Project Appraisal in Banking

What is Appraisal?

• A structured analytical aid to take a decision.
• A record of the aspects considered in taking a decision (including deficiencies).
• Measurement of risk – Avoidance of NPA
• Examining the past performance and future prospects.
• Examining the short term as well as long term survival.
• A SWOT analysis.
• Examining the ability to service the debt.
• Examining safety of funds.

Managerial Aspects

• Background/ integrity
• Competence/ Experience/ ability
• Commitment/ passion / meticulousness
• Congruence/ Unity
• Vision
• Discipline/ organized/ professionalism.

Technical aspects

• Technical Competence.
• Dependence on skills of one individual.
• Obsolescence – product life – relevance.
• Right quality – right quantity.
• Tested machinery.
• Logistics.
• Legal aspects.

Marketing aspects

• Industrial / consumer
• Consumer product

–        Growth slow

–        Market segment to be well defined

–        Strong distribution network.

–        Large selling expenses.

–        Creation of market – risky.

• Industrial product

–        Dependence on few customers.

–        Collection of bills – tardy.

–        Product change quite often.

–        Ability to meet supply targets.

–        Large outlays but no resources.

–        Exports help the unit to widen base.

Financial Aspects (New)

• Project costs

–        All costs to be considered.

–        Necessity and sufficiency ensured.

–        Back ground papers.

Sources

–              All loose ends to be tied.

Financials (Existing)

• Compare performance with what was estimated.
• Growth pattern
• Efficiency

-RM content in sales

-GP ratio

-PBDIT/ Sales

-Cash accruals/ Sales.

• Liquidity

-current ratio

-CA/Sales ratio.

• Long term survival – TOL/TNW
• Quality of assets. Fund flow. Pressing liabilities.

Safety aspects

• Verify all aspects.
• Ensure routing of transactions.
• Adequate collaterals. Especially in trading accounts.
• Inspect / Review professionally.
• Pucca documentation.
• Take cognizance of unusual happenings.
• Keep record of follow up.

Approach

• A positive, unbiased approach.
• Problem solving, supportive approach.
• If we do not give what we have, others will give.
• Convenience approach.
• Transparent approach.
• Holistic approach.

Disclaimer: Writer of this article Prof. Vipin Saboo is BMS- N M College (University Rank Holder), PGDBM- Sydenham College, M Com- College topper, Professor at various institutes for BMS subjects.