PREPARATION OF CREDIT REPORTS

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					                                    INDEX

POLICY SECTIONS   SECTION                                                 SECTION
                  NUMBERS              PROCEDURE SECTIONS                 NUMBERS

                               PREPARATION OF CREDIT REPORTS
                                                                           721.1
                                  PREPARATION OF CREDIT REPORTS

                            SANCTION ORDER FORMAT (ANNEX- 1 TO P.721.1)
                                                                           721.2
                             PREPARATION OF RENEWAL CREDIT REPORTS
        DEPARTMENTAL PROCEDURES MANUAL                    SECTION:P.721.1        PAGE      01
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                          Preparation of Credit Reports                          September 11
No.   SS CLK AM MGR                            PROCEDURE NARRATIVE
                      Separate application and appraisal formats or application cum appraisal
                      formats are prescribed for obtaining the application for credit facilities
                      and appraising and proposing the credit facilities by the braches, based
                      on the nature of the activity and/or the total credit facilities sought, as
                      detailed below: Obtain the application for the credit facilities in the
                      appropriate application form prescribed, along with the required
                      supporting documents like Copies of financial statements for the last 3
                      years, Provisional financial statement as on a recent date (if the financial
                      statement is more than 3 months old), Projected financial statement,
                      individual worth statements, account review/confidential reports, details
                      of collateral securities, sanction orders of Government agencies, I.T/S.T
                      Assessment orders and proof of remittance etc.
                      Note:1
                      Audited financial statements are mandatory, if the proposed credit
                      facilities are for more than Rs.10 lacs.
                      Financials in CMA format is to be obtained, if the proposal is for credit
                      facilities =>Rs.100 lacs.
                      Project report including the projected financials including the DSCR
                      calculations should be obtained, in the case of proposals for terms loans
                      for more than Rs.5 lacs.
                      The application provided under sec.P.720.3 may be used for analyzing
01                    the financial statements and to arrive at the MPBF.

                      Schematic Loans
                      Form No.396 : Common Application form cum appraisal format for
                                     Flexi Loan, Personal Loan, Housing Loan, Consumer
                                     Loan and Private Vehicle Finance
                      Form No.326: Application –cum appraisal format for Education Loan
                          ..       : Application for Loan for Private Vehicles- See Annex to
                                     - P.722.2.F
                      MSME Other than Trading
                      Form No.328 :Application –cum appraisal for MSME Loan below
                                     Rs.25,000/-
                      Form No.296: Application form MSME for credit facilities >Rs.25000
                      upto Rs.10 lacs.
                      Form No.296A: Application form MSME for credit facilities >Rs.2 lacs
                                       Up to Rs15 lacs.

                      Form No.296B: Application form MSME for credit facilities >Rs.15 lacs
                                    Up to Rs.1Crore

                      Form No.296C: Application form MSME for credit facilities >Rs1 Crore
                            ..     : Application form MSME for credit facilities (HO level
                                    sanctions) with Check list


                                           1
        DEPARTMENTAL PROCEDURES MANUAL                    SECTION:P.721.1   PAGE      02
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                          Preparation of Credit Reports                     September 11
No.   SS CLK AM MGR                            PROCEDURE NARRATIVE
                      Trading and Miscellaneous
                      Form No.143: Application form for Trading and Miscellaneous
                      Form No.151: Proposal form for Trading and Miscellaneous
                      DRI Loan
                      Form No.320: Application cum appraisal format for DRI Loan
                      FSL-D
                      Form No.83 : Loan Application form (Use for FSLD, staff Festival Loan
                                     etc.)
                      Public Utility Vehicles and Transport Operators
                      Form No.59 : Application for Term Loans to finance Public utility
                                    Vehicles and Transport Operators.
                      Form No.60 : Appraisal format for Term Loans to finance Public utility
                                    Vehicles and Transport Operators.

                      Agricultural Loans
                      Form No.249 : Application for Agricultural Short Term/Term Loan
                                     (Use also appropriate annexure – purpose-wise)
                      Form No.249A : Application for Renewal of Agricultural Short Term/
                                     Term Loan
                      Form No.249B : Application for Agricultural Crop Loan (Annexure-1)
                      Form No.249C : Application for Sinking of New Well (Annexure II)
                      Form No.249D : Application for Repairs to Well (Annexure III)
                      Form No.249E :Application for construction of Tube Well(Annexure IV)
                      Form No.249F :Application for Purchase of Pump set with Oil Engine or
                                     Electric Motor(Annexure V)
                      Form No.249G: Application for Purchase of Bullocks (Annexure VI)
                      Form No.249H: Application for Purchase of Milche Cattle or Other live
                                     stock (Annexure VII)
                      Form No.249 I : Application for Poultry(Annexure VIII)
                      Form No.249 J : Application for Improvement of Land/Building
                                     (Annexure IX)
                      Form No.249K: Application for purchase of Tractor/Power Tiller/Other
                                      Farm machinery (Annexure X)
                      Form No.249L: Application for Installation of Gobar Gas Plant
                                     (Annexure XI)
                      Form No.249M:Application for Horticulture/Plantation Crop (Annexure
                                     XII)




                                           2
        DEPARTMENTAL PROCEDURES MANUAL                    SECTION:P.721.1       PAGE      03
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                          Preparation of Credit Reports                         September 11
No.   SS CLK AM MGR                            PROCEDURE NARRATIVE
                      Appraisal cum Proposal Format for Large Value Credit Facilities
                      Form No.151A: Proposal format for total credit facilities >Rs2 Crores
                                   : Proposal format for Fresh UBD/DBD(LC) Limit
                                   : Proposal format for Credit facilities <Rs5 Crores (HO
                                     sanctions)
                                   : Proposal format for Credit facilities >Rs5 Crores (HO
                                     sanctions)

                      Sanction Modification Format
                                   : Board/MCB sanction Modification format
                      Adhoc Limits
                      Proposal cum Recommendation format for Adhoc Limits

                      UBD/LC Limits
                      Format for UBD/LC limits below MCB Powers
                      Process the application for credit facilities and Prepare the credit report
02
                      in the appropriate appraisal form prescribed.
                      Rate the proposal using the appropriate rating matrix/rating model
                      prescribed and award the rating and confirm that the ratings are within
                      the minimum prescribed rating criteria for entry/Renewal as per the
                      Credit Risk Management Policy B.
                      Note:2
                      The powers for confirming the rating are as per the delegated powers
                      to the various functionaries. At present the delegated powers are as
                      follows:
                               The Risk Officers at Regional Offices can rate accounts up to
                               and including the limit of Rs.250 lacs and get it approved by
                               the sanctioning authority at the branches (for AGM Branches)
03                             / Regional offices / Head office)
                               Rating of UBP limits by RO Rs.1000 lacs
                               For limits ranging between Rs.100 lacs to Rs.250 lacs (both
                               inclusive) Regional Offices are to submit the details of the
                               accounts rated and approved by the sanctioning authority, on
                               a monthly basis to IRMD on or before 10th of the succeeding
                               month in the prescribed Format.
                               Above the cut off limit: IRMD
                               All the approved rating sheets should be kept along with the
                               relevant party file at regional offices.




                                           3
        DEPARTMENTAL PROCEDURES MANUAL                     SECTION:P.721.1        PAGE      04
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                          Preparation of Credit Reports                           September 11
No.   SS CLK AM MGR                            PROCEDURE NARRATIVE

                      Recommend the Credit facilities:
                               If the credit limits are within the powers of the Branch, the credit
                               officer/the officer in charge of the credit desk may recommend
                               the credit facilities.
                               If the credit limits are within the powers of the RO/HO, the
                               branch head shall recommend the credit facilities.
                               RO head shall recommend the credit facilities, if the credit limits
                               falls within HO/Board powers.
                      While giving the Manager’s recommendation, what is required is a
04                    brief reference to :
                      (a) the business experience, reputation, background and integrity of
                             the borrower as assessed by the Manager;
                      (b) explanation as to the excess over limits if any allowed at any
                             time during the period of review;
                      (c) the financial statements that have been obtained and analysed,
                             short comments on the ratios indicating the liquidity, stability,
                             management ability and profitability of the concern.
                      (d ) In all cases of renewal proposals, the review of account appropriate
                             to the account should accompany giving all the particulars.

                      Record the sanction in the Register.
                      Note:3
                      Sanctioning authorities should maintain a register of applications
                      received indicating the manner and the time within which the
05                    applications have been disposed of.

                      RO officials while making the branch visit shall ensure that Branches
                      keeps the register properly.

                      Reporting to the Next Higher authority:

                      All advances granted by the sanctioning authority during the month
                      should be serially numbered and reported to the next higher authority
                      within 15 days from the close of the month, in the prescribed format.
06                    Note:4
                      A register for sanctions made by each sanctioning authority is to be
                      maintained for the purpose. Branches should not exercise their delegated
                      powers if they fail to submit the statement within 15th day from the close
                      of the previous month, until submission of the same to R.O.




                                           4
        DEPARTMENTAL PROCEDURES MANUAL                    SECTION:P.721.1      PAGE      05
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                          Preparation of Credit Reports                        September 11
No.   SS CLK AM MGR                            PROCEDURE NARRATIVE
                      Maintaining the Register for Rejected applications:

                      Sanctioning authorities shall maintain a register of limits declined by
                      them with columns showing name of applicant, nature and amount of
                      limit, date of receipt of proposal, date of rejection and reasons for
                      rejection.
07
                      Note:5
                      Limits can be declined only with the approval from next higher
                      authorities for applications from the priority sector (including
                      applications for educational loans) and export sector and those pertaining
                      to SC/ST applicants.

                      Preparation and issuing the Sanction Orders:
                      Once the credit facility is sanctioned, a sanction order (Annexure XIII)
                      should be prepared, duly signed by an authorised officer.

                      The Sanction order should be communicated to the branch which has
08
                      recommended the proposal, with a copy to the Centralised Data
                      Management Centre (CDMC).

                      In the case of sanctions by HO executives and Board, a copy of the
                      sanction order will be endorsed to the concerned Regional Office also.




                                           5
                           THE SOUTH INDIAN BANK LIMITED
                                REGISTERED OFFICE: THRISSUR

                                          SANCTION ORDER

Branch     :                                               RO :
Code       :

Sanctioning authority           Sanction reference                         Sanction date



Name of borrower

                                                   Sector                    :
                                                   Occupation code           :
                                                   Spl class code            :

Application date

Activity of the borrower          :
Rating                            :

DETAILS OF FACILITIES ALLOWED:

I) Nature of Facility                 :
Limit                                 :    Rs             – Fresh/ Cont/ Enh/ Redu
Purpose                               :
Rate of Interest                      :     BR + Spread         (floating-----)/ (fixed--------)
Primary Security                      :                                | Value : Rs             lakh
Margin for DP                         :           %
Margin deposit for LC/ BG             :           %
Mode of disbursement                  :
Usance period for bills/ LC/
Period for BG
Validity of sanction
Repayment Holiday                     :
Loan period excluding holiday         :
Repayment (EMI etc.)                  :
Other terms                           :
                                      :
Collateral security:

No. Item description       Owner         Res/ res for   Mcorpn/   Branch Valuation by
                                         dev/ comm./    municip/ Valuation expert
                                         vacant         panch
 1 Landed property


No. Item                   Face value/ Accrued value/
                           Invoice     WDV
                           value
 2 Other securities
    Grand total

Guarantors
No.                             Name                         I/W
    Personal guarantee/         1)
    Co-obligants                2)
                                3)
    Corporate guarantee         4)

Charges to be collated in the account:
No. Item                                                  Amount (Rs) Frequency
 1 Upfront fee                                                       One-time
 2 Processing fee                                                    One-time
 3 Property valuation charges                                        One-time
 4 Documentation charges                                             One-time
 5 Inspection charges for stock/ book debts                          Monthly
 6 Inspection charges for machinery/ fixed assets                    Quarterly
 7 Inspection charges for property                                   Yearly
 8 Other charges advised from time to time

Penal charges:

Inspection:

Other general terms:
1.
2.

SENIOR MANAGER

Copy to:       RO
               Data Centre, Kochi
        DEPARTMENTAL PROCEDURES MANUAL                     SECTION:P.721.2          PAGE     01
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                               Renewal Credit Reports                               September 11
No.   SS CLK AM MGR                             PROCEDURE NARRATIVE

                      The working capital limits are generally granted for duration of one year
                      and should be subjected to review by the sanctioning authority before
                      allowing renewal and continuance with enhanced/reduced/same limit/s.
                      Renewal of a credit facility involves the process of taking a fresh
                      application for credit facilities from borrowers, obtaining latest as also
                      projected financial statements, reappraising the working of the unit with
                      reference to the utilisation of the working capital limit, revaluing
01                    securities, reassessing the working capital needs, getting sanction from
                      the appropriate authority for continuance/enhancement/reduction in
                      credit facilities as the case may be.
                      Note:1
                      Branches should start the process of renewal of credit facilities at
                      least two months prior to completion of the one year period so that they
                      would be in a position to obtain the latest financial statements from the
                      borrower, process the proposal and obtain sanction for renewal well
                      within the prescribed time limit of one year.

                      A renewal proposal is required in the following cases:
                               When the partnership firm is reconstituted owing to the death or
                                retirement of one or more partners.
                           When there is a change in the guarantor/co-obligant.
                               When there is a change in the Director of a company or in the
02
                                Directors in their capacity as guarantors;
                               When there is a change in the Memorandum of a company which
                                will materially affect its business;
                               Any other factor affecting the advance adversely.
                               All working capital credit facilities on completion of one year
                                from the date of availment.




                                            1
        DEPARTMENTAL PROCEDURES MANUAL                   SECTION:P.721.2        PAGE      02
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                            Renewal Credit Reports                              September 11
No.   SS CLK AM MGR                          PROCEDURE NARRATIVE

                      The working capital limits should be renewed every year for the
                      following reasons :
                      a)   At the time of sanction of the working capital limit, the quantum
                           of advance had been assessed based on projected figures for one
                           year and hence took care of working capital needs for the next
                           year only. Naturally, the working capital requirement of the
                           customer may vary in the subsequent year/s and hence reappraisal
                           of the working capital requirement is required every year.
                      b)   The renewal exercise enables the bank to review the performance
                           of the borrower unit in the areas of sales, production, profits, etc.
                           as compared to the projections made by the borrower in the
                           previous year.
                      c)   This is an opportunity to review the conduct of the bank account
03                         especially regarding utilisation/under-utilisation of the credit
                           limit, total debit turnover, total credit turnover, fluctuation in
                           account balances, whether interest debited was serviced promptly,
                           history of cheque returns, any symptoms of sickness, etc.
                      d)   Bank can review the securities. Renewal gives an opportunity to
                           revalue all the securities including collateral securities and also to
                           cross check whether charges have been registered with Registrar
                           of Companies, etc.
                      e)   This is an occasion to measure the value of the account or the
                           usefulness of the account to the bank by way of interest received,
                           non-interest income, fresh deposit/advance connections received
                           through the borrower, etc.
                      f)   RBI has made it obligatory for banks to review working capital
                           limits on an yearly basis.




                                         2
        DEPARTMENTAL PROCEDURES MANUAL                    SECTION:P.721.2        PAGE      03
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                               Renewal Credit Reports                            September 11
No.   SS CLK AM MGR                             PROCEDURE NARRATIVE

                      Obtention of financial statements :

                      For the purpose of reassessing the credit requirements after one year,
                      Branches have to obtain:

                      Latest financial statements as also projections for the next year. In the
                      case of large borrowers or companies, apart from Balance Sheet and
                      Profit and Loss account, other documents forming part of the financial
                      statements such as Director’s report, Annexure to Director’s report,
                      Auditor’s report, schedules forming part of balance sheet, schedules
                      forming part of Trading and Profit & Loss account, Notes on accounts,
                      significant accounting policies, statement of subsidiary companies with
                      financial statements of each subsidiary company, etc. should also be
                      obtained.

                      Note:2
                      In terms of RBI guidelines, banks have to verify the audited financial
                      statements of borrowers where total credit facilities sanctioned/proposed
                      are Rs.10 lacs & above.

04                    All Limited Companies and Trusts will be having audited financial
                      statements as preparation and auditing of the financial statements are
                      compulsory for them.
                      The Income-tax Act makes it mandatory for entities engaged in
                      commercial activities to furnish tax audited financial statements along
                      with their IT returns if the turn over exceeds Rs.40 lacs or gross receipts
                      exceed Rs.10 lacs.
                      The last date for filing IT return for different categories of assessees are
                      as follows:
                      1.    Limited Companies             - 30th November

                      2.    Others, having profit or gain from business or profession :
                            a) Where tax audit is applicable - 31st October
                            b) Others                          - 31st August
                      3.    All others                         - 30th June
                      Hence, the audited financial statements would be ready at least by the
                      above mentioned dates and hence the bank can obtain the same from the
                      borrowers accordingly.




                                            3
         DEPARTMENTAL PROCEDURES MANUAL                      SECTION:P.721.2        PAGE      04
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                               Renewal Credit Reports                               September 11
No.    SS CLK AM MGR                            PROCEDURE NARRATIVE

                       In addition to the points discussed under Procedure section.P.720.2
                       procedures and tools for analyzing financial statements, the following
                       additional points may also be taken care of:

                       1. Regrouping of assets and liabilities

                       The liabilities and assets in a balance sheet are to be regrouped. The
05.a                   liabilities are to be reclassified into (a) Current Liabilities (b) Deferred or
                       term liabilities and (c) Capital & Reserves. The assets are to be
                       reclassified into (a) Current Assets (b) Non-current assets (Eg.
                       investment in shares of other Companies, advances to other
                       firms/subsidiary companies not connected with business of the
                       borrowing firm) (c) Fixed assets and (d) Intangible assets (Eg.
                       preliminary expenses, goodwill, bad/doubtful debts not provided for,
                       etc.) If the regrouping is not correctly done the calculation of MPBF,
                       ratio analysis, etc. will go wrong.

                       2. Diversion of short term funds :
                       From the balance sheet, the banker should be able to find out whether
                       short term funds including bank finance have been diverted for acquiring
                       fixed assets. When the current assets are less than current liabilities,
                       it indicates that part of the current liabilities have been used for
                       building up of fixed assets, non current assets or intangible assets.
                               Diversion of bank funds can be detected by a perusal of the
                                operative account ledger. Cheques issued by the borrower in
                                favour of parties not related to his business. Payments made to
05.b                            chit funds, private financiers, suppliers of fixed assets,
                                unexplained frequent cash withdrawals etc., indicates fund
                                diversion.

                               Poor turnover or low level of operations in the account indicates
                                either the sale proceeds are routed          through some other
                                banks/used for some other purposes unconnected to the purpose
                                of the advance or that sales have come down.

                               Frequent returning of cheques issued by the borrower due to
                                insufficient funds in the account.




                                            4
         DEPARTMENTAL PROCEDURES MANUAL                    SECTION:P.721.2       PAGE      05
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                              Renewal Credit Reports                             September 11
No.    SS CLK AM MGR                           PROCEDURE NARRATIVE

                       3.Manipulation of accounts by borrowers :
                       In some cases, the borrowers present a clean balance sheet to the banker
                       by    doing     some    adjustments/changes      in   the    accounting
                       systems/procedures, as mentioned below:
                       a) Revaluation of fixed assets –
                       In some cases, the borrower with a weak capital base will revalue the
                       fixed assets for the purpose of increasing the reserves, thereby showing a
                       better financial position. Many a time the revaluation will not be
                       disclosed to the bank and so banker may believe that the borrower has
                       acquired some new fixed assets. Hence whether any revaluation of the
                       Fixed Assets is made during the period and the impact of such
                       revaluation on the profits and financial position of the unit has to be
                       considered carefully, while analyzing the financials.
                       b) Overvaluation of stock so as to show inflated profits.
                       c) Changing the method of calculating depreciation on fixed assets.
                       Some Companies who follow ‘straight line’ method for calculating
05.c                   depreciation may suddenly change over to ‘written down value’ method
                       so as to save the amount to be provided for depreciation and to declare
                       higher profits. ‘Straight line method’ involves calculating the
                       depreciation as a fixed percentage of the ‘original cost’ where as ‘written
                       down value’ method involves calculating the depreciation on the ‘written
                       down value’ of the asset as on the previous financial year end.
                       d) Changing the accounting year:
                       This may be for the purpose of delaying finalisation of audited accounts
                       or extending the accounting period from 12 months to 15 months so as to
                       reflect a better position.
                       e) Inadequate provisioning for contingent liabilities, staff benefits,
                       etc.
                       Not providing for certain expenses (Eg. a bill for a substantial amount
                       due for payment in March, not paid during the year ending March.

                       These types of manipulations can be found out on a thorough scrutiny of
                       the Auditor’s report, Notes on accounts, Significant Accounting policies,
                       etc. attached to the balance sheet, and on comparing with the previous
                       year’s Balance sheet and other statements.




                                           5
         DEPARTMENTAL PROCEDURES MANUAL                     SECTION:P.721.2        PAGE      06
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                              Renewal Credit Reports                               September 11
No.    SS CLK AM MGR                            PROCEDURE NARRATIVE

                       4. Overstating of stock, receivable & sales :

                       The projection made by the borrower for stock, receivables and sales
                       should be realistic and comparable with past figures. If the party had
05.d                   been doing business by holding one month’s requirement of stock and
                       extending credit for one month, normally the party should project stock
                       & debtors for one month only in the projected balance sheet also.
                       Similarly, if the sales projection is abnormal or found to be unrealistic, it
                       should be checked with the borrower and find out the reasons for such
                       projection of higher sales turnover.

                       5. Erosion of capital:

                       The net worth of the unit should be considered after adjusting the
                       accumulated losses, withdrawal from partners’ current accounts and
05.e
                       other intangible assets such as goodwill, preliminary expenses, etc. If the
                       aggregate of such items exceed the net worth (capital and reserves), it
                       means that the tangible net worth is negative or the borrowers’ stake in
                       the business is nil. In such cases, the customer has to infuse more funds
                       into the business so as to have adequate level of capital funds.

                       6.Trends in profits:

05.f                   The trends in the Net profits and also the profitability margins – Gross
                       profit margin and Net profit margin as a percentage to the Turnover -
                       have to be analyzed and compared with the profit margins of similar
                       units.

                       7. Shortage of working funds:

                       While doing the review of the account, it should be verified whether
05.g                   there was shortage of working funds for the unit during the past year
                       and if there was any over-dependence on private borrowings and other
                       sources for raising funds. The private borrowings from finance company
                       carry high rates of interest which in turn will affect the profitability of
                       the business unit.




                                            6
         DEPARTMENTAL PROCEDURES MANUAL                     SECTION:P.721.2        PAGE      07
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                              Renewal Credit Reports                               September 11
No.    SS CLK AM MGR                            PROCEDURE NARRATIVE

                       8. Asset Liability Management:

                       Banker should closely observe the liabilities and assets in the balance
05.h                   sheet of the borrower and find out mismatches, if any. The individual
                       items in liabilities and assets - the sources of funds (Liabilities), cost of
                       funds, maturity pattern of liabilities, nature of assets created, etc., will
                       have to be ascertained.
                       9. Controllable expenses:
                       While analyzing the operating statement or Profit & Loss account,
05.i
                       controllable expenses should be identified, analysed and compared with
                       the previous years and advise the unit to control the same and also to
                       reduce the selling and distributing expenses, if required.
                       10. Payment of statutory dues:
05.j
                       It should be ensured that all statutory dues have been paid and adequate
                       provision has been made for contingent liabilities.

                       11. Unusual remarks:
                       Unusual remarks made, if any, in the auditor’s report or Directors’ report
05.k                   should be taken care of. For example, in the Directors report, if there is a
                       mention about the retirement of a key director, the impact of the event on
                       the business should be studied, as this issue ultimately affects the
                       management of the business enterprise.
                       12. Quality of assets:
                       Even though the balance sheet gives particulars of the various assets, the
                       quality of the assets whether current, fixed or intangible are not reflected
05.l                   in the financial statements. A prudent banker should satisfy that the
                       stock is of good quality, the debtors are going to repay (debts are
                       realisable and not very old) Plant and Machinery are not outdated and
                       adequate depreciation has been provided, party enjoys good reputation in
                       the market so as to justify the extent of goodwill shown as an asset in the
                       balance sheet etc.




                                            7
         DEPARTMENTAL PROCEDURES MANUAL                      SECTION:P.721.2        PAGE      08
 SIB
                              Renewal Credit Reports                                September 11
No.    SS CLK AM MGR                            PROCEDURE NARRATIVE

                       13. Verification of stock:
                       Before submitting the renewal credit report, the Branch officials should
                       verify the stock and ensure that the cash credit facilities availed are
                       within the drawing power (i. e. stock value minus margin).
                       While inspecting the stocks the official should verify the stock register
                       also to cross check whether the stock statement furnished reflects the
                       correct position of stock level. In the case of large borrowers, the
05.m                   inventory may be lying at multiple locations, viz., stock in the factory
                       premises, stock in the sales depots of the company, raw materials in the
                       godowns, materials and semi-finished goods sent to outsiders for
                       conversion & processing and also the stock-in-transit.
                       Branch officials concerned should find out whether there is any
                       difference in the value of stock as per the balance sheet and the stock
                       statement as on the balance sheet date. Also, the value of stock as per
                       projected balance sheet should be sufficient to provide sufficient DP,
                       after considering the DP against debtors allowed, if any.

                       14. Unsecured Loans from directors :

05.n                   Unsecured loans from the directors of the borrowing company are to be
                       treated as current liabilities, if no tenor for such loans is mentioned. If the
                       loans are to be repaid after one year, those can be treated as deferred
                       liabilities.
                       15. Statutory liabilities :
                       Provision for disputed excise duty need not be classified as current
                       liability, if the amount is payable in installments spread over a period
                       exceeding one year as per the orders of competent authority such as
05.o                   Excise Dept., Court etc.
                       Disputed liabilities in respect of income tax, customs and electricity
                       charges need not be treated as current liability for the purpose of
                       computation of MPBF except to the extent provided in the books of the
                       concern.




                                            8
       16. Contingent liabilities :
       Contingent liabilities are not reflected in the balance sheet. But there will
       be special mention about the contingent liabilities in the auditors’ report.
       The banker has to be careful about these contingent liabilities as these
05.p   may crystallise into real financial liabilities for the borrower, in future.
       Contingent liabilities include claims against the company not
       acknowledged as debts such as Income tax, sales tax, customs duty,
       excise duty etc., obligations under letters of credit/guarantees issued by
       banks on behalf of the company, guarantees issued by the company on
       behalf of subsidiaries and associates.




                            9

				
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