Page 46 - Banking Finance April 2022

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FDA permission of Food and Drugs, explosive use permission with the documents and quotations submitted by the
& explosive storage permission and boiler inspector borrower and also ensure its reasonability and acceptance.
permission are required to be obtained. We have to ensure He has to take some assumptions for manufacturing cost
all the approvals and permission are obtained by the and raw material cost etc. The cost of project is to meet
borrower for its smooth functioning. out from Promoters contributor and unsecured long term
loans and by bank finance by ensuring DER ratio. The
3. Environment Appraisal: indicative items of cost of the project and means of the
If effluents are generated during the process, the finance in case of manufacturing unit are as under.
consent to establish / operate is to be obtained from
state pollution control board. The arrangements for Cost of the Project Means of the Finance
effluent treatment plant / effluent disposal needs to be Particulars Amount Particulars Amount
verified. In case boiler used in manufacturing process, Land Promoter's
the permission of Boiler Inspector needs to be obtained contribution
to ensure that necessary arrangement for air pollution Building Unsecured
control are made. In case of infra- structure projects
loans- Long term
like road and power, the Forest Dept. clearance /
Plant & Machinery Term loan from Bank
environment clearance, mining approval etc. needs to
be ensured. Furniture & Fixture
Technical know-
4. Commercial Appraisal: how fees
The product which the borrower is going to Interest during
manufacture has to be studied from various view points. construction (IDC)
Sometimes, the product is new in the market then we Preliminary& Pre-
cannot ensure the acceptability in the market, its operative expenses
durability and its competiveness with the alternative
Contingencies
products which are already available in the market.
Some products have higher obsolescence like electronic Margin for working
items. Sometimes the product proposed is already capital
outdated from the market like compact disk and type Total Total
writer etc. So before sanctioning any proposal the study
of the product should be done. The contingencies are added in the cost of project to take
care the cost escalation for construction of building and cost
The demand & Supply for the products manufactured, major of plant and machineries etc. i.e. increase in cost of project
customers, arrangements made for market promotion, due cost overrun. When the borrower proposed working
selling arrangements like direct selling to customers / selling capital from the bank, then it is ensured at the initial stage
through dealers / distributors, major competitors, strength the margin for working capital is with the borrower, so it is
of the firm, how competition will be overcome etc. needs included in the cost of project. Further, interest during
to be verified. The threat of cheaper imports / better construction (IDC) is normally expected to be met out of
substitutes is to be studied. The sales projections made by promoter's contribution. The Debt equity ratio, Total outside
the firm should be reasonable and all the supporting liabilities / TNW should be within the bench mark as per loan
information / business assurance letters etc. needs to be policy of Bank.
obtained to assess the reasonableness of projected sales.
B. Assessment of Term loan quantum / limit
Financial Appraisal: The term loan amount is calculated by the bank after

A. Cost of the Project & Means of the Finance: deducting promoter contribution for each of the head
The Cost of project and means of finance are obtained from mentioned in the cost of project. The margin is to be
the borrower. The each head of cost of project is verified maintained as per bank loan policy

46 | 2022 | APRIL | BANKING FINANCE