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credit and credit admin


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CREDIT AND CREDIT ADMIN Granting quality loans and safe Guarding the loans Ace Development Bank Ltd.





Authorized valuator for inside valley:




Eligible Criteria for the Loan Regarding the Valuation Report:

Eligible Criteria for the Loan Regarding the Valuation Report LOAN AMOUNT IS ELIGIABLE ONLY THE VALUED COVERED BY Fair Market VAULE . MAXIMUM FINANCING 60% OF Fair market VALUE(For Individual) Loan grants upto 80% of Distress Value for the Institution. In case of Home Loan Financing will be restricted to 80% of the total cost of construction / purchase price of the house / apartment (Distress value or Rajinama value). Cost of construction shall mean the aggregate of cost of land (Distress value) and cost of construction of house to be built on that land. Financing in excess of 80% may be considered if the borrower provides Fixed Deposit and/or HMG bonds as security covering the balance 20 %. If the balance 20% is not covered by Fixed Deposit and / or HMG bonds, it has to go to the CEO for approval. Prepared by : Pravin Ghimire

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Financing of Home Loan categories in real Estate (A) Financing will be restricted to 2/3 of the total cost of construction / purchase price of the house / apartment (Distress value or Rajinama value). THIS CAN BE AMENDENT AS PER THE DIRECTIVE ISSUE BY THE NRB. Prepared by : Pravin Ghimire

Credit Facility Request (CFR) Preparation:

Credit Facility Request (CFR) Preparation Concern RO/RM prepare credit facility request (CFR) which must be justified with the stipulated request/ demanded. According the nature of Loan and the repayment source provided by the client repayment mode should be customized. CFR Includes, facility types, nature of the loan, Justification, security details, risk /Analysis mitigation, Banking Relationship, Financial Highlights, Market segmentation, Demand and supply, Account profitability, Swot Analysis, Control mechanism, Disbursement criteria and so on. Prepared by : Pravin Ghimire


CIB TARRIF MODULUS THROUGH ONLINE QUERY For Without Report (No transaction Report) : Rs. 250 per search For With Report (transaction Report) : Rs. 550 per search For Blacklist/released from Blacklist : Rs. 250 per search Prepared by : Pravin Ghimire

Valuation charge prescribed by the bank:

Valuation charge prescribed by the bank Rate Amount Remark 0- Rs 3,500,000/- 0.25% or Rs 5000 Whichever is higher Rs 3,500,001 to Rs 5,000,000/- 0.20% or Rs 7,500 Whichever is higher Rs 5,000,001to Rs 10,000,000/- 0.15% or Rs 10,000 Whichever is higher Above Rs 10,000000/- - Min Rs 10,000 & Max Rs 25,000 Prepared by : Pravin Ghimire

Documentation parts:

Documentation parts Documents are segregate into three parts 1. General Documents 2. Standard Documents 3. Legal Related Documents Prepared by : Pravin Ghimire

General Documents That comprises the following documents::

General Documents That comprises the following documents: Application/Request Letter Copy of citizenship Photos Salary sheet/Draw down request other income source Account Opening procedure Identity if the client is the employer of any organization.

Standard Documents That Compromises the following Documents::

Standard Documents That Compromises the following Documents: Credit Facility Request(CFR) (MEMO) Sanction Letter/offer letter Promissory notes Letter of Continuity Letter of Set Off Insurance Wealth statement General Counter Guarantee Lease Rent agreement/Rental Agreement

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Valuation Report dated………. General Letter of Lien Multiple banking Declaration Letter of indemnity Hire Purchase Agreement fresh CIB MOA/MOA/ Shareholding Pattern Drawdown request

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Renewal Request Parapashu Charge Registration of Firm PAN/VAT/IRD Receipts Renewal of the Firm Partnership Deed Corporate Guarantee

Legal related Documents That Compromises the following Documents::

Legal related Documents That Compromises the following Documents: Lal purga Napi/ Naksha /Trace Four wall Boundary Tax Receipts Halsabik Consents from Legal Heirs Loan deed Mortgage Deed Board resolution Special AGM Board Minutes Personal Guarantee

Nature of Loan Proposal and Facility:

Nature of Loan Proposal and Facility Newly approved loan Renewal loan Additional Loan Enhancement of loan Renewal with Enhancement Additional With Enhancement Renewal , Enhancement with additional Loan Limit Reduction Limit Settlement Partial Settlement

Credit Inquiry and Information:


Limit approval authority:

Limit approval authority UPTO 2 MILLION - CREDIT Committee 2 M TO 7.5M - AGM 7.5 M to 30M - CEO 30M to 50 m - Risk Management committee ABOVE 50 M - BOARD

Promissory Notes and Letter of Continuity and legal Documents :




Input of the NRB Codes:

Input of the NRB Codes SECTOR WISE (C) 9.3 SECURITY WISE (F) 9.4 PRODUCT WISR (Q) 9.3 KA

Penal Interest Calculation Modulus:

Penal Interest Calculation Modulus Interest on Interest Mode of Calculated additional interest rate Matured interest_____ 3% Formula : Matured interest*(Normal Int + Additional interest)/365 * No. of due days Penal Interest Mode of Calculated additional interest rate Matured principle_____ 3% Formula : Matured Principal*(Additional interest)/365 * No. of due days

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Balance AIR (Interest for the Time) Overdue Loan (Matured Principle) Overdue Int (Matured/Due Interest) Int On Int (Fine of Overdue Interest) Penal Amt (Fine on Overdue Principle) Total 2,734,797.67 109,118.99 212,320.58 104,173.85 385.55 305.19 2,844,607.40

Matured Overdraft Interest Calculation:

Matured Overdraft Interest Calculation If the client default to pay the interest of overdraft loan, additional 3% of interest will be charged as form of Charges/penal /fine annually. Formula: Matured Interest* (Normal Interest rate +Penal Interest rate)/365* no. of dues days.

Difference between Overdraft Loan and other Normal Loan:

Difference between Overdraft Loan and other Normal Loan The Main Difference Between Normal Loan and OD Loan is Normal loan account have to be separately open as on Loan product categories. i.e if Hire Purchase loan is going to sanction, separate HP loan a/c should open. Loan a/c is being Established. This Types of loan is One Off Basis. In case of Overdraft Loan existing Current a/c or new current a/c is treated as nominee a/c where the prescribed limit is maintain and the client can deposit and withdraw so many time as he/she/they need within Stipulated Time. Overdraft is Revolving types of loan . Once the loan is settled this can be reinstate by the same amount. Mode of Interest Payment varies from facility to Facility. Renewal and Settlement case. Prepayment Case. Accruals and Amortization Case Penal Calculations.

Types of Interest Deposit Lending Cost Income:

Normal interest is the interest rate which is derived by the market charged in the loan (Lending) amount in a agreed Ratio. Higher the Spread Rate of Interest(Lending Rate- Deposit), higher the rate Higher the profit is possible. Types of Interest Deposit Lending Cost Income

Mode of charge creation:

Mode of charge creation Mortgage –for land and Building (Trf of ownership) Pledge- locked the inventory in godown (Key hold by bank and the client each) Hypothecation- for Inventory (quarterly Inspection) Lien- for Fixed Receipt, shares, other instrument (NSB, DB, Provident fund etc) Assignment- For account receivable, Debtors Personal Guarantee

Types of Lending:

Types of Lending Funded and Non funded. Funded Approved fund directly goes to the client nominee account and the loan account is established. Cash outflow of the bank Liabilities shifted to client itself for the principle, interest and penal. Payment schedule are fixed Bank earn Interest and the commission through this account Margin is maintain through the drawing power of the property. After the settlement of the loan mortgage property is released Non Funded Guaranteed amount maintain with guarantee account There is no cash outflow of the bank. Bank just assure the undertaking to the client beneficiary. Margin is maintain in the margin account (i.e 5% , 10%) Liabilities shifted to bank if the client fails to perform the guarantee covenant .

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Bank just earn the commission only No other payment schedule After the Completion of the contract guarantee will be release

Types of the client:

Types of the client Individual Joint Client Proprietorship Partnership Pvt Ltd Ltd

Types of Loan (wholesale and Retail lending):

Types of Loan (wholesale and Retail lending) Overdraft Loan (For Working Capital Assessment, To maintain the stock, etc, Revolving Nature) Term Loan (For Capital Investment on Fixed assets) Time Loan (One off Basis, for short term period i.e upto 1 years, Non Revolving nature) Hire Purchase Loan(To invest in Vehicles/ Transportation) Home Equity Loan/No Jhanjhat Loan (Security against land and Building, to meet personal purpose Bank Product) Mortgage Loan ( Security against land only, to meet personal purpose bank Product) Home Loan (To purchase/construction/renovation of the house) Margin Loan (To invest in capital Market, shares, secondary market) Education Loan( To invest in education sector) Deprived sector / Priority Sector Loan ( To invest in deprived sector in order to uplifted the living standard of poor, scatters peoples, backwards women , tribe , handicapped people as directed by the NRB)

Financial Analysis:

Financial Analysis Balance Sheet Analysis Profit and loss analysis/Income Statement Trading account analysis Ratio Analysis Cash flow Analysis Capital Budgeting Analysis Leverage Analysis Cost-volume profit analysis

Credit Administration Job Description:

Credit Administration Job Description Monthly NRB Reporting Quarterly NRB Reporting Online credit Query Online CIB Reporting (Quarterly) Prepare offer letter Documentation parts Manage for the final disbursement Past due follow up, different types of letter sent, 35 days legal notice publication etc Loan registry, settlement, limit reduction, enhancement, restructuring and rescheduling) Quarter End Preparation Vehicle Registration of client preparation (Release and registration) Margin lending related job (Share lien, confirmation regarding the borrowers, know your customer, Promoters shares confirmation, weekly review of the share price, margin call follow up and adjustment) Interest revision letter preparation and adjustment and make the new schedule) Blacklisting procedure

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Loan write off Process Valuatators agreement process Orientation class for the new staff related to credit and credit admin. Letter sent to malpot in connection to napi naksha, trace, four wall boundary. File and Filling Insurance Handling Co-ordinate with Internal audit, External Audit and NRB audit. Co-ordinate with RO and RM for the client Prepare credit report weekly, bi -weekly and Monthly as demanded by the concern party. Prepare credit report as demanded by the NRB and other institutions Co-ordinate with new branch regarding credit material Finalize the Bank Guarantee issuance Co-ordinate with legal department for the necessary legal action NPA Management

Control Mechanism For the Margin Loan:

Control Mechanism For the Margin Loan Weekly review of share prices and the trend of the market. Loan limit also be revised accordingly. Margin will be called if the market value of the of the shares fall below to Rs. …… of average of average of last 180 days of ordinary shares and closing value of promoters shares. Or the value quote for the initial valuation falls below 10% Margin call letter sent to the borrower immediately. Make the endeavor for deposit the margin amount. Borrower gives the consent to the bank to sell the pledge shares in the capital Market in case of default. Transaction for trading of the pledged shares is to be stopped at the stock exchange. Confirmation regarding promoters shares held and pledge.(As per the NRB circular if the said borrower is a promoter and holds more than 1% of promoters shares only 50% of remaining shares will be consider for the eligible shares valuations. This is in the court procedure until the court make its verdict. Confirmation regarding Lien /pledge on shares. (As per the NRB directives confirmation in writing by share issuing company whether the said client, shareholder(s), borrower(s), guarantor(s), or any member of the entity under their control are director, chief executive, auditor, secretary, or involved in management of finance of account departments of the issuing company and these and their family members and any one entity(s) has left the company within a year from the date of this matter. Share Consent of the borrower Letter of consent/ Consent/ Authority Letter to transfer the ownership of the shares in the name of the bank. Know your customer form Lien over the shares

Promoters Shares Valuation Procedure:

Promoters Shares Valuation Procedure Average of average closing price of 180 days-S : 194.79/2 (i. e 97.395) Closing Price of last Trading -P : 150 No. of shares (P) : 108,180 Eligible no of shares : 89,250 Total market value of shares(iv*i) : 8,692,503.75 Eligible loan amount as per NRB Rules : 5,215,502.25 (60% of market value Based on weighted average of average Price of S i.e. Rs. 194.79/2.00) Average of average closing price of 180 days of ordinary shares of present price of promoter’s shares whichever is lower *60% * 60% is not the mandatory ratio. This could be upto 100% if the bank feels relief

Ordinary Shares Valuation Procedure :

Ordinary Shares Valuation Procedure Average closing price of 180 days-S : 194.79/2 (i. e 97.395) Closing Price of last Trading -S : 150 No. of shares (P) : 108,180 Eligible no of shares (All Shares) : 89,250 Total market value of shares(iv*i) : 8,692,503.75 Eligible loan amount as per NRB Rules : 5,215,502.25 (60% of market value Based on weighted average Price of S i.e. Rs. 194.79/2.00) Average Closing Price of Last 180 days of Present price of Today whichever is lower *60% * 60% is not the mandatory ratio. This could be upto 100% if the bank feels relief

Hire Purchase Loan Documents needed:

Hire Purchase Loan Documents needed Quotation/Invoice Price Undertaking to concern parties Transfer of the assets in favor of Bank Copy of Bill Book, Insurance Ownership Transfer (Comprehensive Insurance ) Separate Hire Purchase deed

Repayment Schedule Customization:

Repayment Schedule Customization EMI/EQI- Amortization based Interest payment-Monthly & Principle PMT- Quarterly- Normal Based Interest payment-Quarterly & Principle PMT Half yearly -Normal Based Interest payment-Quarterly & Principle PMT Yearly – Normal Based

Rescheduling Case to case:

Rescheduling Case to case In case of Interest revision from time to time (Increase of Decrease) Partial Settlement/ Prepayment of the loan of the principle (Either Principle deduct of downsize the expiry) * Please base on the present o/s

Past due follow up Process:

Past due follow up Process Sent the First past due Letter Sent the Second time Past due letter Sent the third time Past due Letter Sent the 35 days legal notice Sent the 15 days legal notice Sent the 7 days legal notice Public the legal notice in the national daily (1 time and 2 time as per the nature) Auction Process and Auction notice in national daily If there is no bidding for the auction Bank itself can take the property (NBA) NBA (this has to be dispose within 7 years. Provision is classify) Sue in the court (DRT) (Court Process if Necessary) Write off the Loan Blacklisting Process

Loan Account Type:

Loan Account Type AC Type Loan type 37 Time loan 4E Term Loan 38 Home Equity loan 4C Mortgage loan 34 Home Loan 35 Vehicle Loan 33 Hire Purchase Loan 50 Consumer Loan 4F Bridge Gap 30 Staff Social Loan 7W Staff OD 90 Bank Guarantee a/c

Debit Posting of the Client:

Debit Posting of the Client Debit the Client Account (Current, Saving or other specify account) Credit the respect account i.e Insurance company (Current account/Saving or other specify account) Valuators account Loan Management fee a/c 953003002 CIB Charge Payable account 915101002 Service Charge account 9563003001 i.e Client Account Dr. To Respect Party a/c Cr.

Accounting Entry of Loan (Procedure):

Accounting Entry of Loan (Procedure) A. Loan disbursement Loan account Dr. Cash/Bank/Cashier cheque or Customer account Cr B. To collect loan fee and charge Cash/Bank/Customer account Dr. Loan Management fee a/c Cr. Service Charge a/c Cr. C. Accured Interest Interest Receivable- Loan Dr. Interest Suspense-Loan Cr. D. Loan Repayment When received from the borrower Cash/Bank/Customer account Dr. Interest Receivable- Loan Cr. Loan Cr. Interest Suspense Dr. Interest Income Cr.

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If Late Payment fee is assessed (Charged) Cash/Bank/Customer account Dr. Penal interest/Misc Cr. Provision for possible loss Provision for possible loan loss Dr. Allowances for loan loss Cr.

Loan Concentration:

Loan Concentration Single Borrower limit (Funded and Non Funded)- 25% of Core Capital (Last Quarter) Sector Wise Loan (Up to 100% of Core Capital i.e need to be duly monitor) if exceed Board has to approved. Loan will be grants upto 100% of core capital on one sector and the 25% of core capital to the single entity. i.e if the capital merchant shares are pledge only 25% of core capital for this institution shares to be pledged but the loan for ( Margin loan ) is 100% of core Capital.

Ratio Analysis:

Ratio Analysis A ratio is a mathematical relation between one quantity and another. Suppose you have 200 apples and 100 oranges. The ratio of apples to oranges is 200 / 100, which we can more conveniently express as 2:1 or 2. A financial ratio is a comparison between one bit of financial information and another. Consider the ratio of current assets to current liabilities, which we refer to as the current ratio. This ratio is a comparison between assets that can be readily turned into cash -- current assets and the obligations that are due in the near future -- current liabilities. A current ratio of 2:1 or 2 means that we have twice as much in current assets as we need to satisfy obligations due in the near future. Ratios can be classified according to the way they are constructed and their general characteristics. By construction, ratios can be classified as a coverage ratio, a return ratio, a turnover ratio, or a component percentage: 1. A coverage ratio is a measure of a company's ability to satisfy (meet) particular obligations. 2. A return ratio is a measure of the net benefit, relative to the resources expended. 3. A turnover ratio is a measure of the gross benefit, relative to the resources expended. 4. A component percentage is the ratio of a component of an item to the item. When we assess a company's operating performance, we want to know if it is applying its assets in an efficient and profitable manner. When we assess a company's financial condition, we want to know if it is able to meet its financial obligations. There are six aspects of operating performance and financial condition we can evaluate from financial ratios: 1. A liquidity ratio provides information on a company's ability to meet its short−term, immediate obligations. 2. A profitability ratio provides information on the amount of income from each dollar of sales

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3. An activity ratio relates information on a company's ability to manage its resources (that is, its assets) efficiently. 4. A financial leverage ratio provides information on the degree of a company's fixed financing obligations and its ability to satisfy these financing obligations. 5. A shareholder ratio describes the company's financial condition in terms of amounts per share of stock. 6. A return on investment ratio provides information on the amount of profit, relative to the assets employed to produce that profit. Liquidity Ratios Liquidity reflects the ability of a company to meet its short-term obligations using assets that are most readily converted into cash. Assets that may be converted into cash in a short period of time are referred to as liquid assets; they are listed in financial statements as current assets. Current assets are often referred to as working capital because these assets represent the resources needed for the day-to-day operations of the company's long-term, capital investments. Current assets are used to satisfy short-term obligations, or current liabilities. The amount by which current assets exceed current liabilities is referred to as the net working capital.

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The role of the operating cycle How much liquidity a company needs depends on its operating cycle. The operating cycle is the duration between the time cash is invested in goods and services to the time that investment produces cash. For example, a company that produces and sells goods has an operating cycle comprising four phases: (1) purchase raw material and produce goods, investing in inventory (2) sell goods, generating sales, which may or may not be for cash (3) extend credit, creating accounts receivables, and (4) collect accounts receivables, generating cash. The operating cycle is the length of time it takes to convert an investment of cash in inventory back into cash (through collections of sales). The net operating cycle is the length of time it takes to convert an investment of cash in inventory and back into cash considering that some purchases are made on credit. The number of days a company ties up funds in inventory is determine by: (1) the total amount of money represented in inventory, and (2) the average day's cost of goods sold. The current investment in inventory -- that is, the money "tied up" in inventory -- is the ending balance of inventory on the balance sheet. The average day's cost of goods sold is the cost of goods sold on an average day in the year, which can be estimated by dividing the cost of goods sold Found on the income statement by the number of days in the year. We compute the number of days of inventory by calculating the ratio of the amount of inventory on hand (in dollars) to the average day's Cost of Goods Sold (in dollars per day):

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Number of days inventory = Inventory = Inventory Average day' s cost of goods sold Cost of goods sold / 365 Number of days receivables = Accounts receivable = Accounts receivable Average day's sales on credit Sales on credit / 365 Number of days payables = Accounts payable = Accounts payable Average day's purchases Purchases / 365 Operating cycle = Number of days + Number of days of inventory of receivables Net operating cycle = Operating Cycle - Number of days of purchases Net operating cycle = Number of days + Number of days Number of days of inventory of receivables of purchases

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The current ratio is the ratio of current assets to current liabilities; Indicates a company's ability to satisfy its current liabilities with its current assets: Current ratio = Current assets Current liabilities The quick ratio is the ratio of quick assets (generally current assets less inventory) to current liabilities; Indicates a company's ability to satisfy current liabilities with its most liquid assets Quick ratio = Current assets - Inventory Current liabilities The net working capital to sales ratio is the ratio of net working capital (current assets minus current liabilities) to sales; Indicates a company's liquid assets (after meeting short−term obligations) relative to its need for liquidity (represented by sales) Net working capital to sales ratio = Current assets - Current liabilities Sales The gross profit margin is the ratio of gross income or profit to sales. This ratio indicates how much of every dollar of sales is left after costs of goods sold: Gross profit margin = Gross income Sales

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The operating profit margin is the ratio of operating profit (a.k.a. EBIT, operating income, income before interest and taxes) to sales. This is a ratio that indicates how much of each dollar of sales is left over after operating expenses: Operating profit margin = Operating income Sales The net profit margin is the ratio of net income (a.k.a. net profit) to sales, and indicates how much of each dollar of sales is left over after all expenses: Net profit margin = Net income Sales

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Activity ratios Activity ratios are measures of how well assets are used. Activity ratios which are, for the most part, turnover ratios -- can be used to evaluate the benefits produced by specific assets, such as inventory or accounts receivable. Or they can be use to evaluate the benefits produced by all a company's assets collectively. These measures help us gauge how effectively the company is at putting its investment to work. A company will invest in assets – e.g., inventory or plant and equipment – and then use these assets to generate revenues. The greater the turnover, the more effectively the company is at producing a benefit from its investment in assets. 1. Inventory turnover is the ratio of cost of goods sold to inventory. This ratio indicates how many times inventory is created and sold during the period: Inventory turnover = Cost of goods sold Inventory 2 . Accounts receivable turnover is the ratio of net credit sales to accounts receivable. This ratio indicates how many times in the period credit sales have been created and collected on: Accounts receivable turnover = Sales on credit Accounts receivable

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3. Total asset turnover is the ratio of sales to total assets. This ratio indicates the extent that the investment in total assets results in sales. Total asset turnover = Sales Total assets 4. Fixed asset turnover is the ratio of sales to fixed assets. This ratio indicates the ability of the company’s management to put the fixed assets to work to generate sales: Fixed asset turnover = Sales Fixed assets Turnovers and numbers of days You may have noticed that there is a relation between the measures of the operating cycle and activity ratios. This is because they use the same information and look at this information from different angles. Consider the number of days inventory and the inventory turnover:

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Number of days inventory = Inventory Average day's cost of goods sold Inventory turnover = Cost of goods sold Inventory The number of days inventory is how long the inventory stays with the company, whereas the inventory turnover is the number of times that the inventory comes and leaves – the complete cycle – within a period. So if the number of days inventory is 30 days, this means that the turnover within the year is 365 / 30 = 12.167 times. In other words, Inventory turnover = 365 = 365 = Cost of goods sold Number of days inventory Inventory Inventory Cost of goods sold/365

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Financial leverage ratios A company can finance its assets either with equity or debt. Financing through debt involves risk because debt legally obligates the company to pay interest and to repay the principal as promised. Equity financing does not obligate the company to pay anything -- dividends are paid at the discretion of the board of directors. There is always some risk, which we refer to as business risk, inherent in any operating segment of a business. But how a company chooses to finance its operations -- the particular mix of debt and equity -- may add financial risk on top of business risk Financial risk is the extent that debt financing is used relative to equity. Financial leverage ratios are used to assess how much financial risk the company has taken on. There are two types of financial leverage ratios: component percentages and coverage ratios. Component percentages compare a company's debt with either its total capital (debt plus equity) or its equity capital. Coverage ratios reflect a company's ability to satisfy fixed obligations, such as interest, principal repayment, or lease payments. Component-percentage financial leverage ratios The component-percentage financial leverage ratios convey how reliant a company is on debt financing. These ratios compare the amount of debt to either the total capital of the company or to the equity capital. The total debt to assets ratio indicates the proportion of assets that are financed with debt (both short−term and long−term debt): Total debt to assets ratio = Total debt Total assets

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Remember from your study of accounting that total assets are equal to the sum of total debt and equity. This is the familiar accounting identity: assets = liabilities + equity. The long−term debt to assets ratio indicates the proportion of the company's assets that are financed with long−term debt. Long - term debt to assets ratio = Long - term debt Total assets The debt to equity ratio (a.k.a. debt-equity ratio) indicates the relative uses of debt and equity as sources of capital to finance the company's assets, evaluated using book values Of the capital sources: Total debt to equity ratio = Total debt Total shareholders' equity

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Note that the debt-equity ratio is related to the debt-to-total assets ratio because they are both measures of the company’s capital structure. The capital structure is the mix of debt and equity that the company uses to finance its assets. Let’s use short-hand notation to demonstrate this relationship. Let D Represent total debt and E represent equity. Therefore, total assets are equal to D+E. If a company has a debt-equity ratio of 0.25, this means that is debt- to-asset ratio is 0.2. We calculate it by using the ratio relationships and Algebra. D/E = 0.25 D = 0.25 E Substituting 0.25 E for D in the debt-to-assets ratio D/(D+E): D/(D+E) = 0.25 E / (0.25 E + E) = 0.25 E / 1.25 E = 0.2 In other words, a debt-equity ratio of 0.25 is equivalent to a debt-to- ratio of 0.2 This is a handy device: if you are given a debt-equity ratio and need debt-assets ratio, simply: D/(D+E) = (D/E) / (1 + D/E) Why do we bother to show this? Because many financial analysts discuss or report a company’s debt-equity ratio and you are left on your own to determine what this means in terms of the proportion of debt in the company’s capital structure.

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Coverage financial leverage ratios In addition to the leverage ratios that use information about how debt is related to either assets or equity, there are a number of financial leverage ratios that capture the ability of the company to satisfy its debt obligations. There are many ratios that accomplish this, but the two most common ratios are the times interest coverage ratio and the fixed charge coverage ratio. The times-interest-coverage ratio, also referred to as the interest coverage ratio, compares The earnings available to meet the interest obligation with the interest obligation: Times - interest - coverage ratio = Earnings before interest and taxes Interest The fixed charge coverage ratio expands on the obligations covered and can be specified to Include any fixed charges, such as lease payments and preferred dividends. For example, to gauge a company’s ability to cover its interest and lease payments, you could use the following ratio: Fixed - charge coverage ratio = Earnings before interest and taxes + Lease payment Interest + Lease payment Coverage ratios are often used in debt covenants to help protect the creditors.

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Shareholder ratios The ratios we have explained to this point deal with the performance and financial condition of the company. These ratios provide information for managers (who are interested in evaluating the performance of the company) and for creditors (who are interested in the company's ability to pay its obligations). We will now take a look at ratios that focus on the interests of the owners -- shareholder ratios. These ratios translate the overall results of operations so that they can be compared in terms of a share of stock: Earnings per share (EPS) is the amount of income earned during a period per share of common stock. Earnings per share = Net income available to shareholders Number of shares outstanding As we learned earlier in the study of Financial Statement Information, two numbers of earnings per share are currently disclosed in financial reports: basic and diluted. These numbers differ with respect to the definition of available net income and the number of shares outstanding. Basic earnings per share are computed using reported earnings and the average number of shares outstanding. Diluted earnings per share are computed assuming that all potentially dilutive securities are issued. That means we look at a “worst case” scenario in terms of the dilution of earnings from factors such as executive stock options, convertible bonds, convertible preferred stock, and warrants

PowerPoint Presentation:

As an example, consider Yahoo!'s earnings per share reported in their 2004 annual report: Item 2003 2004 Basic EPS $0.19 $0.62 Diluted EPS $0.18 $0.58 The difference between the basic and diluted earnings per share in Yahoo!'s case is attributable to its extensive use of stock options in compensation programs. Book value equity per share is the amount of the book value (a.k.a. carrying value) of common equity per share of common stock, calculated by dividing the book value of shareholders’ equity by the number of shares of stock outstanding. As we discussed earlier, the book value of equity may differ from the market value of equity. The market value per share, if available, is a much better indicator of the investment of shareholders in the company. The price−earnings ratio (P/E or PE ratio) is the ratio of the price per share of common stock to the earnings per share of common stock: Price-earnings ratio = Market price per share Earnings per share Though earnings per share are reported in the income statement, the market price per share of stock is not reported in the financial statements and must be obtained from financial news sources. The

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P/E ratio is sometimes used as a proxy for investors' assessment of the company's ability to Generate cash flows in the future. Historically, P/E ratios for U.S. companies tend to fall in the 10-25 range, but in recent periods (e.g., 2000-2001) P/E ratios have reached much higher. Examples of P/E ratios (P/E ratios at the end of 2004): Company P/E Ratio 57 Time Warner Inc. 29 IBM 21 Coca-Cola 22 Microsoft 36 Yahoo! 98 3M Co. 23 General Electric 24 We are often interested in the returns to shareholders in the form of cash dividends. Cash dividends are payments made by the company directly to its owners. There is no requirement that a company pay dividends to its shareholders, but many companies pay regular quarterly or annual dividends to the owners. The decision to pay a dividend is made by the company’s board of directors. Note that not all companies pay dividends.

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Dividends per share (DPS) is the dollar amount of cash dividends paid during a period, per share of common stock: Dividends per share = Dividends paid to shareholders Number of shares outstanding The dividend payout ratio is the ratio of cash dividends paid to earnings for a period: Dividend payout ratio = Dividends Earnings The complement to the dividend payout ratio is the retention ratio or the plowback ratio: Retention ratio = Earnings - Dividends Earnings We can also convey information about dividends in the form of a yield, in which we compare the dividends per share with the market price per share: Dividend yield = Dividends per share Market price per share

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The dividend yield is the return to shareholders measured in terms of the dividends paid during the period. We often describe a company's dividend policy in terms of its dividend per share, its dividend payout ratio, or its dividend yield. Some companies' dividends appear to follow a pattern of constant

Balance sheet Item:

Balance sheet Item Current Assets 1. Cash in hand 2. Cash at bank 3. Sundry debtors 4. Bills Receivable 5. Account Receivables 6. Stock (Inventory) 7. Marketable Securities 8. Short Term Loan 9. Pre Paid Expenses 10 Accured Income 11. Advances Current Liabilities 1. Bills Payable 2. Sundry Creditors 3. Bank Overdraft 4. Short-term Loan 5. Cash Credit 6. Reserve for doubtful debt 7. Outstanding Expenses 8. Proposed Dividend 9. Provision for Tax.

Non Current Assets:

Non Current Assets Fixed Assets 1. Land and Building 2. Plant and Machinery 3. Furniture and Fixture 4. Equipment 5. Investment- Loan Term 6. Goodwill 7. Trade Mark 8. Patent Right 9. Profit and loss Debit balance 10. Preliminary Expenses 11. Other Deferred Expenses 12. Discount on Issue of shares 13. Discount on Issue of Debenture Non Current Liabilities Share Capital 1. Preference share capital 2. Equity Share Capital 3. Debenture 4. Long term Loan

PowerPoint Presentation:

5. Share Premium Account 6. Share Forfeited Account 7. Capital Reserve 8. Profit and Loss Account 9. Provision for Depreciation 10. Capital Redemption Reserve 11. General Reserve 12. Dividend Equalization Fund 13. Provision for Taxation 14. Proposed Dividend

Working Capital Assessment:

Working Capital Assessment Particulars 2067/68 12 months Uses: Bills Receivable Sundry Debtors Inventory Advances Payment ,if any other A. Total Sources Bills Payable Creditors Other Bank Loan Outstanding expenses B. Total Working Capital Cap ( A – B ) Add: Provision for Contingencies Total Working Capital Bank Financing % of Financing by ACE

Cash Flow Assessment:

Cash Flow Assessment Cash Flow Statement Particulars Projected Sources of Fund 2067/68 Net profit before Interest & Taxes + Non cash exp. (depreciation, write off) + Non operating expenses (loss on sale of assets) - Non operating income (profit on sale of assets) (Funds from operation) Cash from operation Uses of Funds Interest Bank Charges Dividend EMI of Other Loan Purchase of Machinery/Assets Tax Total financial charges Closing cash balance after financial charges

Risk Weighted Assets (RWA):

Risk Weighted Assets (RWA) A. On Balance Sheet Item Item Risk Weight Cash Balance, Gold (Tradable), Balance with NRB Investment in Nepal government securities, Investment in DB/NRB Bonds, Fully secured loan against OWN FDR and 0 Government securities, Accrued interest on Government securities, Amount deposited in government account for the considerable purpose Balance with domestic Bank/FI/Claim against FDR, Fully secured loan against Other bank FDR, Balance with foreign Bank, Money at call Loan against the guarantee of internationally rated bank , Other Investment 20 with internationally rated bank, Inter Bank Loan. Investment on shares, Debenture and bonds, other investment, Loan advances and Bill purchase/Discount, Fixed assets, Accured Interest (Total 100 accured interest-accured interest on government bonds-interest suspense), All other assets (Except Prepaid Tax) Real Estate/Home in excess limit 150 Total A

PowerPoint Presentation:

B. Off Balance Sheet Item Bills Collection 0 Forward foreign, Exchange Contract 10 LC with maturity < 6 months (Full Value), Guarantee against the 20 Counter guarantee of internally related bank. LC with maturity > 6 months (Full Value), Bid Bond, Performance Bond and underwriting commitments, sale of credit with condition of 50 repurchase. APG, Financial and other Guarantee, Irrevocable Loan commitment, 100 Contingent Liability on income Tax, All other Contingent Liabilities including Acceptances Unpaid Guarantee Claims 200 Total B. Total RWA A+B Capital Fund = Core Capital +Supplementary c Capital Total RWA Capital Fund 11% Maintain Core Capital 5% Maintain

Short Fall in Capital Adequacy:

Short Fall in Capital Adequacy Forbid declaring and distributions dividends Forbid establishment new branches Hold the refinance facility of NRB Forbid extending loans Forbid accepting deposits by opening new accounts NRB can take any action under NRB act 2012 section 32.

Core Capital Item (Capital Adequacy):

Core Capital Item (Capital Adequacy) Paid Up Capital Proposed Bonus shares Share Premium Non- Redeemable Preference share General Reserve Cumulative P/L account Current years profit shown in balance sheet Capital Refund reserve fund Capital Adjustment fund Calls in advance Other free reserve Deductable Item Goodwill investment in shares & Securities in excess of prescribe Limit Investment on financial interest company Facetious Assets Investment in L& B for the purpose of own use not complying NRB Directives Loan for construction for residential building of own use not Complying NRB Directives. Underwritting shares not disposed within Prescribed time limit. Loan and Facilities provided to person/Groups prohibited under existing Laws.

PowerPoint Presentation:

Supplementary Item Loans and provision (For Good Loan ) Assets Revaluation Reserve (Not excess than 2%) Hybrid Capital Instrument Unsecured Subordinate Term Debt Exchange Equalization Reserve Assets Revaluation Reserve Investment Adjustment Reserve

Major Indices (Specimen):

Major Indices (Specimen) 1. Net Profit/Total Income % 2 . Earning Per Share NRs 3. Market Price Per Share NRs. 4. PE Ratio Ratio 5. Stock Dividend per Share % 6. Cash Dividend per Share % 7. Interest Income/ Loan & Advance % 8. Staff Expense/ Total Operating Expenses % 9. Interest Expenses on Deposit & Borrowing % 10. Exchange Gain & Loss/ Total Income % 11. Staff Bonus/ Total Employee Expenses % 12. Net Profit/ Loan Advances % 13. Net Profit/ Total Assets Ratio 14. Credit-Deposit Ratio % 15.Total Operating Expenses/ Total Assets % 16. Capital Adequacy Ratio on Total Capital Fund % A. Core Capital % B. Supplementary Capital % C. Total Capital Fund % 17. Cash Reserve Ratio Ratio 18. Non Performing Assets/ Total Loan % 19. Weighted Average Interest Rate Spread - 20. Networth Per Share NRs 21 Total Outstanding Shares No 22.Total no. of Staffs No 23. Others -

Key Financial Highlights as on 2009/2010 (Specimen):

Key Financial Highlights as on 2009/2010 (Specimen) Financial Indicators ACE Industry Average Core Capital to RWA (% 18.03 21.67 Capital Fund to RWA (%) 18.83 22.60 RWA to TA (%) 60.20 73.68 Financial Resource Mobilization to 6.18 4.91 Last Quarter’s Core Capital (times) Deprived Sector Loan to Loans & Advances of 2.52 3.05 2 Quarters Earlier(%) Max. Loan in a Single Sector to Core Capital (%) 91.83 135.82 Max. Loan to a Single Borrower to 17.48 150.55 Last Quarter’s Core Capital (%) Credit to Deposit Ratio (%) 82.71 84.85 Credit to Financial Resources Mobilization Ratio (%) 63.15 80.45 Credit to Deposits & Core Capital (%) 67.69 69.85 Non Performing Loan to Total Loan (%) 0.03 1.67 Total Loan Loss Provision to Total Loan (%) 1.01 2.92 Liquid Assets to Total Deposits (%) 67.92 36.62 Investment in Shares/Debentures to Core Capital (%) 10.95 4.49 Non Banking Assets to Total Assets (%) - - Provision for NBA to NBA (%) - - Return on Assets (ROA) (%) 1.15 2.01 Return on Equity (ROE) (%) 10.62 14.57

Balance sheet Analysis:

Balance sheet Analysis Liabilities Share Capital : (Paid Up Capital, Promoters and Ordinary in forms of Initial Investment right share issue and Bonus shares (Capital Structure Owners Equity 51% and General Public 49%) Authorized Capital Issued Capital Paid Up capital Proposed for Bonus share Calls in Advance Share Capital details Domestic Ownership Nepal Government Foreign Stakes Category “A” Licensed Institute Other Licensed Institutions Other Institutions Public Other Foreign Ownership

PowerPoint Presentation:

Reserve and Surplus ; General Reserve Fund, Capital Adjustment fund, Capital Redemption Reserve, Capital Adhustment Reserve fund, Other Reserve fund ( Contingent reserve, Institutional development reserve, Dividend Equalization fund, Special reserve fund, Assets revaluation reserve, differed tax reserve, other free fund, investment adjustment reserve), Accumulate profit and loss and Exchange fluctuation reserve . Debenture and Bond : Issued Long term debenture/Bond if any. (%.............NRS………Issued on………..with maturity (Total redemption reserve NRs…) Borrowing : Local Borrowing and Foreign Borrowing Inter Bank /Financial Institutional Borrowing Nepal Government NRB (Repo or Refinancing or any) Repo Obligation Other Institution Other Foreign Banks and others

PowerPoint Presentation:

Deposit Liabilities : Non Interest Bearing 1. Currency Deposit Local Currency : Nepal Government “A” Class Licensed Institution Other Licensed Institutions Other organized Institution Others Foreign Currency : Nepal Government “A” Class Licensed Institution Other Licensed Institutions Other organized Institution Others Individuals 2. Margin Deposit : Employee guarantee Guarantee margin Letter of credit margin 3. Other Local Currency Financial Institutions Other Organized Institutions Individuals Foreign Currency Financial Institutions Other Organized Institutions Individuals

PowerPoint Presentation:

Interest Bearing Accounts A. Saving Account Local Currency : Organized Institutions Individuals Others Foreign Currency : Organized Institutions Individuals Others Fixed Local Currency : Organized Institutions Individuals Others Foreign Currency : Organized Institutions Individuals Others Deposit C. Call Deposit Local Currency “A” Class Licensed Institution Other Licensed Institutions Other organized Institution Others Individuals

PowerPoint Presentation:

Foreign Currency “A” Class Licensed Institution Other Licensed Institutions Other organized Institution Others Individuals D. Certificate of Deposit Organized Institution Others Individuals Bills Payable : (Local Currency and Foreign Currency)+ Proposed Dividend ; Dividend is declared for the share owner if any Income Tax Liability NET : Certain % of tax from the net income Other Liabilities ; Pension/gratuity funds, employee Provident fund, Employee Welfare Fund, Provision for staff bonus, Interest payable on deposit, interest payable on borrowing, unearned discount and commission, sundry creditors, branch adjustment account, deferred taxes, unpaid dividend, other.

Balance Sheet Analysis:

Balance Sheet Analysis Assets Cash Local Currency Including Coins Foreign Currency ; Indian, US, Euro, Australian Dollar, Canadian Dollar, Singapore Dollar, Japanese Yen Etc Balance With NRB: Current Account and Other Account Balance with Banks/Financial Institutions Local Licensed Institutions a. Current account b. Other account Foreign Banks a. Current Account b. Other Account 4. Money at call and Short Notice ; 7 days maturity period and 48 hours short notice to get back that money invested Investment : Investment made by the Company a. Treasure Bills b. Saving Bonds C Other Bonds D. NRB Bonds E. Foreign banks

PowerPoint Presentation:

F. Local Licensed Institutions G. Foreign banks I Corporate Shares J Corporate Bonds and debenture K Other investment Land Development Less Provision Net Investmen t Investment in shares, Debenture and Bonds (Shares , Debenture Investment) Held for trading Investment (Shares Investment on Different Institutions) Held for maturity Investments (Development Bond and Treasury Bills Available for sale Investment 6. Loans advances and Bills Purchased 1. Performing Loans a. Pass B. Restructures loan 2. Non Performing Loan a. Sub-Standard B. Doubt Full C. Bad Loan Total Loan

PowerPoint Presentation:

Loan Loss Provision 1. Pass Loan (1%) 2. Restructures Loan (12.5%) 3. Sub Standard (25%) 4. Doubt Full (50%) Bad Loss (100%) Total Loan Provision ****** Provision upto Precious Year Pass Restructures Sub Standard Doubtful Bad Loan Total Previous Year Provision ********* Write Back Provision for the possible Loss ****** Additional Provision this Year ********* Additional this Year ******** Net Loan ***********

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7. Fixed assets : Land and Building, Vehicles, Computer and Machinery, office Equipment and others Procedure 1. At Cost Previous Year Balance + Additional during this year +Revaluation/Write back during this year - Sold -This Year Write off Total Gross Value 2. Depreciation Previous Year Balance Depreciation during this year Revaluation/Write back during this year Total depreciation on sold/Written off Assets Total Depreciation A+B-C Remaining Book Value (WDV*(1-2) (Written Down Value) +Book Value +Land or construction and or Leasehold Assets

PowerPoint Presentation:

8. Non Banking Assets: 9. Other Assets : Gold Stock, Income receivable on Investment Less interest suspense account, Receivable commission, sundry debtors, Staff loans and advances, prepayments, cash in transit, Other transit Item (Including Cheque), draft paid without notice, expenses not write off, branches adjustment account, deferred taxes (Assets), Other assets (Accured interest on Loans, Drafts paid without notice, Branch Adjustment accounts, Local/Foreign agency accounts

Margin Call Provision:

Margin Call Provision Margin call will be made when the quoted shares prices falls below the 10% . Margin Call letter issue within the 7 days of margin call suffer. Margin will be maintain within 35 days of the margin letter issue.

Loan Against FDR:

Loan Against FDR Loan up to grants 95% of the face value of the FD. (According to CPG). Drawing power is 95% of the face Value. 90% Interest will be charged FR rate +2% additional Charge FD certificate will be surrendered by the client and the same will be lien Interest will be paid quarterly and interest will be charged quarterly. Within the maturity of the FD, either the client has to settled the loan or to liquidate the FD. Letter off Set up is necessary (agreement) by the client. In case of FD issue by the other Bank, according to the NRB regulation, there is no change of acceptance for the loan purpose.

Government Securities:

Government Securities Bond/Debenture and Treasury Bills Loan Against Bond and Debenture Loan against HMG/ NRB Bonds shall not exceed 95% of the face value of the bond. Face value is shown in the top of the certificate There is the clause in the certificate that this can be pledge and takes the loan. Fully secured against pledge of debenture /bonds and certificate shall be lodged. Interest rate is coupon rate. +3% (Need to be finalized)

Bridge Gap Loan:

Bridge Gap Loan in corporate finance, interim financing covering the time lag between redemption of a bond or commercial paper issue, and replacement by a new one. Bridge loans, commonly replacing short-term debt with longer term financing, are an integral part of corporate restructurings, mergers, and leveraged buy-outs. Banks and insurance companies supply funds to pay off old debts before proceeds are raised from new debt or issuance of stock. Also known as gap financing or swing loan.

Project Appraisal:

Project Appraisal Different Aspects of Project Appraisal Technical Aspects Marketing Aspects Management and Organization Aspects a. Character b. Capacity c. Capital D. Collateral E. Conditions F. Compliance 4. Legal Aspects 5. Financial Aspects

Banking Risks:

Banking Risks Concentration Risks Liquidity Risks Exchange rate Risk Operation Risk Environment Risk Security risk Management risk Interest Rate risk Counterparty Risks Competitor Risk

Borrower Information:

Borrower Information C6 Character Capacity Capital Collateral Compliance Condition Status report Credit Enquiry/CIB report Loan Application Market report Study of the account Financial Statements Other Sources Personal Interview

Principle of Lending:

Principle of Lending Seven Principle of Good Lending Safety Liquidity Purpose Profitability Spread Security National Interest, Suitability Technical Competence Economic Viability Marketability Management Ability Quantum of Finance Quality of Credit Two ways Out Integrity of the borrower Paradox of Spread The business cycle is inevitable Quick Answer Local Banks should be participant in the lending to local borrower First thought for the bank Understanding the business Common scenes and good Judgment

Safe Guarding of Problem Loan:

Safe Guarding of Problem Loan Preventive Measure Good Corporate Governance Capital Adequacy Formulate and Implement CPF Prudent Loan classification and Provision Concentration of Risk Proper System of Collection of Interest and Principle Discourage to invest against risky assets Rehabilitation of sick Industries Reschedule and Restructure Loans CRA Remedial Measures Blacklisting (35 days legal notice publication) Resort to other legal Remedies DRT Take over the credit Compel the PG AMC

PowerPoint Presentation:

Recovery Measures Loan Call Back Notice Dispose Primary Security of the borrower Auction The Collateral Security Loan Write off Take over the management Create Special NPA Cells Formulate and Adopt Special Recovery Policies Formulate National Credit Restructuring CELL (NCRC) to restructure loans

Loan Classification and Provision:

Loan Classification and Provision Normal Loan Pass 1% Substandard 25% Doubtful 50% Loss 100% Provision for Contingent Liability Pass 1% Substandard 25% Doubtful 50% Loss 100% Loan Against PG (Additional 20%) Pass 21% Substandard 45% Doubtful 70% Loss 100%

PowerPoint Presentation:

Provision for Loan Against First Class Securities Pass 1% Substandard 1% Doubtful 1% Loss 1% Provision Against Priority Sector Credit (If Insured by DICGC) Pass 0.25% Substandard 6.25% Doubtful 12.5% Loss 25% Rescheduling and Restructuring of Loans (if regulized for 2 years convert to 1% 25% interest have to settled) Pass 12.5% Substandard 25%+12.5 Doubtful 50%+12.5 Loss 100%

PowerPoint Presentation:

In case of Rescheduling or restructure of Insured of guarantee prioity sector credit Pass 3.125% Substandard 0% Doubtful 0% Loss 0% In Case of Sick Industries with evidence of approval by HMG for the restructure and rescheduling( Minimum 12% of interest repaid) Pass 25% Substandard 0% Doubtful 0% Loss 0% If fails to paid 12% of the Interest Pass 1% Substandard 25% Doubtful 50% Loss 100% For this separate loan loss provision account should be maintain

Features of NPA:

Features of NPA Loan ceases to earn income or is about to stop earning The maturity date of the loan is expired Full Payment of the principle and interest is anticipated no Longer Payment of Installment of principle and the Interest is due by 90 days or more Loans is classified to sub- Standard, Doubtful or Loss Category Increase of NPA demands more Provision affecting profit Level adversely Bank With high level of NPA is Considered weak and loose credibility Internationally. Warning Signals of the Problem Loans Borrowers delays submitting regular financial statement, stock report and lists of account receivable to avoid providing adverse information of the Bank. Borrower regularly fails in payment terms Borrower starts to maintain distance from the banker Credit inquires receives from another Banks or CIB should be taken as evidence of his intension Account receivables starts declining and Payable starts rising Regularly drawn round up cheque and frequently bounces

PowerPoint Presentation:

The borrower frequently requests for overdrawn his account Borrowers starts discounting post dated cheques with Money Lenders Factory visit shown reduced operational activities. Unfavorable market report of the borrower is received. Borrower regularly deposits cash only on the day clearing cheques are presented Unexpected request for mid- term renewal for enhancement or new Loan Sudden rise in trade payable and repaid or slow inventory turnover Frequent labor strikes or development of a hostile relation with the laborer. Borrower becomes a victim of natural disaster of disaster invited by the people Borrower cancels insurance Policy indicating cash Shortages.

Provision for NBA:

Provision for NBA 25% for the year of Acquisition , Then First Year 50% Second Year 75% third Year 100% It Should be sold within 7 years from the date of Procurements

Loan classification Based on Security:

Loan classification Based on Security Secured Risk Loan loan is secured by 100% cash Margin instrument equivalent to cash as FD, Foreign Currency deposits, saving deposits, provident fund account held in the own account. Sovereign Risk Loan National Saving Bonds, Development Bond TB issued by NRB, government guarantee. Bank Risk Loan Fund is held in some other Bank, FD other bank, Loan against guarantee, Stand By LC issued by local or foreign Bank, Loan against funds places at call with local or foreign bank. Unsecured or Normal Business Risk Loan Borrower’s Account Receivable, inventory, Fixed assets, Personal Guarantee or promissory notes, Casual Risk Loan Purchase of cheques, draft, bill (Purchase) Clean Risk Loan Loans and Overdraft provided without any security Credit Card Risk Loan Advances Provided to credit card holders.

NRB Codes:

NRB Codes 9.3 Sector Wise Crop and Crop Services 1.1 Agriculture & Forestry (1) Tea /Coffee 1.2 Tobacco 1.3 Jute 1.4 Livestock /Livestock Services 1.5 Forestry 1.6 Irrigation 1.7 Other Agriculture & Agro-Services 1.8 Fishery 2 Fishery (2) Metals and Ore (Iron, Lead etc.) 3.1 Mining (3) Coal 3.2 Limestone 3.3 Magnetite 3.4 Chalks (Talc) 3.5 Oil and Gas Extraction 3.6 Other Mining and Quarrying 3.7 Food Production (Packing, Processing) 4.1 Manufacturing (4) Agriculture & Forest Production 4.2 Sugar 4.2.1 Tobacco Processing 4.2.2 Lumber and Wood Products /Furniture 4.2.3 Others 4.2.4 Beverages (Bear, Liquor, Soda etc.) 4.3 Alcoholic 4.3.1

PowerPoint Presentation:

Non-Alcoholic 4.3.2 Handicraft 4.4 Textile Products and Readymade Garments 4.5 Paper and allied products 4.6 Printing & Publishing 4.7 Medicine 4.8 Refined Oil and Coal Products 4.9 Rosin and Turpentine 4.10 Rubber Tire 4.11 Leather 4.12 Plastics 4.13 Cement 4.14 Stone, Clay and Glass Products 4.15 Other Construction Material 4.16 Metal- basic Iron and Steel Foundries 4.17 Metal- Other Plant /Workshop 4.18 Miscellaneous Manufacturing 4.19 Residential (Household Purpose) 5.1 Construction (5) Non-Residential (Business Purpose) 5.2 Heavy Construction (Highways, Bridges etc.) 5.3 Electricity Services 6.1 Electricity, Gas and Water (6) Gas and Gas Pipeline services 6.2

PowerPoint Presentation:

Fabricated Metal Products 7.1 Metal Products, Machinery & Electronics Equipment & Asssem. (7) Machine Tools 7.2 Machinery- Agriculture 7.3 Machinery- Construction, Oil field, Mining etc. 7.4 Machinery- Office and Computing 7.5 Machinery- All Others 7.6 Electric Equipment 7.7 Household Appliances and Other Durables 7.8 Communication Equipment 7.9 Electronic Components 7.10 Medical Equipment 7.11 Generators 7.12 Turbines 7.13 Motor vehicle, Parts and Accessories 8.1 Transport Storage & Communication (8) Jet Boats /Water Transports 8.2 Aircraft and Aircraft Parts 8.3 Transport Related Other Products 8.4 Railways and Passengers Transport Vehicles 8.5 Truck Services and godown Arrangement 8.6 Others All Services 8.7 Wholesale Trade- Durable Goods 9.1 Wholesalers & Retailer (9) Wholesale Trade- Non-Durable Goods 9.2 Automotive Dealer /Franchises 9.3 Other Retail Establishments 9.4 Import Trade 9.5 Export Trade 9.6

PowerPoint Presentation:

"A" Class licensed Institutions 10.1 Finance, Insurance & Real estate (10) "B" Class licensed Institutions 10.2 "C" Class licensed Institutions 10.3 "D" Class licensed Institutions 10.4 Saving Lending Cooperatives 10.5 Pension Fund and Life Insurance 10.6 Other Financial Institutions 10.7 Non-Financial Government Institutions 10.8 Private Non Financial Institutions 10.9 Other Investment Intuitions 10.10 Real State 10.11 Tourism Services (Trekking, Mountaineering, Resort 11.1 Hotel & Restaurant (11) Hotel (Including Other Services) 11.2 Entertainment, Recreation, Motion Pictures 11.3 Advertisement Services 12.1 Other Services (12) Automotive Services 12.2 All Other Service Companies 12.3 Hospitals, Clinics etc. 12.4 Educational Services 12.5 Gold and Silver Loan 13.1 Consumer Loan (13) Fixed Deposit Receipt 13.2 Securities Instruments 13.3 Credit Card Loan 13.4 Hire Purchase (Personal Consumer loan) 13.5 Local Government 14 Local Government (14) Other Loan 15 Others (15)

Security wise 9.4:

Security wise 9.4 Gold & Silver 1 Gold & Silver (1) Government Securites 2 Govt. Guarantee (2) Non-Governmental Securities 3 Non- Govt Securites (3) FDR Own 4.1 Fixed Deposit Receipt (4) FDR Other Licensed Institutions 4.2 Real Estate (Land And Building) 5.1.1 Collateral of properties (5) Machinery and Equipment 5.1.2 Furniture and Fixture 5.1.3 Vehicles 5.1.4 Other Fixed Assets 5.1.5 Rice and Paddy Jute Other Agricultural Products Raw Materials Semi-finished Products Finished Product Salt, Sugar, Ghee, Edible Oil Cloths Other Goods Domestic Bill 6.1 Against Security of Bills (6) Import Bills and Letter od Credits 6.2.1 Export Bills 6.2.2 Against Security of Export Bills 6.2.3 Other Foreign Bills 6.2.4

PowerPoint Presentation:

Collective Guarantee 7.1 Against Guarantee (7) Institutional Guarantee 7.2 Personal Guarantee 7.3 Collective Guarantee 7.4 International Rated Foreign Bank's Guarantee 7.5 Other Guarantee 7.6 Credit/Debit Card 8. Credit/Debit Card (8) Others 9. Other (9)

Product Wise 9.3 Ka:

Product Wise 9.3 Ka TERM Industrial Organization 1.1 Term Loan (1) TERM Business Organization 1.2 TERM Service Organization 1.3 TERM Others 1.4 OD Industrial Organizaton 2.1 Overdraft (2) OD Business Organization 2.2 OD Service Organization 2.3 OD Others 2.4 TRUST Industrial Organizaton 3.1 Trust Receipt (3) TRUST Business Organization 3.2 TRUST Service Organization 3.3 TRUST Others 3.4 TIME Industrial Organization 4.1 Time Loan (4) TIME Business Organization 4.2 TIME Service Organization 4.3 TIME Others 4.4 Home Loan 5 Home Loan (5) Home Loan Others (above 60 lakhs) 6.1 Real Estate Loan (6) Business Complex & Residential Apartment Loan 6.2 Income Generating Business Complex Loan 6.3 Land Acquisition & Plotting Loan 6.4.A Personal Mortgage Loan Flexi Loan >=50 Lakhs 6.4.B Others 6.4.C MARGIN Loan 7 Margin Loan (7)

PowerPoint Presentation:

HIRE Business Purpose 8.1 Hire Purchase Loan (8) HIRE Individual Purpose 8.2 Deprived Loan 9 Deprived Loan (9) Bills Purchase 10 Bills Purchase (10) OTHER Credit Card 11.1 Other Products (11) OTHER Education Loan 11.2 OTHER Small Loan 11.3 OTHER Loan Against FD 11.4 OTHER Loan Against NSB 11.5 OTHER Consumable Loan 11.6

Saving Deposit/Loan Int rate & Schemes Specimen:

Saving Deposit/Loan Int rate & Schemes Specimen Deposit Interest Rate Saving Deposits Ace Special SA 10.25 ACE Ahbibhawak Bachar Khata 9.25 Ace Saving Deposit 8.25 Fixed Deposit 3 Months 8.50 6 Months 10 1-5 year 11.5 More than 5 years Negotiable Bulk Deposit 12-13 Call Accounts 4-12 Foreign Currency deposit 0.25-2

PowerPoint Presentation:

Loans and Advances Int Rate Overdraft 14-17 Term Loan 14-16 Housing Loan 15-18 Real Estate Loan 16-18 Mortgage Loan 15-18 Personal Loan 15-18 Hire Purchase Loan Personal 15-17 Commercial 16-17 Construction/Heavy Equipment Bank 16-18 Loans against FDR 11% of Additional 2 % (Higher) Education Loan 15-16 Project Loan 15-17 Bridge Gap Loan 15-17 Loan Against Shares 15-18 Deprived Sector Loan 7-14 Other Loan 15-19

Overdraft Overdrawn Case:

Overdraft Overdrawn Case In case of overdraft loan is overdrawn , within 30 days overdrawn amount should be maintain ( Settled) with overdraft account. In case of the overdrawn cheque is present this should be bounce my the concern department.

Reasons for the cheque Bounce/dishonor:

Reasons for the cheque Bounce/dishonor Countermanding (Drawer bank not to honor a particular Cheque) Upon receipt of Notice of a death of a customer Upon Receipt of Notice of Insolvency Upon Receipt of Notice of Insanity Upon Receipt of Notice of Garnishee Order Upon Receipt of Notice of Assignment Defective Title Miscellaneous Grounds Dishonor a cheque if it is a Conditional one If it is a stale Cheque A post dated cheque A mutilated cheque Drawn on a paper other than the printed form Drawn on some other Branch Presentation is made during non Banking Hours Signature is forged Not sufficient fund Endorsement is irregular Cross cheque is presented at the Counter and if amount in words and figures differ.

Ante Dating and Stale Cheques and Post Dated :

Ante Dating and Stale Cheques and Post Dated Cheque Bearing a date before the date of Issue is said to be ante dated. According to banking Customer if a cheque is not presented within 6 months if its issuance date, it is Considerable Stale. A Cheque that bears a date yet to come is a post dated Cheque. It is not considered a valid cheque till the date of Maturity. Is is also called Bill of Exchange till the date written on it. A Banker could not pay a post dated cheque before the maturity and if pays, he will have to bear any loss that result from his action

Nostro/ Vostro/lore Account:

Nostro/ Vostro/lore Account Account with other bank is called Nostro Account Other Bank Account with own Bank is called Vostro Account. Account Maintain with NRB by Own and Other Bank is called Lore Account.

Charged in registration Mortgaged Rajasho:

Charged in registration Mortgaged Rajasho Amount Prescribed By the IRD Registration Charge 0-100,000 Rs. 500 100,001-500,000 Rs. 700 500,001-1,000,000 Rs. 1,200 1,000,001-2,000,000 Rs. 1,800 2,000,001-5,000,000 Rs. 3,000 5000,001-10,000,000 Rs. 10,000 10,000,001-20,000,000 Rs. 15,000 Above 20,000,001 Rs. 30,000 Additional Rs. 200 added if the property is in Municipality Registration charge on following Rajinama 4% Bakash Patra 3% Ansha Banda 3% Hak Chadeko

Different Between Rokka/Dristi Bandak and Dhito Bandak:

Different Between Rokka/Dristi Bandak and Dhito Bandak Rokka Refers only the rokka over the said property through Paper. Rokka Consists only Rs 9,99,999 Rupee for one property . Without or with the presence of the client rokka will be done. Borrower has not any right to sold that rokka property until and Unless the bank release any documents for that. Dhito Bandak and Dristi Bandak are the same. Mortgage is done when with the presence of the client. The Specific value of the property is mention Covering the full amount of loan. The Instrument by which the transfer of Ownership for the Immovable property in order to safeguard the loan. Until and Unless the full consent given by the Bank to release the property the client can’t do anything to sold that property or do anything. The value Consider in Form of Fair Market Value of Distress Value. At Least to cover the Loan Amount. If the amount excess than 9,99,999 bank have to do Mortgage

Loan Documentations:

Loan Documentations Promissory Notes This is a documents containing a promise signed by the borrower to pay the amount of loan when demanded by the bank along with interest at a specified rate. Offer Letter It is a letter issued to the customer mentioning all types of credit facilities offered along with terms and condition with interest rates , charges, margin and Commission. Assignments of A/R Assignments means transfer of an existing or future right on property of a debt by the borrower to the banker through which the banks gets right authority and the right to recover title and Interest from the borrower’s debtor. This documents also denotes the borrower’s acceptance not to sell, transfer title or right of such bills and accounts receivable to any other parties. Power of Attorney The borrower appoint the bank as the attorney for the specified facility and assigns the bank the right to collect fund due to borrower by way of its debtors through this documents. Letter of Continuity Through this documents, the borrower declares that the property given as security will continue to secure the advance, which may create or fluctuate by way of debit of account from time to time.

PowerPoint Presentation:

The Initial Loan amount may increase or decrease in the future, but the property offered as security keeps securing the loan. General Letter of Hypothecations This documents specially declares the bank’s equitable charges on the security. In other words , it is an arrgement by the borrower permitting the bank to sell or seize the collateral( Inventories, fixed assets0 pledge to secure the loan, in case of failure to honor their obligations in maturity. Supplementary Agreements The Securities pledge to the bank are specified in this account and in forms the integral parts of the letter of Hypothecations. General Letter of Trust Receipt It is an acknowledgement of the receipt of the documents by the client and permits the bank to maintain a legal lien over the goods covered by the Bills of Lading under the condition that the bank could legally take the possession of the goods and the proceeds of the sale if the account party does not repay the loan. Letter of the Guarantee Directors, president or a person related to the company who has high reputation and the financial standing in the market is asked to execute this document as an additioanl security to oblige towards the bank’s Loan.

PowerPoint Presentation:

A personal guarantee is taken as a secondary security. It is in fact a contract to perform the promise or discharge the liability of a third person, in case of his default. Guarantee can be categorized into Specific guarantee where only a single transaction is covered and continuing guarantee which covers a series of transaction. A Continuing guarantee secures the loan though the amount may fluctuate from time to time. Cross Guarantee A Cross guarantee is taken as a security. It is a contract to perform the promise or discharge the liability of a sister concern in case of the firm’s default. Normally when there is a group lending and there is the possibility of the facility being interchanged by the sister concern, then in such situation it would be advisable to take cross guarantee of the sister concerns. Letter of Indemnity An Indemnity letter is a promise made by one party to save the other from any losses due to his own conduct or by the conduct of someone else. Wealth Statement Wealth Statement is a document mentioning the entire property details of the personal Guarantors. General Counter Guarantee When a customer is provided credit facility for the issuance of the guarantee or Indemnity , through this document, the customer the customer undertakes to indemnity and keep the bank harmless from any liability arising thereof and authorize the bank to debit their account or undertake to reimburse any amount the bank has paid or may incur against the guarantee issued on their behalf.

PowerPoint Presentation:

Letter of Set off Through this documents the borrower assigns the right to the bank to liquidate and settled its due from the proceed of pledged instrument or such held amount, in case the borrower does not pay his/her obligation on the due date. Loan deed This is non registered security documents executed by the borrower giving evidence of its acceptance of the bank loan sanctioned. It Establish the borrower’s acceptance to pay interest charges, and commission against the facility it shall avail from the bank. The details of the facilities including the loan amount, rate of the interest, charges to be paid, and the time for the repayment. The details of the additional collateral secured to the bank are also cleared mention in this documents. Mortgage Deed The Instrument by which the transfer of an interest in specific immovable property for the security of money advanced is called Mortgage deed. This is the registered documents and executed at land revenue office in favor of the bank. Non Standard Documents These are the documents which are generally prepared as per the requirement of the bank incorporating details of all credit beings forwarded by it to the customer. Non standard documents mention the securities through which the bank covers its exposure in case of dishonor by the customer

PowerPoint Presentation:

Standard Documents Standard Documents are pre-printed forms, which are obtained by the banks from all its borrowing customer and filling the details on the blank. Board Resolution Every Private or Public limited company must be first authorized by its board establishing borrowing relationship with the bank and through this paper appoints officials who are authorized to negotiate with the bank and operate the loan account. there are some specific for in the board resolution i.e No of meeting held Place the meeting was conducted Name of the Bank for taking the loan and amount Authorized person the account conduct. Attendance % Special AGM When the company is taking the loan higher then its paid up capital, at that time this decision should be authenticated by its Special General meeting. Please note that the attendance % should be as prescribed in the AOA/MOA

Business Falling Under Priority Credit:

Business Falling Under Priority Credit Agriculture and afro Based Business Cereal and cash crops, vegetable and fruit cultivation, floriculture and herbs Productions Live stock, birds, fishery and insect keeping Irrigation and irrigation Equipment Agriculture tools and Machinery Forest Development, pasturing and other related activities Land Development and Protection Cottage and Small Industries All traditional and modern technology industries defined as cottage and small Industries under the Industrial Enterprise Act. Agriculture and forest based Industries. Assembling industries with at least 20% value addition Hydro- Electricity, wind and solar power and or bio-gas industries. Information technology related computer software and hardware Industries. Industries that help to keep clean Environment through minimizing environmental pollution Mineral Industries Except those production items prohibited by the law, all other cottage and small Industries mentioned in Industrial Enterprise Act.

PowerPoint Presentation:

Service Center housing and Consumption credit provided to deprived sector Child care center and other business relating to health service trading business in animal feed, clinical and medicines. Trading center, technical school, providing skill and employment oriented training as well as training fees payable by trainees fro skill training. Business related to computer, photocopy, transport and communication service All service business relating to tourism Service business, which helps increase agriculture and industrial Production trading business relating to daily consumable items, educational materials, and health related medicine and material, distributions of drinking water, cleaning service, legal and technical consoling service and self employment oriented other service Business.

Credit Limit:

Credit Limit NRB has directed to extend credit under priority sector credit programme and Deprived sector. The present existing provision is as follows. For Priority Loan - 10% for Class A Including 3% on deprived sector Loan (Class B is free to extend credit on Priority Sector Loan) For Deprived sector Loan - 3% for Class A and 2.5% for class B

Deprived Sector Credit Defined:

Deprived Sector Credit Defined Deprived Sector includes low income and particularly socially backwards women, tribes, lower caste, blind, hearing impaired and physically handicapped person and squatters family. All the credits extended for the operation of self- Employment oriented micro Enterprises for the upliftment of economic and the social status of deprived sector up to the limit prescribed by NRB is termed as Deprived Sector Credit.

Difference between consortium Loan Loose Consortium and Syndication:

When more than one bank joins hands together to meet the demand of a single borrower, it is called consortium Loan. In other loans consortium financing is loans and facilities provided to any customer, firm, company or project by two or more licensed institutions on the basis of mutual understanding and agreement. Once the consortium group is formed, no new members are admitted without approval of the group. In consortium financing, all the agreement are done by the lead bank on behalf of all the participant Bank. The borrower can’t make independent agreement with the various participating members banks. The interest rates, service charges, commission remains uniform with all participating member. The principle and interest recovered from the borrower by the lead institution, is distributed proportionately amongst the participating members. In loan syndication, more of the greatest advantage is that each participating bank can have separate negotiation in terms if interest rate, payment schedule with the borrower. Difference between consortium Loan Loose Consortium and Syndication

Loan Write off:

Loan Write off When any loan or a portion or its is considered uncollectable, it should be charged off immediately. The concern RO with the details of reason and justification must process loan charges off. The concerned Credit Manager must forward the charge off request letter for recommendation to the head office for board approval. A separate board presentation will be prepared from HO and submit it to the board for the due approval. After the board approval, the same should be notified to the concern branches or HO. All charges off requires approval of the BOD. Write off means to remove the loss loan from its balance sheet. This frees the banker from the interference of non- performing loans in its daily operational activities to concentrate more on its core business. Reasons for the Write off There is some possibility in the future for the recovery The amount recovered from the legal action is less than the due amount The amount expenses by the bank to recover the due is greater than the amount is to be recovered.

Sources of Bank Liquidity :

Sources of Bank Liquidity Primary Deposit: Banks accept deposit from customer in cash, cheques and remittances from various banks. This increase the bank’s cash in hand or deposit with other banks, which is an increase in the bank liquidity Capital; By issuance of shares, liquidity is supplied to the bank. Loans : Borrowing made by the banks from the money market, corresponding banks and from center bank under refinance facility increase bank’s liquidity Miscellaneous Sources: Cheques sent on collection Fund transfer from other banks Received on guarantee and LC issued etc Sales of asset also brings inflow of cash.


Drafts A Draft is an order like a cheque but draw by a bank instead of an account holder to its some other branch or head office or to its corresponding bank’s branch to pay a certain sum of money to the person named in the instrument. Draft is provided to anyone The drawer and the drawee of a draft can be the same bank Draft is always drawn only payable to order Bank can’t put a stop payment except at the request of the applicant Draft can’t be dishonored Draft is normally used top effect payment in two different locations

Manager’s/Banker’s Cheque:

Manager’s/Banker’s Cheque A cheque drawn by a banker upon himself is a banker’s cheque, which is also called MC. Such cheques are issued on behalf of its customer’s and non customer for facilitating local payments only. All the MC and BC are payable at the issuing branch only.

Documents Checklist:

Documents Checklist For Individual Loan Application Firm Name of the a Borrower Approved Limit Present Outstanding Snaps of the borrower and the other PG (Three generation is needed) Family Member of the borrower Name of the Land Owner, property Location and the value of the property) Witness from the other legal heirs Original la Purja Four Wall Boundary Napi, Naksha and Trace Property tax Clearance Certificate Tax Receipt If Third Party Collateral ( Not Accepted) Loan Deed (Signed and thumb print by the authorized person of the borrower /self) Internal loan deed (First party/Third party as applicable) Legal Heir Documents (letter from Local ward office certifying legal heirs (Nata Pramanit) and no objection certificate of legal heirs. Also Consent from the Legal Heirs) Property Title Deed along with copy of source of property transfer Mortgage Deed Property Sharing Deed (Ansha Banda) Mortgage amount Promissory Notes Letter of Continuity

PowerPoint Presentation:

In case of Property Exchange (variation Memo) other supplementary agreement Copy of Citizenship including borrower and the other Guarantors Fresh CIB with no overdue of without report) In case of 6 months 31 days not across , make sure for the Considerable Value (Rajinama Value only consider) In case of the property belongs to Guthi, 1/3 of the Fair Market Value is considered or not Consent Letter from the Guthi for to take the loan. Full amount covered the loan (Pass amount in Malpot) in distress value or Loan amount In Mortgage deed witness from the borrower legal heirs /Co- Legal heirs Rajinama Copy In case of Institution Guarantee , take board resolution and authorization for the same Insurance Policy if Building is mentioned Lease Rent agreement/Rental Agreement

PowerPoint Presentation:

For Institutions (Above same) Additional Documents Needed Firm Registration PAN/VAT or IRD registration For the Partnership firm both partner have to sighed in all the documents Partnership deed/Joint Venture agreement Board Minute (in prescribed format duly singed/ stamped), Partnership Resolution, and Authorization Letter for signing Loan document. (According to the AOA/MOA % of present of the director for the minutes and Special AGM should be Justify) If there is cross collateral for the sister concern Cross Guarantee is needed and the board minutes have to also govern for the same. Renewed/ valid Registration Document (For Proprietor and Partnership firm) AOA/MOA Copy of citizenship of all Directors/Promoters and Guarantors Audited Financial Statements (last 3 years) Valuation/ re-valuation report with cadastral map and blue print. Approval sheet of valuation. No objection Certificate in case of third Party Collateral Fresh share holding Pattern authenticated from the office of the Company registered Multiple Banking Declaration Renewal request Special AGM is needed is the loan amount is exceed than the paid up capital of the firm Guarantee Acknowledgement (Make sure for the three Generation of the Guarantors) Company seal in the all related documents CFR Offer letter

Verification with the documents:

Verification with the documents Property (Owner, Plot No , area , Location) Verification of the Land with Naksha, Four Wall Boundary, Ward Safaris and the Collateral Site Visit Report) Value of the Property with Valuation report) Loan deed, Mortgage deed and offer Letter with the Borrowers Three generation Information and the registration of the firm and PAN No) Verification of the Personal Guarantors and the Witness Verification of the Official Stamp of the Company) Verification of the document Documentations Verification of the Board minutes with the Shareholding Pattern Authenticated by the office of the company Registered. Certified Verification of the Legal heirs Verification of the Personal guarantors and the Dhito Jamani Diney Verification of the limit and the Outstanding with the System Verification of the Insurance policy and the Insured amount. Verification of the Mortgaged deed with Loan deed and the registration transfer Verification whether the loan is approved by the concern Authority or not. Verification if the director holds more than 15% of shares and his credit Information

Bank Guarantee:

Bank Guarantee A Guarantee is an undertaking on behalf of the third party to make payment or fulfill the contractual obligation in case of his default. In other words, a guarantee can be defined as an undertaking by a surety (Guarantor/ Bank) on behalf of debtor (Applicant/agent/Contractor) to the creditors( beneficiary) for payment upto a certain amount within a stipulated period for beach of contract or non- fulfillment of obligation by the debtor. Parties In Guarantee There are three party involved in a guarantee namely surety or the guarantor who is he person or entity, providing guarantee. Another Party is the applicant or the debtor, the person who is obliged to fulfill the contract and on whose behalf the guarantee is being provided. The Third is the creditor to whom the contract is to be fulfilled and the guarantee is being provided. Types of the Guarantee Bid Bond (Tender Bond) Performance Bond Advance Payment Bond Retention Money guarantee Maintenance Bond

Specimen of loan file verification:

Specimen of loan file verification Original shares certificate Available No of Shares Certificate 1 Identity No 12 Share Certificate No 212170 Total No Of Shares 92,866 Lien Over the Shares Available (2067/12/14) Promoters Confirmation (Holding more than 1%) Not Available Borrowers Confirmation according to Ba. Bi 29/64/65 Not Available Letter of Consent from the borrower Not Available Buying and Selling Form (Transfer) Available (for 122,879 kittas of shares) * Signature Verify Available Know Your Customer (NRB Annex 12) available Legal Document Available Offer Letter Available Letter of Continuity Available Promissory Notes Available PG Available from his Spouse Rita Malla and Dambar Bahadur Malla Himself Note * The client has previously lien over as on 2067/03/24 the shares kittas of 122,879 with a serial no of 8545514 to 8668392. In the mean time as on 2067/12/14) the client has partially release of 30,013 kittas of shares. Along this in the same date the bank also request the letter to release 28,000 kittas of shares. But there is no other evidence for the release The New share no of shares to pledge is 92,866 kittas of shares with a same serial number where as no Buying and selling form for the same is taken.

PowerPoint Presentation:

Loan deed (4,000,000) Available Mortgage Deed (4,000,000) Available Personal Guarantee deed (4,000,000) Available Borrowers Proprietor Spouse (Bina Maharjan) And Rajesh Maharjan (Proprietor of the firm) Four Wall Boundary Available East - way (6 meter wide gravel road) West - Nagar development Land North - 1021 South - way (4 meter wide gravel road Trace/Blue Print/ Naksa as on 2067/2/18 Available Road Access yes High-tension line if any No Original Lal Purja Mr. Rajesh Maharjan Available Rokka/ Mortgage copy with Ra. No (4,000,000) and date Available As on 2067/03/16 Expired, 7708 ka (Rokka no) Rajinama copy date as on 2065-12-20 Available Letter of Continuity available Promissory Notes Available Offer letter available Tax receipt (3/16/2067) Available Witness (Not Available of Spouse on Mortgage Deed) Available Company Stamp Available Insurance (Stock) as on 30/06/2010 to 29/06/2011 Expired Letter of Charge over stock and goods Available Assignment of Bills and receivable Available Manjurinama form the borrower Spouse Not Available Remarks : There is no official stamp in mortgage deed though the loan is given to the R.A Electrical and electronics center and the Land Owner is the Proprietor of the R.A Electrical and electronic Center.

PowerPoint Presentation:

Observation of the Files Name of the Client : Bima Maharjan Type of Loan : Education Loan Address : ward no 15, Satdobato Activities : House Wife Limit : Rs. 3,000,000 O/s : Rs. 1,999,000 Interest Rate : 16% Expiry : 24 Installments (16/09/2012) Purpose : To finance the Education Cost of the Applicant Son, Ujjal Maharjan in Medical Sciences at medical College Bharatpur. Security Assessment Plot No : 1047 Location : Ward No.15, Satdobato Area : 0-4-0-0 Owner : Bima Maharjan Type : Land and Building Commercial Value : Rs. 8,614 K Fair market value : Rs. 6,614 K Distress value ; Rs. 4,648K Income Sources Loanee Husband working at Reliance Finance at California since July 2007 Draws $ 5,300 monthly. Loanee Brother in Law working at ABM Engineering, California Draws $ 6,000 Monthly Loanee turnover/Conduction /Performance According to the Current statement Installment Servicing Timely and the good account Performance.

Cost of Goods Sold:

Cost of Goods Sold Cost of goods sold is usually the largest expense on the income statement of a company selling products or goods. Cost of Goods Sold is a general ledger account under the perpetual inventory system. Under the periodic inventory system there will not be an account entitled Cost of Goods Sold. Instead, the cost of goods sold is computed as follows: cost of beginning inventory + cost of goods purchased (net of any returns or allowances) + freight-in - cost of ending inventory. This account or this calculation matches the cost of the goods sold with the sales. A retailer's inventory is its merchandise that has not yet been sold. The cost of the inventory is reported on the balance sheet as a current asset. When merchandise is sold, the cost of the items sold is reported on the income statement as the cost of goods sold. The formula for the retailer's cost of goods sold is the cost of its net purchases minus the increase in inventory, or its cost of net purchases plus the decrease in inventory. This formula assures the matching of costs with revenues. A manufacturer reports three inventory amounts: raw materials (at cost), work-in-process (at cost), and unsold finished goods (at cost). The cost of these three inventories is reported on the balance sheet as a current asset. The cost of the finished goods that were sold in the current period is reported on the income statement as the cost of goods sold. The formula for a manufacturer's cost of goods sold is the cost of goods manufactured minus the increase in the finished goods inventory, or the cost of goods manufactured plus the decrease in finished goods inventory. Again, this formula assists in the matching of costs with revenues. Costs for inventory include all costs that were necessary to get the items into inventory and ready for sale. For a retailer, the cost of a product is the vendor's invoice amount plus any freight-in on goods purchased FOB shipping point. A manufacturer's cost of finished goods and work-in-process will be the cost of direct material, direct labor, and manufacturing overhead. When costs of items are increasing, one must decide which costs will be reported as inventory and which costs will be reported as the cost of goods sold. Under the first-in, first-out (FIFO) cost flow assumption, the older (lower) costs will be leaving inventory first and the most recent costs will remain in inventory. The last-in, first-out (LIFO) cost flow assumption has the recent higher costs flowing out of inventory first (and will become the cost of goods sold). The older lower costs will remain in inventory (unless the quantity is drastically reduced). The LIFO cost flow can be different from the physical movement of goods. In other words, a company can diligently rotate its stock by moving the oldest goods to customers and yet flow the most recent costs to the cost of goods sold on its income statement.


Formula Prime Cost = Direct Materials Cost + Direct Labor Cost Total Factory Cost  or Manufacturing Cost = Direct Materials + Direct Labor Cost + Factory Overhead Conversion Cost = Direct Labor Cost + Factory Overhead Cost Cost of Goods Manufactured (COGM) = Total Factory Cost + Opening Work in Process Inventory - Ending Work in Process Inventory Or Cost of Goods manufactured = Direct materials cost + Direct labor cost + Factory overhead cost + Opening work in process inventory - Ending work in process inventory Cost of goods sold (COGS) = Cost of goods manufactured + Opening finished goods inventory - Ending finished goods inventory Or Cost of goods sold = Direct materials cost + Direct labor cost + Factory overhead cost + Opening work in process inventory - Ending work in process inventory + Opening finished goods inventory - Ending finished goods inventory Number of units manufactured = Units sold + Ending Finished Goods units - Opening finished goods units Per unit cost of goods manufactured = Cost of goods manufactured / Units manufactured Materials used or consumed = Opening inventory or materials + Net purchases of materials - Ending inventory of materials

Income Statement formula:

Income Statement formula Gross profit = Net sales - Cost of goods sold Operating profit = Gross profit - Operating expenses Operating or commercial expenses = Selling or marketing expenses + General or administrative expenses Per unit gross profit = Gross profit / No. of units sold Per unit net profit = Net profit / No. of units sold Percentage of GP to sales = (Gross profit / Net sales) × 100 Percentage of net profit to sales = (Net profit / Net sales) × 100

Format of Profit and loss statement:

Format of Profit and loss statement To Gross Loss By gross profit To Salaries By interest received To Rent By Dividend Discount To Rent and Rates By Commission Received To Discount Allowed By other Receipts To Commission Allowed By ETC To Insurance By Net Loss (Transferred to capital account to the trader To Bank Charges To Legal Charges To Repairs To Advertising To Trade Expenses To Office Expenses To Bad Debts To Traveling Expenses To Etc., Etc. To Net Profit (transferred to capital account of the trader)

Trading and Profit and Loss Account/Income Statement For the year ended 31st December, 199-----:

Trading and Profit and Loss Account/Income Statement For the year ended 31st December, 199----- Income From Sales: Sales ------ Less: Sales return ------ Sales discount ------ ------ Net Sales ------ Cost of Goods Sold Merchandise is stock on 1st January ------ Purchases ------ Less: Purchases returns ------  ------ Net purchases ------ Cost of goods available for sale ------ Less merchandise in stock on 31st December ------ Cost of goods sold ------ A GROSS PROFIT ------ Operating Expenses:

PowerPoint Presentation:

Selling Expenses: Sales salaries ------ Advertising expenses ------ Insurance expense – selling ------ Store supplies expenses ------ Sundry selling expenses ------ B.Total selling expenses ------ General Expenses: Office salaries ------ Taxes ------ Insurance expenses general ------ Office supplies expenses ------ Sundry general expenses ------ C. Total general expenses ------ B+C Total operating expenses ------ D=A-( B+C) Net profit from operations ------ Other Income: E. Rent income ------

PowerPoint Presentation:

Other Expenses: F. Interest expenses ------ NET PROFIT D+E-F ------

P/L account of Financial Institution:

P/L account of Financial Institution 1. Interest Income 2. Interest Expenses Net Interest Income 3. Commission and Discount 4. Other Operating Income 5. Exchange Fluctuation Profit Total Operating Income 6. Staff Expenses 7. Other Operating Expenses 8. Exchange Fluctuation Loss Operating Profit Before Provision for Possible Losses 9. Provision for Possible Losses Operating Profit 10. Non-Operating Income/ Loss 11. Loan Loss Provision Written Back Profit from Regular Operations 12. Profit/ Loss from extra-ordinary activities Net Profit after considering all activities 13. Provision for Staff Bonus 14. Income Tax Provision - Current Year - Upto Previous Year - Deferred Tax

P/L appropriate account:

P/L appropriate account Income 1. Accumulated Profit up to last year 2.This year’s Profit 3. Exchange Fluctuation Reserve Total Expenses 1. Accumulated Loss up to last year 2.This year’s Loss 3. General Reserve Fund 4. Contingent Reserve 5. Institutional Development Fund 6. Dividend Equalization Fund 7. Employees Related Funds 8. Proposed Dividend 9. Proposed Issue of Bonus Shares 10. Special Reserve Fund 11. Exchange Fluctuation Reserve 12. Capital Adjustment Fund 13. Debenture Redemption Fund 14. Investment Adjustment Fund 15. Accumulated Profit/ Loss

Cash Flow Statement:

Cash Flow Statement (a) Cash Flow from Operating Activities 1. Cash Receipts 1.1 Interest Income 1.2 Commission and Discount Income 1.3 Exchange Gain 1.4 Recovery of Loan Written Off 1.5 Other Income 2. Cash Payments 2.1 Interest Expenses 2.2 Staff Expenses (Including Bonus) 2.3 Office Overhead Expenses (Excluding Depreciation and Amortization) 2.4 Income Tax Paid 2.5 Other Expenses Cash Flow Before Changes in Working Capital (Increase)/Decrease of Current Assets 1. (Increase)/Decrease in Money at Call and Short Notice 2. (Increase)/Decrease in Short-term Investment 3. (Increase)/Decrease in Loan and Bills Purchase 4. (Increase)/Decrease in Other Assets Increase/(Decrease) of Current Liabilities 1. Increase/(Decrease) in Deposits 2. Increase/(Decrease) in Certificate of Deposits 3. Increase/(Decrease) in Short-Term Borrowings 4. Increase/(Decrease) in Other Liabilities (b) Cash Flow from Investing Activities 1. (Increase)/Decrease in Long-term Investment 2. (Increase)/Decrease in Fixed Assets 3. Interest from Long-term Investment 4. Dividend Income 5. Others

PowerPoint Presentation:

(c) Cash Flow from Financial Activities 1. Increase/(Decrease) in Long-term Borrowings ( Bond, Debentures etc.) 2. Increase/(Decrease) in Share Capital 3. Increase/(Decrease) in Other Liabilities 4. Increase/(Decrease) in Refinance/Facilities received from NRB (d) Income/Loss from change in exchange rate in cash and bank balances (e) Current Year’s Cash Flow from All Activities ( a+b+c ) (f) Opening Balance of Cash and Bank Balances (g) Closing Balance of Cash and Bank Balances

Share Capital and ownership:

Share Capital and ownership 1. General Reserve Fund **** 2. Capital Adjustment Fund **** 3. Capital Redemption Reserve **** 4. Capital Adjustment Reserve Fund **** 5. Other Reserve Fund **** a. Contingent Reserve **** b. Institution Development Reserve **** c. Dividend Equalization Fund **** d. Special Reserve Fund **** e. Asset Revaluation Reserve **** f. Deferred Tax Reserve **** g. Other Free Fund **** h. Investment Adjustment Fund **** 6. Accumulated Profit/Loss **** 7.Exchange Fluctuation Reserve ****

Rescheduling on case to case:

Rescheduling on case to case When Partial Settlement of the loan With Interest Post Initial Amount Sanction Date Schedule Interest Adjustment yes/no Due Interest on Repayment Adjust/not When Partial Settlement of the loan With Interest not Post Initial Amount Sanction Date Schedule Interest Adjustment yes/no Due Interest on Repayment Adjust/not When additional disbursement of the loan With Interest not Post Initial Amount Sanction Date Schedule Interest Adjustment yes/no Due Interest on Repayment Adjust/not When additional Disbursement of the loan With Interest not Post Initial Amount Sanction Date Schedule Interest Adjustment yes/no Due Interest on Repayment Adjust/not

PowerPoint Presentation:

When Interest revision On Due date on installment date With Interest not Post (AIR) Initial Amount Sanction Date Schedule Interest Adjustment yes/no Due Interest on Repayment Adjust/not When Interest revision On Due date on Mid Way With Interest Post (AIR) Initial Amount Sanction Date Schedule Interest Adjustment yes/no Due Interest on Repayment Adjust/not When interest revision on mid way On Due date on Installment date With Interest Post Initial Amount Sanction Date Schedule Interest Adjustment yes/no Due Interest on Repayment Adjust/not When Interest revision on mid way On Due date on Mid date With Interest not Post Initial Amount Sanction Date Schedule Interest Adjustment yes/no Due Interest on Repayment Adjust/not

7 Categories of Financial Ratios:

7 Categories of Financial Ratios A. Profitability Ratios B. Return Ratios C. Liquidity Ratios D. Asset Utilization Ratios E. Gearing F. Investor Ratios G. Debt Utilization Ratios Profitability ratios measure the firm's use of its assets and control of its expenses to generate an acceptable rate of return. The ratios are: 1. Gross Profit Margin 2. Operating Profit Margin 3. Net Profit Margin 4. Other Profit ratios

PowerPoint Presentation:

1. Gross Profit Margin = Gross Profit / Net Sales Gross profit = Net sales –Cost of Sales The gross profit margin ratio tells us the profit a business makes on its cost of sales (Cost of goods sold). It tells us how much gross profit per $1.00 of sales the business is earning. 2. Operating Profit Margin = Operating Profit / Net Sales Operating Profit (profit before interest and tax) = Gross profit –Operating expenses The operating profit margin ratio tells us the amount of operating profit per $1 of turnover a business has earned. That is after taking account of the cost of sales, the administration costs, the selling and distributions costs and all other costs, the operating profit is the profit that is left, out of which they will pay interest, tax, dividends and so on.

PowerPoint Presentation:

3. Net Profit Margin = Net Profit / Net Sales Net Profit: Earnings after Interest and Tax Net Profit = Operating Profit –Interest –Tax It tells us how much Net profit per $ 1.00 of sales the business is earning 4. Other Ratios: PBT ratio = Profit Before Tax / Net sales Administration cost % = Administration costs / Net sales Interest cost % = Interest costs / Net sales Overhead costs % = Total overhead costs / Net Sales Return Ratios Return ratios measure the firm's ability to generate earnings from its investments •The ratios are: 1. Return on Assets (ROA) [investments] 2. Return on Equity (ROE) [common shareholders]

PowerPoint Presentation:

Return Ratios: 1. Return On Asset (ROA) -ROA = Net Income / Total Asset -Measures the firm’s overall efficiency in the use of capital 2. Return On Equity (ROE) -ROE = Net Income / Shareholder’s Equity Liquidity Ratios 1. Current Ratio (Working Capital Ratio) 2. Quick Ratio 3. Debt Service Coverage Ratio

PowerPoint Presentation:

1. Current Ratio (Working Capital Ratio) = Current Asset / Current Liabilities 2. Quick Ratio (The Acid Test Ratio) = (Current Asset –Inventory) / Current Liabilities 3. Debt Service Coverage Ratio = Net Operating Income / Total Debt Service (In corporate finance, it is the amount of cash flow available to meet annual interest and principal payments on debt, including sinking fund payments.) D. Asset Utilization Ratios The assessment of asset usage is important as it helps us to understand the overall level of efficiency at which a business is performing. The basic equations for this section are: 1. Total Asset Turnover 2. Inventory Turnover 3. Account Receivable Turnover (Debtors’ Turnover) 4. Account Payable Turnover (Creditors’ Turnover)

PowerPoint Presentation:

1. Total Asset Turnover = Sales / Total Assets -Compares the sales with the assets that the business has used to generate that sales. -In its simplest terms, we are just saying for every $1 of assets, the sales is $x Advanced Asset turnover ratios: -Fixed Asset Turnover = Sales / Fixed Assets -Current Asset Turnover = Sales / Current Assets -Working Capital Turnover = Sales / Working Capital 2. Inventory turnover = Cost of Goods Sold / Inventory 3. Receivables turnover = Credit Sales / Account Receivables 4. Payables turnover = Cost of Goods Sold / Account Payables These three ratios are concerned with spending and saving money in the right places. 1) Too much stock and we waste money on buying it and keeping it. 2) Too much money loaned to our debtors and it's money we can't use for something else 3) Too much money in the form of creditors and we might have a problem that no one else will give us credit for anything else because they think we can't afford it, and, if we suddenly have a cash problem, we might not be able to pay our creditors.

PowerPoint Presentation:

E. Gearing Gearing is concerned with the relationship between the long terms liabilities that a business has and its capital employed. The idea is that this relationship ought to be in balance, with the shareholders' funds being significantly larger than the long term liabilities. The basic equation for this section is: 1. Gearing Ratio = Long Term Liabilities / Shareholders’ Equity F. Investor Ratios Investor ratios are ratios used by investors to assess the performance of a business to help determine if investment is warranted. The ratios are: 1. Earnings per Share 2. Dividends per Share 3. Dividend Yield 4. Dividend Cover 5. Price/Earnings (P/E) Ratio

PowerPoint Presentation:

Basic Equations: 1. Earnings per share =Earnings available to equity shareholders / Average number of issued equity shares 2. Dividends per share =Dividends paid to equity shareholders / Average number of issued equity shares 3. Dividend yield =Latest annual dividends / current market share price 4. Dividend cover =Net earnings available to equity shareholders / Dividends paid to equity shareholders 5. Price/Earnings (P/E) ratio =Current market share price / Earnings per share 1. Earnings per share: use to calculate average amount of profits earned per ordinary share issued. EPS shows what shareholders earned by way of profit for a period 2. Dividends per share: shows how much the shareholders were actually paid by way of dividends. 3. Dividend yield: allows investors to compare the latest dividend they received with the current market value of the share as an indictor of the return they are earning on their shares. 4. Dividend cover: tells us how easily a business can pay its dividend from profits

PowerPoint Presentation:

5. Price/Earnings (P/E) ratio: The P/E ratio is a vital ratio for investors. Basically, it gives us an indication of the confidence that investors have in the future prosperity of the business. A P/E ratio of 1 shows very little confidence in that business whereas a P/E ratio of 20 expresses a great deal of optimism about the future of a business. Interest coverage ratio: tells us the safety margin of the business, in terms of being able to meet its interest obligations. That is, a high interest cover ratio means that the business is easily able to meet its interest obligations from profits. Interest Coverage ratio: Net Earning Before Interest Interest Paid

G. Debt Utilization Ratios:

G. Debt Utilization Ratios Debt utilization ratios measure the prudence of the debt management policies of the firm, and show how well a company is managing or using debt 1. Debt to total assets = Total debt / Total assets Debt to equity =Total Debt/Shareholder’s Equity Significance of Using Ratios The significance of a ratio can only truly be appreciated when: It is compared with other ratios in the same set of financial statements. It is compared with the same ratio in previous financial statements (trend analysis). It is compared with a standard of performance (industry average). Such a standard may be either the ratio which represents the typical performance of the trade or industry, or the ratio which represents the target set by management as desirable for the business.

Industry Average Ratio:

Industry Average Ratio Compare with Industry Average Financial Ratios: -The industry average financial ratios are designed to serve as financial performance benchmarks against which individual firms and industries can be compared. It allows firms to precisely position themselves within their peer group Sources to Find Industry Average Financial Ratios: 1) Bankers who can tell you what ratio values are used by the bank 2) Local Board of Trade / Local Chamber of commerce 3) Industry Association 4) Statistics Canada ($24.95 per sector)

PowerPoint Presentation:

Solvency Ratio Solvency Ratio = after tax net profit+ depreciation Long term liability +short term liability Total Expenses Ratio (TER) : Total Fund Costs Total Fund Assets Sacrifice Ratio ; Rs. cost of production losses Percentage change in inflation Return on Sales : Net income (before interest and tax) sales Price-to –sales ratio-price/sales : P/E ratio Projected Earning growth rate and Dividend yield Net Liquid Assets ; Liquid financial assets – current liabilities Interest Coverage ratio : EBIT Interest Expenses

PowerPoint Presentation:

Front-End Ratio : Monthly Expenses Monthly income Debt to capital Ratio : Debt Shareholders equity +debt Days to cover ; Current short interest Average daily sales volumn

Security against Consortium Financing:

Security against Consortium Financing First Legal Charge by way of registered mortgage/pledge/hypothecation over the entire present and future fixed assets created with or without financing owned by the Borrower on pari-passu basis in favor of Participating Banks. First Charge over entire current assets of the project including receivables from Nepal Electricity Authority to the consortium on pari-passu basis. Authorized charge on the Power Purchase Agreement signed between Nepal Electricity Authority and the Borrower for supply and delivery of energy (electricity) produced by the Borrower from its Mai Hydropower Project at Mai Khola. Corporate Guarantee of Sanima Hydropower Pvt. Ltd. in favor of the Participating Banks. Personal Guarantee of Dr. Upendra Mahato , Mr. Jiba Nath Lamichhane, Mr. Niraj Govinda Shrestha, Mr. Tek Raj Niraula , Mr. Arun Kumar Ojha , Mr. Tuk Prasad Paudel , Dr. Subarna Das Shrestha, Dr. Jugal Bhurtel , Mr. Sonam Gyachho , Mr. Harendra Jaiswal , Dr. Amrit Tiwari , Mr. Rajan Prasad Amatya , Mr. Bhawan Bhatta and Mr. Pawan Kumar Bhimseria each in favour of the Participating Banks. Pledge of entire shares owned by the promoters of the Borrower in favor of Participating Banks. Assignment of Project Guarantees. Personal and corporate guarantee will be obtained to the extent of the guarantors’ shareholdings in the company. However, the total amount of guarantee shall not be less than the loan exposure with the consortium. Release of the personal and corporate guarantee will be considered upon satisfactory operation of the project at least for two years.

Profitability Ratio:

Profitability Ratio Gross Profit Margin Sales $3,074,000 Cost of Goods Sold $2,088,000 The gross profit margin is: 32.1%

Primary and secondary collateral:

Primary and secondary collateral If the bank has the first charge on the collateral is the primary collateral vice Versa Promoters shares If the promoters of the bank of financial institutions wishes to sell or pledge the shares held in his or her name after 5 years from the date of commencement of financial transactions by the bank or financial institutions he, or she sell of pledge such shares , subject to the condition prescribed by NRB

Real Estate Criteria:

Real Estate Criteria In case of Real Estate loan given against security of land/Land and Building/real Estate maximum 60% of FMV of land /land and Building /real estate mortgaged with the bank. In case of Residential Real Estate (i.e housing loan given for purchase/construction of house with a periodical repayment) maximum 2/3 of the FMV In case of Business Loan given against security of land/Land and Building /real estate, these limits do not apply and the limits specified by CPG shall prevail Further in case of 6 months 35 days has not elapsed from the date of purchase, the value to be considered shall still based on the FMV as per the valuation report. However , the value as per the Rajinama shall not be less than the loan amount.

Valuation Procedure:

Valuation Procedure Commercial Value Government Value Ratio Applied to calculate Fair Market Value i.e 70% of Commercial Value +30% of Government Value = Fair market Value 80% of Fair market Value = Distress Value Real Estate loan and Housing Loan given on the based of FMV Business Loan should Given maximum upto 80% of Distress Value.

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