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TRANSCRIPT
Chapter Sub point Contents Page
1 Introduction & Exposure Norms 1-9
1 Background 1
2 Policy Coverage 1
2.1 Basic Objective 1
2.2 Strategy to achieve Objective 2
3 Exposure management 2
3.9 Bank‟s Internal Prudential Exposure limit for Individual &
Group Borrower 4
3.10 Exposure to Individual / Prop/ Partnership firms/ HUF 5
3.12 Group/ Associate Borrower 5
3.14 Sector wise Exposure Ceiling 6
3.15 Exposure by way of Unsecured Guarantees and Unsecured Advance
8
3.16 Exposure/Targets under priority sector lending 9
2 Credit Customers & Lending Process 10-42
1 Eligible Borrowers 11
2 Category of Borrowers Prohibited 12
3 KYC 12
4 W illful Defaulter 13
5 Prohibited category of Exposures 13
6 Appraisal of Credit Proposals and facility wise norms 14
6.2 W orking Capital Assessment 15
6.3 Bench Mark Ratios 18
6.4 Treatment of items while calculating MPBF 20
6.4.4 Default in Payment of Statutory Dues by Borrowers 21
6.5 Appraisal of Term Loan 21
Allahabad UP Gramin Bank
BANK’S LENDING POLICY
Index
7 Bill Finance 22
8 Bank Guarantee 23
9 Letter of Credit 24
10 Loan System for Delivery of Bank Credit 25
11 Margin 25
12 Maturity and Asst Liability Management 27
13 Security 27
13.2 Personal Guarantee 28
13.3 `Substitution of Security/ Personal Guarantee 30
14 Time Frame for Disposal of Proposals 31
14.2 Monitoring of pendency of loan proposals 31
14.4 Rejections of Credit Proposals 32
15 Pricing 32
16 Documentation Standards 33
16.2 .a Pre-execution Formalities 33
16.2.b Execution of Documents 33
16.2.c Post execution Stages 33
16.2.d Protection from Limitation/ safeguarding Securities 33
16.2.e Legal Audit 33
17 Adhoc Credit Facilities/ Overdrawings 34
18 Reconstitution of Firm/ Company 34
19 Extension of Expired Limit 34
20 Acquisition of Assets through assignment of Debts/ IBPCs
35
21 Guidelines on Joint Lending Arrangement 35
21.A Background 35
21.B Formation of Joint Lending Arrangement 35
22 Ground Rules Governing Consortium Financing and Multiple Banking Financing
40
22.1 Consortium/ Multiple Banking Arrangement 40
22.2 Ceiling on number of Banks in a consortia and minimum share in consortium finance
40
22.3 Quantum of Credit and responsibility of Lead Bank/ Member Banks
41
22.4 Documentation 41
Sharing of Information 42
3 Monitoring of Loan Assets 44-48
1 Monitoring of Loan assets 44
2 Fair Price Codes for Lenders 44
3 Pre-Disbursement Credit Process Audit 44
4 Post Sanction reporting Card 45
5 Stock Audit 45
6 Review of accounts 46
7 Operation in the account beyond due date of review 46
8 Monitoring of Large borrowal accounts 47
9 Holding on Operations 47
10 Restructuring/ Rescheduling 47
4 Important Sectoral Finances 49-54
1 Financing to Infrastructure 50
2 Financing against Second Hand Assets 51
3 Exposure to Commercial Real Estate 53
5 Credit Risk management, Risk Grading & Collateral Management
56
1 Credit Risk Management 56
6 Regulatory Restrictions & Miscellaneous
57-65
Statutory and Regulatory Restrictions 58
Deviations 64
ALLAHABAD UP GRAMIN BANK
BANK’S LENDING POLICY
CHAPTER – 1
Introduction & Exposure Norms
1. BACKGROUND
The Bank‟s Domestic Lending Policy is reviewed and interim amendments are
made from time to time to meet the market realities and business priorities.
It helps all f unctionaries at the Bank in discharging their responsibilities for a steady and healthy growth in credit portfolio.
It also incorporates the regulatory and operational guidelines circulated by
Reserve Bank of India, NABARD, Sponsor Bank suggestions/comments
given during Annual Financial Inspection/ Long Form Audit Report (LFAR)
etc for effective and efficient management of the credit portfolio of the Bank.
The Lending Policy of the Bank was last reviewed and revised by the Board of Directors in its meeting held on 20.10.2010. The said policy by incorporating the
interim amendments and guidelines / instructions received from RBI is placed
hereunder.
2. POLICY COVE R AGE
Domestic Lending Policy of the Bank is the Mother Policy for all credit related
policies. As such any specific policy shall be read in conjunction with the
mother policy for better understanding and interpretation thereof.
This Loan Policy does not include matters relating to investments.
This Policy does not cover in itself all the instructions and guidelines related to
lending and has to be read in consonance with other Operational Instructions,
Manuals, Circular issued/ amended by the bank from time to time.
2.1. Basic Objectives:
2.1.1. Balanced growth and maintenance of healthy credit portfolio with
sound Risk Management culture and practices.
2.1.2. Focus on qualitative credit for meeting corporate objectives.
2.1.3. Enlarge clientele base of corporate and non-corporate segments
through Credit Marketing and focus on their genuine credit needs.
2.1.4. To increase Non-fund and Non-interest income
2.1.5. To ensure credit discipline at all levels viz. borrowing entity, operating
staff and the management.
2.1.6. Due compliance of all regulatory requirements, such as capital
adequacy, exposure norms, asset-liability management
guidelines etc.
2.1.7. To strengthen the credit delivery system and to instill a sense of credit culture enterprise-wide.
.
2.2. Strategies to achieve objective:
2.2.1. Mobilization of fresh/ quality credit proposals ensuring proper return.
2.2.2. New and innovative product development for capitalizing on business
opportunities.
2.2.3. Need based enhancement in existing limit on review.
2.2.4. Focus on tapping Non-fund business.
2.2.5. Balanced diversification/ rebalancing of loan portfolio so as to avoid
Concentration Risk.
2.2.6. Effective Supervision and Monitoring to keep loan assets performing.
2.2.7. Development of a team of competent officers by imparting necessary
training and providing exposure to the credit appraisal/ management
/ administration.
2.2.8. Prescribing general norms and standards for existing as well as new
borrowers and considering exceptions to the laid down norms only
on proper justif ication.
2.2.9. Adherence to the norms of Fair Practices Code for Lenders.
3 EXPOSURE M AN AG EMENT (Individual and Group borrower) .
3.1 Exposure Norms Prescribed by RBI: For better Risk Management and
avoidance of concentration of Credit Risks, RBI has prescribed regulatory limits
on bank‟s exposure to Individual and Group borrowers linked with Bank‟s
Capital Funds and advised Banks to fix limits on their exposure to specific
industry.
3.2 Exposure shall include credit exposure (funded and non-funded credit limits) and
investment exposure. The sanctioned limits or outstandings, whichever are
higher, shall be reckoned for arriving at the exposure limit. However, in the
case of fully drawn term loans, where there is no scope for re-drawal of any
portion of the sanctioned limit; bank may reckon the outstanding as the exposure.
3.2.1 Capital funds for the purpose will comprise of Tier I and Tier II capital as defined
under capital adequacy standards and as per the published accounts as on
March 31 of the previous year.
3.3 In terms of RBI guidelines, the maximum prudential exposure of the bank for
its fund and non-fund based activities for an Individual Borrower and Group
should not exceed 15% and 40% respectively of the Bank‟s Capital Fund (Tier-1 and Tier-2).
3.4 Credit exposure to an Individual borrower and Group may exceed by an additional
5% and 10% respectively (i.e., may go upto 20% and 50% respectively), for credit to infrastructure projects
3.5 Bills purchased / discounted / negotiated under LC (where the payment to the
beneficiary is not made 'under reserve') will be treated as an exposure on the LC
issuing bank and not on the borrower. In the case of negotiations 'under reserve', the
exposure should be treated as on the borrower.
3.6 The exposure l imits will also be applicable to lending under consortium arrangements.
3.7 Non-fund based exposures should be reckoned at 100% of the limit or outstanding,
which ever is higher.
3.8 -Exposure to Capital Market
Statutory limits on shareholding in companies In terms of section 19 (2) of the Banking Regulation Act 1949, no banking
company shall hold shares in any company whether as pledge, mortgagee or
absolute owner, of an amount exceeding 30% of the paid up share capital of that
company or 30% of its own paid up share capital and reserve (on going basis) whichever is less.
Regulatory limits Solo Basis
The aggregate exposure of the Bank to the capital market in all forms (both fund based and non fund based) shall not exceed 40% of its net worth as on March 31 of previous year. Within this over all ceiling, the Bank’s direct investment in share, convertible Bonds/ debentures, units of equity oriented mutual funds and all exposure to venture capital funds (both registered and unregistered shall not exceed 20% of its net worth.
Consolidated Basis
Same as applicable to Solo Basis
Internal Ceiling of the Bank
. Capital Market exposure will include both direct and indirect exposure which will not
exceed 2% of the gross credit as at the end of the previous financial year for the
sector as a whole. The aggregate exposure, fund based and non fund based, to
capital market, in all forms, will include the following:
• Direct investment in Equity shares, Convertible Bonds, Convertible
Debentures and Units of Equity oriented Mutual Funds, the corpus of which is not exclusively invested in corporate debt.
• Advance against shares/ Bonds/ Debentures or other securities or on clean basis
to individuals for investment in shares (including Initial Public Offering (IPO)/ Employees Stock Options (ESOPs), Convertible Bonds Debentures and units of
Equity oriented Mutual Funds.
• Advance for any other purposes where share or Convertible Bonds or Convertible
Debentures or Units of Equity oriented Mutual Funds are taken as primary security.
• Advance for any other purpose to the extent secured by the collateral securities of
shares or Convertible Bonds or Convertible Debentures or Units of Equity oriented Mutual Funds i.e. where the primary security other than shares/ Convertible
Bonds/ Convertible Debentures/ Units of Equity oriented Mutual Funds does not fully cover the advance.
• Secured and unsecured advance to stock brokers and guarantees
issued on behalf of stock brokers and market makers.
. Loan sanctioned to corporate against the security of shares/ Bonds/
Debentures or other securities or on clean basis for meeting promoters
contributions to the equity of new companies in anticipation of raising resources.
• Bridge loans to companies against expected equity flows/
issues. • Financing to stock brokers for margin trading. • All exposures to venture capital funds (both registered and
unregistered).
Definition of Net Worth
Net worth will comprise of paid up capital plus free reserve including share premium but
excluding revaluation reserve, plus investment fluctuation reserve and credit balance
in Profit & Loss Account, Less Debit balance in Profit & Loss Account, accumulated
losses and intangible assets.
3.9 Bank‟s Internal Prudential Exposure limit for Individual and Group
Borrower: 3.9.1 Bank fixes internal prudential norms for close monitoring of the individual
and group exposure duly approved by Bank‟s Board. 3.9.2 Bank will, in exceptional circumstances, with the approval of Board of
Directors, consider additional exposure to the Individual / Group borrower up to
regulatory prescriptions, i.e., maximum 5% of capital funds over and above the exposure permitted under Paragraph
3.1/3.2/3.3 subject to bank making appropriate disclosures in the notes on accounts to the Annual Financial Report of the Bank.
Category of Borrowal Account
Prudential Exposure ceiling as per RBI Guidelines Capital Fund: Rs.675.67 Crores as on 31.03.2013)
Internal Prudential Exposure: Cap of the Bank
Relaxations of RBI (subject to appropriate disclosures in the “Notes on Account” to the Financial Statements)
Risk rating
Internal rating1 to 4 or external rating of AAA / AA / A / BBB or equivalent short term rating
Internal rating 5 and below or external rating BB or below or equivalent short term rating
Individual Borrower
Rs.101.35 Crore (15% of capital fund) Rs.100.00 crore Rs. 30.00 crore
Additional 5% of Capital Funds as at the end of previous Financial year
Group Borrower
Rs.270.27 Crore (40% of capital fund) Rs.270.00 crore Rs.90.00 crore
Infrastructure-Individual
Rs.135.13 Crore (20% of capital fund) Rs.130.00 crore Rs. 40.00 crore
Infrastructure-Group
Rs.337.84 Crore (50% of capital fund) Rs.330.00 crore Rs 110.00 crore
3.10 Exposure to Individual /Proprietorship/Partnership Firms /H.U.F:
With a view to restricting the exposure to certain forms of borrowers viz., Individual,
Proprietorship Firms, Partnership Firms, HUF the bank would not take-up exposure (Funded + Non-funded) over Rs.25.00 Cr (excluding facilities
covered by Bank’s own Deposits). This cap is with a view to mitigating the
inherent risk of over dependency on the firm / associations / single / group of
persons. For exceeding this cap, permission from next higher authority of the
Sanctioning Authority shall be obtained.
3.11 Substantial Exposure Limit: i.e., Sum total of exposures assumed in
respect of those single borrowers enjoying credit facilities in excess of individual
limits fixed by RBI at 15% of capital funds may be fixed at 600% of Capital Fund.
3.12 Group/ Associate Borrower: The Reserve Bank of India has given the freedom to the Banks for defining the concept of Group and task of identification of the borrowers belonging to
specific industrial group. The concept of group in terms of Allied / Associated /
Connected Concern has been defined and the same is reproduced broadly as under:
3.13.1 Two concerns which have one or more common partner / proprietor
or their spouses, OR
3.13.2 Any of the directors of the Private / Public Limited Company is director
of another Private Limited Company / Promoter Director in a Public limited company or their spouse,
OR
3.13.3 A limited company which is subsidiary of another limited company or closely
held company with substantial interest (i.e., major share holders of the
equity share capital of the company is owned by another company),
Further, one company can be a subsidiary company of another
company either by itself or through one or more subsidiaries. OR
3.13.4 The proprietor/partner of a firm is a director in a Pvt. Ltd. Company or
promoter director in a Public Limited Company or their spouses,
OR
3.13.5 The proprietor/partner of a firm is a director in a Pvt. Ltd. Company or
promoter director in a Public Limited Company or their spouses, OR
3.13.6 In case the Managing Member of a Samiti / Society or Trustee of a
Trust or Managing person of a Club is a proprietor / partner
/ director / Karta of HUF/ Managing Member or Managing Person in any other constituent body of similar nature in the
Firm/ Company/ Society/Trust etc.
3.13.7 Besides above, the identification of the group on the basis of the principle of
commonality of management, common guarantors, and effective control
as well as on the basis of the relevant information available with the Bank will also be taken into consideration.
3.13.8 Besides above, the identif ication of the group on the basis of the
principle of commonality of management, effective control as well as
on the basis of the relevant information available with the Bank will also be taken into consideration. Please note that relatives, distant
relatives and employees of a person / group of persons will be treated
as group on the principle of commonality of management.
3.13.9 In so far as public sector undertakings are concerned, only single
borrower exposure limit would be applicable and the Group /Associate borrower concept will not be applied.
3.13.10 Professional / Nominee / Honorary Directors or Directors of the
Board having equity share holding of 2% or less shall be
excluded for the purpose of the concept of the Group.
3.13.11 Besides above, the identification of the group on the basis of the
principle of commonality of management, effective control as well as
on the basis of the relevant information available with the Bank will
also be taken into consideration. Please note that relatives, distant
relatives and employees of a person / group of persons will be treated
as group on the principle of commonality of management.
3.13.12 If a sanction made to a borrower treating him as an individual,
subsequently transpires through market information and nature of
transaction that the operational control is being exercised by persons
other than promoter to whom credit facility was sanctioned, then
the exposure will be treated under group exposure.
3.13.13 Extension of retail Loan Products viz., Housing Loan, Car Loan,
Personal Loan, Education Loan to individuals shall not fall under the
definition of Group concept. However, at the time of review of the
Group Account(s), position of retail loan accounts of the group shall be reported to the competent authority and invariably
incorporated in the appraisal report with suitable modif ication in
appraisal format.
3.14 Sector wise Exposure Ceiling:
3.14.1 The Bank based on the RBI guidelines/ directions would fix the
internal caps for aggregate commitments to the specific sectors so that
the exposures are evenly spread over various sectors. These caps
ensure avoidance of over concentration in specific sector. Wherever RBI has
explicitly placed caps / prohibition on certain types of activity/exposure,
bank would observe such Statutory and Regulatory caps. 3.14.2 Considering Bank‟s/ Regulators‟ perception of growth prospects or down
turn of any particular industry, the appropriate action on extending the
required cap or restricting the cap will be considered
from time to time. However, cap to any industry / activity sector will not exceed ceiling / cap if any fixed by RBI.
3.14.3 The funded exposure will be calculated with reference to Audited
Gross Credit figure of 31st March of every year.
3.14.4 The restrictions on a particular sector / activity as under will be
considered by the respective functional department at Head Office, based on industry and portfolio status, regulatory concerns and
based on the risk appetite of the Bank from time to time.
3.14.5 Sector Wise Exposure as percentage of Gross Credit is as under:
Sector Ceiling (%) i) Infrastructure Telecom 5 ii) Infrastructure Road and Port 7 iii) Infrastructure- Power Generation 10 iv) Infrastructure- Power Transmission & Distribution 10 v) Infrastructure Others 8
vi) Iron and Steel 9 vii) All-Textiles 6 viii) Fertilizer 3 ix) Pharmaceuticals 4 x) Engineering and Electronics 5 xi) Cement 3 xii) Gems and Jewellery 3 xiii)Construction 5 xiv)Petro. and Petrochemicals 10
xv) Housing-Direct 15 xvi) Housing-Indirect 5
xvii) Other industry not specified 5 xviii) Wholesale Trade* 5
Sensitive Sectors
13
xix) Commercial Real Estate 10 xx) Capital Market 2
*(Wholesale trade is generally the intermediate step in the distribution of
merchandise. The sector comprises establishments primarily engaged in the
buying and selling of merchandise and providing logistics, marketing and support
services. Whole-sellers are organized to sell merchandise in large quantities to
retailers, business and institutional clients. However, some whole-sellers, in particular those who supply non-consumer capital goods, sell merchandise in
single units to end users).
3.14.6 The Sector wise cap as above may be revised by the Board any time during the year.
3.14.7 Based on opportunity / threat in a particular sector and in
consideration of risk appetite of the Bank and may be reported to the
Board for information in due course. The status of the above limit will be based on exposure to the particular sector.
3.14.8 Credit risk management Deptt. HO in consultation with credit Deptt.
HO will monitor the cap and a status report on the same will be placed to the Board on yearly interval.
3.15 Exposure by way of Unsecured Guarantees and Unsecured Advance
3.15.1 Bank‟s aggregate outstanding unsecured guarantees and aggregate
outstanding unsecured advances shall not exceed 25% of total
outstanding advances. The unsecured data will henceforth be
monitored on monthly basis by Credit Deptt.
3.15.2 The ‘Unsecured Exposure’ is an exposure where the realizable
value of the security, as assessed by the Bank / Approved
valuers / Reserve Bank Inspecting Officers, is not more than
10% ab-initio (i.e. at the time of sanction) of the outstanding
exposure.
• For determining the amount of unsecured advances which
will be reflected in Schedule 9 of the Balance Sheet, the
rights, licences, authorizations etc charged to the Bank as
collateral in respect of projects including infrastructure
projects shall not be reckoned as tangible securities. As
such, such advances shall be treated as unsecured.
• However, we may treat annuities under build-operate-
transfer (BOT) model in respect of road/highway projects
and toll collection rights where there are provisions to
compensate the project sponsor if a certain level of traffic
is not achieved, as tangible securities subject to the
condition that Bank’s right to receive annuities and toll
collection rights is legally enforceable and irrevocable.
3.15.3 Exposure’ shall mean credit exposure (funded and non- funded).
3.15.4 ‘Security’ will mean tangible security properly charged to the bank
and will not include intangible securities like guarantees, comfort
letters etc.
3.15.5 Monitoring of Unsecured exposure at aggregate level shall be done
at Head Office, level by Credit Department, Head Office.
3.15.6 Further, Secured Advances for Funded and Non-Funded
Exposure would be as under subjected to guidelines / provisions
contained in Discretionary Authority.
a. A fund-based limit is considered fully secured to the
Bank for the purpose of delegation of Lending Authority,
if it is fully backed by tangible securities in favour of the Bank
and / or
if Central Government Guarantee is available. and / or
Charge on Book Debts/ Receivable including facility
extended against documentary bills backed by L/C of
prime banks.
b. A Non-fund based limit is considered as fully secured if
exposure is covered by cash / deposit margin / immovable /
movable assets / guarantee of a Scheduled Bank. (except Co-
operative Bank)/ Central Govt. Guarantee.
c. Following securities should not be considered as
tangible securities for the purpose of delegation of
lending powers:-
(i) Personal Guarantees, Corporate Guarantees, State Govt.
Guarantee, Letter of Comfort. (ii) Second Charge on movable securities.
(iii) Subservient Charge on movable securities. (iv) Negative lien on assets.
3.16 Exposure /Targets under Priority Sector Lending:
The norms (targets/ sub-targets) and categorization of Priority Sector prescribed by RBI should be complied with.
3.17 Exposure in case of Retail Credit:
The exposure to the various products under Retail Credit Scheme be
monitored based on the annual budgets under each scheme except Housing Loan (Direct) and loans under Property Scheme (if falling under
Commercial Real Estate). The sectoral cap for the Housing Loan (Direct) will be continued at existing level of 15% of Gross Credit.
BANK’S LENDING POLICY
CHAPTER – 2
CREDIT CUSTOMERS & LENDING PROCESS
1. Eligible Borrowers
1.1 The Borrower(s) and activity of the borrower should be legally
permitted.
1.2 Satisfactory track record with the existing Bank, wherever applicable.
1.3 The borrower(s) are having good track record, managerial
competence, and satisfactory market reports.
1.4 Their acceptability under KYC / AML norms.
1.5 In case a director / partner / proprietor of any borrowal account or
spouse of the director/partner/proprietor of any account of its
group company / associated concerns is a defaulter in any account
of our bank or classified as NPA in our Bank, or with any other bank
or in the defaulter list of RBI, SAL of ECGC or listed as defaulter
under the list of borrowers to be published by the Credit Information Bureau (India) Ltd (CIBIL), the proposal in such cases will be
referred to Head Office for prior clearance. The
Chairman is authorized to give clearance on such proposals.
1.6 The dealings of a borrower customer, either individual or group
account, shall preferably be confined to one branch only, unless specific reasons justifying multi branch dealing is accepted.
1.7 In case of an existing account with us, if the proprietor / partners /
directors / promoters of such borrowal account /Group Company/
associated concern are found in RBI defaulters list, renewal / continuance of the existing facility/enhancement should only be
considered by the next higher authority. The proposal will only be
considered duly justifying such financing and ascertaining the reasons for his/her name appearing in the defaulters list, present status of such
accounts and assessing the requirements of the unit independently by respective sanctioning authority. Incidentally, as the RBI‟s defaulters
list does not provide the name of the father or address of the defaulted person(s), it has been experienced that in some cases the
names of the Directors/Promoters/Borrowers etc. though appearing
in the defaulters list but on enquiry such persons claim that they are not the same persons and no way related / connected with defaulting
firm/company. In such cases an affidavit be obtained stating that they are/were no way related/ connected with the defaulting firm/company
and are not the same persons as appearing in the RBI‟s defaulters list. However, branches/offices should try to verify the fact by all
possible ways.
1.8 Directors mentioned under Paragraph 1.5. / 1.6. above means the
promoter directors having more than 2% share.
1.9 An affidavit shall be obtained from all fresh borrowers to the effect that none of the accounts of their associates /group concerns are
classified as NPA with other banks / financial institutions.
2. Category of Borrowers Prohibited:
2.1 Borrowers/Directors/Partners/Proprietors/Guarantors who is/are
included in the willf ul def aulters list issued by RBI/ECGC/IBA
etc.
2.2 Any credit facility where HUF and/or NBFC are shown as a partner in
a Partnership Firm should not be considered at all.
2.3 In addition, the entrepreneurs / promoters of companies where
banks/FIs have identified siphoning / diversion of funds,
misrepresentation, falsification of accounts and fraudulent
transactions should be debarred from institutional finance for floating new ventures for a period of five years from the date the name of the
willful defaulter is published in the list of willful defaulters by the RBI.
2.4 Promoter Director of a defaulting company or director of a defaulting
company who resigned from the Board of defaulting company, to
circumvent any obstacle in getting credit such cases The Chairman
of the bank may only consider such cases based on the merit of the case.
2.5 Where a Letter of Comfort or guarantee furnished in favour of a
willfully defaulting unit is not paid when invoked by the Bank, such
companies/ borrowers are prohibited.
2.6 Borrowers/Guarantors who have defrauded our bank / other
banks / institutions should not be f inanced. 2.7 Borrowers/facilities prohibited under RBI/Govt. guidelines
issued from time to time.
2.8 Unless specif ically permitted by the Director of the bank should
not lend to the Borrowers or their associates appearing in the
defaulters list / caution list circulated from time to time by
RBI, ECGC, CIBIL or whose accounts are classif ied as NPA in
other Bank.
3. Know Your Customer (KYC) Guidelines
“Know Your Customer” (KYC) procedures should be the key principle for identification of an individual / corporate while opening an account.
The detailed operational instructions / guidelines in this regard which are issued from time to time must be complied with.
4. Willful Defaulter
4.1 As per RBI provision, the entrepreneurs / promoters of companies
where banks / FIs have identified siphoning / diversion of funds,
misrepresentation, falsification of accounts and fraudulent
transactions should be debarred from institutional finance from the
Scheduled Commercial Banks, Development Financial Institutions, Government-owned NBFCs, Investment Institutions, etc. for floating
new ventures for a period of five years from the date the name of the
willful defaulter is published in the list of willful defaulters by the RBI .
4.2 The detailed guidelines regarding the treatment, reporting etc of Willful
Defaulter will be as per Bank‟s Recovery Management Policy.
5. Prohibited Category of Exposure
(A)STATUTORY RESTRICTIONS:
(i) Advances against bank's Own Shares (ii) Advances to bank's Directors. (iii) Restrictions on Holding Shares in Companies (iv)Restrictions on Credit to Companies for Buy-back of their Securities
(B)REGULATORY RESTRICTIONS: (i) Granting loans and advances to relatives of Directors (ii) Restrictions on Grant of Loans and Advances to Officers and the Relatives of Senior
Officers of Banks. (iii) Restrictions on Grant of Financial Assistance to Industries Producing/Consum ing
Ozone Depleting Subst ances (ODS) (iv) Restrictions on Advances against Sensitive Comm odities under Selective Credit
Control (SCC)
(iv) Restriction on payment of commission to staff members including officers
(C) RESTRICTIONS ON OTHER LO ANS AND ADV ANCES: (i) Loans and Advances against Shares, Debentures and Bonds (ii) Advances against Mone y Market Mutual Funds (iii) Advances against Fixed Deposit Receipts Issued b y Other Banks (iv)Advances to Agents/Interm ediaries based on Consideration of Deposit Mobilization (v) Loans against Certif icate of Deposits (CDs) (vi) Bank Finance to Non-Banking Financial Com panies (NBFCs) (vii) Bank Finance to Equipm ent Leasing Companies (viii) Bank Finance for Purchase/Lease of Existing Assets (ix) Financing of Infrastructure /Housing Projects (x) Issue of Bank Guarantees in favour of Financial Institutions (xi) Discounting/Rediscounting of Bills by Banks (xii) Advances against Bullion/Prim ary Gold (xiii) Advances against Gold Ornam ent and Jwellery (xiv) Loan System for Delivery of bank credit. (xv) Loans and Advances to Real Estate Sector
(xvi) W orking Capital Finance to Inform ation Technolog y and Software Industry. (xvii) Grant of loans for acquisition of Kisan Vikas Patras. (The guidelines of the bank covering the above areas w ill be complied w ith along w ith the extant regulatory directives).
6. Appraisal of Credit Proposals and facility wise norms:
General:
6.1.1 Good Credit Management warrants the bank to extend finance to
such borrowers who have sound financial position, satisfactory track
record and where the business relationship will offer good return to
the Bank and the advance shall remain safe and secure. In this
backdrop, an utmost care is required while appraising the credit
proposal so that Bank‟s guidelines are fully adhered to viz., eligibility
criteria, antecedents of the borrower, repaying capacity, verification
of end use of funds, risk assessment, etc.
6.1.2 In case where the company‟s shares are listed on the stock
exchange, the movement of the price of its share, the market value
of shares vis-à-vis those of competitors in the same industry, response to public / right issues are also to be kept in view as these
are reflections of the corporate image to the investors‟ community.
6.1.3 The deviations / exemption from the norms / benchmark levels shall
be clearly mentioned in the appraisal note, duly recording the
reasons / justifications/mitigations thereof.
6.1.4 For sanctioning proposals (other than against Bank‟s own
Deposit, NSCs/ KVPs/ LIPs , Staff Loan and BG/LC against 100%
cash cover, other small Secured loan and Agriculture loans up to limit
fixed by the bank time to time) it must be ensured that the
proposals at Branches are appraised jointly by another officer
along with the sanctioning authority. W here ever the second line officers are not available at the Branch Regional Heads may
depute suitable officers to such branches for this purpose.
6.1.5 The formal processing, appraisal including risk rating of account will
be done like a fresh sanction in case of Take-over of account.
6.1.6 Adoption of Environment and Social Risk Framework (ESRF)
Guidelines
With the growing awareness about environmental and social issues
among customers and shareholders and consequent pressure of Government and society for strict compliance of these issues,
Environmental and Social risk is acquiring paramount importance for
Banks and Financial Institutions. Banks and Financial Institutions are
currently not liable for their borrower‟s environmental performance,
however they are exposed to credit risk that may arise from either a borrower‟s inability to repay loans due to restrictions or penalties
arising from environmental issues or reduced value of collateral
property.
Environmental and social risk can be defined as the potential for
reputational or financial damage as the result of transactions,
products, services or investments that involve a party associated with
environmentally or socially sensitive activities, or potential exposure
to risks relating to environmental liabilities, human rights infringements, or changes in regulations. The Bank has to regularly
analyze its portfolio of products and services to asses its respective
environmental and social risk potential.
The World Bank group, in its operational directives under MSME
Financing and Development project – a multi-partnership project implemented by SIDBI, has stipulated that all lending extended
should be environmentally sustainable. So, the Department of
Financial services, Ministry of Finance, Government of India advised Bank to form a Board approved policy on Environment and Social
Risk Framework (ESRF) norms of World Bank and adopt for
implementation.
6.2 Working Capital Assessment:
The Bank‟s guidelines on Credit Assessment Methodology be constantly reviewed. However, the basic methodology for calculating
working capital will continue to be considered as under:
6.2.1 Working Capital Credit Limits to Micro, Small and Medium
Enterprises in Individual cases up to Rs.5.00 Cr (Manufacturing
Sector) and up to Rs.2.00 Cr (Service Sector) will be computed on the basis of minimum 20% of their projected annual sales turn
over(turn over method). However in case of borrower applying for
working capital limit higher or lower than the working capital
computed on the basis of turn over method shall be assessed as per
actual requirement.
6.2.2 In case of other borrowers whose working capital requirement is up
to Rs.2.00 Cr, the assessment will also be done under Turnover
Method.
6.2.3 In accordance with these guidelines, the working capital requirement
is to be assessed at 25% of the projected turnover to be shared
between the borrower and the bank, viz. borrower contributing 5% of
the turnover as net working capital (NWC) and bank providing
finance at a minimum of 20% of the turnover.
6.2.4 It will be at the discretion to carry out the assessment based on
turnover method or the traditional method. If the credit requirement
based on traditional production/processing cycle is higher than the
one assessed on projected turnover basis, the same may be
sanctioned as per actual requirement.
6.2.5 The branches must satisfy themselves about the reasonableness of
the projected annual turnover of the applicants, both for new as well
as existing units, on the basis of annual statements of accounts or
any other documents such as returns filed with sales-tax/revenue
authorities and also ensure that the estimated growth during the year
is realistic.
6.2.6 The borrowers would be required to bring in 5 per cent of their
annual turnover as margin money. In other words, 25 per cent of the output value should be computed as working capital requirement, of
which at least four-fifth should be provided by the banking sector, the
balance one-fifth representing the borrower's contribution towards
margin for the working capital. For example, in case, annual sales
turnover of a borrower is projected at Rs.60.00 lakh, the working capital requirement will be computed at Rs.15.00 lakh (i.e. 25%) of
which Rs.12 lakh (i.e. 20% of sales turnover) may be provided by the
banking system, while Rs.3.00 lakh (i.e. 5 % of sales turnover)
should be borrower's contribution towards margin money. In cases,
where output exceeds the projections or where the initial assessment of working capital is found inadequate, suitable enhancement in the
working capital limits should be considered by the competent
authority as and when deemed necessary.
6.2.7 Drawls against the limits should, however, be allowed against the
usual safeguards so as to ensure that the same are used for the
purpose intended and proper margin held. Branches should ensure that Borrowers are regular and timely submitting the statements of
stocks, receivables, etc as per sanction terms and also periodical
verification of such statements vis-à-vis physical stocks by the bank‟s
officials/ other agencies as per sanction terms are being carried out
as per extant guidelines.
6.2.8 For assessment of the working capital requirement for borrowers
falling within the band of above Rs.5.00 Cr and below Rs.10.00 Cr (in
case of manufacturing sector) and above Rs.2.00 Cr and below
Rs.10.00 Cr (service sector) the traditional method of computing
MPBF as per second method of lending will continue. If any of the borrowers falling in this band intends to shift to cash budget system,
the same may be accepted.
6.2.9 In case of seasonal industries (like tea, coffee, sugar etc) along with
other industries like Information Technology, Software and Construction Company, the cash budget system of assessment will
be applied. The cash budget system envisages the providing of working capital by the bank based on the peak deficit projected as
per the cash flow statement. Cash budget system will also be applied for assessment of working capital to industries like Ship Building etc.
Drawing will be allowed based on monthly stock statement after ensuring 25% margin.
6.2.10 For borrowers having working capital limit of Rs.10.00 Cr and above,
Cash Budget method will be applicable. However, if a borrower is
desirous to continue with the existing MPBF method, the Bank may accept the request. However, besides the Cash Flow, other aspects
like the borrower‟s projected profitability, liquidity, gearing, and fund-
flow are also to be analyzed.
6.2.11 The financing under information technology and software sector, for
working capital limits up to Rs. 2.00 Cr, the assessment may be
made at 20 percent of the projected sales turnover and in case of facility above this ceiling, the proposals may be considered
on the basis of the monthly / quarterly cash budget system.
6.2.12 In consortium arrangement/ Joint Lending Arrangement
(JLA) where the bank is a member, the appraisal made by the
Lead Bank may be accepted. However, utmost care shall be
taken by the sanctioning authority, while accepting the appraisal of the Lead Bank.
Net Owned Fund means
1A The aggregate of the paid-up equity capital and free reserves as
disclosed in the latest balance sheet of the company after deducting there from:
(i) accumulated balance of loss;
(ii) deferred revenue expenditure; and other intangible assets; and
1B Further reduced by the amounts representing:
investment of such company in shares of: (i) its subsidiaries;
(ii) companies in the same group; (iii) all other Non-Banking Financial Companies; and
2. The book value of debentures, bonds, outstanding loans and advances
(including hire purchase and lease finance) made to, and deposits with
(i) subsidiaries of such company; and
(ii) companies in the same group, to the extent such amount exceeds
ten percent of (1) above ("subsidiaries" and "companies in the same group" shall have the same
meanings assigned to them in the Companies Act, 1956 (1of 1956).
6.2.13 Bank will continue to make its own assessment of credit
requirements of borrowers based on borrowers‟ business operations
and market perception about the industry i.e. taking into account the production/ processing cycle of the industry as well as the financial
and other relevant parameters of the borrower. However, the level of
holding of each item of chargeable current assets would be based on
reasonable requirement of build up of current assets and market
perception. The projected level of current assets and that of current liabilities should be comparable with past trend and prevailing market
conditions. In case there are significant/abnormal variations, the
position should be explained in respect of each item of variations.
6.2.14 while considering loan proposals of PSUs / Central and State
Government Corporate / Municipal Committees / Corporations
etc
• Normal credit appraisal should be carried out without
considering any relaxation in economic parameters as
applicable for evaluation of other corporates/projects.
• The normal economic parameters as applicable to other
corporate would be followed.
• Availability of Government Guarantee should be reckoned
only as risk mitigant and not as a substitute of statement of
cash flow.
* Specific relaxation in systems and procedures and
benchmark parameters should be dispensed with to carry
out risk assessment exercise and project evaluation.
6.3 Bench Mark Ratios:
6.3.1 All credit proposals for W orking Capital shall conform to the stipulated
minimum current ratio norms required under different methodology for assessment of need based working capital requirement (unless
specifically exempted).
6.3.2 For fresh loans covered under Turn-over Method, a Current Ratio of
1.25:1(minimum) and under 2nd method of lending a current ratio: 1.33:1 (minimum) may be stipulated. However, a lower/ higher ratio in case of
existing account may be considered under specific loan scheme or in
deserving cases. The reasons for lower current ratio or slippage should be
carefully examined. In case of accepting lower Current Ratio than bench mark ratio in existing cases, it should be stipulated that company shall
improve its current ratio to more than 1:1 and thereafter maintain it above
1.33:1 in the next financial year. Bank may load additional interest ranging from 0.50% to 1% in interest components till current ratio is
improved to 1.33. Once current ratio is reached to 1.33, the
concession may be allowed to the said extent. The restructured account will be out of the purview of this covenant in which context
prevalent guidelines will continue.
6.3.3 Net W orking Capital: Although this is a corollary of current ratio, the
change in Net W orking Capital should be commented upon whether there is a mismatch of long term/ short term sources vis-à-vis long term/ short
term uses for purposes which may not be readily acceptable to the Bank
and timely corrective measures may be initiated.
6.3.4 Financial Soundness: In new proposals Total Outside Liability (TOL) to
Tangible Net Worth (TNW ) ratio of 3:1 may be considered reasonable
However; the sanctioning authority in deserving cases may consider
TOL/TNW up to 5:1. The GM may permit the TOL/TNW up to
10:1 in deserving cases. Beyond the above, The Chairman may permit such cases. For the purpose of calculation of TOL/TNW and DER (Debt Equity Ratio), unsecured loan from directors/ share holders/ borrowing
from friend and relatives / partners may be treated as term liability. Such unsecured loan may be treated as Quasi-Capital for the calculation of TOL/TNW and DER if it is not repayable within the tenor of bank Loan and:
• the loan is interest free
OR
if a company pays interest on such loan, the rate of interest should not
exceed the lower of the rate of dividend declared or the rate of interest
paid on Bank Loan.
• in case of firms and others, the interest paid on quasi-capital should
not exceed rate of interest paid on Bank Loan.
• It shall be ensured that the borrowers are profit-making and regular in
operations.
• The TNW should be positive.
6.3.5 Turn-Over: The trend in sales and credit turn-over in the account should be carefully scrutinized.
6.3.6 Credit Rating: All the proposals before sanction must be rated and
validated as per Risk Rating Guidelines of the Bank and /or rating
awarded by External Credit Rating Agencies should be taken into
consideration.
6.3.7 Promoters Contribution: Maintenance of Promoters contribution and its timely monitoring have a paramount interest to mitigate equity participation risk. Bank has put in place the guidelines in this respect duly approved by the Board which should be taken into consideration.
6.3.8 For the Telecom (Mobile) service providing industry, current ratio of 1:1
may be accepted for calculation of Current Ratio only. However working
capital will be assessed under MPBF method ensuring minimum current ratio as 1. 33.
6.3.9 In case of existing loans where current ratio or DER is below the
benchmark, additional interest ranging from 0.50% to 1%
may be loaded in the interest component. Once current ratio and DER reached at benchmark level, the concession
in interest may be allowed to the said extent. The restructured
account will be out of the purview of this covenant in which
context prevalent guidelines will continue. 6.3 .10 Deviations can be permitted by The Chairman.
The Guidelines requires a degree of flexibility to the decision makers to
cope with the competitive business environment. The deviation /
exemption from the laid down norms stipulated in the Domestic Lending
Policy may also be permitted only in genuine and exceptional cases, on
account of business exigencies. The Chairman will consider the proposals
where the following deviations may be permitted:
• Rate of Interest m a y b e r e l a x e d upto 2%
• Benchmark Financial ratios i.e. Current Ratio minimum upto 1:1,
DSCR minimum upto 1.10:1.
• Margin for Non-funded limit below 5%
• In case of PSU and Corporate having external rating AAA & AA,
Bank Guarantee & Letter of Credit may be issued at NIL margin.
The requirement of external rating will be applicable for PSU and
Corporate both.
• Margin in case of loan against Bank‟s own term Deposit and
other liquid securities like NSCs, KVPs, Life Insurance Policies,
Govt Securities etc Below 5%
Such deviations permitted by the Chairman will be placed before the Board in its next meeting for information. Proposals originating with any other deviations from the aforesaid
policies will be placed before The Chairman.
6.3.11 Exemptions in Bench Mark Current Ratio: The Current Ratio minimum
up to 1:1 may be accepted with justification in the following cases:- (i) Corporate/ PSU/Govt. Undertakings/Municipal Corporations engaged in
Infrastructure Developmental Work, Transport, Irrigation and Public Health, Storage of Agricultural Products, providing Container Services,
Traction/Railways System and infrastructural project like Roads,
Highways, and Construction of Educational Institute where Current Ratio
normally remains low..
(ii) Units/Firms engaged in producing commodities. (iii) Marketing agencies solely engaged in MSME promotional activities
including supply of raw material.
(iv) Companies engaged in extending Housing Loan. (v) Minimum Current Ratio for the borrowing units in the Sugar/Tea
Industries will be as per the directives of RBI issued from time to time.
(vi) Restructured loan accounts and Sick/W eak Units under rehabilitation
and or holding on operation will be exempted from the application of
minimum Bench Mark Current Ratio. (vii) The limit fully covered by collaterals by way of liquid securities with
sufficient marketability without diluting the viability of the project.
6.4 Treatment of items while calculating MPBF:
6.4.1 Treatment of Installment due within 12 months: Installments falling
due within 12 months in respect of Term Loans /DPG / Fixed Deposits/
Debentures/ Redeemable Preference Shares shall not be included under
the Current Liabilities for the purpose of assessment of MPBF in case
sufficient cash generation is available to take care of the aforesaid
commitments. However while computation of Current Ratio these will be
considered as Current Liabilities.
6.4.2 Treatment of Margin:
Cash Margin (in the form of FDR or held in Current Account) for Letters of
Credit and Bank Guarantees maturing within one year will not be treated as
current assets for the purpose of calculation of MPBF. However, while
computation of current ratio it would be included under Current Assets.
6.4.3 Treatment of Advance Payment to Suppliers of Raw -Materials:
Advance payment made by the borrowers to suppliers of raw materials is
one of the components of current assets. Such advance payments to
suppliers of goods are inevitable in nature and by not allowing any finance
there against, the borrower‟s working capital requirements remain under financed. Therefore, while calculating Drawing Power against stocks,
advance payment made to suppliers of stocks may also be considered till
the goods are actually received by the borrowers and declared in the stock
statement. However it should be ensured that preferably the payments
are made through banking channels unless market practice warrants other wise.
6.4.4 Defaults in Payment of Statutory Dues by Borrow ers:
The non-payment of statutory dues is one of the symptoms of incipient
sickness of an industrial unit. Apart from insisting on the borrowers to
indicate a definite programme for clearance of arrears, the branches should ensure that these are cleared by the borrowers within a
reasonable period and that too through internal generation of funds.
The branches may further consider suitable restrictions on the outflow of
funds by way of dividends, repayment of loans from promoters or their
friends, relatives or inter-corporate borrowings etc., till the overdue statutory liabilities are cleared.
For the purpose, the branches may obtain a certificate from the
borrower‟s auditor on annual basis that all statutory dues including EPF dues have been paid by the borrower.
6.5 Appraisal of Term Loan
6.5.1 In case of term loans for projects having exposure more than Rs.10.00
Crore, the bank may ask for submission of TEV (Techno Economic Viability)
Report duly prepared by agencies/experts (TEV Consultants). Further, while appraising the proposals, the comment on the technical feasibility,
economic viability, financial feasibility, commercial viability, management competency, environment concerns and bankability of projects be
independently evaluated and analysed. There may be exceptions for obtention of TEV in case of brown field projects (where the borrower is
going for expansion of its unit at the same site using basic
infrastructure of the existing plant only), where the promoters / the flag ship company have successfully implemented at least two such project in the
past and or in the similar line of activity for more than ten years. In such cases an In-house project report may be accepted.However, wherever
considered necessary, Bank may insist for TEV even for exposure below Rs.10.00 crores.
6.5.2 The Bank may also proceed on the basis of the findings of
reputed loan syndicators. In such cases, information as to who prepared the Project Report/TEV Report and who appraised
the project should be obtained and kept on record.
In case of Term Loan, following minimum Average DSCR will be
considered as reasonable requirement for any new connection computed after commercial operation date.
Relaxation may however be considered on merits of the case
by the sanctioning authority not below the rank of General
Manager.
DSCR New Project Expansion Project Restructured Project Minimum
DSCR 1.10 1.20 for the company /
firm as a whole and
1.10 for the project on stand alone basis
1.00 (Other than CDR/ BIFR/ SME
cases, which will be as per extant
guidelines) Average
DSCR 1.30 1.30 1.25
6.5.3 In case of Fresh Term loan, Debt Equity Ratio (DER)
should not normally be above 3:1. However, in case of
capital intensive industries like exposure to Power Sector, Road and Port Sector, Steel Industries etc the same may be
considered up to a level of 5:1.
6.5.4 Sensitivity Analysis: In case of green field projects with
exposure of more than Rs.10.00 Cr, sensitivity analysis will be
conducted. However, wherever considered necessary, Bank may undertake sensitivity analysis even for exposure
below Rs.10Crores.
6.5.5 In all project finance loans where implementation of
project w ould be in phases, the Appraisal note and sanction letter will invariably incorporate Project
implementation schedule, drawdown schedule,
Commercial Operation Date (COD), Moratorium if any and
Month of commencement of first installment towards
repayment of term loan.
7. Bill Finance:
Bank will adhere to the following guidelines while purchasing / discounting / negotiating / rediscounting of bills: Branches will purchase /discount/negotiate bills under LCs in respect of genuine commercial and trade transactions primarily of our regular clients. Accommodation bills will not be purchased / discounted / negotiated. Further Bills drawn on associates/ sister concerns will not be purchased without prior permission of GM (Head Office). However, in cases where negotiation of bills drawn under L/C is restricted to a particular Bank and the beneficiary of the L/C is not our bank’s constituent, the bank may negotiate such an L/C on case to case basis subject to the condition that the proceeds will be remitted to the regular banker of the beneficiary. While purchasing/discounting/negotiating bills under LCs the genuineness of L/Cs should be verified. No Finance will be allowed against bills with “without recourse” clause.
It is important that Branches / Offices exercise their commercial judgment in discounting bills of services sector. However, while discounting such bills, it should be ensured that actual services are rendered and accommodation bills are not discounted. Service sector bills should not be eligible for rediscounting. Further, providing finance against discounting of service sector bills may be treated as unsecured advance and therefore, will be within the norms prescribed by the bank for unsecured exposure limit. The Bills should have been drawn by an authorized signatory of the company. The bills negotiated should be strictly as per terms and conditions mentioned in the LC.
Due caution should be exercised regarding bills covering sales within the same city and between group/associate concerns. Funds can be parted with only after the signatures on the LC/confirmation letter are verified. Bills drawn under L/C of Co-operative Bank will not be discounted. Assessment of facilities shall be subject to the same degree of appraisal/scrutiny as in case of other fund based limit. However, for negotiating bills drawn under Letter of Credit established by first class bank and drawn as per the LC terms without discrepancy or where acceptance of documents/due date have been advised by the LC opening bank, the powers may be exercised by the delegatees within their respective delegated authority outside the MPBF assessment of the drawer of the bill. Discounting/ negotiation of Bills which are backed by L/C issued by or co-accepted by following categories of Banks only will be considered. (a) All Public Sector Banks, SBI and its subsidiaries, (b) Private Sector Banks (other than Co-operative Banks). Take prior permission while discounting / negotiation of bill under LC of Private Sector Bank from next higher authority.
8. Bank Guarantee:
In order to maintain bank‟s profitability, the bank will put an added focus on
non-funded business mainly by way of Guarantee.
The guarantees to be executed by bank would comprise of Performance
Guarantees, Financial Guarantees, Deferred Payment Guarantee, Bid Bond
Guarantee etc. In this connection, it is clarified that in cases where a tangible asset
has been procured against production of guarantee, the same should be classified
as Financial Guarantee. Examples of financial guarantees are guarantees issued
for purchase of raw material / finished goods, capital goods, deferred payment
guarantee, advance payment guarantees for supply of raw material, mobilization
advance etc. Examples of performance guarantees are guarantees issued in
respect of performance of a contract or obligation i.e. Bid Bond Guarantee,
retention money guarantee, guarantee in lieu of Earnest Money/Security Deposit,
disputed liability etc. Guarantee issued shall be specific and unequivocal as regards: (a) Amount, (b)
Period, (c) Beneficiary, (d) Purpose While issuing Guarantee following precautions must be adhered into:
(a) At the time of issuing guarantees, branches/offices should
appraise the proposal thoroughly as required under funded facility. Proper Risk Mitigations measures be considered while
issuing the Bank guarantees.
(b) Bank Guarantees covering inter-company deposits/ loans
thereby guaranteeing refund of deposits /loans accepted by NBFC/firms from other NBFC/firms, for the purpose of indirectly
enabling the placement of deposits with NBFC, for inter
company deposits/loans will not be allowed. (c) Branches should issue guarantees on behalf of customers after
due diligence and satisfying KYC norms. Further before issuing
Bank Guarantee the branches should ascertain the net worth and credibility of the customer
(d) Bank Guarantee should not normally be issued with maturity
more than 10 years unless backed by 100% cash margin.
(e) Bank Guarantee against disputed liability e.g. Sales tax, custom
duty, etc should not be sanctioned by the officials, below the
rank of General Manager unless backed by 100% cash cover. (f) Normally, Guarantee shall not contain any onerous clause, like:
A clause for payment of interest for the claim amount if not remitted promptly. A clause for payment of other charges / expenses incurred
by beneficiary to enforce settlement of claim over and
above the amount guaranteed.
Any clause which provides for automatic renewal of the Guarantee at the request of only the beneficiary.
Jurisdiction clause indicating courts in different places far away from the branch / office of the issuing bank in event
of dispute. Any other clause detrimental to the Bank‟s interest like a
clause which specifies time limit for payment of the
guaranteed amount for example 12 hours/ 24 hours etc. In case of Guarantee sanctioned with any Onerous Clause will
not be considered by officer‟s upto level of Scale-IV / Regional Head, unless covered by 115% cash margin.
For issuing bank guarantee in favour of FIs/other
banks, guidelines as ntioned in para 3.6.1 of chapter 6 herein below shall be followed.
(g) Issuing Letter of Comfort will attract same degree of risk to the Bank as it is tantamount to issuance of Financial Guarantee.
Hence all terms/ precaution are to be adhered to in issuance of
Letter of Comfort as in case of Bank Guarantee. (h) The GM may sanction letter of comfort up to the usance
period of the Letter of Credit up to the facility sanctioned to the borrower. In case of issuance of letter of comfort
beyond the usance period as stipulated in the sanction
letter, no delegatee below the rank of the G.M can consider up to the maximum period stipulated / permitted by
RBI.
(i) The branch will maintain a register and will adopt same
accounting practice for issuance of Letter of Comfort as adopted
while issuing Bank Guarantee. For all practical purposes the service charges will be taken as stipulated for the purpose of
Bank Guarantee.
(ii) Branch must inform the beneficiary about the e-mail address of the BG confirming authority for obtaining confirmation.
9. Letter of Credit:
Branches may issue LCs primarily for our customers only in respect of genuine
commercial and trade transactions.
Before establishing the credit, branch should examine the financial position of
the customer, source of finance, prescribe suitable risk mitigating measures
including collaterals, margin etc.
The requirement for LC must be assessed after reckoning the lead time, credit
period available, size of order, source of supply, proximity of suppliers, national and international laws in this respect.
Bank cannot open LCs bearing the „without recourse‟ clause.
No onerous/ ambiguous clause shall be incorporated in the Letter of Credit.
Where the applicant enjoys credit facilities with other banks, the reason for his
approaching the bank for opening a letter of credit should be ascertained and the
same should be secured adequately through Letter of Comfort/Letter of Guarantee
from that bank for retiring the bill on due date.
While an LC issued for the purpose of procurement of stocks as non-funded facility alongwith funded facilities within overall assessed requirement of Working
Capital/PBD, devolvement of the LC shall crystalize through Cash Credit Account. If the borrower is enjoying stand-alone LC Limit, the devolved amount shall be
debited to Current Account only. In case of LC issued on DA basis:
(a) The sale proceeds shall be routed through the Cash Credit/
Current Account and / or deposited with the Bank so as to
ensure that the liability is honoured on the due date.
(b) The goods covered under LC but released on trust shall not
be taken into account for the purpose of calculation of drawing power in the CC (Hyp) account till the bills drawn under LC are
retired by the borrower.
10 Loan System for Delivery of Bank Credit – Working Capital Demand Loan
(WCDL):-
In order to provide flexibility and quick decision making and also to attract
good Corporates, the respective sanctioning authority has been vested with powers to stipulate the composition of the cash credit component and the
loan component after discussion with the borrower depending on their requirements of working capital finance during the course of the year.
11. Margin
11.1 Fund Based Limit:
11.1.1 Normally a minimum margin of 25% (Under turnover method it may
be 20%) should be obtained from the borrower(s). Margin for advance against Bank‟s own term deposits will be maintained at 10%
which may include accrued interest thereon except in case of staff loan which will be at 5%.
11.1.2 Minimum margin of 25% will be obtained in case of advances against
Surrender Value of Life Insurance Policies issued by LIC or any reputed Insurance Company duly recognized by IRDA.
11.1.3 Uniform margin of 25% for advances against Govt. Securities and
against RBI Relief Bond will be obtained. 11.1.4 In case of loans covered by mortgage of residential properties, the
minimum margin of 25% to be obtained. 11.1.5 The margin for marketing schemes/ other specific schemes/policies
which are sector specific will be as per stipulations in the relevant
schemes/policies.
11.1.6 In case advances against NSC/KVP the minimum margin should be
kept at: 25% of face value.
11.1.7 In case of loan against Bank‟s own Term Deposits, the margin can
be reduced upto 5% by the R e g i o n a l H e a d and above. It can
be reduced to Nil by The Chairman. However, in case of loan against
liquid securities like NSCs, KVPs, Life Insurance Policies, Govt.
Securities etc., margin can be reduced upto 10% by the R e g i o n a l H e a d a n d upto 5% by GM and upto NIL by The Chairman.
11.1.8 The guidelines for maintaining the promoters’ contribution/margin will be as under:
11.1.8.1 Disbursement of term loan in lump sum:
Disbursement of term loan in full towards acquisition of plant & machinery may be permissible only in cases of project/scheme
involving one time acquisition of such plant & machinery subject to
the borrower also brining in his entire contribution upfront at the time
of purchase of fixed assets and the same will be appropriated from the current account of the borrow er.
11.1.8.2 In case of implementation of project in phases as per implementation schedule, the promoter would be required to bring the
entire contribution/ margin upfront. However, stipulation may be relaxed to bring minimum 40-50% of promoters contribution/ margin
upfront depending upon the nature of the project, the cash flows etc.
The balance would be brought in stages in accordance with the
progress of the project implementation/ disbursement, so that
requisite Debt Equity ratio as projected/ stipulated is maintained all the times. The above relaxation may be permitted in cases where cost
of project is Rs.10 crore and above only, subject to following:
a) The company/ firm having strong financials to manage the equity
funding. b) Companies having regular net profits for the last 3 years and rated
as AAA/ AA by external rating agencies.
c) SPVs rated as AAA/ AA are floated by established companies
having regular net profit for last 3 years and rated as AAA/AA by external rating agencies.
d)Where Bank falls in line with decision of lead Bank under
consortium/JLA. e) The source of borrowers contribution is established / ascertained
and sanctioning authority is satisfied with borrowers capacity to bring
in balance contribution/ margin in phases. 11.1.8.3 Any further relaxation/deviation on promoters contribution
would be permitted by the Chairman. 11.2 In case of Housing Loans, Loan to value (LTV) ratio should not exceed 80%.
In case of loans for amount below Rs.20 lacs which are classified as
Priority Sector advances, the LTV shall not exceed 90%.
11.3 Non-Fund Based Limit:-
The cash margin stipulations for Letter of Credit and Bank guarantee along with the relaxations which can be allowed by different levels of authority will be as under:
a. Letter of Credit: The normal margin will be 25% minimum for both D/P and D/A L/Cs. Relaxations c a n be allowed b y Th e C hai rm an for borrowers having satisfactory conduct of account.
In case of L/C sanctioned as sub limit of term loan, it will be ensured that the
requisite margin as stipulated for term loan is maintained. b. Bank Guarantee: The normal margin will be 25% minimum. Relaxations may be allowed B Y T h e C h a i r m a n for borrowers having satisfactory
conduct of account. In case of existing accounts, the alignment should be made suitably in terms
of above guidelines at the time of review of accounts.
11.4 Others :
11.4.1 In case of restructured loan component, the minimum margin norms will not be applicable. In case of sick/weak units under rehabilitation or
nursing measure, special schemes of RBI like Education Loan, Government
Sponsored Schemes etc., margin will be fixed as per RBI directives.
11.4.2 Margin money may be in the form of Term Deposit/Cash with the bank. In
case of consortium accounts, the bank will generally fall in line with the stipulation of consortium leader or as per consortium decision.
12. Maturity and Asset Liability Management
12.1 For Asset-Liability Management, the maturity period of Term loan will be defined based on remaining maturity of loan tenure as under:
12.1.1 Below 3 Years : Short Term Loan 12.1.2 3 years and above but upto 5 years : Medium Term Loan 12.1.3 Above 5 Years : Long Term Loan
12.2 The Long Term Loan and financing of infrastructure projects may
lead to Asset – Liability Mismatches, particularly when such financing is not in conformity with the maturity profile of the bank‟s liabilities.
Therefore, before financing, asset-liability position of Bank should be
examined so that Bank does not run into liquidity mismatches on
account of lending to such projects.
12.3 In this backdrop, the authority to permit consideration of loan at
various maturities is as under:
Aggregate Repayment (Door to Door)
Authority to permit consideration of the Term Loan
Up to 7 years The respective discretionary authority
Above 7 years and upto 10 years GM (Head office)
Above 10 years The Chairman within their discretionary authority.
12.4 Exemptions:
Such permission will not be necessary in case of term loans extended to
Housing Sector (both direct and indirect), Agricultural Loan,
Government Sponsored Schemes, Educational Loan, Restructured Loan,
Rehabilitation package undertaken for revival of Sick/Weak units.
13. Security 13.1General :
13.1.1 It shall be explored as far as practicable that the credit
facilities/loans extended, are supported by some collaterals in the form of liquid securities, immovable properties, other fixed assets based on the credit risks perception. Availability of
collateral security shall not be the mere criterion for arriving at
credit decision.
13.1.2 In the cases where RBI directive /Bank‟s specific scheme has
advised not to obtain the collateral, the same will not be insisted upon.
13.1.3 Minimum Asset Coverage Ratio (Primary Security/Aggregate Funded
Limit) for loans (other than PSU/Government undertaking) should not be less than 1:1 or prescribed by RBI / Govt. if any.
However , proper margin as stipulated in the Lending Policy /
Specific Bank Scheme / RBI guidelines stipulation be adhered
to while allowing drawings. In case of non-fund facility margin
plus value of primary /collateral securities will be considered as total security for arriving at Asset Coverage Ratio.
13.1.4 Personal/Corporate Guarantee/Letter of Comfort, Negative Lien on
Fixed Assets will not be considered as collateral security.
13.1.5 The benchmark asset Coverage Ratio will not be mandatory in the following cases:-
(a) Non funded limit extended to banks and financial institutions.
(b) Credit facilities extended to Educational Institutions, Intermediary Housing Agencies, PSU sector, Government or
Semi Government Undertakings, Large Construction
companies.
(c) Credit Facility for R&D. (d) Infrastructure including Railways promotional agencies.
(e) Municipal Corporations.
(f) Organizations engaged in marketing of products, MSME
units and warehousing of agricultural produce. (g) Unsecured loan.
13.2 Personal Guarantee
13.2.1 The bank may take personal guarantee of promoter directors for the
credit facilities, etc. granted to the closely held Public Limited Company or Private Ltd Company.
13.2.2 Personal guarantee of the Director(s) may be obtained from Private or Public Ltd Company where shares are held closely by a person or a
group (not being Professional Director, Nominee Director of Govt. or Financial Institutions etc.), irrespective of other factors, such as
financial condition, security cover etc. The exception being in respect
of companies where, by court or statutory order, the management of
the company is vested in a person or persons, whether called directors
or by any other name, who are not required to be elected by share holders.
13.2.3 The system of obtaining guarantees should not be used by the
directors and other managerial personnel as a source of income from
the company. The bank will obtain an undertaking from the borrowing
company as well as the guarantors that no consideration whether by way of commission, brokerage fees or any other form would be paid by
the former or received by the latter directly or indirectly. This
requirement should be incorporated in the bank‟s terms and conditions
for sanctioning facilities. 13.2.4 The guarantee of all the partners in their personal capacity shall
continue to be obtained for all credit facilities granted to partnership
firms.
13.2.5 Personal Guarantees of trustees in case of trust, office bearers in case of society be obtained.
13.2.6 In case of other small loans, especially in respect of New Clients,
suitable personal Guarantee shall generally be insisted upon except in
cases where stipulations of third party guarantee is specifically waived in terms of RBI /HO guidelines and / or under Govt Sponsored
Programme.
13.2.7 In respect of third party securities, the personal guarantee of such third parties will be obtained.
13.2.8 In case, for any reasons, a guarantee is not considered expedient by
the bank at the time of sanctioning the advance, an undertaking/ a
letter of comfort should be obtained from the individual directors and a
covenant should invariably be incorporated in the sanction letter that in
case the borrowing unit show cash losses or adverse current ratio or
diversion of fund, the directors would be under an obligation to execute
guarantees in their individual capacities, if required by the bank. Bank
may also obtain guarantees from the parent/holding company when
credit facilities are extended to borrowing units in the same group.
13.3 Substitution of Security/Personal Guarantee:
13.3.1 The sanctioning authority may permit substitution of Security/ies (held
or stipulated) provided the realizable value of the new security/ies is/are not lower than the current realizable value of the existing
security/ies (being substituted), as per valuation undertaken by an approved valuer (preferably from the different valuer than who has
done earlier in the instant case).
13.3.2 The sanctioning authority may permit substitution of Personal Guarantee with equal and higher net-worth on a case to case basis in view of the value of the account and other business considerations.
The reasons for substitution of personal guarantee should be properly
justified and recovered.
13.3.3 Permission for dilution of security or substitution of guarantee having
lesser net worth can be granted by the next higher authority of the
sanctioning authority. 13.3.4 In case of account sanctioned by R e g i o n a l H e a d , the GM, may
permit such substitution or dilution of security / guarantee. However,
the same should be reported to T h e c h a i r m a n in the following month with Discretionary Authority statement, maximum
within 60 days of such sanction.
13.4. Policy on Credit Risk Mitigation and Collateral Management:
13.4.1 (a) The Bank can use wide range of prescribed Credit Risk Mitigants (CRMs) covering financial collaterals / guarantees to be
recognized for regulatory capital calculation purposes. (b) Use of such permissible CRMs will enable the Bank to :
(i) Pursue credit risk mitigation by insisting for eligible collaterals.
(ii) Reduce the volume of risk weighted assets reducing thereby the quantum of minimum capital requirement.
(c) Only “eligible collaterals” such as Cash, Certificate of Deposit or
comparable instruments, FDR, NSC, KVP, Gold, Securities issued by
Central/ State Govt, Life Insurance Policies with declared surrender
value, Debt securities rated/ unrated by a chosen credit rating
agency in respect of which the Bank should be sufficiently confident
about market liquidity and units of mutual funds regulated by the
securities regulator of the jurisdiction of the Bank operation and (a)
its daily NAV is available in public domain (b) mutual fund is limited
to investing in the listed instruments, prescribed in the policy are
allowed to be recognized for computation of regulatory capital
charges for credit risk. (d) Securities obtained by the bank against credit exposure in the normal
course of business will continue to be obtained but only eligible
collaterals will be considered as CRMs for regulatory capital calculation purposes and possibilities be explored for obtaining such
eligible collaterals.
(e) The guidelines/provisions of the policy issued from time to time would be adhered to.
14. Time Frame for Disposal of Proposals
14.1 As per Citizen‟s Charter, the timeliness (from date of receipt of loan application to final disposal) in respect of all categories of loan proposals
(including priority sector credit) of above Rs.25000/= [for fresh / enhancement /renewal ] should be disposed off at various levels as
under, provided applications / proposals are received together with required details/information supported by requisite financial and operating statements.
Sl. No.
Sanctioning Authority
Time Limit for final disposal of all types of
proposals including Priority Sector
1. At Branch Within 30 days
2. At RO Within 45 days
3. At HO Within 90 days
14.2 Monitoring of pendency of loan proposals
14.2.1 At Head Office: On 5th of every month (if it is a holiday, next working
day) Credit Departments will submit a status note in this regard on the disposal and pendency of loan proposal at Head office at the end
of previous month before GM for review. Pendency of loan proposals
will be discussed in such review meetings with field functionaries for
instant feed back.
14.2.2 At Regi o nal Office: At Reg ional Office level every Saturday the
R e g i o n a l Head will review disposal and pendency of loan proposals at Regional Office or Branch and observations of the Regional Manager
will be recorded in a register. 14.2.3 Pending Due to want of Government Clearance: Branches and
Regional Offices are advised to raise the issues relating to State
Government clearance in the DCC and SLBC meetings for expedious clearance.
14.3 Others:
14.3.1 Proposals upto Rs. 25000/= will be disposed of within a period of 15
days. 14.3.2 In the case of small borrowers seeking loans upto Rs. 2.00 lacs, the
branches should convey in writing, the main reason/reasons which, in
the opinion of the bank after due consideration, have led to rejection of the loan applications within above time frame.
14.3.3 In case of loan application related to SC/ST the rejection must be
done one step higher than the sanctioning authority.
14.3.4 In case of consortium accounts, the participating Banks meet at regular intervals to reach at a consensus amongst themselves in
respect of procedures to be followed to complete appraisal of proposal
in a time bound manner. In case of proposal received by the Bank after
getting due appraisal note from the Lead Bank or where the bank is leader, the bank will follow the time schedule for disposal of loan
proposal.
14.4 Rejection of Credit Proposals
14.4.1 Bank will take due care that no credit facility is denied to the legitimate applicants.
14.4.2 Branch Managers may reject applications (except in respect of SC/ST
applicants). In case of proposals from SC/ST applicants rejection should be at a level higher than that of Branch Manager.
14.4.3 A register should be maintained at branch, wherein the date of receipt,
rejection with reasons thereof etc., should be recorded and made available to facilitate verification by the bank‟s officials including the Regional Manager during his visit to the branch.
14.4.4The reasons of rejection will be communicated to the borrowers in line with stipulation mentioned in the Fair Practice Code for Lending.
15. Pricing
15.1 Bank‟s pricing is basically a function of Risk Rating parameters and market
forces. In line with RBI guidelines, Bank has introduced the concept of Prim lending Rate (PLR) with maximum spread of 3% (Maximum Lending Rate
would be PLR+3%).
15.2 Bank would suitably restructure interest rates in Agriculture Loans and SME
loans in line with RBI guidelines.
15.3 RBI has given the freedom to Banks to offer all categories of loans on fixed or floating rates. Accordingly, bank may fix interest rate at both fixed and floating rate. However, the Branches/Offices can sanction interest at floating
rate basis only unless specified in the specific scheme or permitted by Head
office.
15.4 When interest is charged on fixed rate basis, the same should have to be
mentioned invariably in the loan document. Further in such cases, a re-set clause must be incorporated with reference to market / any other benchmark
rates. If interest is charged on floating rate basis linked to BPRL or
market benchmark rates the same will have to be documented indicating the
link. 15.5 Rate of Interest, service charges and pricing in case of PSUs / Central
and State Government Corporate / Municipal Committees / Corporations etc will be linked to risk profile and cost benefit analysis only. Specific
exemptions favoring PSUs stand dispensed with.
15.6 Bank’s Comprehensive Guidelines/Policy on Interest Rates on Loans
and Advances duly approved by the Board would be complied with.
16. Documentation Standards
16.1 Bank has defined systems and procedure for obtaining /completion of
documentation formalities in respect of all type of credit facilities to
ensure that: (a) The debt taken by the borrower is clearly established by the documents.
(b) The charge created on the asset (security) against the debt is maintained and enforceable.
(c) The Bank‟s right to enforce the security for recovery is exercised before the account becomes time barred as per Limitation Act.
16.2 Towards completion of documents at pre-sanctioning and post-sanctioning
stages, the following formalities should be observed: (a) Pre-execution Formalities:
• Collection of Credit Declaration Report / Opinion Sheet about the
applicant borrower and guarantors
• Searches at the office of the sub-registrar of assurances or land
registry to check the existence or other wise of prior charge over the
immovable property offered as security and also search in the
concerned court offices to ensure that there is no court attachment
over the property.
• Searches at the office of Registrar of Companies.
• Visit and verification of the security/ activity.
(b) Execution of Documents :
• Execution of proper documents, appropriate stamping and
compliance as per terms of sanction should be ensured. In case
where prescribed documents are not available or amendment is
required in the prescribed formats of Bank‟s documents, the same should be validated by the Bank‟s legal officer/ empanelled lawyer.
(c) Post-execution Stages:
• The formalities in respect of registration of Charge with Registrar of
Companies/Sub Registrar of Assurances wherever applicable etc.
should be complied within the stipulated time.
• All mortgage charges must be registered with Central Registry as per
circularised guidelines of the Bank. (d) Protection from Limitation/ Safeguarding Securities:
• Obtaining of Revival Letter within the time frame.
• Obtaining balance confirmation from borrower at least at annual
intervals.
• Periodic searches at office of the Registrar.
• To insure the assets charged to the bank against various risks.
(e) Legal Audit: For safeguarding of the Bank‟s interest, the Legal Audit
System for accounts having funded and non-funded credit limit of
Rs.10.00Lacs and above including renewals / fresh sanction of accounts
should be complied with. The branch should ensure that the process of
legal audit is completed before first disbursement is made as per terms and conditions.
16.3 All other formalities and precautions stipulated/prescribed by the Bank/RBI
with particular reference to the under-noted policies / guidelines / manuals should be complied with.
16.3.1 Valuation and Verification of Bank‟s Own Properties and Charged as
Primary/Collateral Securities. 16.3.2 Checklist of Documents on Advances.
16.3.3 Manual on Mortgages.
16.4 Formalities / guidelines / instructions stipulated in future will have to be observed meticulously to safe guard the interest of the Bank.
17. Ad hoc Credit Facilities/ Overdrawing
17.1-Branches / Offices should judiciously permit / allow adhoc / excess
drawings in various accounts, strictly adhering to the bank‟s guidelines in
this regard. The adhoc / excess drawings shall not be permitted as a matter
of right, but in extreme circumstances for bonafide needs of the borrowers.
17.2-The adhoc facility can be permitted for a maximum period up-to 90 days at a time. When permitted, it is required to be reported through the monthly
Discretionary Authority Statement and regularized before the period of expiry of such period.
17.3-The sum total of ad-hoc limit and the existing regular limit should not exceed
the respective delegated authority as per extant guidelines of the bank.
17.4-There may be instances, when the outstanding exceeds the sanctioned limit by way of application of interest, payment of bills under
sanctioned Letter of Credit, invocation of Bank Guarantees etc. Such
drawings (which are purely temporary in nature) may be allowed and need
not be reported through “Daily List of Advances”. However, if such excess drawings are not regularized within 30 days, the same should be reported in
the daily list.
17.5-There may be cases like payment of cheques drawn towards
payment of statutory dues/ electricity bills, other such essential payments
during normal course of operation. Under such circumstances, excess drawings, which are purely temporary in nature, may be allowed in
exceptional circumstances. Such excess drawing should be reported to the
respective higher authority through “Daily List of Advances” within 3 working
days even if the excess drawing has been regularized which should be duly
numbered (Branch/ Name of Account/Running Serial no. etc) 17.6-The next higher authorit y is empowered to permit conversion of adhoc
limits into regular limits in respect of sanctions made by Branch
/RO. Bank‟s guidelines on excess drawings, in this regard should be meticulously follow.
18. Re- Constitution of Firm / Company
18.1 W here the borrower/firm /company is re-constituted with addition/
substitution/retirem ent of partner(s)/ proprietor/ reconstitution of company because of m erger/ takeover/ amalgamation, the sanctioning authority will
take a view on the proposal provide there is no dilution in securit y, there is
no change in term s of sanction covenants, earning capacity etc.
19. Extension of Expired Limit 19.1 All sanctioned credit limits shall be availed of fully or partially by the
borrower within a maximum period of six months from the date of
communication of sanction.
19.2 Availment of credit facilities beyond the stipulated time of six months has to be authorized by the sanctioning authority provided borrower
requests.
19.3. In case documentation formalities have been completed, the credit
limits shall be availed of fully or partially by the borrower within a maximum period of 9 months from the date of communication of
sanction provided the borrower requests. Else, it requires validation
from sanctioning authority.
19.4 In respect of accounts falling under the sanctioning power of
R e g i o n a l h e a d the permission will be granted by the GM,HO
which will be reported to The Chairman in due course of time.
19.5 W hile permitting revalidation, the respective sanctioning authority that permits such revalidation may review the position of Securities, Rate of
Interest and other concessionary facilities permitted at the time of
sanction / renewal.
20. Acquisition of Assets through Assignment of Debts/ IBPCs
20.1 Based on the working group recommendation on the Money Market, RBI
recommended the introduction of Inter Bank Participation Certificate (IBPC)
with a view to providing an additional instrument to even out short term
liquidity within the banking system. 20.2 Guidelines on participation under Inter Bank Participation Certificate
(IBPC) would be complies with.
21. Guidelines on Joint Lending Arrangement
A. Background
1. It is very common to find large borrowers availing term loan as well as working capital limits from a number of financial institutions and commercial
banks partly because of the large size of borrowing and partly to have a
degree of flexibility in their operations.
2. Most such large borrowers having multiple banking relationships have independent arrangement with each lending institution, the security offered to each institution is separate and no formal understanding exists between
different lenders financing the same borrower. Further, lenders usually
sanction loans/limits on different terms and conditions. This arrangement,
however, goes contrary to the principles of credit discipline which require
that a wholesome view of entire operations of a customer must be taken by the lender and the assessment and monitoring of credit needs be also done
in totality.
3. In the background of some high value frauds coming to light after the
withdrawal of regulatory prescriptions regarding conduct of consortium
arrangement, the Central Vigilance Commission and other authorities had expressed concerns and had attributed the incidents of fraud mainly to lack
of effective sharing of information: about the credit history and conduct of
account of the borrower among various lending institutions. This had led
RBI to examine the matter in consultation with IBA and conclude that there
was need for improving the sharing/dissemination of information among the banks about the borrower. Accordingly detailed guidelines were issued by
RBI on 10/02/2009 to banks to strengthen their information back-up about
the borrower enjoying credit facilities with multiple banks. This arrangement
is however not working satisfactorily with fraud continuing to come to light.
4. With a view to inculcate the required financial discipline in the borrowers
and to enable financing banks to take informed decision on credit matters and as a risk mitigate Ministry of Finance, Department of Financial
Services, Govt of India has decided to reintroduce ground rules governing
Joint Lending Arrangement. Bank may inter in to joint lending arrangement.
B. Formation of the Joint Lending Arrangement (JLA) 1. The guidelines shall be applicable to all lending arrangements, with a single borrower with aggregate credit limits (both fund based and non- fund based) of Rs.150 crore and above involving more than one Public Sector Bank. 2. Borrower having multiple banking arrangement below Rs.150 crore may also be encouraged to come under joint lending arrangement, so that the
wholesome view of the assessment of credit requirement as well as the entire operations of the customer can be taken by banks 3. Bank/consortia should treat borrowers having multi-division/multi- product companies as one single unit, unless there is more than one published balance sheet. Similarly, in cases of merger, the merged unit should be treated as a single unit. In case of spilt/demerger, the separated units should be treated as separate borrowal accounts provided there is more than one published balance sheet. B. Applicability of JLA
1. New Borrowers- Lending under joint arrangement shall be mandatory for
Public Sector Banks for borrowers seeking credit limits of Rs.150 crore and
above by way of term loan, working capital and non- fund based facilities,
from multiple banks. The Bank from which the borrower has sought the
maximum credit will be the designated Lead Bank for the JLA.
2. Existing Borrowers- In case of borrower presently enjoying aggregate
limits in excess of Rs. 150 crore under multiple banking arrangement the Bank which has extended the highest credit, or any other Bank as mutually
agreed by Member Banks, would become the leader of the JLA and take initiative for holding the meeting of all financing banks within 3 (three)
months from the date of adoption of the guidelines by the Banks and
ensure that a formal JLA lending arrangement is established within 3(three) months, thereafter. Thus, all such exposures shall be brought under JLA
within 6 months of the adoption of the guidelines. Further, in case of
borrowal accounts enjoying credit limits below Rs. 150 crore from more than
one bank, the concerned banks will be free to enter into a JLA at their
option.
C. Existing borrowers seeking enhanced limits
In case of borrowers enjoying aggregate credit limits below Rs. 150 crore from more than one bank, where further enhancement would take the
aggregate limits to Rs.150 crore or more, should be considered jointly by the financing banks concerned and the bank, which takes up the largest
share of the limits, shall be deemed to be the leader of the formalized
JLA.
D. Existing Consortium Arrangements
The borrowers who are already having formal consortium arrangement with
limits below Rs.150 crore may continue under such consortium
arrangements.
E. Institutions to be included in JLA
1. It would be open to a borrower to choose his bank/(s) for obtaining credit facilities as also for the bank/(s) take a credit decision on the borrower.
2. In case of borrowers enjoying credit facilities in excess of Rs.150 crore under multiple banking arrangements with both public and private sector
banks, the public sector banks should form a joint lending group and invite
the private sector banks also to participate and in case of reluctance, the public sector banks may go ahead and form joint lending group on their own
amongst themselves.
3. In case of borrower availing term loan from All India Financial Institution
either singly or jointly with bank(s) the said AFI shall be inducted as a member of joint lending group and be subjected to the mandatory ground
rules governing joint lending including credit limit of Rs.150 crore and above.
4. There will be no ceiling on number of banks in a JLA, whether it is obligatory (credit limits of Rs.150 crore and above from more than one
bank) or voluntary (credit limit below Rs.150 crore from more than one bank) in nature. To ensure meaningful participation, ideally share of a bank as a member of the JLA should be at least 10 per cent of the credit limits or
Rs.25 crore, whichever is higher, for exposure of Rs.150 crore and above.
For exposure below Rs 150 crore, the minimum share will be 10% of the
exposure.
5. In the cases of existing JLA, if a member – bank is unable to take up its enhanced share, such enhanced share in full or in part could be reallocated
among the other existing willing members. In cases other existing member-
banks are also unable to take up such enhanced share of a existing
member- bank , a new bank willing to take up the enhanced share may be
included into the JLA.
6. While a member- bank may be permitted not to take up its
enhanced/incremental share, it cannot be permitted to leave a JLA before expiry of at least two years from the date of its joining the JLA. An existing
member- bank may be permitted to withdraw from the JLA after two years
provided other existing member- banks and/or a new bank is willing to take
its share by joining the JLA.
7. In cases where the other existing member- banks or a new bank are unwilling to take over the entire outstanding of an existing member desirous
of moving out of the JLA after the expiry of above mentioned period of two
years, such bank may be permitted to leave the JLA by selling its debt.
8. Once a JLA (obligatory or voluntary) is formed, entry of a new member (unless mentioned otherwise under the „Fresh Guidelines‟) into a JLA
should be in consultation with the JLA.
F. Terms and Conditions Of Operations of JLA
1. The ceilings on a bank exposure to a single borrower or to a „group‟ of
borrower will continue to be in force, as hitherto, and under no circumstances, a bank shall exceed the prudential exposure limits
applicable to it.
2. In the case of borrower enjoying credit limits of Rs.150 crore and above from one bank and/or from a JLA of banks, as the case may be, no other
bank shall extend any additional banking facility or open current accounts,
or extend bill limits, guarantees/acceptances, letter of credit, etc, without the concurrence of the existing single bank/JLA. This condition will also apply in
case of JLAs formed on a voluntary basis.
3. Banks participating in term loans extended to a borrower should normally also provide working capital finance. However, if so warranted, other banks may also provide working capital finance, subject to compliance with other
conditions contained in these guidelines. 4. Pricing – As hitherto, terms and conditions for different categories of credit
facilities, except pricing, as finalized by the JLA, should be uniformly
applied by all member- banks. Thus, it will not be open to any member- bank to waive the penal interest or vary the margin stipulated unilaterally.
5. Asset Classification- Since the counterparty for all the lenders is the
same, status of the borrower across all lenders shall have to be in the same
i.e. if any account of the borrower turns NPA with any of the JLA lenders,
then all the lenders in the JLA will treat the account of the borrower as NPA.
This will prevent undue leverage in the hands of the borrower and will also
incentivize early resolution of any irregularity with all the lenders. 6. NPA Recovery- The JLA will have Common Documentation and Common
Asset Classification. In view of this the recovery effort of the JLA will also have to be common and will take a holistic view of the dues of all member
banks. Disposal of assets of the borrower for recovery of these dues will be
in compliance with Department of Financial Services Circular number
23/3/2012-DRT dated April 23, 2012. 7. Fees- All the member banks will be permitted to charge Processing and
Inspection Fees as per their Schedule of Fees. Documentation will be
common and as such a common Stamp Duty will be payable. 8. However, in cases of credit facilities extended/to be extended to „sick‟ and
„weak‟ units, banks will be guided by extant guidelines issued/to be issued
by Reserve Bank of India.
9. Quantum of credit will be decided by JLA. Within the appropriate mandate
governing functions of a JLA, its members will enjoy the freedom to
sanction an additional credit up to a pre- determined percentage in
emergent situations/contingencies. Lead bank, however, should inform other members immediately about such sanction together with their pro-rata
share in the additional limits. 10. Further, individual banks/JLA should review the borrowal accounts as per
RBI guidelines on the basis of audited statements for the year immediately
preceding the last accounting year (provisional statements of accounts of
account may be seen in case audited statements for the last accounting
year are not available), provisional estimates for the current year and the
projections for the next year. Consequently, individual banks/JLA, at their
discretion, may release funds in respect of the additional credit requirement
during or before the second quarter of the current accounting year. The
remaining credit could be released consequent to submission of audited
results provided there is no significant difference between the provisional
estimates and the audited results. 11. In capital intensive projects with large term loan component, it would
be open to the banks to have a separate consortium/arrangement for
term loan and working capital requirements.
H. Processing Time
1. It is necessary that lead bank and member bank(s)/institution(s) ensure that
formal joint arrangement does not result in delay in credit delivery. The Lead Lender will make all efforts to tie up the Joint Lending Arrangement
within 90 days of taking a credit decision regarding the proposal.
2. Quite often non – availability of data or submission of incorrect data or non- receipt of required financial statements results in banks/JLA being not able
to take decisions within a stipulated time. These data/statements include,
among others, audited financial results for the last two years, estimated and
projected results for the current and subsequent years respectively. More
often than not borrowers require an average time of at least six months to obtain audited financial statements. Considering all these aspects as also
available technology, the following maximum time- frames are prescribed
for formal disposal of loan proposals provided applications/proposals are
received together with required details/information supported by requisite
financial and operating statements: Proposals for sanction of fresh / enhanced credit limits 90 days
Proposals for renewal of existing credit limits 45 days
Proposals for sanction of ad- hoc credit facilities 30 days
Role of Lead Bank/Other Financial Institutions
1. Lead bank will be responsible for preparation of appraisal note, its circulation, and arrangements for convening meetings, documentation, etc.
2. Lead Bank Fees- The Lead Lender may be permitted to charge a suitable
annual Fee on the Total Borrowing (Fund Based and Non-Fund Based) as
compensation for making Joint Lending Arrangements and for hosting
meetings of the Joint Lending Group. For various services rendered, lead
bank may charge a suitable annual fee to be borne by the borrower. 3. In a JLA, in cases of differences of opinions the views of 75 per cent of
members by value and 60 per cent of members by number will prevail in all cases of disputes among the members relating to terms and conditions.
4. The set of documents under the Joint Lending Arrangement will be
designed and circulated by the Indian Banks‟ Association (IBA).
22. Ground Rules Governing Consortium Financing
22.1 Consortium
(a) As the credit has its own inherent risks, the Bank will prefer consortium
arrangement to share the risk with other Banks on voluntary basis as far as
practicable. (b) Where neither consortium arrangement nor the sole banking arrangement
is feasible, Multiple Banking Arrangements will be undertaken. Multiple Banking Arrangement will be extended provided the primary securities can
be easily identifiable and can be charged separately by each financing Bank.
(c) Bank will always prefer to have non-fund business of the borrowers and/ or
pro-rata share of the non-fund business of the borrowers under consortium
arrangements.
(d) In case of financing under Multiple Banking Arrangement and where lender wise securities cannot be identified, the Bank will go for individual
documentation supported by exchange of pari-passu letter or joint charge on pari-passu basis. Bank will file its individual hypothecation charge based
on such pari-passu letters with the appropriate authorities.
(e) W herever applicable, endeavour should be made to complete joint documents within a reasonable time.
(f) In case the Bank is the leader of the consortium and requires to approve
MPBF from the banking system/ approval of sharing pattern/sharing of security and permission for ceding first or second charge, the said approval
may be extended by the authority who is empowered to sanction Bank‟s
share as per the discretionary authority in vogue but not less than the level
of GM.
(g) The sharing/dissemination of information among banks should be done about the status of the borrowers enjoying credit facilities from more than one bank. RBI guidelines in this regard contained in DBOD circular No.
BP.BC.46/o8.12.001/2008-09 dated 19.09.2008 should be followed.
22.2 Ceiling on number of Banks in a consortia and minimum share in
consortium finance:
(a) To ensure meaningful participation, the share of the Bank as a member of the consortium should be a minimum of Rs.5.00Crore.
(b) It will not be obligatory for the Bank to take up enhanced share on pro- rata basis, irrespective of Bank's status in the consortium. The Bank is
free to take its own credit decision on the borrower.
(c) If the Bank is not satisfied with the performance / financials / operation of the borrower, Bank may consider opting out from the consortium.
22.3 Quantum of Credit and responsibility of Lead Bank/Member Banks.
(a) It is desirable that the assessment made by a borrower and that prepared
by the Leader of the Consortium should be discussed in the consortium
meeting as far as possible.
(b) In case the Bank is Leader of the Consortium, the decision / views of the
participating banks regarding quantum of credit, will be taken into
consideration as far as practicable.
(c) In case the Bank participates in extending the term loans to a borrower, it
should normally also provide working capital limit.
(d) The method of rotation for inspection / verification of securities be
observed as will be decided by the consortium.
(e) In a consortium advance, the Bank‟s share of DP will be in proportion
to the share of limit as allocated by lead bank till fresh allocation.
22.4 Documentation:
(a) The set of documents under the Single Window Concept of Lending
(SWCL) as devised by IBA and approved by the Board shall be adopted. (b) In case of credit facilities are extended to sick and weak units, bank will
be guided by extant guidelines issued/to be issued by RBI. The deviation if any should be approved in the consortium.
(c) The Leader and/or the second largest bank on the strength of authorization given by other members would execute documents under
SW CL. Other members need not approve documents under SWCL. All
members thereto will however approve any amendments. (d) In case consortium takes a decision to have Joint Hypothecation Deed
(contents of which may differ from those in documents under SWCL), such documents should be approved by all members of the consortium.
(e) Pending finalization of SWCL documents or Joint Hypothecation charge,
the Bank will continue to follow the existing system of obtaining individual documents with issuance of pari-passu letters to co-lenders/banks. In
view of the time required and practical difficulties faced in exchange
of pari-passu letters amongst co-lenders/banks, GM may be
authorized to permit a period of maximum 90 days for deserving
cases only including HO sanctioned cases, to obtain reciprocal pari- passu letters from such co-lenders/banks. However, NOC for
ceding pari-passu charge from the lead bank in case of
consortium finance must be obtained before-hand. As regards
authority for obtaining individual documents, bank‟s extant instruction on
discretionary authority shall be adhered to. Bank may insist for Second Charge over fixed assets and a consent letter to this effect should be
obtained both from the borrower and the Lead Financial Institutions while
considering only working capital finance. The creation of second charge
should be completed within a reasonable period for which the matter be
pursued with the first charge holder.
Sharing of Information Lending under Consortium Arrangement/Multiple Banking
Arrangements
1. Various regulatory prescriptions regarding conduct of consortium /
multiple banking / syndicate arrangements were withdrawn by Reserve Bank of India in October 1996 with a view to introducing
flexibility in the credit delivery system and to facilitate smooth flow of credit. However, Central Vigilance Commission, Government of India,
in the light of frauds involving consortium/multiple banking arrangements which have taken place recently, has expressed concerns on the
working of Consortium Lending and Multiple Banking Arrangements in
the banking system. The Commission has attributed the incidence of frauds mainly to the lack of effective sharing of information about
the credit history and the conduct of the account of the borrowers among various banks.
2. For improving the sharing/dissemination of information among the
banks about the status of the borrowers enjoying credit facilities from
more than one bank the banks are encouraged to strengthen their
information back-up about the borrowers enjoying credit facilities from
multiple banks as under::
At the time of granting fresh facilities, banks may obtain
declaration from the borrowers about the credit facilities already
enjoyed by them from other banks. In the case of existing lenders,
all the banks may seek a declaration from their existing borrowers
availing sanctioned limits of Rs.5.00 crore and above or wherever, it is in their knowledge that their borrowers are
availing credit facilities from other banks, and introduce a
system of exchange of information with other banks as indicated
above.
Subsequently, banks should exchange information about the conduct of the borrowers' accounts with other banks at least at quarterly
intervals.
Obtain regular certification by a professional, preferably a Company
Secretary, regarding compliance of various statutory prescriptions that are in vogue.
The banks should incorporate suitable clauses in the loan
agreements in future (at the time of next renewal in the case of existing
facilities) regarding exchange of credit information so as to address
confidentiality issues.
BANK’S LENDING POLICY
CHAPTER – 3
MONITORING OF LOAN ASSETS
1. MONITORING OF LOAN ASSETS
Effective and efficient Credit Management practices should be observed to monitor bank‟s loan asset so as to maintain high level of Standard Assets. The monitoring
mechanism with reference to reporting of sanctions, review/ renewal of loan
assets, legal audit reporting, credit audit reporting, physical verification of assets,
monitoring system of standard loan assets end-use of funds etc. must be strictly complied with as per the Bank‟s laid down norms and guidelines issued from time
to time.
2. FAIR PRACTICE CODES FOR LENDERS
2.1 Fair Practice Code for Lenders as per the extant guidelines of the Bank
duly approved by the Board shall be followed with regard to processing of
loan applications, accounting practices, information secrecy, financial distress and redressal of grievances of the borrower and terms and
condition f or lending.
2.2 Information regarding rate of interest, processing fee, service charges,
refund of charges etc to be levied by the bank shall be provided to the
applicants while giving loan application form.
2.3 The main reason / reasons for rejection of loan application by the bank
should be conveyed to the applicants in case of all categories of loans of any threshold limit.
2.4 Towards better transparency and disclosure of the documentation,
following guidelines would be adhered to:
(a) It is obligatory on the part of the Bank to provide a copy of the loan
agreement along with a copy each of all enclosures quoted in the loan agreement to all the borrowers after due execution of the
documents as per terms of sanction letter / at the time of
disbursement of loans even when no specific request in this regard
has been made by the borrower. However, the copies should be
given under acknowledgement only.
(b) Utmost care must be taken while giving copy of such documents to
the borrower ensuring that the documents are not blank / in-
complete. It is implied that handing over of blank / incomplete loan
documents to the borrower and subsequent cutting, corrections,
filling up of the blank documents etc. will not be legally enforceable as such action post facto will be considered as alteration and be
treated as “NULL and VOID” and will lead to Legal Risk for the
Bank. W herever applicable, the Legal Audit must be completed
and amendments in existing documents or fresh/additional
documents if so suggested by the legal auditors must be obtained/completed/executed before handing over copies of the
documents to the borrower.
3. PRE- DISBURSEMENT CREDIT PROCESS AUDIT
All fresh sanctions including enhancement other than against Bank‟s own deposits accorded by the Branch /Regional Office/Head Office Authorities for Rs.5.00cr
and above (both funded and non-funded), will come under the purview of Pre Disbursement Credit Process Audit (PDCPA). Permission to release of the limits will be given by the sanctioning authority.
4. POST SANCTION REPORTING CARD (PSRC)
For loan below Rs.5.00 crore: After release of the credit facilities, Post Sanction
Reporting Card (PSRC) as per the prescribed format should be prepared by the
branch in respect of all sanctions accorded by R.O./H.O.. In R.O. sanctioned cases, PSRC should be prepared in duplicate after release of the credit facility and
should be sent to Credit Deptt. of R.O. for their scrutiny. In H.O. Sanctioned
cases, PSRC should be prepared in triplicate after release of the credit facility and
should be sent to Credit Department, Head Office under copy to the Regional
Office for their scrutiny.
5. CREDIT AUDIT 5.1 Credit Audit is a key monitoring mechanism to examine the compliance with extant sanction and post-sanction processes/ procedures laid down from time to time with the following objectives : 5.1.1 Improvement in the quality of credit portfolio 5.1.2 Review of sanction process and compliance status of large loans 5.1.3 Feedback on regulatory compliance 5.1.4 Independent review of Credit Risk Assessment 5.1.5 To pick-up early warning signals and suggest remedial measures 5.1.6 Recommend corrective action to improve credit quality, credit administration and credit skills of staff, etc. 5.2 All the borrowal accounts with aggregate limit of Rs.5.00 crore & above are eligible for Credit Audit. 5.3 The Credit Audit is to be undertaken by the respective ZOs in respect of all eligible accounts within its jurisdiction. Credit Audit Officials are to be selected from Scale-III & Scale-IV officials in the Zone having adequate exposure/knowledge of Credit Administration. 5.4 The credit audit in all the eligible accounts is to be conducted on an ongoing basis whose frequency will be based on the credit quality determined during last credit audit of the borrowal account.
5. STOCK AUDIT
5.1 All accounts having fund based/ non-fund based working capital limit of
Rs.1.00 Crore and above of P.A. accounts & 50 lacs and above of NPA
accounts will be subjected to stock audit by external auditors (Concurrent auditors of the Region) once in a year and for seasonal
industries it will be carried out during peak period.
The branches will send the list of such accounts to Regional offices for allotment of stock audit to empanelled auditors.
5.2 The Borrowal accounts in which such audits may be exempted are- Nav
Ratna or AAA Rated companies, large PSUs, Accounts where erosion in the
value of primary security is more than 50%, NPA Accounts where the value of stocks is justified to the satisfaction of auditors by the Branch Manager.
5.3 An auditor/firm will not be assigned audit for more than 3-4 accounts in a
year and they will be required to submit the report on prescribed format. The
discrepancies, if any, pointed out in the stock audit report is to be taken up on
priority by the ROs to ensure that no stock audit report is kept pending for
more than 3 months after the date of its receipt. The other guidelines/
Bank‟s policies on verification of Stocks & Book Debts by Bank Officials as
well as concurrent auditors have remained unchanged.
6. REVIEW OF ACCOUNTS
6.1 All borrowal accounts enjoying facilities have to be reviewed / renewed, till
the file is transferred to Recovery Department for initiating action to recover bank dues.
6.2 The review covers the conduct of the account, financial position of
the borrower, the achievement of projected turnover/ profits, the future
outlook, inspection irregularities etc. If these are satisfactory, the facilities are
renewed and/or enhanced based on merits.
6.3 Discriminatory Review of Loan Assets: Discriminatory time schedule
for reviewing / renewing status of accounts based on risk rating/ credit
quality of borrowal accounts would be as under:
(a) Review/Renewal (including operational review) of all accounts which have also been identified as overdue for more than 2 months but less than 90 days will be done on half-yearly basis. However, such discriminatory norms for review will be outside the purview of the prudential norms of RBI for recognition of NPA. (b) Review/Renewal of all other accounts should be conducted on a yearly
basis.
7. OPERATION IN THE ACCOUNT BEYOND DUE DATE OF REVIEW
7.1 The operations allowed in the accounts after due date of review shall
be treated as unauthorized, unless & until concerned RO / Branch seeks prior permission from the respective sanctioning authority for allowing the
operations in the account after due date till account is reviewed and limit‟s
are renewed by the competent/sanctioning authority.
7.2 W hile seeking permission for allowing operations in the account beyond
due date of review, ROs / Branches shall provide cogent reasons for not
submitting the full review proposal timely.
7.3 Branches will seek prior permission for allowing operations in the
account after the due date for review (for a maximum Period-3 Months).
The branch will be required to submit the reasons for delay in submission of complete review with expected date of submission of the same.
7.4 The authority for allowing the permission for operation of account on
the basis of operational review of the account for a maximum period of three months beyond the scheduled due date of review in case of
Head Office Sanctioned cases is as under:
Sanctioning Authority Authority for allowing Operations beyond due date
The Chairman The Chairman
General Manager The Chairman Regional Head General Manager Credit. Branches Respective R e g i o n a l H e a d
7.5 All cases where the appropriate authority has allowed operations
in the accounts shall be ratified by the respective sanctioning authority.
7.6 A track record of all such accounts shall be maintained at Credit Department
Of RO with a copy to Credit Department of HO.
7.7 Processing charges as applicable to the account will be realized.
7.8 If the borrower does not submit the required papers for review of the
account within time, penal interest, as prescribed by the bank from time to time, over and above the sanctioned rate of interest will be charged in the
account.
7.9 Regional Office will ensure review of loan accounts on time.
8. MONITORING OF LARGE BORROWAL ACCOUNTS FORMAT AS UNDER
Amount of limit sanctioned
Status (Regular /Irregular)
Periodicity Authority to whom it has to be submitted
Up to Rs 2lac (PA &NPA) All accounts Monthly Monitored by Branch Manager.
Statement to be submitted to REGIONAL Office
Above Rs 2 lacs to below Rs 25 Lacs (PA) and Rs 2LACS to5LAC NPA ACCOUNTS5crores
All accounts Monthly Regional Office
Rs 25lacs and above (PA) and 5lacs and above (NPA)
All accounts Monthly Head Office
9. HOLDING ON OPERATIONS
a. Holding on Operation gives respite to the borrower (s) and facilitates
them to run the units till finalization of rehabilitation and /or restructuring package.
b. The Bank may allow operation in those Non-CDR, Non BIFR, SME or industrial advances, which are Potential Non Performing Account,
Performing accounts or those accounts which are showing the warning signals in terms of laid down guidelines.
10. RESTRUCTURING / RESCHEDULING
Bank will fall in line with RBI guidelines on Restructuring of SME advances and other loans. In case of CDR/BIFR cases, generally the bank will
fall in line with 75% of lenders in value and 60% of the lenders in number (both
inclusive). However, for agreeing in principle to accept such package for cases
falling under the authority of Regional Head, approval needs to be obtained from
The Chairman-Head Office.
In case of Restructuring or Rescheduling of Standard Accounts involving
sacrifice, the respective sanctioning authority, the amount normally falls, may
consider such proposals irrespective of the rating status of the account after
obtaining approval from the next higher authority since higher degree of risk
is involved in these cases. However, the next higher authority will use the
authority maximum up to the authority vested in him for allowing the sacrifice
as per Bank‟s Recovery Management Policy in force at that time. Exceptions:
(a) In respect of Government Sponsored Schemes/Crop Loan, the sanctioning
authority himself (including Scale I, II, and III) can undertake the
restructuring exercise once in any account (not repetitive) under their
respective sanctioning authority. (b) In case of schematic lending, housing loans, retail loans, where there is
need for re-schedulement / re-phasement because of unavoidable circumstances which are beyond the control of the borrower and such
reasons are acceptable to the bank, the sanctioning authority may re-
schedule / re- phase the loan once (not repetitive) under their authority provided there is no financial sacrifice and loan is fully secured.
(c) In case of repetitive restructuring the respective sanctioning authority under
whose authority the amount normally falls, may consider such proposals irrespective of the rating status of the account after obtaining approval from
the next higher authority.
(d) Repeated Restructured Accounts: W hen a bank restructures an account
a second (or more) time, the account will be considered as a „repeatedly restructured account‟. However, if the second restructuring takes place after
the period upto which the concessions were extended under the terms of
the first restructuring, that account shall not be reckoned as a „repeatedly restructured account‟
BANK’S LENDING POLICY
CHAPTER – 4
IMPORTANT SECTORAL FINANCES
1. FINANCING TO INFRASTRUCTURE
1.1 Infrastructure Lending would include all credit facilities extended in any form
to a borrower company engaged in:
a) Developing, b) Operating and maintaining,
c) Developing, operating and maintaining any infrastructure facility that is a project in any of the following sectors or any infrastructure facility of a
similar nature:
i) A road, including toll road, a bridge or a rail system ii) A highway project including other activities being an
integral part of the highway project.
iii) A port, airport, inland waterway or inland port
iv) A water supply project, irrigation project, water treatment
system, sanitation and sewerage system or solid waste management system.
v) Telecommunication services whether basic or cellular,
including radio paging domestic satellite service (i.e., a satellite owned and operated by an Indian company for
providing telecommunication service), network of
trunking, broadband network and internet services;
vi) An industrial park or special economic zone. However, bank finance for acquisition of land to developers for
setting up of SEZ will be classified as CRE for the reason
that the source of repayment would be the lease rentals
of the developed plots / sheds; Also please refer para 4.5 under the head exposure to commercial real estate.
vii) Generation or generation and distribution of power
viii) Transmission or distribution of power by laying a network of new transmission or distribution lines.
ix) Construction relating to projects involving agro- processing and supply of inputs to agriculture;
x) Construction for preservation and storage of processed
agro-products, perishable goods such as fruits, vegetables and flowers including testing facilities for
quality;
xi) Construction of educational institutions and hospitals.
xii) Lying down and / or maintenance of gas, crude oil and petroleum pipelines.
xiii) Any other infrastructure facility of similar nature.
1.2 Infrastructure Lending would include all credit facilities extended to NBFC-
IFC (Infrastructure Finance Companies). An IFC is defined as non-deposit
taking NBFC that fulfils the criteria mentioned below.
1.2.1 A minimum of 75% of its total assets should be deployed in Infrastructure loans.
1.2.2 Net owned funds of Rs.300Crore or above.
1.2.3 Minimum credit rating „A‟ or equivalent of CRISIL, FITCH, CARE, ICRA or equivalent rating by any other accrediting
Rating Agencies. 1.2.4 CRAR of 15% (with a minimum tier-I capital of 10%)
1.2.5 The change in classification would be incorporated in the Certificate of Registration issued by RBI.
1.3 In line with the RBI guidelines, bank will participate in infrastructure
financing for the purposes/activities stated as above. However, Bank‟s participation in such type of long term financing will be on selective
basis based on the viability of the project and considering the bank‟s
asset-liability position and other parameters as under:
1.3.1Exposure as per Bank‟s Internal Prudential Norms. 1.3.2The minimum DSCR and average DSCR for infrastructure project
should not be less than 1.10:1 and 1.30:1 respectively computed
after the Commercially Operation date. 1.3.3The debt/ equity for infrastructure projects shall not exceed 5:1
in case of Non-PSU and PSU constituents both treating Non-
PSU and PSU at par without any specific relaxation. For CRE, a reference may be made to the separate scheme on this
score.
1.3.4 The Loan shall be sanctioned after proper risk mitigation
evaluation process by way of appraisal with regard to technical feasibility, economic viability.
1.3.5 The credential of foreign participants in the projects should be obtained from accredited agencies.
1.3.6 The financial closure / funds tie up should be ensured before release of funds.
1.3.7 The moratorium period in case of infrastructure financing should not generally exceed 3 years. The moratorium period in case of
other term loans should not exceed 2 years. However, the
sanctioning authority in deserving cases may consider a
moratorium period of maximum 3 years considering the cash flow position.
1.3.8 In respect of projects that are undertaken by Public Sector Units, Term Loans may be sanctioned only for corporate entities (i.e.
public sector undertakings registered under Companies Act or a
Corporation established under the relevant statute). Further, such
term loans should not be in lieu of or to substitute budgetary resources envisaged for the project. The term loan could
supplement the budgetary resources if such supplementing was
contemplated in the project design. While such Public Sector
Units may include Special Purpose Vehicles (SPVs) registered
under the Companies Act particularly set up for financing infrastructure projects, it should be ensured that these
loans/investments are not used for financing the budget support
of the State Governments. W hether such financing is done by
way of extending loans or investing in bonds, the bank should
undertake due diligence on the viability and bankability of such projects to ensure that revenue stream from the project is
sufficient to take care of the debt servicing obligations and that
the repayment/servicing of debt is not out of budgetary resources.
Further, in case of financing the SPVs, bank should ensure that
the funding proposals are for specific monitorable projects.
2. FINANCING AG AINST SECOND-HAND ASSETS
2.1 W hile financing against secondhand assets, the minimum residual life
of the asset shall not be less than 7 years. The valuation Report of the
asset should be obtained from the approved Chartered Valuer / Engineer. The valuer must cover the following points while submitting the report:-
a) The Age & condition of Machinery b) The minimum residual life
c) The present market value / minimum re-sale value
2.2 The maximum repayment period of loan (door-to-door) shall not exceed 7
years. The repayment period of the loan shall be fixed in such a way that
there is a minimum gap of three years between the residual life of the asset
and the repayment period of the loan. However, the Chairman can
reduce the gap between the residual life of the asset and the repayment
period of the loan to two years in deserving cases.
2.3 Margin: A minimum 50% margin should be brought by the borrowers (i.e.,
maximum amount of loan should not be more than 50% of the accepted
minimum value of such assets). However, the Chairman can reduce the
margin to 25-30% in deserving cases based on the value of the
connection, existing track record, business compulsions etc.
2.4 Rate of Interest: As per the latest Policy on Interest Rate on Loans &
Advances.
2.5 Processing Fees & Other Service Charges: As per extant policy on
Service Charges approved by the Board.
2.6 Discretionary Authority:- Officer up to scale III level are not authorized to sanction loan against second hand asset except financing of second hand asset under existing guidelines.
2.7 General Guidelines:
(i) Deviations from the scheme while considering proposals are to be at
minimum and cautious approach shall be taken especially in the cases
involving import of old machinery.
(ii) The supplier of the second hand asset should not be an associate /
subsidiary of the purchaser/borrower nor there any mutual business interest in respect of supply of the second hand asset.
(iii) The seller of the second hand asset shall certify the make, condition,
usability and residual life of the asset which will be validated by an
independent accredited agency so as to ensure that no finance is extended for purchase of discarded / obsolete assets.
(iv) It must also be ensured that the spare parts of the asset are easily
available.
(v) These guidelines will also cover financing of second hand assets being
acquired under Securitisation Act, through receiver appointed by High
Court and also DRT.
(vi) These guidelines will not be applicable for financing under Consortium lending or Multiple Banking Arrangement.
3. EXPOSURE TO COMMERCIAL REAL ESTATE:
3.1 For an exposure to be classified as Commercial Real Estate, the essential
feature would be that the funding will result in the creation / acquisition of real estate (such as, office buildings to let, retail space, multifamily
residential buildings, industrial or warehouse space, hotels) where the
prospects for repayment would depend primarily on the cash flows
generated by the asset. Additionally, the prospect of recovery in the event of
default would also depend primarily on the cash flows generated from such funded asset which is taken as security, as would generally be the case.
The primary source of cash flow (i.e., more than 50% of cash flows) for
repayment would generally be lease or rental payments or the sale of the
assets as also for recovery in the event of default where such asset is taken
as security. These guidelines will also be applicable to certain cases where the exposure may not be directly linked to the creation or acquisition
of CRE but the repayment would come from the cash flows generated by
CRE. For example, exposures taken against existing commercial real estate
whose prospects of repayments primarily depend on rental/ sale proceeds
of the real estate should be classified as CRE. Other such cases may include extension of guarantees on behalf of companies engaged in
commercial real estate activities, exposures on account of derivative
transactions undertaken with real estate companies, corporate loans
extended to real estate companies and investment made in the equity and
debt instruments of real estate companies. 3.2 It follows that if the repayment primarily depends on other factors such as
operating profit from business operations, quality of goods and services,
tourist arrivals etc., the exposure would not be counted as Commercial Real
Estate. 3.3 CRE exposures to the extent secured by Commercial Real Estate would
attract a Risk Weight of 100%. In cases where a part of the CRE exposure
is not covered by the security of commercial real estate, that part would
attract a risk weight for CRE exposure or as warranted by the external rating
of the borrower, whichever is higher. In all such cases where an exposure
has multiple classifications such as CRE, Infrastructure Lending, Capital Market exposure etc., they should be reported under all the relevant
classifications for regulatory reporting with a footnote to avoid double
counting and will attract all regulatory concessions and exposure norms,
prudential or internal if any, applicable to those classifications.
3.4 For example, an investment in the equity of a real estate company or a
Mutual Fund/Venture Capital Fund (VCF) / Private Equity Fund (PEF) which
invests in the equity of real estate companies, would be sensitive to the
movement in prices of real estate, in addition to having a correlation with the
general equity market. Such dual exposures will be classified under real
estate from the point of view of internal exposure ceilings of the Bank and
Capital Market exposure for the purpose of compliance with the regulatory
ceiling fixed by RBI. At present such exposures attract a risk weight of 125%
(as applicable to equity exposures) / 150% (as applicable to exposure to
VCF), as the case may be, as these risk weights are higher than that
applicable to CRE which is 100%. 3.5 Bank finance for acquisition of land to private developers for setting up of
SEZ is not permissible. However, finance can be extended towards cost of
land development which will be classified as CRE for the reason that source
of repayment would be the lease rentals of the developed plots. But where
there are arrangements to insulate the lease rentals from volatility in the real
estate prices by way of lease agreements for period not shorter than that of the loan and there is no clause in the agreement which allows downward
adjustments in the lease rentals, such cases will not be treated as CRE from
the time such conditions get fulfilled.
BANK’S LENDING POLICY
CHAPTER – 5
CREDIT RISK MANAGEMENT,
RISK GRADING &
COLLATERAL MANAGEMENT
1. CREDIT RISK MANAGEMENT
1.1 Objectives: To ensure sound judgment under a credit risk framework which
seeks to follow industry best practices to achieve the following objectives:
1.1.1. Establishing an appropriate Credit Risk Management environment.
1.1.2. Maintaining an appropriate credit administration, risk management and monitoring process.
1.1.3. Optimizing resource use, earning protection by maximizing return and minimizing losses
1.1.4. Managing risks to boost long-term profit and competitive position 1.1.5. Establishing and identifying specific procedures to ensure high
quality credit portfolio through risk management practices /
processes. 1.1.6. Maintaining an appropriate credit administration, risk measurement
and monitoring process.
1.2 Process:
Bank will continue to put in place effective Credit Risk Management
Process to identify, measure, monitor and control Credit Risk as a part of an overall approach to risk management.
1.2.1 Primary Focus of Credit Risk Management process would be at two
levels as under:
1.2.1.1Portfolio Level (Macro level approach for Intrinsic Risk of Bank‟s
Credit Portfolio i.e. Prudential Limits / Concentration etc.).
1.2.1.2 Individual Borrower Level (to deal / address default risk of individual borrower through Assessment/Measurement of asset quality of borrowal accounts and risk through Credit Risk Grading
/Rating. 1.2.1.3 Loan pricing on a scientific basis
1.2.1.4 Controlling the risk through effective Loan Review Mechanism,
by effectively implementing Bank‟s Lending Policy containing
exposure norms for borrowers / group / sectors / industries
besides other issues to maintain healthy and diversified portfolio,
Portfolio Management and credit selection based on credit risk
acceptability criteria / hurdle rate. 1.2.1.5 Building up of historical data base on migration of borrowal
accounts over various rating grades for using the same in
measurement of credit risk under advanced approaches (IRB
Framework).
All credit exposures should be rated under internal rating modules as
per CRG policy of the bank.
BANK’S DOMESTIC LENDING POLICY
CHAPTER – 6
Regulatory Restrictions & Miscellaneous
STATUTORY/ REGULATORY RESTRICTIONS INCLUDING OTHER RESTRICTIONS
This lending policy in line with RBI guidelines on Statutory and Regulatory
restrictions prohibits/ restricts exposure on the following type of credit facilities.
1. Statutory and Regulatory Restrictions: 1.1 Advances against bank's own shares: In terms of Banking
Regulation Act, 1949, no loans will be granted on the security of bank‟s
own shares. 1.2 Advances to Bank’s Directors:
1.2.1 RBI has put forth restrictions on Lending to Bank‟s Director. The
restriction on financing to Bank‟s Directors as detailed in
“Discretionary Authority/ Lending Powers” Guidelines of the Bank
as also bank‟s guidelines / RBI guidelines issued from time to
time in this direction should be complied with. For the above purpose, the loans and advances shall not include the loans and
advances against Govt. Securities, Life-insurance policies or fixed
deposits. 1.2.2 Grant of loans to Directors of any Bank /Grant of loans to
relatives of Directors of Allahabad UP Gramin Bank:
W ithout prior approval of the Board or without the knowledge of
the Board, no loans and advances will be granted to
relatives of Bank‟s Chairman and Managing Director or other
Directors, Directors of other Banks and their relatives, Directors of
Scheduled Co- operative Banks and their relatives, Directors of
Subsidiaries / trusties of mutual funds /venture capital funds set-
up by the bank. 1.2.3 Unless sanctioned by the Board of Directors, bank will not
grant loans and advances aggregating Rs. 25 lakhs and above
to –
(a) Directors (including the Chairman/Managing Director) of other banks *;
(b) Any firm in which any of the directors of other banks * is
interested as a partner or guarantor; and
(c) Any company in which any of the directors of other banks *
holds substantial interest or is interested as a director or as a guarantor.
1.2.4 Unless sanctioned by the Board of Directors, bank will also not grant loans and advances aggregating Rs.25 lakhs and above to –
(a) Any relatives of their own Chairmen or other Directors; (b) Any relatives of the Chairman Director or other
directors of other banks *; (c) Any firm in which any of the relatives as mentioned in (a) and
(b) above is interested as a partner or guarantor;
(d) Any company in which any of the relatives as mentioned in (a)
and (b) above hold substantial interest or is interested as a director or as a guarantor.
* including directors of Scheduled Co-operative Banks,
directors of subsidiaries/trustees of mutual funds/venture capital funds.
1.2.5 The proposals for credit facilities for an amount less than Rs.25
lakh to these borrowers may be sanctioned by the appropriate
authority under powers vested in such authority, but the matter should be reported to the Board.
1.2.6 The Chairman/Managing Director or other director who is directly
or indirectly concerned or interested in any proposal should disclose the nature of his interest to the Board when any such
proposal is discussed. He should not be present in the meeting
unless his presence is required by the other directors for the purpose of eliciting information and the director so required to be
present shall not vote on any such proposal. The above norms
relating to grant of loans and advances will equally apply to
awarding of contracts. 1.2.7 The term ‘loans and advances’ will not include loans or
advances against:
• Government securities • Life insurance policies • Fixed or other
deposits • Stocks and shares • Temporary overdrafts for small amounts, i.e. upto Rs. 25,000/- • Casual purchase of cheques up
to Rs. 5,000 at a time • Housing loans, car advances, etc. granted
to an employee of the bank under any scheme applicable
generally to employees.
1.2.8 The term „substantial interest‟ shall have the same meaning as assigned to it in Section 5(ne) of the Banking Regulation Act,
1949. Banks should evolve, inter alia, the following procedure for ascertaining the interest of a director of a financing bank or of
another bank, or his relatives, in credit proposals/award of
contracts placed before the Board of the bank.
(i) Every borrower should furnish a declaration to the bank to the effect that -
(a) (Where the borrower is an individual) he is not a director or specified near relation of a director of a banking
company;
(b) (Where the borrower is a partnership firm) none of the partners is a director or specified near relation of a
director of a banking company; and
(c) (Where the borrower is a joint stock company) none of its
directors is a director or specified near relation of a director of a banking company.
(ii) The declaration should also give details of the relationship of the borrower to the director of the bank.
1.2.9 In order to ensure compliance with the instructions, bank will
forthwith recall the loan when it transpires that the borrower has given a false declaration.
1.2.10 Loans and advances facilities should be extended to the Directors
of Bank and their relatives on “Commercial Terms”.
1.3 Restriction on Holding Shares in companies:
1.3.1 In terms of Section 19(2) of the Banking Regulation Act, 1949, banks should not hold shares in any company except as provided
in sub-section (1) whether as pledgee, mortgagee or absolute owner, of an amount exceeding 30 percent of the paid-up share
capital of that company or 30 percent of its own paid-up share capital and reserves, whichever is less.
1.3.2 Further, in terms of Section 19(3) of the Banking Regulation Act,
1949, the banks should not hold shares whether as pledgee,
mortgagee or absolute owner, in any company in the
management of which any managing director or manager of the
bank is in any manner concerned or interested.
1.4 Restriction on Credit to Companies for buy-back of their
Securities:
1.4.1 Bank will not provide loans to companies for buy-back of
shares/securities. However the companies are permitted to
purchase their own shares or other specified securities out of
their free reserves, or securities premium account, or the
proceeds of any shares or other specified securities, subject to compliance of other conditions specified in the Company act.
2. Regulatory Restrictions
2.1 Restrictions on Grant of Loans and advances to officers and relatives of Senior Officers of Banks:
2.1.1 RBI has put forth restrictions on Grant of Loans and advances
to officers and relatives of Officers of Banks. The Bank‟s
discretionary authority guidelines cover the guidelines for
restriction on f inancing of Bank‟s off icers and their relatives.
However, the branches/ Offices shall continue to comply with
by bank‟s guidelines/ RBI guidelines issued from time to time
in this direction. 2.1.2 To ascertain the interest of relatives of the officer of the bank
in the Credit Proposals, every borrower should furnish a declaration to the bank to the effect that:
(a) if he is an individual, that he is not a specified, near relation
to a senior officer of a Bank
(b) if it is a partnership or HUF firm, that none of the partners, or
none of the members of the HUF, is a near, specified
relation of any senior officer of the bank, and
(c) if it is a joint stock company, that none of its directors, is a
relative of any senior officer of the bank.
(d) The detailed guidelines on advances to the sanctioning
authority and close Relatives of his own and also the
employees working under him are enclosed under the
heading “Advances to self /close Relatives”.
Advances to self /close Relatives:- (a). No credit facility can be sanctioned to close relatives of Bank staff by
delegatees lower than Regional Head except the following:-
i) Advances against Bank‟s own term deposits.
ii) Advances against government securities/postal cash certificates, NSCs, Kisan
Vikas Patras, Indira Vikas Patras, Surrender value of LIC Policies
iii) Advances against approved shares/debentures quoted on Stock Exchanges,
(b). The delegatee shall not exercise lending powers for sanctioning any loan to
himself and should refer to next higher authority.
(c) The delegatee shall not exercise lending powers for sanctioning any loan to his
close relatives and also the close relatives of employees working under him
(except loans against deposits with the Bank, as also against NSCs, Post office
Savings Certificates, Surrender Value of Life Insurance Policies up to Rs.5.00Lac.
Requirement above Rs.5.00 Lac will be sanctioned by the respective Regional
Head. Sanction of such loan must be reported to H e a d O f f i c e t h r o u g h
regular submission of MDA.
(d) The scope of the term “relative” under Schedule-6 of Company‟s Act-1956 is as
under:
1. Spouse 2.Father
3. Mother (including step-mother) 4.Son (including step-son)
5. Son‟s Wife 6. Daughter (including step- daughter)
7. Father‟s Father 8. Father‟s Mother 9. Mother‟s Mother 10. Mother‟s Father
11. Son‟s Son 12. Son‟s Son‟s Wife
13. Son‟s Daughter 14. Son‟s Daughter‟s Husband
15. Daughter‟s Husband 16. Daughter‟s Son
17. Daughter‟s Son‟s Wife 18. Daughter‟s Daughter
19. Daughter‟s Daughter‟s Husband 20. Brother (including step- brother)
21. Brother‟s Wife 22. Sister (including step-sister)
23. Sister‟s Husband 24. Members of Hindu Undivided Family
2.1.3 The declaration will give details of the relationship of the
borrower to the director of the bank. If it transpires that the borrower has given a false declaration the loan facility should be
recalled immediately.
2.1.4 Bank may grant loan or advance to or on behalf of spouses of
their Directors in cases where the spouse has his/her own
independent source of income arising out of his/her
employment or profession and the facility so granted is based on standard procedures and norms for assessing the
creditworthiness of the borrower. Such facility should be
extended on commercial terms.
2.1.5 All credit proposals for Rs.25 lacs and above should be
sanctioned by the Bank’s Board of Directors.
2.1.6 The proposals for less then Rs.25 lacs may be sanctioned by
the appropriate authority in banks in terms of the powers delegated to them.
2.2 Restrictions on Grant of Financial Assistance to Industries
Producing / Consuming Ozone Depleting Substances (ODS):
2.2.1 Bank will not extend the finance for setting up of new units
consuming / producing the Ozone depleting Substances (ODS).
2.3 Restriction on Advances against Sensitive Commodities under
Selective Credit Control:
2.3.1 With a view to preventing speculative holding of essential
commodities with the help of Bank‟s credit and the resultant rise in their prices, the Reserve bank of India stipulates specific
restrictions on Bank advances against specified sensitive
commodities. The branches/ Offices shall continue to comply with
the RBI guidelines issued and as circularized by the bank from
time to time in this direction.
3. RESTRICTIONS ON OTHER LOANS AND ADV ANCES:
3.1 Loans and Advances against Shares , Debentures and Bond:
3.1.1 No Loans to be granted against partly paid shares.
3.1.2 No loans to be granted to partnership / proprietorship concerns against primary security of shares and debentures.
3.2 Advances against Fixed Deposit Receipts (FDRs) issued by other
Banks:
3.2.1 No Loan will be granted against security of other Bank‟s term
deposits.
3.3 Advances to Agents / Intermediaries based on consideration of
Deposit Mobilization:
3.3.1 Banks will desist from being party to unethical practices of raising of resources through agents /intermediaries to meet
the credit needs of the existing/prospective borrowers or from
granting loans to intermediaries, based on the consideration
of deposit mobilisation, who may not require the funds for their genuine business requirements.
3.4 Loans against certificate of Deposits:
3.4.1 No loans to be granted against Certif icate of Deposits
3.5 Financing Infrastructure/ Housing Projects:
3.5.1 Bank will not grant f inance for construction of buildings meant
purely for Government/Semi-Government offices, including
Municipal and Panchayat offices.
3.5.2 Projects undertaken by public sector entities which are not
corporate bodies (i.e. public sector undertakings which are
not registered under the Companies Act or which are not
corporations established under the relevant statute) may not
be f inanced by bank. Even in respect of projects undertaken
by corporate bodies, as def ined above, bank will satisf y themselves that the project is run on commercial lines and
that bank finance is not in lieu of or to substitute budgetary
resources envisaged for the project. The loan could, however,
supplement budgetary resources if such supplementing was
contemplated in the project design. 3.5.3 In case of housing projects, which the government is
interested in promoting, either for weaker sections or
otherwise a part of the project cost may be met by the
Government through subsidies made available and/or
contributions to the capital of the institution taking up the project. In such cases bank f inance should be restricted to the
project cost excluding the amount of subsidy/ capital
contribution from the Government. The bank should ensure
the commercial viability of the project.
3.6 Issue of Bank Guarantees in favour of Financial Institutions:
3.6.1 Bank may issue guarantees on behalf of its borrower
constituents favoring other FIs/ Banks/ other lending agencies
upto 20% of Tier-I of total capital fund. For exceeding the
same upto Prudential Ceiling f ixed by the bank for the
individual borrower for the loans extended by the later, the
specif ic permission to be sought from CAC. Minimum the
HLCC GM will accord the permission to have an exposure
favoring other FIs/ Banks/ other lending agencies subject to
compliance nature of security, margin , periodical review etc
as per Bank‟s norms as laid down in the Lending Policy and
other guidelines . 3.6.2 Advance against Bullion / Primary Gold: 3.6.3 Bank will not grant any advance against bullion/primary gold.
3.6.4 Bank will desist from granting advances to silver bullion
dealers which are likely to be utilized for speculative purposes.
3.7 Loans and advances to Real Estate Sector:
3.7.1 W hile f inancing under Real Estate it must be ensured that
prior to disbursement of the loans, the borrowers have
obtained required prior permission from Govt. / Local Govt. / Other statutory Authorities for the project. Other guidelines on
f inancing as issued by the Bank for financing to Real Estate Sector will be strictly abided by.
3.8 Grant of Loans for acquisition of Kisan Vikas Patras (KVPs)
3.8.1 Bank will not sanction any loan for acquisition of / investing in
small savings instruments including Kisan Vikas Patras
(KVPs). 3.9 Grant of Loans for Speculative purposes:
3.9.1 Bank will not sanction any loans of speculative nature and activities banned by RBI / Govt. from time to time.
3.10 Lending to PSUs / Central and State Government Corporate /
Municipal Committees / Corporations etc.
The following points must be adhered to while considering loan proposals of PSUs
/ Central and State Government Corporate / Municipal Committees / Corporations etc.:
• Normal credit appraisal should be carried out without considering any
relaxation in economic parameters applicable for evaluation for other
corporates.
• Availability of Government Guarantee should be reckoned only as
risk mitigant and not as a statement of cash flow.
• Credit Risk assessment exercise should be carried out in case of all
exposures.
• Relaxation in systems and procedures and benchmark parameters
should not be granted.
• Concessional Rate of Interest, concession in service charges and
other rebates will normally not be allowed and will be linked to price
risk facility and due cost benefit analysis only.
• Field functionaries to ensure diligent monitoring all the existing loan
accounts also.
MISCELLANEOUS
1. DEVI ATIO NS
1.1 The policy requires a degree of flexibility to the decision makers to cope with
the competitive business environment. The deviation / exemption from the
norms / bench-mark levels laid down in the Policy may be permitted only in
genuine and exceptional cases, on account of business exigencies. The
deviations / exemption from the norms / benchmark levels shall be clearly mentioned in the appraisal note, duly recording the reasons / justifications
/mitigations thereof. 1.2 Any deviation/exemption from the norms / benchmark level mentioned in this
document as well as modifications in different schemes /policies /guidelines
formulated by the bank shall be permitted, in genuine cases on account of business compulsions. The authority for permitting such deviations/exemptions
shall vest with the T h e C h a i r m a n and the same will be reported to the Board for information in subsequent meeting.
1.3 Reporting of Deviations/Concessions:
(a) To reduce the disposal time and cater to business exigencies, some times
policy/guidelines permits the incumbent to extend concessions / relaxations
(interest rate, Service charges, other terms of sanction if any) in the accounts
sanctioned by higher authority. In such circumstances, the same be reported
to the Sanctioning Authority through proper channel, briefing the reason for
such consideration on monthly basis i.e., within 7 days of close of the
month. (b) The reporting channels will be as under:
S. N
The incumbent permitted the relaxation etc.
The Authority to whom the incumbent report
1. Branch Manager Regional Head. 2. Regional Head. General Manager
3. General Manager Chairman 4 Chairman Board of Directors.
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5.1 All accounts having fund based/ non-fund based
working capital limit of Rs.1.00 Crore and above
of P.A. accounts & 50 lacs and above of NPA
accounts will be subjected to stock audit
by external auditors (Concurrent auditors of
the Region) once in a year and for seasonal
industries it will be carried out during peak period.
The branches will send the list of such
accounts to Regional offices for allotment of stock
audit to empanelled auditors.
5.2 The Borrowal accounts in which such audits may
be exempted are- Nav Ratna or AAA Rated
companies, large PSUs, Accounts where erosion in
the value of primary security is more than 50%, NPA
Accounts where the value of stocks is justif ied to the
satisfaction of auditors by the Branch Manager.
5.3 An auditor/f irm will not be assigned audit for more
than 3-4 accounts in a year and they will be
required to submit the report on prescribed format.
The discrepancies, if any, pointed out in the stock
audit report is to be taken up on priority by the ROs
to ensure that no stock audit report is kept pending
for more than 3 months after the date of its receipt.
The other guidelines/ Bank‟s policies on verification
of Stocks & Book Debts by Bank Officials as well as
concurrent auditors have remained unchanged.
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