Banking · Export Credit Appraisal
A valve manufacturing company secures a large export order backed by a Letter of Credit (LC) from a top-tier European bank, offering 30 percent higher margins. However, the company's Current Ratio (1.20) and Debt-Equity Ratio (2.5:1) fall outside standard benchmark norms. As the Credit Appraising Officer, which option represents the most balanced recommendation?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Suggest the company sell its existing domestic business to fund the export expansion to keep the debt levels unchanged.
- 2Recommend sanctioning the full limit by relaxing debt-equity and current ratio norms, citing the 'LC-backed' export order and higher profitability as strong mitigants.✓
- 3Sanction the machinery term loan only but refuse working capital, asking the company to use its own domestic profits for exports.
- 4Reject the proposal because the Current Ratio is below 1.33 and the Debt-Equity is too high, violating basic safety norms.
Correct answer
Recommend sanctioning the full limit by relaxing debt-equity and current ratio norms, citing the 'LC-backed' export order and higher profitability as strong mitigants.
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