APPRAISAL & LENDING PROCEDURES
- Application: Borrowers would be required to submit a prescribed application form along-with Detailed Project Report and the audited financial statements for the previous five financial years.
- Eligible Borrowers: ULBs (Corporations, Municipalities and Town Panchayats) and the Statutory Boards, the following norms would be required:
- Maintain on an average a ratio of total expenditure / total revenue (tax and regular non-tax revenue) < 1.
- (Interest + repayment) / total revenue < 30% on an average for all ULBs and 50% on an average for statutory boards and State PSUs
- In case where the ULB or Statutory Body fails to meet (ii) above, but the financial rate of return exceed the lending rate plus 2%, then TNUDF will require the borrowers to put in place special recovery and credit enhancing mechanism such as escrow account arrangement, hypothecation and the bank guarantee.
For private sector borrowers, the following norms would be applied:
- Debt / Equity Ratio should be < 2 : 1
- Asset Coverage Ratio (Net Tangible Fixed Asset / Total Debts) should be > 1
- DSCR (Profit Before Depreciation and Interest / Debt Service) should be > 1.5
In addition, all the borrowers should have the institutional capacity to implement the project and to operate and maintain the constructed facilities in a satisfactory manner. In case where the institutional capacity of the borrower is not adequate, TNUDF would require the project sponsor to procure the technical assistance services.
- Ineligible Borrowers: Borrowers for whom at least two semi-annual payments are in arrears will not be eligible for further loans.
- Lending Criteria
- The project which is given high priority in the capital expenditure program of ULBs or the Statutory Bodies, in case ULBs and the Statutory Bodies are borrowers.
- The project supports water supply, sanitation, solid waste management, roads, transportation, sites and services, area development, and other remunerative and non-remunerative urban infrastructure contributing to the improvement of the living standard of the urban populations, excluding power and telecommunications.
- Appropriate statutory and environmental clearances haven been obtained and these are documented in the project evaluation report.
- The projects comply with the environmental resettlement and social standards set forth in the TNUDF’s Environmental and Social Framework (ESF).
- The project adopts the appropriate proven and most cost effective technology and technical norms and specifications.
- The economic rate of return for project is at-least 12%, if applicable.
- The project generates a financial rate of return of at-least 2%, above the interest rate, if applicable. In case of remunerative projects which fail to meet this cut-off rate due to eternality the minimum cost recovery target should be agreed with the project sponsor.
- Loan Coverage: The loan does not exceed 90% of the cost of the project sponsored by ULBs and Statutory Board or Authority and does not exceed 75% of the cost of the project carried out by other borrowers.
- Eligible items for TNUDF financing: TNUDF will finance the costs of civil works, services, goods and materials. TNUDF will not finance the land acquisition costs and the working capital.
- Security: Security will be the assets to be financed by TNUDF loan and its revenue. Escrow accounts will be used to ensure the availability of user fees, tariffs, etc., to service loans. Debt Service Reserve Fund at least equivalent to one year debt service will have to be maintained by the Borrower in a Deposit Account.
- Exposure Limit: Not more than 40% of TNUDF’s net-worth will be lent to any one borrower.
- Appraisal: On the basis of the application and further details furbished by the applicant borrower, a quick initial screening would be done with regard to eligibility, repayment capacity, financial viability, approvals obtained and further details required for detailed appraisal.
After initial screening, a detailed appraisal containing technical, economic, financial, organisational, legal, social and environmental evaluation would be completed. The appraisal report will cover inter alia:
- the eligibility criteria for projects and borrowers;
- suitability of site;
- availability of inputs;
- appropriateness of and proven experience with, the technology offered;
- project design;
- arrangements for detailed engineering;
- cost estimates;
- construction and procurement arrangements;
- arrangements for operation and maintenance;
- arrangements for compliance with environmental, resettlement and social standards as per ESF;
- financing plan;
- economic and financial viability of the project;
- adequacy of the proposed financing; (n) the corporate and capital structure of the borrower; (o) institutional assessment; (p) required technical assistance; and (q) required covenants
Loan Sanction: Based on the appraisal report, the proposed loan will be sanctioned. The conditions of sanction would specify required covenants, procurement conditions, while disbursement conditions would be linked to implementation schedules.
- Rate of Interest: The rate of interest on loans shall be decided based on the cost of funds to TNUDF.
Rate of Interest to ULBs
7 year (including the moratorium period up to 2 years)
12 year (including the moratorium period up to 3 years)
20 year (including the moratorium period up to 5 years)
The above revised rates are implemented for all loans sanctioned with effective from 01.10.2007.
However, loans will be advanced to the private sector at market determined rates.
Loan Agreement: On accepting the loan sanction conditions, loan agreement has to be executed.
Disbursement: Disbursement will be made based on the fulfillment of the disbursement conditions and progress of the project. TNUDF would reserve its right to suspend / cancel the loans, if during course of project implementation there are serious violations of the sanction / disbursement conditions
Monitoring: All borrowers would be required to submit quarterly progress reports (including quarterly funds requirements) indicating physical and financial milestones targeted and achieved.
Post Evaluation: After the projects are completed, a post evaluation report stating the cost to completion, cost and time over run, benefits, financial ratios, technical / social parameters achieved by the project would be prepared in the format prescribed.
- Overdue Interest Rates: The borrowers shall, in the event of default, be liable to pay overdue interest rates at lending rate plus 500 basic points on the outstanding debt due from the date of the scheduled instalment till the date of the actual payment of the debts.
- Repayment period: Up to 20 years with a moratorium (grace) period up to 5 years. Loans for equipment / project will be of a term not exceeding the expected economic life of equipment / project. The precise maturity and grace period for a loan shall be determined considering each project’s cost recovery period, risk features, repayment capacity of the borrower and the economic life of the project / equipment.
- Commitment Charges: Commitment Charges may be levied on the un-drawn loan amount as per the draw down schedule.