Credit Management - NIBM 2026 Solved Case Study and assignments

 

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Course: Credit Management
 
Assignment EduComp Private Ltd

 

The EduComp Pvt Ltd was established in 2004. The promoter group company Trinity Pvt. Ltd. was involved in traditional business of besan/rice/oil etc. The Group had export business of rice during the period 1992-93 to 1998-99. They commenced export of readymade garments during 2001-02 and further entered in educational segment in 2004 05. The group turnover was more than 2100 crore during FY2010-11 and PBT was more than Rs 13 crore. EduComp proposes to set up a College for higher education in the field ofEngineering and Management at Karnal in Haryana with project cost of 120 crore.The annual intake capacity of the college project is envisaged at 6000 students. Company proposed to construct total area of 5.21 lakh square feet area. Company has already incurred amount of Rs 11.57 crore on the land for acquisition of land, development of land and civil work from their own resources. Civil work for the project has already started.

 

The breakup of project cost is provided as under:

S. No.	Description	Amount (Rs Cr)
1	Land	3.96
2	Development charges, Boundary wall, Water tank, Site development, Land filling, Harvesting, Landscaping, etc.	5.03
3	Civil works and building	82.00
4	Equipments, Furniture & Fixture, Misc fixed assets, Library books	6.00
5	Contingencies	4.60
6	Interest during construction	14.76
7	Endowment fund – FDR	3.00
8	Security deposit	0.15
9	Working capital margin	0.50
	Total	120.00

 

DETAILS OF PROJECT COST LAND

EduComp has already acquired land measuring 105623.286 sq meters at Karnal in State Haryana with total cost of Rs. 3.96 crore. This includes cost of land, registration charges, conversion charges and other miscellaneous expenses relating to purchase of land. The details of land cost areas under:

 

Description	Amount Rs Cr
Land cost with registration charges	1.96
Conversion cost	2.00
Total	3.96

 

As per terms of CLU, permission is granted after payment of Rs.82.50 lacs i.e. 10% amount of External Development Charges. Company has to pay balance 40% of the External Development Charges at the time of acquisition of land by HUDA and balance 50% in four annual installments with 15% interest. As per explanation submitted by the company, there is no definite plan of HUDA to acquire land and as such the above cost has not been considered in the project cost. However bank may stipulate that company would make the captioned cost, as and when arises from its own sources

LAND DEVELOPMENT COST

The land development cost is envisaged at Rs.5.03 crore. These costs include BoundaryWall, Water Tank & Site Development/Land filling, Harvesting, Landscaping etc. The cost is considered to be reasonable looking to the size of the project.

CIVIL WORK/ BUILDING

The building plan – for Academic, Hostel and Housing for Faculty/Staff has alreadybeen approved by Haryana Govt vide its letter dated 15th January 2011. Thecompany has engaged M/s PQR Ltd for its designing and implementation / constructionof the project. The total area of 48442.95 sq meters viz 521250 sq feet is proposed to be constructed @ Rs.1575 per sqft. The civil work would consist four blocknamely Block A, Block B, Hostel Block, Housing Blockfor residence of faculty,which is considered to be reasonable.

EQUIPMENTS, FURNITURE & FIXTURES ETC.

The cost includes computers, printers, furniture & fixtures for class room, hostel, faculty, Library books etc. Details are as under:

Description	Amount (Rs Cr)
Equipments	2.30
Furniture and fixtures	1.50
Miscellaneous fixed assets	1.20
Library books	1.00
Total	6.00

 

CONTINGENCIES

Cost of contingency is considered at Rs4.60 Crores @ 5.00 % of hard cost of the project which is reasonable.

INTEREST DURING CONSTRUCTION

The project would be implemented in a period of 2.0 years and company proposes to raise debt of Rs.80 crore. Interest during construction has been assumed at Rs.14.76 crore at rate of interest of 13.75%, which shall be capitalized.

ENDOWMENT FUND

 Company has to maintain Endowment Fund of Rs.3.00 crore in the shape of FDR as per regulations of Haryana Private University Act 2006. The endowment fund shall be used as a security deposit to ensure that the university complies with the provisions of this Act. Hence Endowment fund has been envisaged as per provisions of the Act.

SECURITY DEPOSIT

Security deposits are assumed at Rs.0.15 crore to be deposited with Electricity Department, Telephone Department and other misc. purposes for implementation of the project.

MARGIN MONEY FOR WORKING CAPITAL

The margin money for working capital limit is assumed at Rs.0.50 crore, which isreasonable looking to the size of the project.

 MEANS OF FINANCE

The Project is proposed to be funded at a debt-to-equity ratio of 2:1. Promoter’s contribution Promoter’s stake in the project is assumed at Rs.40.00 crore out of the total project cost of Rs.120.00 crore. Out of which, company shall bring Rs.20.00 crore as share capital and Rs.20.00 crore as unsecured loans from promoters. Promoters have already contributed amount of Rs.10.25 crore as share capital & Rs.14.42 crores as unsecured loan up to 28th February 2013 as per C.A certificate. Promoters have interest in several group companies and annual turnover of group companies have remained at Rs.2141 crore and registered profit after tax of Rs.12.72 crore in 2010-11. Unsecured loan will be interest free and will be taken from company directors, shareholders, their family members, close relatives and friends. Keeping in view of the past track record, size of the group, net worth of the promoters/ guarantors and group export turnover exceeding Rs. 2141 crore, it was felt that during 2010-11, the promoters of company will be able to bring its contribution in the project without any difficulty. Bank may further stipulate to bring 50% upfront contribution before release of term loan.

Term Loan Company has envisaged availing term loan of Rs.80.00 crore for implementation of the project.

Nature of the facility	Term Loan
Loan amount	Rs 80.00 crore
Debt equity ratio	2:1
Rate of interest	Base rate + 3% with annual reset
Implementation period	2 years
Moratorium period	2 years
Repayment period	28 structured quarterly instalments
Door to door tenor	11.50 years
Security offered	Equitable mortgage of land and building of project at Karnal and hypothecation of the entire fixed asset (movable and immovable) of the project

 

PSB Bank has underwritten entire term loan facility of Rs.80.00 crore, out ofwhich they will be retaining Rs.40.00 crore and balance to be down sold to Banks. As per the last CA certificate, PSB Bank has disbursed an amount of Rs.37.28 crore up to 28.02.2013. The bank has underwritten the entire project debt and has invited other banks and financial institutions to participate in the project debt. ABC Bank has received the request to consider the project debt to the extent of Rs40 crore.

Year	1	2	3	4	5	6	7	8	9
Net Internal Accrual	0.23	13.72	24.66	34.11	36.63	37.73	37.66	38.04	38.56
Interest on TL	11.00	11.00	10.73	9.90	8.53	6.88	5.23	3.30	1.10
Instalment of TL			4.00	8.00	12.00	12.00	12.00	16.00	16.00
Total Outflow	11.00	11.00	14.73	17.90	20.53	18.88	17.23	19.30	17.10

All figures in Rs crores.

 

 

 

 

 

ABC Bank’s Policy for Financing to Educational Institutions

Nature of facility	Term Loan
Eligibility	Educational institutions, Schools (including play schools), Colleges and other education bodies running education activities set up by Firms, Company, Trusts, Society etc. (HUF are not eligible).
Purpose	Construction of building including expansion, modernization & renovation activities of the educational institution for the purpose of education. Purchase of instruments meant for imparting education/ Training, purchase of Instruments or infrastructural requirements viz. furniture and fixtures, Vehicles, computers and all other equipment required for educational institutions. Finance for purchase of land alone is not permissible. However, the land proposed to be purchased forming part of project shall be considered for finance (subject to minimum margin as stipulated in this policy).
Primary Security	Hypothecation of all movable assets including furniture and fixtures, vehicles, instruments, computers and all other equipment as well as infrastructural requirements required for the institutions, not specifically charged to any other Bank/FIs. All the cash flows of the institute shall be routed through Trust and Retention account opened with the Bank. Equitable/ Registered mortgage of Land & Building of the Educational Institution (wherever permissible and not restricted by affiliating/ approval authority of education institution/ local Govt. laws/guidelines). Where Land and building of an educational institution cannot be mortgaged due to restriction from affiliating/ approval authority of education institution/ local Govt. laws/guidelines, in such alternate collateral security in the name of the institution or promoters of the institution equivalent to a minimum of 30% (in terms of RV) of the Loan Amount shall be obtained as collateral security. Further, in such cases, a stamped letter/ negative lien be obtained from the borrower stating that no charge will be created on the institutions property (including land for which loan is being extended) and prior permission from our Bank should be obtained before creating any kind of charge.
Collateral Security	Equitable/ Registered mortgage of Land & Building (but not agricultural land) of other institute of the borrower (wherever permissible and not restricted by affiliating/ approval authority of education institution/ local Govt. laws/guidelines) and/or belonging to promoters viz. Trustees/ Members of the Society/Proprietor/ Partners /Directors, who shall also stand as guarantor. In case of partial constructed property, the realizable value of land is to considered for collateral coverage. Personal guarantees Personal guarantees of the Promoters/ Trustees/ Members ofthe Society/ Proprietor/ Partners /Directors (excluding professional or independent directors) of the Institution. Minimum overall security (primary and collateral) coverage should not be less than 200%(in terms of RV). Note: While sanctioning credit facilities to the Educational Institutions, comfort should not be derived from the securities being offered. The viability of the project and cash flows of the Educational Institutions are to be relied upon while considering any credit facilities to the Educational Institutions.
Margin	25% of the Cost of Project (excluding cost of land). Wherever land is also financed as part of cost of project in such cases minimum prescribed margin against cost of the land shall be 50% of the cost of the land. Ø Further, the quantum of finance against cost of the land shall be restricted to 50% of the sanctioned loan amount.
ROI	The Rate of Interest shall be as per the classification of the borrower i.e., MSME (classified under Priority / Non-Priority Sector) as per RBI guidelines and shall be linked to the Internal Credit Risk Rating of the borrower. Ø The Rate of Interest for the borrower that does not fall under the ambit of MSME shall be as per Internal Credit Risk Rating and External Credit Risk of the borrower (Other Conventional Loans Not Specified Elsewhere). The Rate of Interest shall be subject to reset at the time of annual review.

 

 

Study the case with regards to find the application of concepts such:

Determination of eligible amount of loan, Evaluation of T&Cs (margin requirement, moratorium period, rate of interest, etc), Determination of projected capacity and utilization, payback period, viability, Assessment of collateral, etc.

 

 

Determination of Eligible Loan Amount

In project finance, the eligible loan amount is determined based on total project cost, margin requirements, and the acceptable debt-equity ratio. Banks generally ensure that promoters bring sufficient equity into the project so that their financial stake remains significant, which reduces the lender’s risk.

Total Project Cost = ₹120

 

Evaluation of Terms and Conditions

The terms and conditions of a loan play a crucial role in determining its suitability and risk level. Important parameters include margin, interest rate, moratorium period, and repayment schedule.

(a) Margin

Promoter Contribution = ₹40 crore
Project Cost = ₹120 crore

 

 

(b) Moratorium Period

Moratorium = 2 years
Project implementation = 2 years

No repayment during construction phase

 

(c) Interest Rate

Loan = ₹80 crore
Interest ≈ 13.75%

Annual Interest = 80 × 13.75% = ₹11 crore

Matches projected interest outflow in initial years

 

 

(d) Repayment Structure

Example:

• Year 3 instalment = ₹4 crore
• Year 6 instalment = ₹12 crore

 

 

 

Projected Capacity and Utilization

Capacity utilization is a key determinant of revenue generation. In educational projects, capacity is measured by the number of students enrolled.

 

 

 

Payback Period

The payback period measures how quickly the project can recover its initial investment from cash inflows. It is calculated by comparing cumulative cash inflows with the initial investment.

In the early years,

 

 

Viability Assessment

Project viability is assessed on financial, technical, and economic grounds.

Financially, the project shows a steady increase in cash flows, from negligible levels in the first year to over ₹35 crore annually in later years. This indicates strong earning potential

 

 

 

Assessment of Collateral Security

Collateral security provides a fallback mechanism for lenders in case of default. Banks typically require total security coverage of at least 150%–200% of the loan amount.

In this case, fixed assets such as land (around ₹4 crore) and buildings (around ₹82 crore) together provide asset backing of approximately ₹85–90 crore. Against a loan of ₹80 crore, this results in coverage slightly above 100%, which may be considered inadequate if stricter norms (like 200%)

 

 

Overall Assessment and Conclusion

A combined analysis of financials, project structure, and risk factors suggests that the project is feasible and capable of generating sufficient returns over time. The strong promoter contribution, increasing cash flows, and structured repayment plan are key strengths.

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