Having discussed the basics of corporate banking (https://www.minervagc.com/corporatebanking1/), explore the lacunas in corporate banking (https://www.minervagc.com/corporate-banking-2-n-lacunas/) as well as understanding the key products which are offered to the corporate clients (https://www.minervagc.com/corporate-banking-3-n-key-products/) it’s time we explore the aspects of writing a corporate banking proposal through which a loan is sanctioned to a corporate.
This topic can go on and on, but as you are intelligent readers, I am sure; giving you a summary of corporate proposal will help you clear your basics. Following are the broad categories of proposal (a) for availing fresh loans by a new client or existing client (b) renewal of existing facilities availed by existing clients (c) reduction in existing facilities availed by existing clients. Availing fresh funding as well as reduction in existing facilities is clear from the name itself. While renewal deals with regulatory aspect where in loan products given to different corporates are to be reviewed from time to time to understand their conduct of account, position, analysing in case of any stress etc. Generally renewal of fund based and non-fund based facilities happens after 1 year from date of last renewal/sanction but this time frame can be reduced or the account can be reviewed earlier in case the credit rating of the borrower company deteriorates or there is significant impact in industry or other critical factors that may affect the liquidity position of the company or there is any fraud by the promoters/management.
The reason why this topic can go and on is because every proposal deals with companies that may be from different sectors or have to avail different loan products. Accordingly, the structure of proposal remains the same while what goes inside the proposal varies from one proposal to other and hence deliberation on the structure will make more sense. The arrangement of structure whether one section comes before or after might vary from bank to bank, but the information required largely remains within the framework of this structure.
- Company Profile/Background
- Physical Performance of the Company
- Financials Table (Past 3 years, Current FY, Projections)
- Balance Sheet : Auditor Comments and other due diligences
- Parent/Group Company Financials
- Acquisition/Capex undergone in past or current year details
- External and internal credit rating
- Current Year Performance Assessment along with key ratios
- Cash flow Analysis
- Contingent Liabilities Analysis, Comparison with Net Worth
- Present Proposal/Sanction Details
- Facility (Existing/Outstanding/Proposed)
- Security
- Justification of Proposal
- Recommendation (Pricing, RAROC, Tenor)
- Financial Covenants
- Term Sheet
- Operational Terms & Conditions (Unit visit, Insurance, Stock Audit, Processing Fees, Stock Statement, Drawing Power)
- Period of Sanction
- Pending Data required to be submitted by the Company
- Audited Financials
- Security Creation & Perfection Timeline
- RBI Annexures (Annexure 1, 2, 3)
- Basel Clauses/Norms
- External Rating Rationale
- Un-hedged Foreign Currency Exposure (UFCE)
- Documentation Timeline
- Sanction Acceptance Timeline
- Penal/Default Interest Rates and other Charges
- Deviations (Standard terms & conditions)
- Real Estate Exposure
- Capex Finance
- Acquisition Finance
- RFA/SMA
- Country Risk
- Structured Transaction/Regular/Takeover
- Overseas/India Based exposure
- Banking Arrangement (Sole/Multiple/Consortium)
- Other Lenders Details
- UFCE/Likely loss/EBID Calculation
- Shareholding Pattern
- Promoter
- Pledge of shares
- Background of Promoter
- Key risk mitigants
- Board of Directors
- Unlisted/Listed (Share price/Market Cap/52 W High & Low)
- Customers (Top 5 along with their contribution to revenues)
- Suppliers (Top 5 along with their contribution to COGS)
- Statutory Dues
- Benchmarking with Competitors
- Project Parameters (In case of project finance)
- Assessment of Fund Based and Non Fund Based
Facilities
- Working Capital Fund Based
- Term Loans
- Non Fund Based
- Derivatives
- Others
- Pending Compliances
- Security Creation/Perfection Details
- AQR (Asset Quality Review) Details
- Stock Audit Report remarks
- Insurance
- End Use Certificate
- Stock Statements Analysis
- Early Warning Signals (EWS)
- RFA or not
- Financial covenant testing and remarks
- Dues (Interest plus principal repayment) vs. Ability (Cash flow from operations) Analysis
- Conduct of Account
- Irregularity in repayment (SMA)
- Collections in FY
- Current Account Float
- Income generated
- Forex
- Contractual Comfort
- Social/Environment Due Diligence
The list is long and hence it takes time to prepare a proposal. Earlier, there was a team which was independently responsible for writing the proposals but as the competition increased with requirement of faster turnaround time in sanctioning/disbursing a loan to the client, the role of credit analyst for making the proposals has either been merged into the RM (Relationship manager) role or is being done by the RM them-selves.
We as part of Minerva Global Capital offer complete solutions for syndication of loan from preparing the proposal, financial model on behalf of the client to approaching the lenders for sanctioning of the loan and subsequently following up for disbursement of loan as per client’s requirement. We would be happy to know your comments on the above article as well as engage with you for providing financial services 🙂
By:
Nishant Gupta
(Email id: nishant@minervagc.com)
Disclaimer: The views and opinions expressed in the article are those of the author and do not necessarily reflect the official policy or position of any other agency, organization, employer or company. Since we are critically-thinking human beings, these views are always subject to change, revision, and re-thinking at any time. Please do not hold us to them in perpetuity.