Page 27 - Banking Finance June 2021

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account & its operations closely & taking/initiating A careful analysis of these warning signals will throw
corrective actions at the first instance of observance of sufficient light on the direction towards which the unit is
incipient weakness/stress. going and the same should be used to our advantage in

Y Tax incidence/Tax Laws/Litigations etc. resulting into safeguarding the Bank's interest. Here it is clarified that all
those warning signals which are noticed in a Borrowal
attachment of cash flows, Units, Assets, Properties etc.
account primarily at the branch level and mostly during
of the borrowal account.
operations in the account. While building such advanced
Y Lack of Timely & adequate corrective action by
logic, the patterns / trends as well as outside data are used
Promoter as well as lenders jointly, to cope up the
for generating the alert for the creeping incipient weakness
disruptive circumstances / economic conditions.
in the loan account.
Y Cancellation of Government orders / Bulk orders
resulted in jamming the cash flow of the borrowal/loan Scope of Work comes under ASM:
account leading to stress.
The Broad scope of work for the external agency, ASM as
Y It is also observed that in case where the major Debtors suggested by IBA in carrying out a clean and effective
of a borrower face stress, the same resultantly creeps monitoring of account as under:
into the borrowal/loan account also. Y Monitor the purchases /invoices of the company for
Y Production of defective or substandard product leading procurement of raw material /spares etc. ., on
to rejection of bulk order giving rise to unwarranted periodical basis and compare vis-à-vis monthly operation
inventory being locked. budget submitted by the company as per the periodicity
Y Many a times, there is delay due to reasons beyond the decided by the consortium.
control of borrower leading to cost as well as time Y Review inventory buildup for operation of the units to
overrun finally resulting into building up of stress in verify if it is commensurate with the funds released.
Borrowal Company as it requires additional capital
Y Monitor the actual operation vis-à-vis projections
infusion.
Y Verify the necessity of each high value payment as
Y Delay in securing various approvals and clearances.
regards beneficiary and purpose
Y Poor Project Planning/execution/monitoring also lead to
Y Assessment of financial information that has been and
stress in borrowal/loan account in later stages.
that will be provided by the company to its lenders
Y Lack of skilled staff was another reason which including information related to its short term and long
contributed to stress in the account. term cash flows
Y At times, delay in disbursement from lenders (due to Y Identify key issues and submit a report along with the
required approvals/clearances/promoter margin etc.) suggestion with regard to smooth operations of the
also led to stress in account. project.
Y Verification of evidence for end use of facilities by the
Importance of Early Warning Signals in
company to confirm that utilization is as per the
Credit Monitoring: conditions laid down by the lenders

Maintaining of the health of a borrowal/loan account is of Y Submit report on the inventory/receivables position of
paramount importance to the Bank. Increase in the stressed the company including slow moving inventory, if any, to
assets portfolio of the Bank does not augur well for the arrive at appropriate drawing power of the company.
health of the Bank and may lead to a difficult situation
where the bottom line is adversely affected which in turn Y Perform such other services as requested by the lenders
and mutually agreed to by the company and the lenders
will impact the stakeholders. We all know no advance
and submit report on temporary/long term/unscheduled
account can turn bad overnight. The account emits
closure of manufacture facilities.
sufficient signals and it is for us to constantly observe and
capture such signals so that timely remedial action is Y Verify source of margin towards working capital/letters
initiated to avoid slippage. of credit/Bank guarantees

BANKING FINANCE | JUNE | 2021 | 27