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Why Bank Need To Do Due Diligence??? To Get The Genuinity About Company, Directors, Loan Requirement

The document outlines the steps involved in conducting due diligence for a loan. It discusses examining a company's background, directors, credit history, financial statements, collateral, industry trends, and compliance with lending norms. Key areas of due diligence include verifying the borrower's identity, checking for defaults or legal issues, assessing repayment capacity, evaluating collateral, and understanding the business and industry. The purpose of due diligence is to evaluate the legitimacy and creditworthiness of the borrower to minimize risk for the lender.

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Nihar Ranjan
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63 views

Why Bank Need To Do Due Diligence??? To Get The Genuinity About Company, Directors, Loan Requirement

The document outlines the steps involved in conducting due diligence for a loan. It discusses examining a company's background, directors, credit history, financial statements, collateral, industry trends, and compliance with lending norms. Key areas of due diligence include verifying the borrower's identity, checking for defaults or legal issues, assessing repayment capacity, evaluating collateral, and understanding the business and industry. The purpose of due diligence is to evaluate the legitimacy and creditworthiness of the borrower to minimize risk for the lender.

Uploaded by

Nihar Ranjan
Copyright
© © All Rights Reserved
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Download as DOCX, PDF, TXT or read online on Scribd
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DUE DILIGENCE:

1. ENQUIRY ABOUT COMPANY & ITS DIRECTOR.


2. KYC & CIBIL REPORT OF ALL, TRADE LICENSE, SHOPS & ESTABLISHMENT
3. MARKET DEALING & REPUTAION OF DIRECTORS.
4. PRODUCT & ITS DEMAND& SUPPLY IN THE MARKET
5. LOCAL OFFICE DUE DILIGENCE.
6. PREVIOUS & EXISTING LIMIT/LENDING DETAILS
7. CREDIT WORTHINESS TO REPAY LOAN FROM ITR, FINANCIAL STATEMENT, FROM PAST RECORD
8. RISK TAKING ABILITY
9. RBI DEFAULT LIST, RBI CAUTION LIST, SAL LIST OF ECGC, NON SUITFILE&SUIT FILE LIST, WILFUL
DEFAULTER LIST
10. STATUTORY DUE (IN AUDITED B/S)3CB, 3CD
11. RELATION OF DIRECTORS
12. WITH THE BANK’S DIRECTOR OR BOARD MEMBER TO AVOID UNDUE ADVTAGE
13. INDUSTRIAL DEMAND
14. IMPORT RELATED RISK
15. VALUATION & LEGAL REPORT OF SECURITY PROVIDED AS COLLATERAL

WHY BANK NEED TO DO DUE DILIGENCE???


TO GET THE GENUINITY ABOUT COMPANY, DIRECTORS, LOAN
REQUIREMENT.
1. TO EXAMINE RECORD OF BORROWING ENITITY
2. TO VERIFY SHAREHOLDING PATTERN OF THE COMPANY
3. TO EXAMINE PREVIOUS & EXISTING LENDING
4. TO KNOW DEFAULT STATUS OF COMPANY AND DIRECTORS
5. TO KNOW FOREX EXPOSURE & OVERSEAS BORROWING
6. TO CONFIRM THE INSURED OF ASSET

ABOUT COMPANY & ITS REQUIREMENT


1. NAME, ADRESS, PAN, GST, DATE OF INCORPORATION, TYPE OF FIRM, DEALING SINCE, LINE OF
ACTIVITY, CLASSIFICATION OF TRADE, BANKING ARRANGMENT
2. PURPOSE OF NOTE(FRESH/RENEWAL/ENHANCEMENT)
3. NAME OF DIRECTORS AND SHAREHOLDING PATTERN
4. CREDIT RATING
5. BACKGROUND OF COMPANY

SWOT ANALYSIS
1. DEMAND SUPPLY
2. DEMAND IN OVERSEAS
3. ANY BARRIER IN EXPORT & IMPORT
4. COMPETITOR
5. CAPITAL INFUSION CAPACITY
6. EXPERIENCE IN BUSINESS
7. GOVT POLICY IN FAVOUR AND AGAINST THE BUSINESS
COMPLIANCE
1. COMPLETION OF MORTGAGE FORMALITIES& VETTING OF MORTGAGE BY ADVOCATE
2. REGISTRATION OF CHARGE WITH ROC
3. EXPOSURE NORM
4. NPLL
5. LARGE EXPOSURE FRMEWORK

WORKING CAPITAL ASSESEEMENT


BY FBF METHOD
CA-CL(EXCLUDING BNK BORROWING)= WCG
75% OF WCG= WORKING CAPITAL LIMIT

OR

WCG-NWC= WORKING CAPUTAL LIMIT

WHICH EVER IS LOWER IS THE FINAL WORKING CAPITAL LIMIT

ASSESSMEN OF POSTSHIPMENT
EXPORT SALE PER YEAR= X
PER MONTH= X/12
AVERAGE USANCE PERIOD= 4 MONTHS=4/12=1/3
ELIGIBLE LIMIT=X*1/3
LESS:25% MARGIN
LIMIT ELIGIBLE= 75% OF X/3

ASSESSEMENT OF PRESHIPMENT
EXPORT SALE AFTER PROFIT=X
MONTHLY EXPORT SALE AFTER PROFIT=X/12
AVERAGE PERIOD OF PC=3 MONTHS
PC REQUIRE= 3*X/12
LIMIT ELIGIBLE= 75% OF 3*X/12

CONDITION:
1. ADVANCE SHOULD COVER BY WHOLE TURNOVER PC GUARENTEE & WHOLE
TURNOVER PS GUARANTEE
2. LIMIT SANCTION SHOUL BE INFORMED TO ECGC
3. ECGC PREMIUM SHOULD BE PAID ON MONTHLY BASIS
4. DRAWING POWER ON FOB VALUE
5. END USE DETAILS TO BE SUBMITTED BY CUSTOMER ON MONTHLY BASIS
6. MONTHLY STOCK STATEMENT
7. ECGC COVER NOT APPLICABLE FOR RESTRICTED COUNTRY
8. BRANCH TO PURCHASE BILL FROM RESTRICTED COUNTRY AFTER TAKING PRIOR
PERMISSION FROM ECGC
9. CREDIT REPORT OF BUYER IS TO BE OBTAINED
10. BRANCH TO OBTAIN QUARTERLY REPORT OF AGE WISE BOOK DEBT
11. TENOR SHOULD BE MAXIMUM 180 DAYS FOR PRE & POST SHIPMENT
12. PRESHIPMENT WOULD BE NULLIFIED BY POSTSHIPMENT
13. BILL PURCHASED SHOULD BE CRYSTALISTED AFTER 30 DAYS OF DUE DATE

WORKING CAPITAL
FUNDS REQUIRED TO ACQUIRE CURRENT ASSET TO USE IN DAY TO DAY BUSINESS
OPERATING ACTIVITY
OBJECTIVE FOR ASSESSMENT:
1. TO KNOW WORKING CAPITAL LIMIT
2. SHORTTERM DEBT REPAYMENT ABILITY
3. ASSESS CREDITWORTHINESS
OPERATING 1CYCLE: BEGINS WITH ACQUISITION OF RAWMATERIAL AND ENDS
WITH COLLECTION OF RECEIVABLES
1. RAW MATERIAL
2. WORK IN PROGRESS
3. FINISHED GOODS
4. SALES BY CASH
5. SALES BY CREDIT
6. COLLECTION OF RECEIVABLE
A. OPERATING CYCLE METHOD:

FOR SERVICE SECTOR, MANUFACTING, TRADER

OPERATING EXPENSES/NO OF OPERATING CYCLE

B. DRAWING POWER METHOD:


MARGIN TO BE DEDUCTED FROM STOCK, SEMIFINISHED GOOD, FINISHED GOOD, BOOK
DEBT ETC
C. TURNOVER METHOD: (FOR LIMIT UPTO 5.00 CR) BY NAYAK COMMITTEE
25% OF SALES TURNOVER. OUT OF 25%, BANK WILL PROVIDE 20%, 5% WILL BE MARGIN
BY CUSTOMER.
OR
25% OF SALES TURNOVER-NET WORKING CAPITAL OF LAST FINANCIAL YEAR.
D. MPBF METHOD:
CA-CL(BANK BORROWING)= WCG
MPBF=75% OF WCG
OR
MPBF=WCG-NWC

WHICHEVER IS LESS

E. CASH BUDGET METHOD:


CASH RECEIPT-CASH PAYMENT=SURPLYS/DEFECIT
HIGHEST DEFICIT MONTH AMOUNT IS FINANCED
FOR SEASONAL INDUSTRY, CONTRACTOR, SOFTWARE EXPORTER
CICR REPORT AS CIBIL

CREDIT INFORMTION COMPANY

ABOVE 20 LAKHS 2 CICR REPORT

IN ROC WE CAN CHECK ABOUT DIRECTOR

GECL

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