particulars 2007 2008
Net Worth 133.07 224.46
(-) Intangible asset 3.54 2.83
Tangible Net Worth 129.53 221.63
(-) Used for unrelated to Business (3.08)
Net Owned Funds 129.53 224.71
Total Funds Deployed 442.50 951.94
NOF/TFD % 29.27 23.61
The ratio of the NOF as a percentage of total funds deployed has come down
from 29.27% in 2007 to 23.61% in 2008. This is below the Banks norms which is
not acceptable for financing for the project. However the position is expected to
improve to 29% in the coming years.
v. Debt/Equity position
The debt/equity ratio as on 31.3.2007 stood at satisfactory level at 1.3.
However the same has increased to 2.81 on 31.3.2008 is below the less than the
banks norms. It is not good to provide finance to the company. However by
considering the projected balance sheet the ratio will be within the desired level for
the project in future years.
vi. Fund Flow Statement
The position of movement of funds is furnished as under.
Table No 12: Fund Flow Statement of the company
55

56. Particulars 2007 2008
Long Term Sources 301.77 548.21
Long Term Uses 188.62 472.52
Long Term Surplus/Deficit 133.15 75.69
Short Term Borrowings Excluding bank 76.70 --
Borrowings
Short Term Uses 257.42 67.01
Short Term Surplus/Deficit -180.72 -67.01
Net Surplus/Deficit -67.57 8.68
Increase/Decrease in Bank Borrowings 67.57 -8.68
The overall long term funds deployment in the company is considered
satisfactory. It has adequate sources of funds to deploy in the company as and
when required.
vii. Liquidity Position
The position of current asset, adequacy of Net Working Capital and Current
Ratio discussed as under.
Table No 13: Liquidity position of the Existing Company
Particulars 2007 2008
Total Current Asset 247.94 287.53
Min required NWC 49.59 57.51
Actual NWC 113.15 188.87
Surplus/Deficit in WC 63.56 131.33
CR 1.78 2.79
56

57. Liquidity position of the company is controllable and satisfactory throughout
with the ratio showing above the Bank‟s bench mark ratio of 1.25.
viii. Debt Servicing Obligation
Debt Service ability of the company as a whole, as well as project on
standalone basis is satisfactory with debt service coverage ratio showing the bench
mark ratio of 1.5.
There is no adverse features reported on the notes forming part of audited
accounts for the year ended 31.3.2008.
Details of the Project
The company has taken up setting up of 3 projects of 3 million tones per
annum along with 50 MW captive power plant each, in the state of Karnataka,
Gujarath and Rajastan. Company intends to manufacture Portland Cement at these
location along with co-generation plans of 50 MW capacity at each of these
location.
Technical Feasibility
i. Raw Materials
The major raw material for cement manufacturing is Lime Stones mines.
These three plants are being located near to the Lime Stone mines. Thus this
will be logistic advantage for the company. The mining will be done by
57

58. conventional method. The company has installed 1050 tph capacity crusher in
mines.
Material Transportation
The company to deliver the crushed Limestone and Marl to the Raw
Material yard at cement plant, the transportation conveyor has been chosen
amongst the several methods and possibilities. The distance between Quarries
to plant yard is 1000 meters and plan of using of two 1000mm wide rubber belt
conveyers.
ii. Power
The company plans to set up captive thermal power plant of 50 MW at
each of the 3 locations. The required coal for power generation will be supplied
by the Indian coal. This will supplement the power requirement of the plants.
iii. Building
The necessary buildings for main Factory Shed include Godown,
Stores, Electric room, Blower Room and Work shop. The building also required
for management offices, official departments, laboratories, services and welfare
facilities have been estimated up to 12000 square meters.
Financial Viability
a. Project Cost
58

59. Table No 14: Cost of the Project
(Rs in Crores)
Name of each Cash Component Estimated Cost to be
Cost incurred in
future
Land and Site Development 31.59 31.59
Building 328.12 328.12
Plant and Machinery 1024.51 1024.51
Captive Power Plant 58.33 58.33
Miscellaneous FA 171.99 171.99
Preliminary Exp 53.35 53.35
Upfront fees 4.32 4.32
Working Capital Margin 83.38 83.38
Misce and Contingencies 285.5 285.5
b. Means of Finance
Table No 15: Means of Finance
(Rs in Crores)
Sources Amount % of Total
Equity 450.00 17.54
Internal Accrual 351.00 13.68
Term Loan From Banks 1710.84 66.67
Unsecured Loan 54.42 2.11
59

60. The company proposes to bring on its margin for the 3 projects as detailed
below.
Table No 16: Margin brought by the Promoters
(Rs in Crores)
Unsecured Internal Private
Project Location
Loan Accruals Equity
Karnataka 21.58 117 150
Gujarath 12.33 117 150
Rajastan 20.52 117 150
Total 50.43 351 450
The company has projected to generate sufficient internal accruals as
detailed below.
Table No 17: Internal accruals of the company
Particulars 2009 2010
Net Profit 238.20 313.33
Add: Depreciation 61.00 59.69
Gross Cash Accruals 299.20 373.02
Decrease in term loan 134.21 118.08
Dividend 2.74 --
Others 13.33 51.29
Surplus 148.93 203.65
The balance margin would be bought in through equity investment by
private equity investor (450 cr) as well as in the form of unsecured loans by the
promoters.
60

61. The company states that the negotiations are at advanced stage for private
equity. The loan provider has stipulated a condition that the private equity. The
bank has stipulated condition that the private equity amount has to be tied up
before disbursement of loan.
Project implementation schedule
As for the information furnished by the company, the Rajastan project shall
commence commercial production during the month of April 2010, that of
Karnataka in July 2010, and that of Gujarath in October 2010. The company is
confident of finishing the project according to the schedule.
Business Projections and DSCR
Project (On standalone basis)
Table No 18: Projected DSCR for the Project
Particular 2011 2012 2013 2014 2015 2016 2017 2018
s
Net Sales 1634.6 2452.6 2458.3 2458.3 2458.3 2458.3 2458.3 2458.3
3 6 5 5 5 5 5 5
PAT 141.18 255.95 275.90 298.75 320.55 343.41 365.47 371.33
Cash 234.77 380.38 400.33 423.18 444.98 467.84 489.90 495.76
Profit
Interest 160.07 187.12 151.48 115.84 80.20 44.55 10.02 --
on TL
Total (a) 394.84 567.50 551.81 539.02 525.18 512.39 499.92 495.76
61

62. Installme -- 214.54 285.14 285.14 285.14 285.14 285.14 70.60
nt Due
Interest 160.07 187.12 151.48 115.84 80.20 44.55 10.02 --
on TL
Total (b) 160.07 401.66 436.62 400.98 365.34 329.69 295.16 70.60
DSCR 2.47 1.41 1.26 1.34 1.44 1.55 1.69 7.02
Avg 1.66
DSCR
Company as whole
Table No 19: Projected DSCR for the whole company
Particular 2011 2012 2013 2014 2015 2016 2017 2018
s
Net Sales 3398.5 4267.2 4323.5 4344.2 4377.3 4392.8 4392.8 4392.8
7 8 7 5 4 8 8 8
PAT 487.92 630.47 677.76 716.13 759.20 787.55 809.41 819.43
Cash 639.92 812.23 858.82 895.98 934.62 962.20 983.39 993.37
Accrual
Interest 160.07 187.12 151.48 115.84 80.20 44.55 10.02 --
on TL
Total (a) 799.99 999.35 1010.0 1011.8 1014.8 1006.7 993.37 993.37
0 2 2 5
Installme 86.18 300.72 369.08 363.87 336.46 285.14 285.14 70.60
nt Due
62

63. Interest 160.07 187.12 151.48 115.84 80.20 44.55 10.02 --
on TL
Total (b) 246.25 487.84 520.56 479.71 416.66 329.69 295.16 70.60
DSCR 3.25 2.05 1.94 2.11 2.44 3.05 3.36 14.70
Avg 2.75
DSCR
Detailed Balance Sheet and Cash Flow Statement for the projects on
standalone basis and company as whole is furnished by way of Annexure.
The business projection and profitability working furnished by the company
may be considered reasonable and achievable, as the same is based on the market
study, capacity being created and the demand-supply gap.
The projects are individually and severally viable as revealed by the DSCR
which is above the bench mark ratio of 1.5.
Sensitivity Analysis of DSCR
If the project‟s sale decreased by 10% in that the average DSCR will be 0.89
which is risky for the banks to lend. If there is increase in the expenditure by 10%
then the DSCR will be 1.12. Even though the standard ratio is 1.5 the company is
able to pay its debt with the ratio 1.
If the company sale decreased by 10% the average DSCR will go to 1.55
from the existing 2.75 but it is more than the bank norms. And if there is increase
in the operating expenses by 10% the average will be 1.99 so it is good for the
bank to lend. Even adverse situation also the company can pay its debts.
Profitability Analysis
63

64. Project
Table No 20: Project Profitability Analysis (Rs
in crore)
Particulars 2011 2012 2013 2014 2015 2016 2017 2018
Gross sales 1992.8 2990.0 2997.0 2997.0 2997.0 2997.0 2997.0 2997.0
0 6 0 0 0 0 0 0
(-) Excise duty 358.17 537.40 538.65 538.65 538.65 538.65 538.65 538.65
Operating 1634.6 2452.6 2458.3 2458.3 2458.3 2458.3 2458.3 2458.3
Income 3 6 5 5 5 5 5 5
Raw Material 454.62 667.08 667.08 667.08 667.08 667.08 667.08 667.08
Stores 16.20 24.30 24.30 24.30 24.30 24.30 24.30 24.30
consumed
Power and Fuel 134.51 201.76 201.76 201.76 201.76 201.76 201.76 201.76
Direct Labour 12.76 17.86 18.75 19.69 20.68 21.71 22.80 23.93
Other Mfg Exp 234.56 348.67 348.67 348.67 348.67 348.67 348.67 348.67
Depreciation 93.59 124.43 124.43 124.43 124.43 124.43 124.43 124.43
(Inc)/Dec in -6.04 -5.23 -0.06 -0.02 -0.03 -0.03 -0.03 -0.03
WIP
(Inc)/Dec in FG -4.53 -3.92 -0.04 -0.02 -0.02 -0.03 -0.02 -0.02
Total Cost of 935.67 1374.9 1384.8 1385.8 1386.8 1387.8 1388.9 1390.1
Sale 5 9 9 7 9 9 2
Selling & 302.93 467.99 469.09 469.09 469.09 469.09 469.09 469.09
Admin
Op profit before 396.03 609.72 604.37 603.37 602.39 601.37 600.27 599.14
Int
64

65. Interest on WC 23.45 34.86 34.92 34.93 34.93 34.94 34.94 34.95
Interest on TL 160.07 187.12 151.48 115.84 80.20 44.55 10.02 --
Profit Before 212.51 387.74 417.97 452.60 487.26 521.88 555.31 564.19
Tax
Tax (Current) 23.78 43.93 47.36 78.60 165.68 183.49 199.95 207.31
Tax (deferred) 47.55 87.86 94.71 75.25 1.03 -5.02 -10.11 -14.45
PAT 141.18 255.95 275.90 298.75 320.55 343.41 365.47 371.33
Cash Profit 234.77 380.38 400.33 423.18 444.98 467.84 489.90 495.76
The profit after tax to net sales of the project is projected at rate of 8.63% in
the first year and it is increasing every year. The average profit after tax to net sale
for the project is 12.46%, which are satisfactory returns. From the above table it
shows that the company has got cash accruals to pay its loan obligation every year.
Whole Company
Table No 21: Whole Company Profitability Analysis
(Rs in crore)
Particulars 2011 2012 2013 2014 2015 2016 2017 2018
Gross sales 4037.9 5101.8 5175.4 5201.3 5244.5 5262.3 5262.3 5262.3
6 7 4 3 7 8 8 8
(-) Excise duty 639.39 834.59 851.87 857.08 866.93 869.50 869.50 869.50
Operating 3398.5 4267.2 4323.5 4344.2 4377.6 4392.8 4392.8 4392.8
Income 7 8 7 5 4 8 8 8
Raw Material 1245.3 1464.2 1476.7 1483.9 1492.2 1499.6 1499.6 1499.6
2 3 5 2 3 7 7 7
Stores 38.51 47.17 47.75 47.85 48.97 48.97 48.97 48.97
consumed
65

66. Power and Fuel 321.48 394.40 399.39 398.95 400.13 400.55 400.55 400.55
Direct Labour 32.43 38.72 40.91 43.25 45.76 47.96 47.96 50.17
Other Mfg Exp 141.53 201.89 202.19 202.55 202.93 203.01 203.01 203.01
Depreciation 152.00 181.76 180.76 179.85 175.82 174.65 174.65 173.94
(Inc)/Dec in -6.39 -5.56 -0.08 -0.06 -0.05 -0.03 -0.03 -0.03
WIP
(Inc)/Dec in FG -4.53 -3.92 -0.04 -0.02 -0.02 -0.03 -0.02 -0.02
Total Cost of 1920.1 2321.4 2347.4 2356.0 2365.1 2374.7 2374.7 2376.2
Sale 3 8 4 8 7 6 6 5
Selling & 642.72 873.44 886.32 890.02 897.19 898.59 898.59 898.59
Admin
Op profit before 835.72 1072.3 1089.8 1098.1 1115.2 1119.5 1119.5 1118.0
Int 6 1 5 8 3 3 4
Interest on WC 68.91 71.60 63.27 54.95 49.24 48.27 48.27 48.13
Interest on TL 160.07 187.12 151.48 115.84 80.20 44.55 44.55 --
Profit Before 606.74 813.64 875.06 927.36 985.84 1026.7 1026.7 1069.9
Tax 1 1 1
Tax (Current) 118.82 183.17 197.30 211.23 226.64 239.16 239.16 250.48
PAT 487.92 630.47 677.76 716.13 759.20 787.55 787.55 819.43
Cash Accrual 639.92 812.23 858.82 895.98 934.62 962.20 983.39 993.37
The profit after tax to net sales for the company as whole is projected
14.35% at the first year and it is increasing every year. The average profit after tax
to net sale for company is 16.64%. The returns are satisfactory to provide the loan.
66

67. Management
The management of the company is having a full fledged Board comprising
of Promoters, Directors, Executive and Non-Executive Director and Professional
Director, who have required qualification and adequate experience in different
areas. Mr Shobhagmal B Maloo is the chief promoter and chairman of the
company. Other promoter directors are Mr N B Maloo, Mr L B Maloo and Mr S K
Maloo. Executive director Mr Yashpal Dhiman and independent directors Mr B P
Ganu, Mr R P Gupta and Advocate M Mani are on the board.
The Board of Directors are supported by team of experienced and well
qualified executives from different area of functioning, like production, marketing,
finance and accounts etc. The company being a listed one in Bombay stock
exchange, National stock exchange and Culcutta stock exchange, they are
governed by the directive of SEBI for the implementation of corporate governance,
which they have implemented in their spirit. The relations with
employees/labourers have been maintained very well by the company.
Industry Analysis
The cement industry has continued its growth over the past seven years.
Domestic cement demand growth has surpassed the economic growth rate of the
country for the past couple of years. The growth rate of the cement demand over
the past five years at 8.37% was higher than the rate of growth of supply at 4.84%
as also the rate of growth of capacity addition during the same period.
67

68. Cement Industry in India is on a roll at the movement. With the boost given
by the government to various infrastructure projects, road network, housing
facilities, a booming real estate sector and global demand, growth in the cement
consumption is anticipated in the coming years. Due to the enormous population of
India, there has been a perpetual focus on the development of civic infrastructure
as well as housing facilities. The high demand for cement is coupled with
favourable Governmental policies has been favourable factors driving the growth
of the cement industry in India.
Production capacity has gone up and top cement companies of the world are
vying to enter the Indian market, there by sparking off a spate of mergers and
acquisitions. India is the world‟s second largest producer of cement after China
with industry capacity of over 200 million tonnes. The present scenario of cement
industry is very good in terms of demand and with the prices going above Rs 160
to Rs 180 everywhere.
i. Demand Supply Gap
The cement industry witnessing high growth, in the last 2 years (2005-06
& 2006-07) demand for cement has grown at a compounded annual growth rate
of over 10%. CRISIL research expects demand to grow at CAGR of 9% over
the next 4 years, due to growth in the end user segment. Going forward, CRISIL
research expects a major thrust to cement demand to come from Higher
Infrastructure Investment.
ii. Cement and Cement Products
In the last 4 years the cement industry‟s demand supply gap narrowed,
leading to higher operating rates of over 90%. In the next 2 - 3 years, CRISIL
68