A TEV Study Report is an independent assessment, by a third party, of the viability of the proposed new project (or restructuring proposal of existing credit facilities) submitted to the bank by a proposed new borrower (or existing borrower who is unable to service its existing debt obligations). This independent study of the proposed project (or restructuring proposal), by an external third party independent of both the bank as well as the borrower, has been mandated by the RBI for public sector banks if the loan proposal is above a threshold limit. Private sector banks have their own internal teams who do TEV Study while they also engage external agencies on their own in selected cases.
If the project is viable as per the TEV Study report, the banks may or may not sanction the loan but in case of an unviable report, the banks cannot sanction the loan. Thus TEV Study Report is a very important element in the loan sanction process.
To assess the viability of projects experienced analysts with sector expertise are required but TEV reports are often being done by analysts with zero or negligible relevant experience. An industry insider said this on conditions of anonymity. As per her what is actually happening is that to get empanelled with banks the TEV assessment agencies show an operations team which is hardly the core team of analysts who actually do the TEV analysis. Most of the members of this so called operations team are actually members of other teams or even employees of subsidiary companies.
Many a times the experienced analysts leave the organization and there is no one left but the TEV assessment agency keeps getting TEV study assignments from banks because they are already empanelled with those banks and in such a situation the agencies get those TEV studies done by inexperienced analysts or even novices.
They don’t even bother to maintain capability in the operations team by hiring capable employees.
Lots of irregularities also happen while conducting TEV Study.
Banks as well as customers put pressure on the TEV agencies to submit the report as soon as possible. Enough time is not given to TEV agencies to do proper analysis. Many a times, TEV Reports are being done in just 5 days. No site visit is done to save on costs and this is even in cases where site visit costs are borne by the customer.
Imagine how can a project be analysed in just 5 days and that too without site visit.
The banks want to sanction the loan hence they insist on viable reports so in lots of instances, viability is given for doubtful projects also just to get more business from the banks.
When an analyst gives unviable report, he or she has to face tremendous pressure from the bank, customer as well as from the superiors of his own company to change the TEV Report.
To counter these malpractices:
The RBI should instruct banks to take the details of the present (on payroll) TEV analysts available each time before assigning any TEV Study to any agency.
Though RBI should not directly influence the outcome of the TEV Study or the expert judgement of the analyst, it should develop indirect monitoring mechanisms to make sure that correct procedures are followed while conducting TEV Study like enough time is given to the analyst and necessary procedures like site visit etc. are done.
