c


 

c c


Project appraisal gives generic idea and plan about the business proposal. Later on, it tells about
how the business proposal evaluate for project financing for credit facility in the bank. This
process is assessing project planning, project budget, capability and experience about the
business. Project appraisal is evaluating the effort of the project and calculating the project¶s
viability.

c 






The project embodies a study of the lending system of Andhra bank and state bank of India to
different small and medium business units and its effectiveness. The main aim of this project is
to know the process of financing and its appraisal for a proposed enterprise.‘

c 






From this study at the Andhra bank, with the help of the business cases, we can know about the
financing system of the Andhra bank. This study helped to dig out the information about how the
SME sectors are being financed in Andhra bank as presently all the SME sectors are growing.
This study also helps to understand the whole business plan, project appraisal, credit rating
system and its major criteria for credit facility from the banks.

c 
 !

For project Appraisal of cases, Data were collected from Internal and External sources. The
study is conducted with the help of personal interviews with the loan officer, finance manager
from primary sources using the suggestive question. The secondary data were collected from the
business cases of the Paralakhemundi with the help the Andhra bank.

c




! 


!

 c
 "c


c c
#$ 

M/S SIVA SHANKER CASHEW INDUSTRY

AT; SIDHAMADANGO

PO: RANIPANTHA

TAHASIL: PARLAKHEMUNDI

DISTRICT: GAJPATI, ODISHA.

The industry is located in Sidhamadango a village near to Paralakhemundi. The unit is located
near to Paralakhemundi, so they have all the advantages of procurement of Raw material and
market for the product. They can procure raw material from inside and outside of the district
mainly from Khandava, Kashinagar, Haddubangi, and Gunupur.

The unit can sale the finish goods not only the nearby market of Palasa and
Paralakhemundi but they can sale in various places like Hyderabad, Nagpur, Raipur,
Ahmadabad, Kanpur etc through the commission agents. The cashew dry fruits have its demand
and market throughout the year.

The cashew unit is a labor-oriented unit, so the unit needs a large no. of labor. The total man
power require for cashew unit is 45 which include machine operator, roster man cum helper ,
grading man, packaging, unskilled labor, accountant and watchman

The total Working day is 300 days per annum; working hr. 8hrs per day with single shift.
Electric power is to be utilized for driving of machinery and general lighting purpose. The unit
needs three H.P power from SOUTHCO.

a



 c 

 
!  

a
 c
 
%


The management will be done by P. Krishna kumari who is having a vast experience in working
and managing cashew business, but she was only doing trade earlier. As it¶s a project of cashew
business only there is no need for much technical knowledge. As the borrower has taken a loan
earlier and had paid it in time its shows his honesty and integrity. As she has already owned a
cashew trading business, which she was managing it properly its shows her entrepreneurial
talent.

 c  
&
' !

Shiv Shankar Cashew Industry is located at Paralakhemundi; due to availability of raw material
in this area. The amount of the land is Rs 1.00 Lakh contributed by the promoter. There are
machine like bowler and roster and other plant requirements are available in nearby city
Vishakhapatnam and can be procured easily. The whole project cost Rs.15 lakhs. For the
Electricity and power, the charges estimated Rs. 50,000 and they are planning for getting power
from South co, Odisha. They are taking skilled worker and unskilled labor from nearby areas.
The wastage showed in the project is very minimum like 1kg in every ton which is not much and
bearable. When the input is 65tons per day output is 720kgs.

 c  
%
(!

The cashew industry is one of the most profitable industries in the area of Paralakhemundi and
Palasa. People prefer to start their business here because they get enough raw material and
market to sale as Palasa is known as the cluster for cashew industry. The cashew from Palasa is
exported to many countries and states. The various states which deal with cashew are Odisha,
Andhra Pradesh, Madhya Pradesh and Maharashtra. The price of the cashew per kg of good
quality is Rs300 which is affordable to the customer.

%

!  

As per the proposal the unit is projected to locate at Paralakhemundi. The cashew processing unit
can supply dry cashew fruit all around the Odisha and Andhra Pradesh. There are around 65
cashew processing units within the 40 k.m Circle of Paralakhemundi. As per the District

½



Industries Center there are another 100 units required for this market. This unit can be able to
reach the demand for the local as well as outsiders.

 c  
'
(!

The total project cost is 15 lakhs in which the cost of land is also included. The proprietor¶s own
contribution is Rs.195000 which includes Rs.1 lakh cost of land and Rs 95000 as working
capital. The borrower¶s contribution is 7% of the total cost. So far the profitability of this unit is
consent it is growing every year, it started with Rs 5.8 lakhs and reach to Rs 6.7 lakh in the 7th
year. She has to generate Rs.3.35lakhs in first year with an interest rate 14%, in this way the
borrower has to repay the loan within 7 years time.

The sale is 100% as the market demand is much more then the production capacity. The sale
for the 1st year will be Rs36 lakhs and the closing stock will be assumed to be Rs 3.5 lakhs.
Capacity utilization of Siva Shankera Cashew Industry will be 55% in the 1st year and every year
it will increase by 10% of the production capacity.
Here the borrower showed the raw material price as per the market rate and the price of
repair and maintenance cost as rate 1.2% of the total machine cost which is much less than the
requirement. It shows that the unit doesn¶t want to make any hidden cost and profit.
As per the project the depreciation is calculated 20% for the fixed assets and 25% for moving
assets. Here the unit is showing a depreciation rate below the IT norms as 10% and 15%, as per
the financial year 2009-10 and it is also up to the mark. Here the borrower has not taken any
thing on lease. So the consent person no needs to show any lease agreement.
The DSCR will be 1.2, in the first year and by the end of the 7th year it is estimated to reach
12.85. The   ) * %  is 6.2 which will be above the bank rate of 6. The DSCR or debt
service coverage ratio is ratio which shows the repayment capacity of the project. Another ratio
is  * % 
The ISCR shows the interest covering ability of the borrower. Projected average of
the ratio is 5.72 and in the 1st year the ratio will be 1.88 and it will expect to reach to 8.77 in the
end of the 7th year.

The

is estimated at 58% which shows that the units return will be more then ½ of the total
contribution made by the borrower. )
+,!
 is 6.78:1 it shows that she has applied
the loan amount which is around 7 times of the amount contributed by her.

^



The required
-$


for this project will be Rs1.29 lakhs and the projected %



1.35 in the 1st year and it reaches to 3.44 and the estimated average current ratio is 2.39.
As per the credit rating it will get 10. Estimated .



is
19.62%.

The
unit is able to reach its break even in the 15th month from their production when it will be
started.  

! is Rs 145000.



%

*! 

Parameter Score Siva Shankar Mark Remark

Cashew secure
Industries d
Current ratio 1.15 & above 10 2.39 10 They have scored good
1.13 below 1.15 8 (Average) marks in current so they
1.10 below 1.13 6 have enough working
Below 1.10 0 capital to run the business.
Total Debt 2.5 & below 5 6.92 1 They have scored less in
equity ratio 2.6 to 3.50 4 DER but as per the rules
3.6 to 5.00 3 they can raised loans at 0%
5.01 to 6.01 2 contribution up to 20 lacs
Above 6.01 1 loan, they are contributing
6.7% that is good for the
project.
Interest Timely repayment on 5 Timely 5 They have scored well in
commitments due date repayment repayment of loan and
Delayed payment up 3 interest amount, it shows
to 30 days that they are capable
31 to 90 days 2 enough to repay the loan.
Over 90 days 0
Compliance Complied promptly 5 Complied 5 They have submitted all the
with terms & promptly documents as per the terms
conditions of with delay and conditions.
sanction, 3
including Not complied
documentatio 0
n and
creation of
charge
Total Above 4 times 5 8.5 times 5 The sale is 8.5 times more
sales/invento Above 3 to 4 times 4 than they inventory and
ry sundry Above 2 to 3 times sundry debtors, this shows
debtors 2 and below 2 the amount of cash sales is
more than the credit sales.
0

Î



Submission Timely submission 5 Submission 3 They are submitting all the
of Submission within 3 within document as per the terms
MSOD/stock reasonable time reasonable and condition of the bank
statement/ren Delayed/irregular 1 time
ewal data submission
Achievement Achievement: Above 85% 5 As per the performance of
of projected Above 85% 5 the unit, they are achieving
sales Above 75% to 85% 4 85% in 1st year and the
Above 50% to 75% 3 sales volume is increase in
50% and below 0 the succeeding year. So
they performance of the
unit is good.
Supported by Security coverage 5 68.33% 5 The unit has covered
collateral 50% and above 68.33% of collateral
security 25% to 49% 4 security, so the bank has
including II Below 25% 1 enough faith for that unit.
nd charge on
fixed assets
Operational Liability not 5 3 In initial stage they had less
experience in exceeding DP/limit. Liability deposit as compare to cash
cash credit Adhoc adjusted in exceeding credit amount but later they
time limit had adjusted to the bank
occasionally balance.
Liability exceeding but within
limit occasionally but DP.
within DP. 3 Adhoc/exces
Adhoc/excess drawls s drawls are
are adjusted in time adjusted in
time
Liability exceeding
frequently and
adjusted with some
delay 1

&
.
 c

 c  /
+
  
To reduce the pollution the unit will use new technology
like boiling machine. The unit got ³.

%0 from pollution control board.
After breaking the cashew kernel cover, the cover is used in hotel as fuel. As it is biodegradable,
the remaining part of wastage can be easily dissolved in soil.

 c  1
* 
As the market has vast demand for cashew kernel, the firm can gain more
profit and this proposal will generate more revenue. It can able to expand its production capacity

A



every year. It has situated in good location where there is available of enough raw material and
labors easily.

 c  2
 
$


 
There is wide market for cashew industry, as
compare to that the unit is very small. So it has to extent the unit in the next financial year.

The expansion of the unit can be depending upon the increase of raw material consumption and
its sales turnover.

 c 
'


% 

In Paralakhemundi, the market demand of cashew is very high as compare to the supply so it is
viable to start a cashew unit in Paralakhemundi. To meet the demand of the customers there is
enough availability of raw material in this area, so the market demand for cashew unit is very
much profitable.

As per the credit rating, system of the bank it is shown that the unit has scored above 95% in
every criteria of rating like current ratio, total debt and equity ratio, documentation, sales
realization period, DSCR, operational experience in cash credit and collateral security. So it is
viable to run the business in Paralakhemundi.

X



 
% "

  c
#$ 


 

The Hotel and resort industry is one of the growing industries in India. After 1991, due to
liberalization, globalization and privatization the hotel industry has been growing at an average
rate of 12-14%. As per the increase in number of tourist, the hotel and resort is also needed to be
increase in an affordable manner.

Durga Classic Multiresort Pvt. Ltd

Location: - Danka street, Dola Tank road, Paralakhemundi.

Dist: - Gajapati, Orissa- 751200.

The Hotel will be located near Dola Tank in Paralakhemundi, which is district head quarter of
Gajapati. It is also connects to govt. hospital. Peak time of business is Rath Yatra. Therefore, the
resort will have another advantage of better business.

B.N. Palace and Paralakhemundi Palace attracts many tourists, so the resort will have advantage
of attracting those tourists by providing good quality of service and facility in an affordable
price. The resort plan to provide services like secretarial staff, Tele conferencing facilities , 24
hours butler services, internet, email, A.C guest room, bar facility, CC T.V, safe deposit locker
etc.

  


 
!  

a a a

 
%


Ms. A. Gouri, age is about 31 years old and Shankar Prasad Acharya, age is about 41 years old
are the promoter of the Durga Classic Multiresort Pvt.Ltd. Ms. A. Gouri is 5 years well
experienced person in hotel industry and Shankar Prasad Acharya is a business person and also
having 9 years experience in hotel industry. Both promoters are sincere and hard working.

   
&
' !

Durga classic multi Resort is located at Paralakhemundi that is a semi urban place in Odisha and
near to the border of Andhra Pradesh. The land cost is Rs.13.75 lakhs, which is contributed by
the promoter. The total size of the project is Rs.222.99 out of which Rs.125 lakhs as a term loan

ü



from the bank and the promoter contributed Rs.97.99 lakhs. For the Electricity and power the
charges estimated is Rs. 12.05 Lakhs and they are planning to get this power from Southco,
Odisha.

   
%
(!

As the Paralakhemundi is the district, head quarter of the Gajapati district, which incidentally is
in close proximity to the Andhra Border. Also people from different places coming to district
head quarter for different official work. There is no premium quality resort until today and the
site situated on the main road of Dola Tank. The market, banks, commercial establishments are
located within the distance of 1-2 K.M from the site.
%

!  
There are few resorts are available with good facilities like Royal Palace,
Shree Krishana lodge which are in the main market place. However, this resort is located near
the Govt medical and offices.

   
'
(!

The total cost of the project is estimated Rs.222.99 lakhs which includes land and site
development cost Rs. 13.75 lakhs, building cost Rs. 115.25, Electrification Charges Rs. 12.05
lakhs, furniture and fixture cost Rs. 57.00Lakhs, preliminary expenses Rs. 2.00 lakhs and for
working Capital Rs. 22.94 lakhs. They plan to invest of Rs.97.99 lakhs as own contribution and
approaching for the term loan of Rs. 125.00 lakhs from Bank.

There are 35 rooms available in this resort, out of which, 8 are A.C and 27 non A.C rooms. The
average charge per room for A.C is Rs.500 and for non-A.C is Rs 300. So it is expected to earn
Rs.14.6 lakhs in A.C rooms and Rs 20.80 lakhs for non- A.C rooms. The total earning is
estimated to be Rs.35.40 lakhs. The earning per day from the food and beverage sales is
estimated Rs 8000. Restaurant sales per year will be Rs. 29.20 lakhs. From the Bar it is estimated
to earn Rs 30000 per day and per year Rs 109.50 lakhs. The total earning per year is estimated to
be Rs 174.10 lakhs. But as per conservatism it is estimated as 65% of total earning i.e. Rs.
113.17 lakhs.

The estimated profit is Rs. 14.69 Lakhs for the financial 2009-10; it shows the project generating
enough profit from the first year onwards. Promoters will be capable to repay the term loan
within the Pay Back Period of 4 years and 8 months.

o



This project will be utilizing capacity of 43.72% in the 1st year and reaches 10.59% in the 7th
year, at Break Even Point. Hence, the breakeven point and margin of safety are satisfactory.
)
+,!

is 1.28; it shows that the shareholders contribution is at satisfactory level.
The required
-$


for this project will be Rs20 lakhs, the projected Current Ratio is
1.99 in the 1st year, it reaches to 1.83 by 7th year, and the estimated average current ratio is 1.51.
As per the credit rating it will get 10 score. The estimated .



is
14.69 lakhs in the
1st year and it reaches 97.10 lakhs by 7th year. The 

  is in 1st year 23% and
by 7th the year, it reaches to 28% and the average is estimated 30.50%. The overall financial
positions of the borrower in the coming years are acceptable because the estimated current ratios
of all the financial year are above than 0.5. Hence, the current ratios are greater than the ideal
ratio in the credit rating system; it shows the good liquidity position as per the banking norms.

   /

!
*

Capacity utilization in initial years will starts from 70% and thereafter, it reaches the level of
90% in the 5th year onwards. It shows that the proposal will be generate profit in the first year is
Rs. 22.76 lakhs which will be increase to 97.10 lakhs by the 7th year. This is estimated that it is
planning to run with the overall optimum capacity of 80%.

In the proposals of a hotel industry, the total direct expenses are 70.97 lakhs and it is increased in
projected succeeding years as the increase in inflation. The profit after tax will be proposed of
Rs. 14.69 lakhs and it will be increasing in the succeeding years. It shows that the resort will run
with profitability.
This proposal is not mentioning about the insurance charges of the building as they are investing
huge money for building. They are charging depreciation as per the companies¶ act 1956 under
written down value method, 10% on building and furniture and 15% on electrification. As it is
proposal of the hotel industry, they are following rules of companies¶ act 1956.
This proposal having the enough cash generating, as they are showing in projected in 1st year
1.66 and it reaches 5.68 by seventh financial year. The average DSCR of the project up to 3.00, it
shows that they have enough capacity to repay the loan.

As per the proposal, the ISCR in the 1st year is 3.67, it reaches to 283.02 in the 7th year, and the
average is 52.69 it shows that they have enough capacity to pay the amount of interest.

c



%

*! 

Parameter score Resort Mark Remark

secured
Current ratio 1.15 & above 10 1.51 10 They have scored
1.13 below 1.15 8 good marks in current
1.10 below 1.13 6 ratio so they have
Below 1.10 0 enough working
capital to run the
business.
Total Debt equity 2.5 & below 5 1.28 5 They have scored well
ratio 2.6 to 3.50 4 in DER; they are
3.6 to 5.00 3 contributing 97.99
5.01 to 6.01 2 lakhs to the business,
Above 6.01 1 which is 44% of the
total project cost, so
the risk is less for the
bank.
Interest Timely 5 Timely 5 They have scored well
commitments repayment on repayment on in repayment of loan
due date 3 due date and interest amount, it
Delayed payment shows that they are
up to 30 days 2 capable enough to
31 to 90 days 0 repay the loan.
Over 90 days
Compliance with Complied 5 Complied 5 They have submitted
terms & promptly promptly all the documents as
conditions of per the terms and
sanction, with delay 3 conditions.
including
documentation Not complied 0
and creation of
charge
Total sales/ Above 4 times 5 3.79 4 The sale is 3.79 times
inventory+ Above 3 to 4 4 more than they
sundry debtors times inventory and sundry
Above 2 to 3 2 debtors, this shows the
times amount of cash sales is
2 and below 0 more than the credit
sales.
Submission of Timely 5
MSOD/stock submission
statement/renewal Submission 3
data within reasonable
time 1
Delayed/irregular

cc



 submission

Achievement of Achievement: Above 90% 5 As per the

projected sales Above 85% 5 performance of the
Above 75% to 4 unit, they are
85% 3 achieving 90% in 1st
Above 50% to 0 year and the sales
75% volume is increase in
50% and below the succeeding year.
So they performance
of the resort is good.
Supported by Security 5 88.96% 5 The unit is having
collateral security coverage 50% 88.96% of collateral
including II nd and above 4 security against the
charge on fixed 25% to 49% 1 term loan, so the bank
assets. Below 25% has enough faith for
that resort.
Operational Liability not 5 3 In initial stage, they
experience in exceeding Liability had less deposit as
cash credit DP/limit. exceeding compare to cash credit
Adhoc adjusted limit amount but later they
in time occasionally had adjusted to the
but within bank balance.
Liability DP.
exceeding limit 3 Adhoc/excess
occasionally but drawls are
within DP. adjusted in
Adhoc/excess time
drawls are
adjusted in time

Liability 1
exceeding
frequently and
adjusted with
some delay

&
.
 

  
 
$


 
"
Though it will propose as newly established
resort and not having any brand image, so the people may not be aware about it. The resort may
generate more revenue but whether the promoters are well known persons in local area or not.

ca



  
'


% "

As per credit rating system of the Bank, it shows that the proposal of resort have scored
above 95% in every criteria of rating like current ratio, debt and equity ratio, documentation of
statements, sales realization period, Debt service coverage ratio, operational experience in credit
and collateral security. Hence, it is viable to run resort in Paralakhemundi.

It is estimated that the hotel industry has to invest more in building and infrastructure, so it
should has insurance policy to meet further uncertainty. But the proposed resort has not
mentioned about insurance policy in the report.

While appraising the project, the bank has decided to provide finance. When evaluating
 

, it is found that the


 regarding the previous loan
with State Bank of India.


' 

The case 1 has enough reasons to get apprised like in the %

*!  it got 95%
marks. In financial viability, the project has enough positive aspect like the repaying capacity,
contribution of promoter to the business, enough working capital, production capacity of the unit
and there is huge market demand for the cashew nut. Therefore, the bank financed the project.

The case-2 The Durga Classic Multiresort Pvt. Ltd. got strong position in Credit Rating System
(95%), so they have enough capacity to get the loan. However, while evaluating managerial
competency the bank has found that the promoter has another loan with State Bank of India,
which has already become NPA. Therefore, the bank has strong reason to reject the project.


% 

A project Appraisal is a tool to evaluate a project by the banker when a proposal is presented by
the concern for getting credit to the project. While doing appraisal the banker is looking at
different criteria like managerial competence, financial viability, commercial viability and
technical feasibility. By looking all the above criteria, they are giving scores as per Credit Rating
System; if the criteria are matching with minimum requirement, the bankers extend credit to the
project, if not bankers reject the proposal.

c½