Second step is examining bandits camp and finding interrogation report. The camp is located on a hill near Ransacked Village (M1,6). You can reach it by climbing on the rocks from the west side. Defeat the deserters and their leader after reaching it. Then, examine the camp. In one chest you will find the interrogation report. Take it and read it from the inventory. You will also find Serpentine Steel Sword blueprint in the chest.