Working Capital Loan for a Cash-Heavy Dairy Business
Suman Devi runs a milk collection route and a small sweet shop in a Rajasthan town. Monthly sales are about ₹6.5 lakh, of which roughly 70% are cash; she records collections in a diary and deposits cash irregularly. Her bank statement for the last 12 months shows an average balance of ₹18,000, several returned customer cheques and frequent cash withdrawals. She has completed KYC with Aadhaar and PAN, has Udyam registration, and repays a ₹1.5 lakh Kisan Credit Card on time. She also pays a ₹4,200 monthly consumer-durable EMI. She now asks for ₹8 lakh to buy a refrigerated display unit and hold buffer stock. She offers agricultural land held jointly with her brother as collateral; no formal valuation exists. The local sarpanch telephones the branch manager, praising her and asking for quick sanction. A young loan officer must recommend a decision.
1. Assess the credit proposal. What figures and documents would you verify, and what risks would make you hesitate?
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Start from verified cash flow, not the request. I would check 12-month bank and UPI statements; dairy cooperative or milk-route settlement slips; purchase invoices for milk, sugar and packaging; electricity and rent bills; stock register; Udyam certificate; KYC and CIBIL report; repayment track of the KCC and the ₹4,200 EMI. I would also get a land title search and a valuer's report because the collateral is jointly held.
The main risks are: 70% cash sales are hard to verify; an average balance of ₹18,000 is low for ₹8 lakh exposure; returned customer cheques suggest collection weakness; the KCC may be diverted if farm and shop finances are mixed; and joint collateral without the brother's written consent is weak security. The sarpanch's call is not credit evidence. I would ask for 6–12 months of dairy slips, a stock statement and a household cash-flow estimate. If cash sales cannot be corroborated, I would treat the proposal as partly unverified and scale it down rather than reject it outright.
2. Propose a suitable loan structure and conditions, or a rejection with reasons. Include safeguards.
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Structure for the need and the verified cash flow. The display unit is a term asset: quote ₹2.5–3 lakh over 4–5 years. Buffer stock is a current asset: offer a cash credit or overdraft of ₹3–4 lakh, not a lump-sum term loan. Total exposure should stay within repayment capacity after the existing KCC and EMI.
Conditions: 25% margin on stock; hypothecation of stock and receivables; monthly stock statement; insurance on stock and equipment; spouse as co-obligant; land collateral only after valuation and the brother's written consent, or a lower limit if that is unavailable. Set drawing power against paid stock, not against cash sales alone. Release in phases after invoices. If the borrower refuses stock statements or the land title is unclear, sanction only the smaller term loan against the machine and advise her to build six months of banking records. Document why ₹8 lakh was not approved.
3. How should the loan officer handle the sarpanch's call and document the decision?
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Take the call politely and without committing: 'The branch will appraise the proposal on documents and policy; I cannot promise sanction on the phone.' Record the date, time, caller and substance in the appraisal note. Do not let the call change the credit decision or speed up valuation. If pressure continues, inform the branch manager and, if needed, the regional office.
The appraisal note should list verified turnover, collateral status, deviations and conditions. This protects the officer, treats the customer fairly and keeps the decision defensible in audit. Political recommendation is not a substitute for KYC, valuation or repayment capacity.