Assessment of Creditworthiness Of
Borrowers of HDFC Bank Ltd.
Summer Internship Project
By: Abhishek Khandelwal
Roll No: 66/2015
Lal Bahadur Shastri Institute of Management
HDFC Bank
Flow Of Presentation
About HDFC Bank
Objective
Introduction
General Assessment
HDFC Bank Internal Assessment
Model
Conclusion
Limitations
SIP Learnings
References
June 2016
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About HDFC Bank
The Housing Development Finance Corporation Limited (HDFC) incorporated in August
1994 under the name HDFC Bank Limited.
It Headquarters in Mumbai.
Banks services can be classified into 3 broad categories
Retail Banking Services
Wholesale Banking Services
Treasury Banking Services
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About HDFC Bank
The Wholesale Banking can be further divided into 2 groups
Supply Chain Management
Corporate Banking
Supply Chain Management provides 2 major services
Dealer Finance
Vendor Finance
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About HDFC Bank
Corporate Banking
Funded Services
Value Added Services
Working Capital Finance
Syndication Services
Short Term Finance
Forex Desk
Bill Discounting
Real Time Gross Settlement
Structured Finance
Money Market Desk
Export Credit
Cash Management Services
Term Lending
Derivatives Desk
Non Funded Services
Channel Financing
Letter of Credit
Employees Trusts
Bank Guarantees
Corporate Salary Accounts
Collection of Documents
Cash Surplus Corporates
Internet Banking
Reimbursement Account
Supply Chain Management
Tax Collection
Payment Gateway Services
Bankers to Right/Public Issue
Corporate Internet Banking
Online payment of VAT
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Objective
To build a model to predict Creditworthiness of a borrower.
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Introduction
Creditworthiness is a valuation performed by lenders that determines the possibility a
borrower may default on his debt obligations.
It considers factors, such as repayment history and credit score.
Lending institutions also consider the amount of available assets and the amount of
liabilities to determine the probability of a customer's default.
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General Assessment
Done through third party rating agencies like Crisil, ICRA etc.
Evaluation of the
strengths and weaknesses of the company.
The inherent protective factors,
marketing strategies,
competitive edge,
level of technological development,
operational efficiency,
competence and effectiveness of management,
hedging of risks,
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HDFC Bank Internal Assessment
The Bank access the creditworthiness of its borrower on following parameters
A. Borrowers Financials
B. Borrowers Profile
C. Borrowers Business
D. Borrowers Industry Scenario
E. Risk Exposure
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HDFC Bank Internal Assessment
A. Borrowers Financials
Three major ratios are considered
i.
DSCR- Debt Service Coverage Ratio
ii.
EBITDA Margin
iii. Sales/ Companys Growth
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HDFC Bank Internal Assessment
B. Borrowers Profile
Following details are considered while access borrowers profile
Group Borrower belongs to, if any and its worthiness
Directors, Shareholders and Senior Management of the Borrowing Company
History of the Company
Borrowers Previous Credit History
Trade Reputation
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HDFC Bank Internal Assessment
C. Borrowers Business
It considers following factors
Products traded, serviced or manufactured by the Borrower
Worthiness of the Borrowers Client
Worthiness of the Borrowers Supplier
Technology used by the Borrower
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HDFC Bank Internal Assessment
D. Borrowers Industry Scenario
It considers following factors
Industry growth
Industrys Porter5 Forces Model Analysis
Influence of Change in Government Policies
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HDFC Bank Internal Assessment
E. Risk Exposure
Based Upon the Above Factors the Bank calculates the risk exposure factor based upon the
following data
Chances of Borrowers Default
Amount Recovery Viability
Borrowers Trustworthiness
Quality of Assets
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HDFC Bank Internal Assessment
Example- Special Engineering Services Limited
A. Borrowers Financials
Particulars
31.03.2014
Actual
31.03.2015
Actual
Turnover
469.88
553.42
EBITDA
39.57
68.40
Depreciation
7.89
12.52
Interest
1.93
1.29
PBT
29.73
54.58
PAT
16.75
36.04
138.73
163.28
Current Ratio
1.43
1.63
Leverage (TOL/TNW)
0.94
0.79
Tangible Net worth
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31.03.2016
Unaudited
457.08
56.31
10.31
1.05
42.24
31.03.2017
Estimated
577.84
60.54
10.5
1.6
48.44
36.24
143.58
1.89
0.76
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HDFC Bank Internal Assessment
Example- Special Engineering Services Limited
B. Borrowers Profile
The company was incorporated on 4th June 1960
Formerly known as FAG INDIA PVT. LTD. by FAG of Germany for making Axle Boxes for
Railways.
FAG India Pvt. Ltd. was acquired in 1972 by CK Birla Group with M/s INTRUST AG (SA)
LTD. SWITZERLAND and named SPECIAL ENGINEERING SERVICES LTD.
From 1977 onwards SES started developing and manufacturing of various automobile
components.
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HDFC Bank Internal Assessment
Example- Special Engineering Services Limited
C. Borrowers Business
Major Customers (Turnover)
FORCE MOTORS LTD RS. 191.74 Mn
CHITTARANJAN LOCOMOTIVE WORKS RS. 88.27 Mn
VE COMMERCIAL VEHICLES LTD. RS. 62.62 Mn
TATA MOTORS LTD. RS. 46.11 Mn
DY.CMM (D) DIEEL LOCOMOTIVE WORKS RS. 19.08 Mn
SMM (D)/ER/KANCHRAPARA RS. 9.80 Mn
AMM/ELS/BNDM RS. 3.86 Mn
DY.CMM/LSD/PERAMBUR RS. 3.85 Mn
CROMPTON GREAVES LIMITED (M7: MANDIDEEP MFG. PLANT) RS. 3.78 Mn
BHARAT
June
2016
HEAVY ELECTRICALS
RS.
3.34ofMn
LalLIMITED
Bahadur Shastri
Institute
Management
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HDFC Bank Internal Assessment
Example- Special Engineering Services Limited
D. Borrowers Industry Scenario
The Indian auto components industry one of the fastest growing industries.
A joint report of Automotive Component Manufacturers Association of India (ACMA) and
McKinsey forecasts automotive component to be a US$ 100 billion industry by 2020,
compared with about US$ 35.1 billion today.
Currently, India is ranked 22 among global component exporting countries.
China is at the third spot on the list led by Germany and the US. According to the
McKinsey report, India will jump to 9th spot in exports by 2020.
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HDFC Bank Internal Assessment
Example- Special Engineering Services Limited
E. Risk Exposure
The primary risk is that of delinquency.
Given that almost all sales of the company are to the reputed companies in the industry,
the risk of delinquency is mitigated to a significant extent.
Another risk is that of competition from other units.
The company and its directors have built up considerable commercial as well as technical
expertise in this business and have been able to service the stringent demands of its
customers.
This has ensured the companys standing with its customers.
Thus, the risk of competition is mitigated to a significant extent.
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HDFC Bank Internal Assessment
Example- Special Engineering Services Limited
On a Scale of 1-5, where 1=best, 5=worst
A. Borrowers Financials
i.
DSCR-53.02-1
ii.
EBITDA Margin- 12.36%-4
iii. Sales Growth- 17.17-3
B. Borrowers Profile-2
C. Borrowers Business-2
D. Borrowers Industry Scenario-3
E. Risk Exposure-3
.Internal Bank Rating- HDB 5
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Model
METHODOLOGY:
15 companies data taken and analysed.
Companies rated on various parameters on a scale of 1 to 5 where
1=best and 5=worst
TOOL USED:
SPSS- Regression
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Model
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Model
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Model
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Model
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Model
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Model
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Conclusion
MODEL 2
Rsquare= .917
F(2,12)= 66.271, significance <0.05
Variables Considered: Risk Exposure,
Borrowers EBITDA Margin
Equation:
Rating= (-1.260)+(1.805*Risk Exposure Rating)+(0.372* EBITDA Margin Rating)
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Conclusion
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Limitations
Small Sample Size
Availability of Data
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SIP Learnings
Knowledge of the Banking Industry in India
Operations of Banking Industry in India
Financial Analysis of Various Industries in India
On Field experience of working in Banking Industry
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References
[1] http://www.hdfcbank.com/wholesale/default.htm
[2] http://www.specialengineering.net.in/
[3] http://www.icra.in/files/pdf/FAQs-Rating.pdf
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Thank You
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