In the recent past, Indian banks and financial institutions have suffered from a steep rise in non-performing loans/assets (NPAs). Most of these loans were given at the time of booming economy and rising commodity prices. One of the important reasons for the rise in NPAs has been lack of sound credit appraisal and monitoring of loans by the banks as acknowledged by the Reserve Bank of India. Credit risk appraisal and loan monitoring are basic elements of financial intermediation. Credit appraisal has to factor in risks present in a volatile business and economic environment. Similarly, structuring and monitoring a loan is important in making sure that “good” borrowers are chosen and they do not pursue their self-interest at the cost of lenders and other stakeholders.
The programme will cover the basics of project finance and asset-based lending but the key focus of the programme, however, will be on the appraisal of business risks and how those risks can be addressed in a given project. The emphasis will be on the structuring of proposed projects including their capital structure from the perspective of lenders. The programme will also cover how loan monitoring and covenants are important to keep lenders' risks within the bounds as envisaged at the time of the lending decision. The participants after attending the programme should be able to:
• Identify all major risks associated with any credit decision.
• Assess credit risks in a project depending upon how the project has been structured to allocate and manage risks.
• Assess the viability of a project from the promoter’s view, the firm’s view and also the social perspective.
• Assess the appropriate level and form of debt that can be given to a project, given the proposed project structure.
• Develop a set of covenants for a given project.
• Identify the residual risks and how/what to monitor in a loan/project/firm.
• Basics of project appraisal
• Basics of asset-backed lending
• Analyzing risks in business – local/international, competitive/technological, changes in product market/value chain
• Analyzing risks in the legal, regulatory and financial environments
• Structuring a project and its capital – risk mitigation, level of debt and stake of owners, layering of debt, aligning interest, sequencing of investments in the value chain
• Agency risks and its forms – misreporting the stake or value created, taking value out of the entity, pitchforking claimants
• Role of covenants, lending conditions and Monitoring there of
• Dealing with delinquencies
• Negotiating with the project proponent
The programme is primarily targeted at Bankers and others involved in project appraisal.