Revamping banking structure to improve efficiency and save costs

Client Problem Statement

  • A Rs.100 crore (USD16M) Company has expanding needs of furnishing bank guarantees to its prospective/ current customers for its Bid and performance guarantee requirements. Existing bankers to the client were refusing to entertain further enhancement of facilities due to Company’s inadequate balance sheet strength and its inability to project its business outlook through thorough project reports and forecasts.
  • The existing T&Cs were very unfavorable to the Company with a collateral ratio of 200% of the loan. With the result that the Client’s day-today operations was becoming a big issue with its expansion plans at stake. To manage the bank guarantee requirements, the client had locked in substantial funds towards 100% margin money with its bankers. This was also creating cash flow issues in its regular operations.
  • The client was also paying 2% BG commission which was higher compared to industry standards

Recommended Solution

  • Present a compelling case to the client’s banker for an enhancement of working capital limits. Also renegotiate T&Cs post a thorough understanding of client’s business model and a detailed study of its financials.
  • If this attempt is unsuccessful, to look for an alternate bank who can provide similar facilities at favorable T&Cs


  • A detailed study of client’s business was conducted to understand its current state, future outlook and overall environment in which the Company is operating
  • An analysis of financials was done to see if it adequately represented the client’s current state. Since the client was an agency its revenues in financials did not represent the full size of the Company. This was adequately explained to the banker.
  • A clean-up of client’s receivables and payables were done to accurately represent the client’s DSO position
  • A detailed financial forecast explaining the client’s business expansion plans, future profitability and thus the need to have more working capital facility was prepared and presented to the bank.
  • An analysis of collateral ratios for similar sized companies revealed that the Company should ideally target 40% collateral ratio and the current 200% should be brought down forthwith
  • Discussions at senior and middle management of the bank were conducted in-person to explain the requirement and address the collateral ratios. Bank Guarantee Commission was also renegotiated with the bank and reduced.
  • After the first year, further renegotiations were done with the bank at the time of annual renewal


  • The bank agreed to enhance limits by 200%
  • The bank agreed to reduce collateral ratio to 40%
  • The bank reduced Bank Guarantee Commission rate from 2% to 1.5% thus providing annual cost savings to the Company of Rs.10 lacs p.a.