Page 48 - Banking Finance April 2022

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the years may be increased to meet out minimum DSCR of per annum, the selling price is Rs. 200 per unit, variable cost
1.2 and average DSCR of min. 1.5 to make the project as a is Rs. 120 per unit and fixed cost is say Rs. 40000 per annum.
Bankable project. Then the break even quantity as per above formula is 500
nos. This means break even is at 50 % capacity utilization
Sensitivity Analysis: and BEP sales is Rs. 100000.
Sensitivity analysis is done assuming reduction in say by 5%
in selling price or increase in raw material prices by 5 % Assuming the unit produces uniform quantity in each month
depending upon the price fluctuations in industry and throughout the year, then BEP will be reached in 6 months
working out revised profitability and DSCR. In scenario and after that the unit will start generating the profit. Thus
BEP can be used to fix the moratorium period. In this case
analysis, more than one parameter viz. reduction in selling the moratorium period can be minimum 6 months from the
price and increase in raw material price are assumed
commencement of commercial production. The lower the
simultaneously and DSCR is worked out. The DSCR after BEP, it is desirable. BEP more than 65 % is considered as
sensitivity analysis should be more than 1.00.
risky.
Break even Point (BEP) Analysis: Conclusion:
The sales level at which there is no profit or no loss its called Credit decision is very vital study. The bank needs to finance
break even sales. The Break even quantity is calculated by the proposal which in long run remains standard and give
the following formula. earning to the bank. The credit decision is dependent upon
various factors like selection of the borrower, selection of
(Fixed cost per annum) sector (industry) to be finance. The success of any project is
BEP Quantity =
(Selling price per unit-Variable cost per unit) dependent upon the capacity, character and capital
contributed by the borrower. We need to study the project
The fixed cost is the cost which remains fixed irrespective starting from studying the borrower, the infrastructure &
of quantity produced viz. rent, manager's salary, interest on inputs required to set up the manufacturing unit. After
term loan etc. The variable cost varies directly with quantity thorough study of qualitative parameters and quantitative
of production viz. raw material cost, labour cost, power cost parameters, we can analyse the project for its technical
etc. Suppose a unit has capacity to manufacture 2000 units feasibility and economical viability. T

ICICI Bank to raise up to Rs. 8,000 crore via infra bonds
Private sector lender ICICI Bank is planning to raise upto Rs 8,000 crore through infrastructure bonds to finance
projects in sectors like transport and power and affordable housing.
Debt market sources said while the private lender is raising upto Rs 8,000 crore in current round, rating agency
Crisil has assigned "AAA/Stable" for Rs 10,000 crore of bonds. Lenders have always an option to raise money in
tranches.
The issue size is Rs 500 crore with green shoe of Rs 7,500 crore. It will be a 10-year paper. The interest rate rate
scenario is unclear due to volatility in markets. The highly rated long term paper (10-year) from corporate would see
a coupon of around 7.25-30 %, bond dealers said.
ICICI Bank did not respond to email queries on fund raising through infrastructure bonds. Its exposure to Road, ports,
telecom, urban development and other infrastructure was Rs 48,981 crore at end of March 2021, according to
annual report for FY21.
Funds raised through this route are exempt from liquidity norms Cash Reserve Ratio and Statutory Liquidity Ratio
(SLR) requirements and are deployed in long term infra and affordable housing credit.
Crisil in its rating review said the bank actively finances projects for capacity creation in environment-friendly sectors
like renewable energy and other sustainable sectors.

48 | 2022 | APRIL | BANKING FINANCE