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(^420) Financial Management
Information System
To meet the specific requirement of the new ventures and to ensure the end-use and
safety of bank advance, the borrower is expected to subject himself to the budgeting
and reporting system. The borrower will supply appropriate operational data and figures
relating to financial position at periodical intervals on the prescribed forms which have
been devised for the purpose. The information so furnished by the borrower will have
to be screened thoroughly and speedily and a view taken of his total activities.
All borrowers with total credit facilities from the Banking System in excess of Rs. 10
lakhs should submit (i) Operating Statement (ii) Funds Flow Statements (iii) Peak Level
Balance Sheet and Proforma Balance Sheet for the ensuing year at the ensuing, year
at the time of submitting the loan application (whether for renewal/enhancement of
fresh limits). The borrower with aggregate credit facilities from the banking System
exceeding Rs. one crore should submit (i) quarterly operating statement (ii) quarterly
funds flow statement and (iii) current assets and current liabilities every quarter for the
purpose of follow-up.
Follow-Up
A bank has to follow-up and supervise the use of credit to verify first, whether the
assumptions on which the lending decision was taken continue to hold good, both in
regard to the borrowerís operations and the environment, and second, whether the
end-use is according to the purpose for which the credit was given. From the quarterly
forms, the banker will verify whether the operational results confirm to earlier
expectations and signs, if any, of significant divergence reading as red signals to both
the banker and the customer. However, variance of say +10% may be treated as
normal. In addition to the quarterly data, the larger borrowers should submit a half-
yearly proforma balance sheet and profit and loss account within two months from the
end of the half year.
Management Efficiency
Management competence is an important factor, in the efficiency of operations. reflected
in profitability and working capital and financial management. The banker should be
kept in mind appraisal of management may be essential particularly when more emphasis
has been on viability and development rather than on security alone. Further, changes in
ownership or managerial pattern may also have to be watched, where circumstances
warrant.
Inter-firm Comparison
To facilitate inter-firm and industry-wise comparison for assessing efficiency, it
would be of added advantage if companies in the same industry could be grouped
under three or four categories, say, according to size of sales and the group wise