Case Study: Loan Utilisation Review for an NBFC’s Mid-Market Portfolio
Verifying end-use of Rs 45 crore across 12 borrowers and identifying early signs of fund diversion
Executive Mandate Summary
Key Transaction & Governance Challenges
- •Three borrowers were showing signs of financial stress before an actual default occurred.
- •The credit committee needed independent confirmation that loan proceeds were being used for their sanctioned purposes rather than relying solely on borrower-provided utilisation certificates.
- •Borrower B had transferred a material portion of the sanctioned term loan to a group entity.
- •Borrower C's receivables had declined by 30% while the working-capital facility remained utilised at 95% of the limit.
Northrop Execution Architecture & Methodology
Section 1 - The Central Issue
The NBFC had exposure of Rs 45 crore across 12 mid-market borrowers. Three borrowers had begun showing early stress through tightening covenant headroom, changing stock-to-turnover ratios and extending receivable ageing.
The credit committee needed to establish whether the sanctioned funds remained deployed inside the businesses for their intended purposes.
Section 2 - Why Utilisation Certificates Were Not Enough
A utilisation certificate represents the borrower's assertion regarding the use of funds. Northrop's review independently tested that assertion through bank-statement tracing, recipient analysis and physical verification.
Section 3 - Tracing the Money
For each stressed borrower, material disbursements were traced from the NBFC facility account through the borrower's bank statements to the ultimate recipient.
For working-capital facilities, the analysis tested whether funds were supporting inventory purchases. For term loans, it tested whether proceeds reached the intended equipment or infrastructure suppliers.
Section 4 - Physical Verification
Northrop physically visited each borrower's premises to verify the assets and operating conditions supporting the utilisation claims.
This established that Borrower A's machinery and inventory were substantially consistent with the sanctioned purpose, while Borrower B's claimed warehouse infrastructure was only partially complete.
Verifiable Institutional Outcomes & Value Realized
- Borrower A continued to receive support with enhanced monitoring after verification established that stress was commercial rather than diversion-related.
- Rs 1.2 crore of Borrower B's term loan was identified as diverted from its sanctioned purpose.
- Borrower B's facility was recalled to the extent of the diverted amount, with additional security offered against the real estate asset.
- Borrower C's facility was reduced to match the actual receivable book and revised drawing-power position.
Ashish Chaudhary
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