Appraisal: Loan application for construction, alteration, renovation of school building

Term loan application received from educational institutions run by trusts, private management, requires appraisal of the project as well as appraisal of the management.

First step of appraisal of project involves verification of whether the institution has the necessary approval from the Government agencies to run the school. Secondly, bank has to verify whether the proposed building construction / alteration / renovation have a proper approval from local bodies. Further, it is critical to assess whether the institution has own money to contribute requisite margin and also adequate source of income to repay the loan installments. Sensitive analysis is to be done for term loan assessment by slightly changing the assumption in the project. This is done to see the impact of adverse changes in the assumption. Another important point is to verify prevailing Government policies, embargo etc. particularly regarding fee collection, and salary structure of employees of the institution.
Appraisal of the management covers standing of the promoters / Trustees / key persons of management of the school in the society, their business capacity, managerial competence, financial resources in relation to the size of project. CIBIL report, assets and liabilities statements submitted by the borrowers, Income Tax assessment orders and wealth tax assessment orders of promoters. Reports from credit rating companies should be obtained both for the institution and the promoters/trustees. RBI defaulter list shall be verified. Adverse comments on the promoters/trust if appeared on newspapers and magazines that may be verified and discussed with the management and Branch Manger’s/Credit Officer’s opinion on this regard shall be clearly recorded in the recommendation.
Security:
Primary security: Hypothecation of the charge over assets acquired out of bank finance.

Collateral security: Personal guarantee of the Trustees/Promoters/any other persons/body acceptable to the bank.
Equitable Mortgage of the land and building of the school or of the guarantor (depends on bank’s requirement to cover adequate security).

Branch Manager has to visit the place of proposed construction area to ascertain the infrastructure available, level of activity and make a preliminary report on his/her visit which includes inspection report on prime and collateral security offered. Legal opinion and valuation report from the bank’s panels of lawyer and valuer on the property/properties to be mortgaged to the bank. In addition to the above CERSAI report to be called for.