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HOW TO APPRAISE TERM LOAN PROPOSALS?

  (This post explains important ratios are to be examined while appraising a term loan project. The article also deals with how to compute break even point , how to calculate DSCR (Debt service Coverage ratio) for the period of repayment of the loan, how to arrive fixed asset coverage ratio and important financial indicators . The assessment of DPG/APG etc is done in the same method how term loan is assessed, as they are the substitution of the term loan.) Term loan appraisal covers the appraisal of the borrower and appraisal of the project. The characteristics of a term loan are that term loan commitments are to be of long term. The banks and financial institutions normally offer term loans repayable in 10-15 years and beyond that period in  exceptional cases like housing loans. The repayment would be made out of cash generated from business activities. Appraisal of the borrower covers the honesty and integrity of the borrower, the standing of the borrower, business capac...

WHAT ARE THE METHODS USED FOR WORKING CAPITAL APPRAISAL?

  (This post explains the definitions of   working capital ,  Operating cycle  and various methods of working capital appraisal viz.   Tandon’s first method, Tandon’s second method, Turnover method or Nayak committee norms, Cash budget method, Chore committee norms,  Maximum permissible bank finance, Minimum permissible bank finance and Important things to note in assessment of working capital assessments) Definitions of  (a)working capital , (b) Operating cycle : (a) Working capital means the sum of the funds invested at various current assets used in the operating cycle, by the industrial and trading establishments. (b) Operating cycle  means the length of time required to convert ‘Non-Cash current assets’, ( like raw material (RM), work in process (WIP), finished goods (FG), and receivables)  into  cash . Methods of Working capital appraisal: B anks in India have evolved their own method of lending as they have been given ...

No More a Shadow (of a) Bank

(Remarks delivered by Shri M. Rajeshwar Rao, Deputy Governor, Reserve Bank of India – February 09, 2024 - at the NBFC Summit organised by Confederation of Indian Industry at Mumbai)  Regulatory approaches for NBFC sector While framing the regulations for the financial sector, Reserve Bank has always been conscious of the fact that the degree of regulation of a financial entity should be commensurate with the perception of risks posed by the entity and the scale of its operations on the financial system.  Our regulatory approach towards NBFC sector has been guided by a combination of activity-based and entity-based regulations to safeguard financial stability and protect customers. We have tried to leverage the strengths of both these approaches to achieve a more comprehensive and flexible regulatory framework. We find this hybrid approach particularly valuable for an ever evolving NBFC Sector, where innovations and new business models seem to be constantly emerging. ...