Banker's Brain Goes Bankrupt

At times bankers deal with clients in a funny way abandoning the professional approach. To complete targets they advance recklessly ignoring consideration of security of the advance or viability of the project. They approve the project in haste and repent at leisure. Later they file a suit for recovery. There are also cases where they are too strict in their assessment that they lose sight of commonsense. We have some examples of this strange phenomenon of financing.
A client applied for working capital giving justification for an amount of 1 million bucks. The bank's appraisal team reduced the eligibility to $0.5 million taking only 50% of the capacity envisaged. The client who knew the business more than the banker said,
' Sir your assessment of financial requirements is devoid of commonsense. You have based it on the logic 'if for drawing one bucketful of water 10 meters of rope is required, for drawing half a bucketful, 5 meters will be enough'. This is how you sanction funds. No wonder the project is choked to death right at inception and the entrepreneur is forced to adopt fraudulent practices to get more working capital or to borrow from a shark lender'
In another case a client applied for working capital for a high tech project for which huge work in process inventory was needed because of the nature of the product. He had firm orders from leading reputed large-scale firms. He applied for $1 million , which included work in process inventory of $ 500000. The bank manager pruned down the requirements and sanctioned $0.1 million.
He said, "I cannot assign value to the work in process inventory as you claim. I can give value only for the raw material used. "
. The firm was manufacturing high value items. When completed it would fetch very high price. On his refusal to grant higher limit the client asked him," Sir if you fix the salary of your CEO based on the same principle you applied in my case, taking into account the quantity of blood, bones, marrow etc., then he will be eligible only for a salary equivalent to one tenth of what he is drawing now.How do you justify such high salary as is given now."
The manager had no answer.
The manager examined another project proposal. He sanctioned a term loan of $2 million for a small business, which had installed machinery for producing $50 million worth output in a year on single shift basis. It was high capacity machinery. The working capital was totally drained of in three weeks. The amount granted was $200000 for 50 million turn over. This unit fell sick and was buried later.