Banks Skip Cash Flows While Vetting Loans

Indian banks do not look at cash flows while evaluating a loan application and instead concentrate on the applicants balance sheet.

Speaking to Business Standard, Rex Beach, president, Financial Proformas Inc, a Moodys company, said that banks look at net profit plus depreciation and not the cash flow in the true sense of the term.

Beach has been meeting a cross section of Indian bankers and he has this impression that banks do not look at cash flows while evaluating a loan application and instead only look at the balance sheet.

Banks ask for a security but bankers have of late been crying themselves hoarse that security has no meaning becasue it is not realisable.

 

Financial Proformas Inc represents specializes in credit education, risk management software and credit research and Beach is is offering these products to the Indian banks and this would upgrade the skills of the bank officials.

This in turn would ensure that the incremental non performing assets of the banking system can be kept under check. If the skills of the officials are upgraded then they would also be better equipped to deal with the outstanding level of non performing assets. The officials would be able to grade the portfolio according to which ones are recoverable and which are not.

Does his company understand the Indian market to be able to advise Indian banks?

Beach will be relying in ICRA Ltd in this regard. The cooperation between the two entities is supported by a memorandum of understanding between the ICRA and Moodys Investor Services, US.

He recognizes that during the process of liberalization and transition only the companies with competent management who react in time will be able to survive.

He talks about ranking companies according to the managements ability to respond to change in the policies and then to decide in which companies banks should have exposures.

Beach has been meeting a cross section of Indian bankers and he has this impression that banks do not look at cash flows while evaluating a loan application and instead only look at the balance sheet