sub : loan policy 2014-15 - aiiboaaiiboa.in/circular/cir-13-14/adv_136.pdf · sub : loan policy...

MAIN:

ADV.136/2013-14

a DT :

31.03.2014

SUB :

Conv. 21

CO : CREDIT DIVISION

FILE :

M -2 S-205

Sub : Loan Policy 2014-15

Loan Policy for the year 2014-15 has been approved by our Board on 28.03.2014.

The Policy deals with guidelines on Strategies, Thrust areas for lending, Standards

for presentation of credit proposals, Financial benchmarks etc.

The Policy has a direct linkage with Credit Risk Management Policy and Interest rate

policy for 2014-15. Field level functionaries are advised to refer Credit Risk

Management Policy, Loan Policy, Delegation of Powers for their day to day

operations. The directions / guidelines issued by Reserve Bank of India and Govt. of

India from time to time shall automatically form part of the Loan Policy.

The Loan Policy 2014-15 along with the table containing certain major changes is

enclosed as annexure.

Please go through the Policy in its entirety and put in place, a system for meticulous

implementation of the guidelines.

RAJEEVAN PILLAI G GENERAL MANAGER (CR)

A Loan Policy 2014-15 CO: CREDIT DIVISION Circular No Adv.136/2013-14 dt .31.03.2014 ------------------------------------------------------------------------------------------------------------------------------------------

ii

Contents and Coverage .

Para No. Subject Page No

Major Modifications viii 1. PREAMBLE 1 1.1 Linkage to Credit Risk Management Policy 2013 - 14 1 1.2 Policy for Micro, Small and Medium Enterprises (MSMEs) 1 2 GOVERNMENT GUIDELINES 1 2.1 Priority Sector – Guidelines 1-6 2.1.III.1 Agriculture 2 2.1.III.1.1 Direct finance to Agriculture 2 2.1.III.1.2 Indirect Finance to Agriculture 3 2.1.III.2 Micro and Small Enterprises 4 2.1.III.2.1.2 Service Enterprises 5 2.1.III.2.1.3 Export Credit to MSE units 5 2.1.III.2.1.4 Khadi and Village Industries Sector (KVI) 5 2.1.III.2.2 Indirect Finance 5 2.1.III.3 Educational Loans 5 2.1.III.4 Housing Loans 5 2.1.III.5 Export Credit 6 2.1.III.6 Others 6 2.2 Non priority sector 7 3 Growth projections 7 4 Targeted sectors for credit growth 7 4.1 Thrust areas -Agriculture Credit 7 4.2 Retail Credit 8 4.3 Micro, Small and Medium Enterprises (MSMEs) 8 4.4 Government Sponsored Schemes 9 4.5 DRI 9 4.6 Minorities Welfare 9 4.7 Flow of Credit to SCs/STs : 9 5. Selective financing 9 6. Strategies for enhancing credit flow 10 6.1 Agriculture Credit 10-13 6.2. Retail Trade (Small Service Enterprises) 13 6.3 Micro Credit 14 6.4 Educational Loans 14 6.5 Rural Housing 15 6.6 Interest subsidy for Housing the Urban Poor (ISHUP) 15

6.7 Strategies For Enhancing Flow Of Credit To Micro, Small and Medium Enterprises Sector for 2014-15

16

6.8 Goals/Strategies for Enhancing Flow of Quality Retail Credit under Personal Segment Loan Products Banking Segment 16-20

6.9 Strategies for enhancing flow of Corporate Credit 20-25


iii


7 Mandatory guidelines of RBI 25 7.1 Know Your Customer (KYC)/Anti Money Laundering Norms (AML) 136 7.2 Loans to NRI 136

7.3 Restrictions on Advances against Non-Resident (External) Rupee Account and FCNR (B) deposits

136

7.4 Commercial Real Estate Sector – Definition 136

7.5 Adherence of National Building Code specifications for safety of buildings 137

7.5.a National Disaster Management Guidelines on Ensuring Disaster Resilient construction of Buildings and Infrastructure 138

7.6 RBI directions on Unauthorised Construction, Misuse of properties and encroachement on Public Land 138

7.7 Advance against Bullion and Primary Gold 139 7.8 Collateral free loans to Micro and Small Enterprises (MSEs) 140 7.9 Advance against banned article 140 7.10 Advances against Sensitive Commodities 140 7.11 Valuation of Sugar Stocks 141

7.12 Advances against Fixed Deposit Receipts (FDRs) issued by other Banks 141

7.13 Advances to Agents/Intermediaries based on Consideration of Deposit Mobilization

141

7.14 Acceptance of 7% Savings Bonds 2002, 6.5% Savings Bonds 2003 (Non –taxable) & 8% Savings (taxable) Bonds 2003 as collateral security.

141

7.15 Advances against Certificate of Deposits (CDs) 141 7.16 RBI Guidelines on Discounting/Rediscounting of Bills by Banks 141 7.16.1 Co-acceptance of Bills 142 7.16.2 Discounting of Bills co-accepted by other Banks 143 7.17 Financing to Factoring Companies. 143 7.18 Advances against bank's own shares 143 7.19 Advances against shares 143 7.20 Exposure to Capital Market 143

7.21 Guidelines in respect of issue of guarantees to stock exchanges on behalf of stock brokers 144

7.21.1 Advances to Share and Stock Brokers / Commodity Brokers 144 7.22 Restrictions on Holding Shares in Companies 146 7.23 Guarantees for Export Advance 146 7.24 External Commercial Borrowings (ECB) 147 7.25 Forward Contracts 148 7.26 Restriction on Units consuming ozone depleting substances 149

7.27 Restriction on granting advances to Government / Semi-Government 149

7.28 Restriction on granting advances to Public Sector entities which are not corporate

149

7.29 Restrictions on Advances to Directors/Senior Officers of our Bank / to their Relatives / Directors of other banks and their relatives 149

7.30 Legal Compliance Certificate – Dr Mitra Committee Recommendations on Legal Aspects of Bank Frauds

150

7.31 Acknowledgement to all loan applicants 150


iv


7.32 Information to borrowers on penal interest for delayed payment of interest, pre payment charges at the time of communication of loan sanction

150

7.33 Furnishing of true copy of the documents executed 150

7.34 Provision of copy of Credit Information Report (CIBIL / EXPERIAN/EQUIFAX / HIGHMARK) to customers 151

7.35 Guidelines on Fair Practices Code for Lenders – Disclosing all information relating to processing fees/ charges

151

7.36 Term Loan Classification 151 7.37 Sharing of information under Consortium / MBA 151

7.38 Sharing of information on frauds in borrowal accounts having Multiple Banking Arrangements

152

7.39 Meeting Payment obligation to MSMEs by corporate borrowers 152 7.40 Director Identification Number and RBI Regulatory Requirement 152 7.41 Loans/Advances against Indian Depository Receipts (IDRs) 152 7.42 Loans for acquisition of Kisan Vikas Patras 153 8. BANK POLICY GUIDELINES 26-112 8.1 Policy guidelines related to Agriculture 26 8.2 Financial Inclusion Package (FIP) 26 8.3 Biometric Smart Card Banking 27

8.4 Policy guidelines for Financing Microfinance Institutions for on lending to the poor 27

8.5 Policy for Poultry Financing 28-31 8.6 Discussion with borrower with regard to terms & conditions 31 8.7 Assessment of the profile of the borrower 31

8.8 Standards for presentation of credit proposal and methods of appraisal and standards for financial norms

32-35

8.9 Consortium Arrangement 35-37 8.10 Multiple Banking Arrangement 37 8.11 Joint Documentation Consortium/MBA Accounts 37 8.12 Joint Lending Arrangement 37 8.13 Exposure to Defaulters / Wilful Defaulters 37 8.14 Delegation of sanctioning powers for various authorities 38 8.15 Excess drawings discretion in higher authority sanctioned accounts 38 8.15.1 Sanctioning of Adhoc Limit – Discretion 39 8.16 Compromise settled accounts 40 8.17 Entities of group accounts with facilities in multiple Zones 40 8.18 IDO Report for manufacturing companies and other projects 40 8.18.1 RDOs Report for Agricultural Proposal 41 8.19 Obtention of Income Tax / Sales Tax assessment copies 41 8.20 Capital infusion by borrowers 41 8.21 Declaration regarding dues to statutory authorities 41

8.22 Sanction of Pre-shipment / Post Shipment Export Credit - adherence of operational cycle 41

8.23 Information of Pledge of Shares by promoters 41


v


8.24 Furnishing of Registration Number and Complete address by Practicing Company Secretary/ Chartered Accountant/Stock Auditors address

42

8.25 Escrow Account / Trust and Retention Account (TRA) / Debt Service Reserve Account (DSRA) / Interest Service Reserve Account (ISRA)

43

8.26 Subordinated debt / unsecured loan as quasi equity 43 8.27 Financing for disinvestment by the Government 43 8.28 Sanction of Term Loans to Housing Finance Institutions 44 8.29 Monitoring of implementation of project 44 8.30 Policy on Foreign Currency Loan 45 8.31 Policy on Bridge Loan 46 8.32 Bonus Loan Policy 49 8.33 Infrastrucure Policy 50-55 8.34 Cashew Loan Policy 55 8.35 Take –Over policy of borrowal accounts 57-63 8.36 Advances to Commercial Real Estate 63 8.37 Loans to Private Builders / Real Estate Developers 63 8.38 Lending to Non Banking Finance Companies (NBFC) 63

8.39 Loans and Advances against Shares & debentures etc., to individuals 64

8.40 Deemed Export 65 8.41 Short Term Loan 65 8.41.1 Line of credit 66 8.42 Clean Loans 67 8.43 Types of clean loans 67 8.44 Withdrawal Against Uncleared Cheques 67 8.45 Operation in secured OD accounts 68 8.46 Non-Fund Based (NFB) Limits 68 8.47 Guarantee on behalf of Special Purpose Vehicle (SPV) – Subsidiary 70

8.48 Issuance of Guarantees / Co-Acceptance by the Bank favouring other Banks / FIs / other lending agencies for additional loans extended them

70

8.49 Guidelines on issue of Bank Guarantees 70 8.50 Honouring of Bank Guarantees 70 8.51 Issue of Bank Guarantee in favour of Foreign Airlines/IATA 71 8.52 Letter of comfort(LOC)/Letter of undertaking(LOU) 71

8.53 Guidelines on classification of LC–DA / Guarantees as Secured Exposure

73

8.54 Settlement of claims under Letters of Credits (LCs) 73 8.54.1 Accounting procedures for devolved letter of credit (DA) 73 8.55 Forward Contracts / Hedging 74 8.56 Monitoring 78 8.57 Monitoring of Large Borrowal Accounts 80 8.58 Quality of credit 83 8.59 Visit by the Zonal Manager or the Second in Command of the Zone 84 8.60 Branch Segmentation 84


vi


8.61 Restructuring Guidelines 85-95 8.62 Review/Renewal of Advances 95 8.63 Realignment of Limits / modification of limits 96 8.64 Permitting release of security (primary/additional/collateral) 96 8.65 End Use of Funds 96

8.66 Loans Against Immovable Property Of Educational Institutions Run By Public Trust

98

8.67 ECGC Cover for Bid Bonds & Export Performance Guarantees 98 8.68.a Maintenance of Application Received / Rejected Register 98

8.68.b Loan tracking -- web based status view facility to applicants of credit limits (Board directions dt 07/10/11) 98

8.69 Compliance of codes of Commitment to Customers and MSE of BCSBI 99

8.70 Disposal of Loan applications 100 8.71 Guidelines on Taking Agricultural Lands as Collateral Security 100 8.72 Policy on Charging of Interest and Charges from Borrowers 101 8.73 Charging of Interest (Per Annum /Payable Monthly Basis) 101

8.74 Quoting of Variable Interest Rate in lieu of floating rate of interest for our loan products 101

8.75 Base rate 102

8.76.a Pricing for the accounts under consortium/ MBA on account of change in BPLR / Base Rate

104

8.76.b. Undertaking letter to be obtained from borrowers for the facility/ies getting changed to Base rate from BPLR system on renewal 104

8.77 Charging of interest on Priority Sector Advances 104 8.78 Levying of Penal Interest on Advances 105 8.79 Moratorium of payment of interest and principal 105 8.80 Recovery of Service charges / NFB Income 105

8.81 Justification for Reduction / Waiver of penal interest / service charges 106

8.82 Policy on repayment of processing charges 106

8.83 Registration of Equitable Mortgage (EM) and Central Registry(CERSAI) 107

8.84 Personal guarantee of the mortgagor 108

8.85 Collection of Inspection charges for Personal segment Loan Products 108

8.86 Accessing of consumer credit information from CIBIL/EXPERIAN/EQUIFAX/HIGHMARK Data Base

108

8.87 Getting acknowledgement of the borrower and guarantor in duplicate copy of the sanction ticket

108

8.88 Assignment of brand name 108 8.89 Oral Sanctions Approvals 109 8.90 Period of Term Loan 109 8.91 Period of working capital 109 8.92 Revalidation of credit sanctions 109 8.93 Trade finance scheme 109 8.94 Issuance of certificate for the purpose of getting VISA 110 8.95 Instructions from GOI regarding e-payment 110 8.96 Utilisation of Fly Ash 111


vii


8.97 Merger / Amalgamation of Entities 111 8.98 Scheme for financing of ATMs/Cash Dispensers 111 8.99 Issuance of LCs and Guarantees through SFMS 111 9.00 Formation of Committees at Corporate and Zonal Level 112

EXIT POLICY 112 Annexures Annex.-1 Policy of the Bank for Micro, Small and Medium(MSME) Enterprises 113-122 Annex.-1a Ministry of Small Scale Industries Notification 123 Annex.-1b Guidelines on Purchase of Pool Assets 124-135 Annex.-2 Mandatory guidelines of Reserve Bank Of India 136-152 Annex.-3 Project Implementation progress report 153-155 Annex.-4 Revised Draft Policy on Joint Lending Arrangement (JLA) 156-163

Annex.-5 Framework for Revitalising Distressed Assets in the Economy – Guidelines on :Joint Lenders’ Forum (JLF) and Corrective Action Plan (CAP)

164-173

Annex.-6 Framework for Revitalising Distressed Assets in the Economy - Refinancing of Project Loans and Other Regulatory Measures 174-177

Annex.-7 Stock/Book debts/Receivables Audit Report 178-182 Annex.-8 Format for adhoc Limits 183 Annex.-9 Format for Review of Term Loan 187-190


viii

Major Modifications (Other than RBI/IBA/MoF/MC/ACB directions/guidelines already circulated)

Existing(2013-14) Modified

Second in command committee at ZO is empowered to sanction all the SLPs except educational loans as per the delegated powers. Sanctioning powers for educational loans is vested with ZLCC.

Second in command committee at ZO is empowered to sanction all the SLPs.

Home loan property can be extended as security for other structured/ non structured loans/advances by way of extension of EM based on the residual value after maintaining requisite margin (Margin as per original sanction or present margin required for the loan, whichever is higher) for the Home loan throughout the tenor of the loan. Zonal Managers shall be the sanctioning authority for permitting the extension of EM to the other loans. However, under IB Home Loan plus scheme, Branch Managers (who are empowered to sanction the loan) are permitted to extend EM on the home loan property to IB Home loan plus under their powers based on the residual value after maintaining requisite margin for the Home loan throughout the tenor of the loan.

Home loan property can be extended as security for other structured/ non structured loans/advances by way of extension of EM based on the residual value after maintaining requisite margin for the Home loan throughout the tenor of the loan. Zonal Managers shall be the sanctioning authority for permitting the extension of EM to the other loans. However, under IB Home Loan plus scheme, Branch Managers (who are empowered to sanction the loan) are permitted to extend EM on the home loan property to IB Home loan plus under their powers based on the residual value after maintaining margin of 10/20/25 percentage on RSV of the Home loan/SHL property.

The enhanced repayment period should not go beyond the age of 70 years of the applicant & co-applicant. If the repayment period goes beyond 35 years OR age of the applicant / co-applicant goes beyond 70 years, the enhancement of repayment period should be restricted to such 35 years / 70 years, as the case may be, and the balance amount at the end of that period has to be recovered from the borrower as Bullet Payment, at the end of the enhanced period (unless a relaxation in exit age beyond 70 years has been earlier sanctioned). However, Rate of interest is to be continued based on the originally sanctioned loan amount and repayment period.

If the repayment period goes beyond 35 years, the enhancement of repayment period should be restricted to such 35 years, and the balance amount at the end of that period has to be recovered from the borrower as Bullet Payment, at the end of the enhanced period. However, Rate of interest is to be continued based on the originally sanctioned loan amount and repayment period.


ix

Existing(2013-14) Modified If any Home Loan is sanctioned with relaxation in the exit level age of applicant / co-applicant upto 70 years or more, after keeping the EMI constant upto the originally sanctioned period, the balance amount at the end of the said sanctioned period has to be recovered from the borrower as Bullet Payment. NBG Proposals : As per the extant guidelines, fresh proposals of Rs. 1 crore and above have to be placed before New Business Group. New Business Group Committee has been formed in Zonal Offices where they will take up all fresh proposals above Rs. 1 cr and upto Rs. 5 cr in AGM headed Zones and above Rs.1 cr and upto Rs. 10 cr in Zones headed by DGMs and GMs. Over and above the limits specified, fresh proposals have to be forwarded to CO level New Business Group.

Clearance of New Business Group Committee shall be obtained for new proposals of only new borrowers seeking credit facilities above Rs 10 crores and the same is not required in case of existing borrowers seeking enhancement in limits. Clearance accorded by New Business Group Committee shall be valid for a period of 90 days only. NBG clearance is only in principle approval for evincing interest in the proposal. Sanction is subject to compliance of banks policy guidelines. NBG proposals for Infrastructure lending, the same shall be referred to Corporate Office only, irrespective of the exposure. NBG proposals involving exposures above Rs 10 crores and upto the powers of COLCC (GM) , COLCC (GM) committee at Corporate office will consider the in principle clearance. In respect of exposures falling under the powers of COLCC(ED) and above, NBG committee at corporate office will consider the in principle clearance. However, in case of takeover of accounts where enhancement beyond 50% in the first year of shifting of the account and thus the exposure exceeds Rs 10 crores, the proposal shall be referred to NBG. Any increase in exposure after One year from the date of takeover will be considered as a normal enhancement. No enhancement is permitted along with takeover , other than for capital expenditure like expansion of the units, purchase of new plant and machinery etc


x

Existing(2013-14) Modified For the group accounts of existing satisfactorily conducted accounts, NBG clearance is not needed. In other cases i.e., fresh exposures to Companies / Firms / Groups with External Rating (Bank loan rating) of “AA” and above, no NBG approval is necessary.

Poultry Proposals: (iii) Fresh proposals for new units and fresh / enhancement proposals above Rs.2.00 Cr in case of integration / contract farming and existing units going for expansion , Zonal Managers shall obtain case by case approval from Corporate Office as follows:

a. Administrative clearance for each proposal (Fresh/ enhancement alone) up to Rs.2 Cr shall be accorded by COLCC (GM)

b. Administrative clearance for each proposal (Fresh/ enhancement alone) between Rs.2 Cr up to Rs.10 Cr will require clearance from CO :Credit Steering Committee through CO:RBD. On recommendation by CO: CSC the proposals are to be sanctioned by appropriate sanctioning authority at CO/ZO.

(iii) Fresh proposals for new units and fresh / enhancement proposals above Rs.2.00 Cr in case of integration / contract farming and existing units going for expansion , Zonal Managers shall obtain case by case approval from Corporate Office as follows:

a. Administrative clearance for each proposal (Fresh/ enhancement alone) above Rs. 2 cr and up to Rs.10 Cr shall be accorded by COLCC (GM)

Discussion with borrowers: It is reiterated that the proposed ROI / Margin / Securities / Specific or general terms and conditions must be discussed with the applicant and a specific confirmation from ZM in the covering letter of the proposal, that the proposed terms have the consent of the applicant, must be submitted

It is reiterated that the proposed ROI / Margin / Securities / Specific or general terms and conditions including Pre-disbursement and Post-disbursement conditions must be discussed with the applicant and a specific confirmation from ZLCC in the covering letter of the proposal, that the proposed terms have the consent of the applicant, must be submitted

c. Integrity and r eputation of the borrower

c. Due diligence on the borrower/guarantor/group. Addition: k.Pancard details l. Din/Father’s name. m. Verification of CIBIL Detect n. Market information on Promoter(s)


xi

Existing(2013-14) Modified /company/firm/group companies / firms

MPBF: ( Existing ) Presently MPBF method is worked out after deducting the Export Receivables. As under: Gross CAs ( Exl.Export Receivables ) - A Less: CLs other than Bank Borrowings: B WCG ( A-B) : C Less: 25% Margin on A.: D Actual /projected NWC : E C – D : F C – E : G MPBF : F or G which ever is Lower

MPBF ( Suggested ): Gross CAs : A Less : CLs other than Bank Borrowings : B WCG ( A – B ) : C Less: 25% margin on A other than Exp. Receivables : D Actual /projected NWC : E C – D : F C – E : G MPBF : F or G which ever is Lower

For NBFCs -- DER not applicable For NBFCs -- DER & Current Ratio not applicable

Joint appraisal system introduced would continue to be effectively practised for high value loans to reduce the time taken for conveying the decision.

Joint appraisal system introduced would continue to be effectively practised for high value loans (above Rs 5 crs ) to reduce the time taken for conveying the decision

Proposal for Fresh sanction / Review / Renewal/ /Enhancement of limits of Rs.1.00 Crore and above should be submitted in the Board format and all the columns should be filled with specific information.

(a) Proposal for Fresh sanction/Renewal/ /Enhancement of limits of Rs.1.00 Crore and above should be submitted in the Board format and all the columns should be filled with specific information. (b) All requests for Adhoc limits / Excesses / Finer Rate of Interest / One time requests etc. shall be submitted by branches in CO prescribed format along with Cost Benefit Analysis, wherever applicable. (c) Review of term loans will be undertaken by Credit Monitoring Cell (CMC) at corporate office/zonal office depending on the sanction powers as per the structured format to be circulated by CO CMC.

The Bank will keep in view as to whether the names of the borrowing entity/ Guarantors/Directors / Partners/Trustees of the borrowing entity are listed in the caution list / defaulter’s list circulated by RBI/ CIBIL/ECGC.

The Bank will keep in view as to whether the names of the borrowing entity/ Guarantors/Directors / Partners/Trustees of the borrowing entity are listed in the latest caution list / defaulter’s list circulated by RBI / ECGC (SAL). Reports of CIBIL and EXPERIAN are to be verified


xii

Existing(2013-14) Modified for Personal loan products. Detailed guidelines are furnished in CO Cir. PBD. 53 dt. 05.08.2013 and Adv.114/2013-14 dt. 22.01.2014. For other category of borrowers CIBIL reports are to be verified.

For Borrowers / Guarantors/ Directors/Partners/Trustees appearing in the Defaulters’ list of RBI non-suit filed accounts, fresh sanction/enhancement of the limit/review/renewal shall be considered first time at CO by functional GM on merits. The respective sanctioning authority shall consider subsequent review/renewal/enhancement.

For Borrowers / Guarantors/ Directors/Partners/Trustees appearing in the Defaulters’ list of RBI non-suit filed accounts, fresh sanction/enhancement of the limit/review/renewal shall be considered first time at CO COLCC(GM) on merits, upto its powers and respective sanctioning committee at CO for others. Subsequent review / renewal / enhancement shall be considered by the committee based on the exposure.

d. If the names of borrower / Guarantor/ partner/ director / company(trustee appear in the Specific Approval List (SAL) of ECGC, prior permission from ECGC may be obtained for insurance coverage. The functional General Manager at CO shall consider fresh sanction / enhancement of the limit / review / renewal first time on merits. The respective sanctioning authority shall consider subsequent review/renewal/enhancement.

d. If the names of borrower / Guarantor/ partner/ director / company(trustee appear in the Specific Approval List (SAL) of ECGC, prior permission from ECGC may be obtained for coverage. Administrative clearance from COLCC (GM) to be obtained to consider fresh sanction / enhancement of the limit / review / renewal on merits by the respective sanctioning authority.

Techno economic viability forms an integral part of credit appraisal for manufacturing companies and other projects. All the credit proposals for the manufacturing segment (fresh/additional/expansion) for limits of more than Rs.1 crore shall be accompanied by IDO’s report on the technical viability of the proposal

All the credit proposals for the manufacturing segment (fresh/additional/expansion) for limits of more than Rs.1 crores and upto Rs 5 crores shall be accompanied by IDO’s report. For the limits beyond Rs 5 crores TEV study from a reputed agency has to be obtained. Zonal offices should identify and empanel such agencies .In case of non availability of services of IDO for any reason, the TEV study report can be obtained. The performance of the above empanelled agencies may be reviewed by zonal offices once in a year

Provident Fund, Employees State Insurance Corporation, CENVAT, Sales Tax, Income Tax, Labour Dues are paid up to date. Branches shall obtain a Certificate from an independent

Provident Fund, Employees State Insurance Corporation, CENVAT, Sales Tax, Income Tax, Labour Dues are paid up to date. Branches shall obtain a Certificate from an independent Company


xiii

Existing(2013-14) Modified Company Secretary or from a Chartered Accountant to this effect on a yearly basis, for the borrowal accounts of Rs. 5 crores and above submitted to sanctioning authority .

Secretary or from a Chartered Accountant to this effect on a yearly basis, for the borrowal accounts of Rs. 5 crores and above, and keep the same on record after verification.

Addition The audited balance sheet received from the customers are to be sent to respective chartered accountants/chartered accountants firms through registered post/speed post and seek their confirmation in writing with regard to the genuineness of the same. If no reply is received within 15 days from the date of receipt at their end it should be construed that the same are genuine. The above time frame should be indicated in the letter addressed to the Chartered accountants/Chartered accountants firm. Further ROC site is also to be verified in all the cases where the filings by the borrowers is mandatory and record of such verifications shall be kept on the records .

Unsecured Loans from promoters, if treated as quasi equity for arrival of tangible net worth, shall be supported by obtention of letter of pegging. The unsecured loan shall not be withdrawn during the pendency of the loan. Under exceptional cases, withdrawal shall be permitted only with the prior consent of the sanctioning authority provided leverage ratios conforms to the standard financial norms

Unsecured Loans from promoters/relatives/friends can be considered as quasi-equity to a maximum of 100% of the capital .The same comes into effect from 1.04.2014.However, if USLs are treated as quasi equity for arrival of tangible net worth, the same shall be supported by obtention of letter of pegging. The unsecured loan shall not be withdrawn during the pendency of the loan. Under exceptional cases, withdrawal shall be permitted only with the prior consent of the sanctioning authority provided leverage ratios conforms to the standard financial norms / stipulated financial covenants. Interest on unsecured loan, if any, shall not be more than rate of interest stipulated by bank. An undertaking from the borrower to this effect is to be obtained.

Only Sanctioning Authorities at Corporate Office can sanction Bridge Loan.

Bridge Loans can be sanctioned only by Management Committee of Board


xiv

Existing(2013-14) Modified For other type of term loans under infrastructures, Functional GMs at CO and above shall approve repayment upto 20 years (including the holiday period/implementation period) within their delegated powers. Proposals exceeding 20 years of repayment shall be taken up with ED for in-principle approval.

For other type of term loans under infrastructures, COLCC(GM) and above at CO and above shall approve repayment upto 25 years (including the holiday period/implementation period) within their delegated powers.

Take over policy of Borrowal accounts General Account should have recorded net profit after tax for the previous two years out of 3 years and business conditions to indicate improvement in profitability, unless the account is in operation for less than three years.

CIBIL Detect information to be verified. Account should have recorded net profit after tax in the previous year and at least two years out of last 3 years

No concessionary facility to be extended along with take over. The CMD/ED of the bank taking over the account should declare whether he / she was part of the decision making process in sanction of loan during his previous assignment in the Bank where the account/s is migrating from. All cases where the current incumbent being CMD/ED has been part of decision making process as above, prior approval of the Board of Directors should be taken to take over such accounts.

Take over of accounts from Co-operative Banks and OTS settled accounts with other banks is not permitted irrespective of nature of the facility. Takeover guidelines will be applicable to an entity which has closed their liability with their existing bankers before three months period. However such facilities need not classified as takeover accounts.If the sanction is after three months of closure of the liability with other banks, the same need not be considered as takeover subject to ensuring due diligence. No enhancement is permitted along with takeover, other than for capital expenditure like expansion of the units, purchase of new plant and machinery etc The powers for takeover of accounts, other than the exempted categories of accounts mentioned in the above paragraph, as per Credit and Credit related administrative powers booklet dated 16.08.2013, Chart V S.NO XIII, Page NO AP7 shall continue. Takeover accounts should be rated externally by any of the approved agencies (SMERA in case of SMEs) and rating shall not be less than BBB (+/-).


xv

Existing(2013-14) Modified In case of take over of accounts from erstwhile bank/s of CMD/ED and the said authority was a part of the decision making process in sanction of the loan in that bank, the same should be recorded and prior approval of the Board of Directors should be taken to take over such accounts.

While considering take-over of borrowal accounts, it is preferable that all facilities of the borrower (instead of select facilities) are taken over from the existing banks. Part of the limits can also be considered for take-over subject to all the facilities being in order with the present banker, and securities for the respective facilities proposed for take-over, as per our Bank's policy. Wherever part take over is done, NOC from the existing bankers is essential.

While considering take-over of borrowal accounts, all facilities of the borrower (instead of select facilities) should be taken over from the existing banks.

Takeover from Cooperative bank Take over from cooperative bank is not permitted .

Relaxation in Takeover norms c More than two of

the stipulated norms COLCC(ED)/ CAC for proposals falling within their powers and MC for accounts under MC powers. d OTS sanctioned

accounts by other banks

e Where Promoter’s name figures in defaulter’s list of RBI / CIBIL / SAL Takeover of restricted category accounts (Other than wilful defaulters) except accounts under OTS as per Takeover norms

MC

Not Permitted

Take over guidelines for home loans from Co-operative Bank and Co-operative Societies

Deleted

Field level functionaries are not having powers for take over of accounts under OTS settlement. The same shall be considered at Corporate Office by COLCC(ED) and above. In respect of customers intending to go for/settling

Deleted


xvi

Existing(2013-14) Modified dues as a one-time settlement with financial institutions / other banks with an intention to bring down the cost of borrowings, our Bank may consider sanction of fresh term loan on a selective basis Take over of Home loan accounts from other Banks/Financial Institutions/Cooperative societies The repayment period can be extended beyond the period sanctioned by the original lender subject to a maximum of 20 years including the period already run in the existing institution

Take over of Home loan accounts from other Banks/Financial Institutions The repayment period can be extended beyond the period sanctioned by the original lender subject to a maximum of 25 years including the period already run in the existing institution

Addition Corporate Loan: One of the favoured strategies for building up lending volumes is to step up short-term exposures to good corporates with sound financials characterized by healthy cash flows operating in industries/sectors showing signs of vitality and growth. Corporate Loan request can be considered only on selective basis to existing above BBB rated customers and the same should be restricted to 10% of the working capital facility if the purpose of the loan is to improve the NWC. The power to consider corporate loan is vested with Corporate Office level committees. Repayment should be supported by cash flows/DSCR and the repayment of corporate loan for NWC improvement should be restricted to 3 years. Corporate Loan should have the Fresh additional security ( over and above the existing securities) support with appropriate margins. Any Relaxation in additional securities for corporate loan is to be permitted only by CAC. Personal guarantee of Directors Should be made available for the corporate loan. In the case of CDR restructured accounts, the corporate loan can be considered by the respective sanctioning authority as per


xvii

Existing(2013-14) Modified the terms of the Final Package of the Monitoring Institution subject to approval of CDR.

Line of credit The facility shall be permitted only to PSUs and blue chip companies which are rated ‘A’ and above falling under the powers of COLCC(ED) / CAC / MCB. End use should be ensured in all sanctions/disbursements. However, MCB shall be authorized to permit relaxation in credit rating on case to case basis.

Line of credit The facility shall be permitted only to PSUs and blue chip companies which are rated ‘A’ and above falling under the powers of COLCC(ED) / CAC / MCB. End use should be ensured in all sanctions/disbursements. However, CAC shall be authorized to permit relaxation in credit rating on case to case basis. The period shall be a maximum of 1 year These facilities shall be unconditionally cancellable in case of non-availment.

Addition Obtaining of Quotes for STL: For the limits falling up to the powers COLCC(ED), COLCC(ED) will approve the quotes. For other accounts falling under the powers MC and CAC, CAC will approve the quotes. The request for obtaining quotes should be submitted in the format for adhoc limits as per Annexure 8.

Addition Secured Overdraft (SOD) can be considered only for specific segments – Trade, services/contractors/SME . Sanction powers of SOD limits for branch managers stands withdrawn .It can be considered only by ZLCC and above. Secured Overdraft facility may be sanctioned only after due assessment working capital requirement based on the past performance and projections and as per the normal method of assessment approved in the Risk management policy.

Unit visit by Zonal Offices : Threshold limit for fresh credit proposals of Rs. 2 crs and above and below Rs. 5 crs – Any other dealing officer

Official nominated by Zonal Manager

To mitigate the operational risk arising on account of documentation defects, the system of ‘Pre – Release Audit’ is in place for all advances (fresh or enhancement) of Rs. 10 lakhs and above. Pre release audit, as per

8.56.7 Pre Release Audit : Pre release audit to be ensured as per the guidelines in risk management policy


xviii

Existing(2013-14) Modified guidelines in force shall be completed before disbursal of the advances. In Corporate Branches/Credit Intensive Branches where the service of a Concurrent Auditor is available, the pre-release audit shall be carried out by the respective Concurrent Auditor. For other Branches, the services of the inspection centre officials/ officer of the same branch conversant with credit portfolio but not working in the credit department /nearby branch loan’s officer/Zonal Office loan’s officer shall be utilized. To improve the credit disbursals by the Branches, the following guidelines are issued. Immediately on receipt of sanction letters and completion of documentation, Zonal Office/Branch has to arrange for pre-release audit on the same day. Pre-release audit exercise should be completed within 24 hours. For PSLP advances of Rs 10 lakhs &above and less than Rs 50 lakhs,the pre release audit may be carried out by officers other than processing officer/s & Sanctioning authority. If the pre-release audit report is an unqualified one, Corporate / Credit Intensive Branch Managers are empowered to release the limits strictly as per the sanction terms and draw down schedule without waiting for permission from the respective Zonal Manager and report it to Zonal Manager. b. Monthly meeting of all CMO’s at the respective Zonal Offices for review of accounts of Rs. 1 crores and above.

- deleted e. All SMA category accounts are to be monitored through Special Mention Account (SMA) system for recovery of overdues. f. Framework for Revitalising Distressed Assets in the Economy – Guidelines on Joint Lenders’ Forum (JLF) and Corrective Action Plan (CAP); Framework for Revitalising Distressed Assets in the Economy - Refinancing of Project Loans and Other Regulatory Measures as per annexure 5 and 6 (RBI circular 97 & 98 dated 26.02.2014 ) are to be followed .Detailed guidelines will be issued CO


xix

Existing(2013-14) Modified Credit Monitoring Cell .

S. No

Amount

1.

Corporate Branches

Accounts with limits of Rs. 5 Crores without any ceiling

2 Credit intensive branches

Above Rs 1 crs upto maximum of 50 crs

3 Selct Metro Commercial branches

Propsal of less than Rs 10 crs per borrowal account

4 Other branches Upto Rs.1 crore

Branch Segmentation Towards achieving the above objectives and ensuring asset qualities and to cut short the process time/delay it has been now decided as under:

i. In each of the urban and metro centre a minimum of one designated branch will be identified by zonal offices for handling high value proposals (more than Rs 5 crores)

ii. All high value proposals (more Rs 5 crores) will be subjected to joint appraisal with branch and zonal office.

iii. All proposals of Rs 50 crores and above shall be emanated from the presently designated credit intensive/corporate branches only. Any further identification shall be done by Corporate office based on the requirement.

Per Borrowal Accounts with exposure of more than Rs. 50 crores are to be handled at Corporate Branches only. All the account above Rs. 10 crores handled at Commercial /Personal Banking branches should be transferred to Corporate / Credit Intensive Branches after explaining the rationale to the borrowers and taking their consent for such transfer.

All accounts should be renewed once in a year .

Generally, all working capital accounts should be renewed normally for a period one year and request for renewal for more than one year with annual review shall be considered by various sanctioning authorities as detailed at point 8.91 of this policy. Term loan accounts will be reviewed as per the structured format devised by Credit Monitoring Cell (CMC).

a. All accounts should be renewed once in a year. Hence Branches should collect the required data for taking up renewal three months before the due date of renewal to ensure obtention sanction in time. In case of C & CC rated accounts the accounts should be reviewed as per Credit Risk Management Policy 2013-14 on a quarterly basis. b. With a view to simplify and decentralize the review process which

a. All working capital accounts should be renewed once in a year. Term loan accounts will be reviewed as per the structured format devised by Credit Monitoring Cell (CMC).Hence Branches should collect the required data for taking up renewal three months before the due date of renewal to ensure obtention sanction in time. In case of C & CC rated accounts the accounts


xx

Existing(2013-14) Modified only involves review of regularity of repayment of installment /interest, implementation of the project and actual cash flow generation vis-à-vis projections and where the account is Standard and rated ‘BBB’ and above, it is proposed that half yearly review of Working capital sanctioned by various sanctioning authorities at C.O. shall be done by Functional GM at CO. However, annual review of Term Loan /renewal of working capital limits and short review shall be done by respective sanctioning authorities.

should be reviewed as per Credit Risk Management Policy 2014-15 on a quarterly basis.

b. Guarantees are to be periodically monitored at the time of review / renewal by obtaining progress /status report on the accomplishment of the purpose for which the non-fund based facility is sanctioned.

Release Of security If direct/indirect liability in group account exists. (on complete adjustment of account)

For all accounts under the powers of MC/COLCC(ED)

CAC

For other accounts:

Sanctioning authorities at the level of ZLCC and above

If direct/indirect liability in group account exists. (on complete adjustment of account)

All CO sanctioned accounts

COLCC(GM)

For other accounts:

ZLCC

Periodic unit inspection of goods secured under KCC/OCC/PC to be carried out ascertain end use of funds .

Wherever we are sole banker, inspection of goods secured under KCC/OCC/PC is to be carried out on monthly/quarterly or periodicity decided by the sanctioning authority on rotation basis to ascertain of end use of funds. The unit inspection also should cover the availability and condition of the fixed assets financed by bank, random verification of book debts and comparison of stock statements/ receivables with books of the company. In the case of consortium/ multiple banking accounts, the unit inspection should be carried out on rotation basis as decided by members. Unit inspection for term loans: Unit inspection at least once in a year to be conducted

Addition The date of receipt of comprehensive proposal at branch is to be noted and furnished in the proposals submitted to ZO/CO without fail .Due acknowledgement is to be issued to the applicants.


xxi

Existing(2013-14) Modified

Bank is extending loans and advances to Corporate customers at concessional interest rates which are much below the discounted card rate of interest. In such of those cases where concession in interest are considered, interest to be charged at monthly rests with monthly compounding. This is applicable for the accounts (other than agriculture / Govt sponsored Schemes) where finer rate of interest is considered. Sanctioning authorities to clearly mention in the sanction ticket whether the interest is to be compounded monthly or quarterly (both in respect of fixed and floating rate accounts).

Charging Interest on Monthly compounding basis : Interest to be charged at monthly rests with monthly compounding. This is applicable for all the accounts –fresh/ review/ renewal/ enhancement/ reset. (Other than agriculture / Govt sponsored Schemes/ exempted category). Sanctioning authorities to clearly mention in the sanction ticket with respect to charging of interest on monthly compounding basis (both in respect of fixed and floating rate accounts) .

Presently the following authorities have been delegated the powers for allowing concession in rate of interest :

FUNCTIONARY AUTHORISED TO ALLOW CONCESSION

Maximum concessional rate of interest that can be permitted ( other than advances against bank deposits /nre/ fcnr(b) deposits ) - rate to be charged for the borrowers including tenor premium.

COLCC (ED)

Upto minimum of Base Rate

COLCC (GM)

Upto Base Rate +3.00%

ZLCC (GM) Upto Base Rate +4.00% ZLCC (DGM/AGM)

Upto Base Rate +4.50%

II. IBN Finer rate of interest: For IBN finer rate of interest can be permitted only after obtaining approval from Funds and Investment Committee at Corporate Office III. The above concessions in rate of interest is applicable for all loans including structured loan products.

As per interest rate policy to be circulated .

Addition The unavailed limits are cancellable unconditionally. Recovery of EM charges/CIBIL/EXPERIAN report charges as per extant guidelines. Recovery of service charges towards CERSAI registration shall be recovered @


xxii

Existing(2013-14) Modified Rs. 500/-+ applicable Service Tax, shall be recovered per each document / property registered.

The respective sanctioning authority shall be the authority to revalidate for sanctions under the powers up to COLCC(ED) and CAC shall be the authority to revalidate for the CAC/MC sanctioned accounts

Revalidation upto 3 months can be permitted by the respective sanctioning authority for accounts sanctioned upto the powers of ZLCC. For accounts sanctioned beyond ZLCC powers, revalidation can be permitted by COLCC (GM) for 6 months in case of Infrastructure projects and up to 3 months in all other cases. Further revalidation for all accounts shall be permitted only by the respective sanctioning authority. If the revalidation is with change/s in sanction terms, such revalidation shall be permitted only by respective sanctioning authority.

Though the exposure in respect of certain categories (as indicated in (a) and (b) above) are not a Commercial Real Estate exposure based on the new definition: the powers for considering further exposure under these sectors shall be restricted to CO as detailed in the Credit Risk Management Policy

a) The exposure to certain erstwhile CRE categories, administrative clearance from corporate office is necessary as detailed in CRM policy.


1

1. PREAMBLE 1.1 Linkage to Credit Risk Management Policy 2014-15 The Policy document prepared during the current year has linkage with Credit Risk Management Policy 2014-15 in respect of the various standards such as, Standards for collaterals, Exposure limits fixed to various sectors / industries, Rating-wise exposures, Single Borrower and Group Borrower exposures, Substantial exposures. The field level functionaries should use both the Credit Risk Management Policy 2014-15 and Loan Policy document 2014-15 for their day-to-day operations. 1.2 Policy for Micro, Small and Medium Enterprises (MSMEs) As per requirements under Code of Bank’s commitment, Policy for Micro, Small and Medium Enterprises, is separately given as Annexure 1, page No. 113 and the same shall form part of the Bank’s Loan Policy for the year 2014-15. 2. GOVERNMENT GUIDELINES: 2.1 Revised Priority Sector Lending-Targets and Cla ssification-Guidelines RBI vide their circular RBI/2013-14/107.RPCD.CO.plan.BC 9/04.09.01/2013-14 dated July 01, 2013 has communicated the revised guidelines and the same have been given immediate effect. I. Categories under revised priority sector guideli nes are:

I. Agriculture II. Micro and Small Enterprises

III. Education IV. Housing V. Export Credit

VI. Others II. Targets /Sub-targets for Priority sector In terms of RBI guidelines, the targets and sub-targets under priority sector lending would be linked to Adjusted Net Bank Credit (Net Bank Credit plus investments made by banks in non-SLR bonds held in HTM category) or Credit Equivalent amount of Off Balance Sheet Exposures whichever is higher, as on March 31st of the previous year. The targets and sub-targets set under priority sector lending for domestic and foreign banks operating in India are:

Categories Targets /Sub -targets

Total Priority Sector 40 percent of Adjusted Net Bank Credit [ANBC defined in sub paragraph (iii) below] or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher.


2

Total agriculture 18 percent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher.

Of this, indirect lending in excess of 4.5% of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher, will not be reckoned for computing achievement under 18 percent target. However, all agricultural loans under the categories 'direct' and 'indirect' will be reckoned in computing achievement under the overall priority sector target of 40 percent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher.

Micro & Small Enterprises (MSE)

(i) Advances to micro and small enterprises sector will be reckoned in computing achievement under the overall priority sector target of 40 percent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher. (ii) 40 percent of total advances to micro and small enterprises sector should go to Micro (manufacturing) enterprises having investment in plant and machinery up to Rs 10 lakh and micro (service) enterprises having investment in equipment up to Rs 4 lakh; (ii) 20 percent of total advances to micro and small enterprises sector should go to Micro (manufacturing) enterprises with investment in plant and machinery above Rs 10 lakh and up to Rs25 lakh, and micro (service) enterprises with investment in equipment above Rs4 lakh and up to Rs10 lakh.

Export Credit Export credit is not a separate category. Export credit to eligible activities under agriculture and MSE will be reckoned for priority sector lending under respective categories.

Advances to Weaker Sections

10 percent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher.

The above targets are subject to change of any fresh guidelines/directives given by RBI/GOI.

III Description of the Categories under priority se ctor 1. Agriculture 1.1. Direct Agriculture Loans to individual farmers [including Self Help Groups (SHGs) or Joint Liability Groups (JLGs), i.e. groups of individual farmers, provided banks maintain disaggregated data on such loans] engaged in Agriculture and Allied Activities, viz., dairy, fishery, animal husbandry, poultry, bee-keeping and sericulture (up to cocoon stage).


3

I. Short-term loans to farmers for raising crops, i.e. for crop loans. (This will include traditional/non-traditional plantations, horticulture and allied activities)

II. Medium & long-term loans to farmers for agriculture and allied activities (e.g. purchase of agricultural implements and machinery, loans for irrigation and other developmental activities undertaken in the farm, and development loans for allied activities).

III. Loans to farmers for pre-harvest and post-harvest activities, viz., spraying, weeding, harvesting, sorting, grading and transporting of their own farm produce.

IV. Loans to farmers up to Rs.50 lakh against pledge/hypothecation of agricultural produce (including warehouse receipts) for a period not exceeding 12 months, irrespective of whether the farmers were given crop loans for raising the produce or not.

V. Loans to small and marginal farmers for purchase of land for agricultural purposes.

VI. Loans to distressed farmers indebted to non-institutional lenders. VII. Bank loans to Primary Agricultural Credit Societies (PACS), Farmers’ Service

Societies (FSS) and Large-sized Adivasi Multi Purpose Societies (LAMPS) ceded to or managed/ controlled by such banks for on lending to farmers for agricultural and allied activities.

VIII. Loans to farmers under Kisan Credit Card Scheme. IX. Export credit to farmers for exporting their own farm produce.

Bank loans to following entities would also qualify for lending to Direct agriculture:- Loans to corporate, including farmers, producer companies of individual farmers, partnership firms and co-operatives of farmers directly engaged in Agriculture and Allied Activities, viz., dairy, fishery, animal husbandry, poultry, bee-keeping and sericulture (up to cocoon stage) up to an aggregate limit of Rs.2 crore per borrower for the following purposes. (i) Short-term loans for raising crops, i.e. for crop loans.

(This will include traditional/non-traditional plantations, horticulture and allied activities)

(ii) Medium & long-term loans for agriculture and allied activities (e.g. purchase of agricultural implements and machinery, loans for irrigation and other developmental activities undertaken in the farm, and development loans for allied activities).

(iii) Loans for pre-harvest and post-harvest activities, viz., spraying, weeding, harvesting, grading and sorting.

(iv) Export credit for exporting their own farm produce. 1.2. Indirect agriculture 1.2.1. Loans to corporate, partnership firms and in stitutions engaged in Agriculture and Allied Activities [dairy, fishery, animal husbandry, poultry, bee-keeping and sericulture (up to cocoon stage)]


4

(i) Short-term loans for raising crops, i.e. for crop loans (more than Rs 2 crores).This will include traditional/non-traditional plantations, horticulture and allied activities.

(ii) Medium & long-term loans for agriculture and allied activities (e.g. purchase of agricultural implements and machinery, loans for irrigation and other developmental activities undertaken in the farm, and development loans for allied activities) [ more than Rs 2 crores].

(iii) Loans for pre –harvest and post-harvest activities such as spraying , weeding, harvesting, grading and sorting (more than Rs.2.crs)

(iv) Loans up to Rs 50 lakh against pledge / hypothecation of agricultural produce (including warehouse receipts) for a period not exceeding 12 months, irrespective of whether the farmers were given crop loans for raising the produce or not.

(v) Export credit to corporate, partnership firms and institutions for exporting their own farm produce ( more than Rs 2 crores)

(vi) Loans upto Rs 5 crore to Producer Companies set up exclusively by only small and marginal farmers under Part IXA of Companies Act, 1956 for agricultural and allied activities.

(vii)Bank loans to Primary Agricultural Credit Societies (PACS), Farmers’ Service Societies (FSS) and Large-sized Adivasi Multi Purpose Societies (LAMPS) other than those covered under paragraph III (1.1) (vii) of this circular.

1.2.2. Other indirect agriculture loans

i. Loans up to 5 crore per borrower to dealers /sellers of fertilizers, pesticides, seeds, cattle feed, poultry feed, agricultural implements and other inputs.

ii. Loans for setting up of Agriclinics and Agribusiness Centres iii. Loans up to 5 crore to cooperative societies of farmers for disposing of the

produce of members. iv. Loans to Custom Service Units managed by individuals, institutions or

organizations who maintain a fleet of tractors, bulldozers, well-boring equipment, threshers, combines, etc., and undertake farm work for farmers on contract basis.

v. Loans for construction and running of storage facilities (warehouse, market yards, godowns and silos), including cold storage units designed to store agriculture produce/products, irrespective of their location. If the storage unit is a micro or small enterprise, such loans will be classified under loans to Micro and Small Enterprises sector

vi. Loans to MFIs for on-lending to farmers for agricultural and allied activities as per the conditions specified in the RBI Master Circular.

vii. Loans sanctioned to NGOs, which are SHG Promoting Institutions, for on-lending to members of SHGs under SHG-Bank Linkage Programme for agricultural and allied activities. The all inclusive interest charged by the NGO/SHG promoting entity should not exceed the Base Rate of the lending bank plus eight percent per annum

viii. Loans sanctioned to RRBs for on-lending to agriculture and allied activities

2. Micro and small enterprises 2.1.1 The limits for investment in plant and machinery/equipment for manufacturing / service enterprise, as notified by Ministry of Micro Small and Medium Enterprises, vide, S.O.1642(E) dated September 29, 2006 are as follows:-


5

Manufacturing sector Enterprises Investment in plant and machinery Micro Enterprises

Do not exceed twenty five lakh rupees

Small Enterprises

More than twenty five lakh rupees but does not exceed five crore rupees

Service Sector Enterprises Investment in equipment Micro Enterprises

Does not exceed ten lakh rupees

Small Enterprises

More than ten lakh rupees but does not exceed two crore rupees

2.1.2. Service Enterprises Bank loans up to Rs 5 crore per unit to Micro and Small Enterprises engaged in providing or rendering of services and defined in terms of investment in equipment under MSMED Act, 2006. 2.1.3. Export credit to MSE units (both manufacturing and services) for exporting of goods/services produced by them. 2.1.4. Khadi and Village Industries Sector (KVI) All loans sanctioned to units in the KVI sector, irrespective of their size of operations, location and amount of original investment in plant and machinery. Such loans will be eligible for classification under the sub-target of 60 percent prescribed for micro enterprises within the micro and small enterprises segment under priority sector. 2.2. Indirect Finance

i. Loans to persons involved in assisting the decentralized sector in the supply of inputs to and marketing of outputs of artisans, village and cottage industries.

ii. Loans to cooperatives of producers in the decentralized sector viz. artisans village and cottage industries.

iii. Loans sanctioned by banks to MFIs for on-lending to MSE sector as per the conditions specified by RBI.

3. Education Loans to individuals for educational purposes including vocational courses upto Rs 10 lakh for studies in India and Rs 20 lakh for studies abroad. 4. Housing

i. Loans to individuals up to Rs 25 lakh in metropolitan centres with population above ten lakh and Rs 15 lakh in other centres for purchase/construction of a dwelling unit per family excluding loans sanctioned to bank’s own employees.

ii. Loans for repairs to the damaged dwelling units of families up to Rs 2 lakh in rural and semi- urban areas and up to Rs 5 lakh in urban and metropolitan areas.


6

iii. Bank loans to any governmental agency for construction of dwelling units or for slum clearance and rehabilitation of slum dwellers subject to a ceiling of Rs 10 lakh per dwelling unit. The loans sanctioned by banks for housing projects exclusively for the purpose of construction of houses only to economically weaker sections and low income groups, the total cost of which do not exceed Rs 10 lakh per dwelling unit. For the purpose of identifying the economically weaker sections and low income groups, the family income limit of Rs 1, 20,000 per annum, irrespective of the location, is prescribed.

iv. Bank loans to Housing Finance Companies (HFCs), approved by NHB for their refinance, for on-lending for the purpose of purchase/construction/reconstruction of individual dwelling units or for slum clearance and rehabilitation of slum dwellers, subject to an aggregate loan limit of Rs.10 lakh per borrower, provided the all inclusive interest rate charged to the ultimate borrower is not exceeding lowest lending rate of the lending bank for housing loans plus two percent per annum.

5. Export Credit Export Credit extended by foreign banks with less than 20 branches will be reckoned for priority sector target achievement. As regards the domestic banks and foreign banks with 20 and above branches, export credit is not a separate category under priority sector. Export credit mentioned under paragraphs (III) (1.1) (ix), (III) (1.2.1) (v) and (III) (2.1.3) of this circular will count towards the respective categories of priority sector, i.e. Agriculture and MSE sector. 6. Others a. Loans, not exceeding Rs 50,000/- per borrower provided directly by banks to individuals and their SHG/JLG, provided the borrower’s household annual income in rural areas does not exceed Rs 60,000/- and for non-rural areas it should not exceed Rs 1,20,000/-. b. Loans to distressed persons [other than farmers-already included under III (1.1) (vi)] not exceeding Rs 50,000/- per borrower to prepay their debt to non-institutional lenders. c. Loans outstanding under loans for general purposes under General Credit Cards (GCC). If the loans under GCC are sanctioned to Micro and Small Enterprises, such loans should be classified under respective categories of Micro and Small Enterprises. d. Overdrafts, up to Rs 50,000/- (per account), granted against 'no-frills' / basic banking / savings accounts provided the borrowers household annual income in rural areas does not exceed Rs 60,000/- and for non-rural areas it should not exceed Rs 1,20,000/-. e. Loans sanctioned to State Sponsored Organisations for Scheduled Castes/ Scheduled Tribes for the specific purpose of purchase and supply of inputs to and/or the marketing of the outputs of the beneficiaries of these organisations. f. Loans sanctioned by banks directly to individuals for setting up off-grid solar and other off-grid renewable energy solutions for households.


7

IV Weaker Sections Priority sector loans to the following borrowers will be considered under Weaker Sections category:- (a) Small and marginal farmers; (b) Artisans, village and cottage industries where individual credit limits do not exceed Rs 50,000/-; (c) Beneficiaries of Swarnjayanti Gram Swarozgar Yojana (SGSY), now National Rural Livelihood Mission (NRLM); (d) Scheduled Castes and Scheduled Tribes; (e) Beneficiaries of Differential Rate of Interest (DRI) scheme; (f) Beneficiaries under Swarna Jayanti Shahari Rozgar Yojana (SJSRY); (g) Beneficiaries under the Scheme for Rehabilitation of Manual Scavengers (SRMS); (h) Loans to Self Help Groups; (i) Loans to distressed farmers indebted to non-institutional lenders; (j) Loans to distressed persons other than farmers not exceeding Rs 50,000 per borrower to prepay their debt to non-institutional lenders; (k) Loans to individual women beneficiaries upto Rs 50,000 per borrower; (l) Loans sanctioned under (a) to (k) above to persons from minority communities as may be notified by Government of India from time to time.

2.2 NON PRIORITY SECTOR: All other credit not covered under priority Sector including Medium Enterprises are considered as Non Priority Sector. 3 GROWTH PROJECTIONS: Credit Growth budget for 2014-15

Sector-wise credit targets are being finalised by Corporate Office (CO)/Department of Planning and Economic Research and will be placed to the Board for approval. On approval, the detailed segment-wise credit targets will become part of this Loan Policy for implementation during 2014-15. 4 TARGETED SECTORS FOR CREDIT GROWTH: 4.1 Thrust areas - Agriculture Credit:

a. Bank shall continue to provide thrust to improve lending to Revised KCC and Term loans for various agricultural and allied agricultural activities to increase clientele and volume of business.

b. Thrust shall be given for financing vulnerable farmers viz. Small and Marginal Farmers, Tenant Farmers, Share Croppers, Oral Lessees either directly or through Joint Liability Groups.

c. 2.5% of loan amount disbursed to new farmers shall be directed towards tenant farmers/share croppers/oral lessees.

d. Fresh/new farmers numbering at least 250 on an average per rural/semi urban Branch on incremental basis (excluding jewel loan) shall be covered.

e. Agricultural jewel loans for other than crop production purposes may also be encouraged.


8

f. Intensive financing shall be taken up for crop cultivation and investment purposes in areas where watershed development work is taken up by the State Governments concerned.

g. Thrust shall be given by the branches for Investment Credit ( Term Loans) under agriculture

h. Financing Agricultural export zones, food / Agricultural Park, units for export of dehydrated vegetables, organically grown food shall be given thrust.

i. Financing for setting up of water saving devices like DRIP, Sprinkler etc and Precision farming shall be encouraged and

j. Contract farming: Financial intermediation shall be encouraged in the field of contract farming for up scaling the outreach.

k. Intermediation by reputed Corporate Service providers of agriculture inputs/ technology shall be encouraged for enhancing volume. Loans under tie up arrangement (contract farming) with companies for cultivation of Bio-fuel plants, cultivation of medicinal plants, gherkins, oilseeds, horticultural crops etc., shall be given continued thrust.

l. Farm mechanization credit including credit for second hand tractors to be given for certified tractors which comply with Minimum Performance Standard norms shall be a thrust area. (certified by Central Farm Machinery Training and Testing Institute).

m. Financing Rural Godown /Cold Storages/Warehouses involving construction, expansion, modification or modernization or rehabilitation shall be encouraged.

n. Advances to input dealers in fertilizer, seed, farm machinery etc., shall be encouraged.

o. As per revised Priority Sector guidelines, advances to Food & Agro Based Processing Units comes under MSE sector

p. Agri. Clinics /Agri. Business centre scheme shall be marketed aggressively. q. Area Specific Potentials under agricultural sector shall be identified by the

Zones and special products shall be developed to garner the maximum potential. Focus branches for such special products shall be identified and necessary support including training shall be provided.

4.2 Retail Credit: As economy is getting stabilized globally and more particularly in our country, there is good scope for growth in retail credit. Our interest rates are competitive in the industry. There is good scope for increasing the credit under this sector despite market competition, customers’ preference and competitive pricing offered by the other bankers. For credit limit upto Rs 200 Lakhs (Priority sector), we have realigned interest rate, on competitive terms 4.3 Micro, Small and Medium Enterprises (MSMEs):

MSMEs are the most important economic proposition as it promotes growth with

equity and has potential for growth.As per the policy package pronounced by the Government of India for stepping up credit to MSME sector, a minimum of 20% year-


9

on-year growth is envisaged in credit to MSEs. Our Bank will continue to focus advancing to MSMEs. Within the MSME growth, the thrust area would be lending to viable units to Micro Enterprises to achieve 60% target prescribed by RBI. 4.4. Government Sponsored Schemes: Physical & financial targets allocated under various Government Sponsored Schemes like Swarna Jayanthi Gram Swarojgar Yojana (SGSY) now restructured as National Rural Livelihoods Mission (NRLM), Swarna Jayanthi Sahari Rojgar Yojana (SJSRY), Prime Minister’s Employment Generation Programme (PMEGP) should be achieved within stipulated time frame. While implementing, commitments under various sub targets (SC/ST, Women, minorities, physically handicapped) should also be accomplished All eligible accounts should be linked to subsidy processing in order to ensure that interest is not charged for the subsidy component. 4.5 DRI: Branches shall take advantage of increased quantum of loan amount (Rs.20,000/- for housing and Rs.15000/- for others), increased income ceiling for eligibility (Rs 18000/- p.a. for rural areas and Rs.24000/-p.a for urban areas) and eligibility under Indira Awaas Yojana (IAY) Housing Loan Scheme(beneficiaries are eligible for top up loan of up to Rs.20000/- which can be considered under DRI scheme subject to the borrower fulfilling DRI norms) 4.6 Minorities welfare : The Prime Minister’s new-15 Point program for the “Welfare of Minorities” envisages inter-alia encouraging credit flow to the minority communities. The GOI has decided to step up the lending to minorities to 15% of total priority sector advances by 2010-11 and the same should be continued subject to continuation of the scheme. Branches should sensitize minority communities on credit facilities available from our bank through appropriate media and ensure increased flow of credit to Minority communities. 4.7 Flow of Credit to SCs/STs : Special emphasis has to be given by the Branches to ensure adequate credit flow to SC/STs in all bankable schemes. If any application in respect of SCs/STs are to be rejected, it should be done by the controlling authority. 5. SELECTIVE FINANCING For Selective Financing please refer to Credit Risk Management Policy 2014-15


10

6. STRATEGIES FOR ENHANCING CREDIT FLOW 6.1 Agriculture Credit Priority Sector Lending: RBI has stipulated that advances to Priority Sector should form 40% of Adjusted Net Bank Credit of previous year. Accordingly, Priority Sector lending will be one of the focus areas for credit expansion. All branches located in rural/ semi-urban areas shall make all-out efforts to increase Priority Sector lending and achieve the stipulated level. Similarly, branches should focus attention on financing Self Help Groups, directly or by taking the assistance of NGOs, Block Development Offices, Municipalities and Corporations. 6.1.1 Zones shall conduct series of campaigns in cluster of Branches in such a way that a rural/semi - urban/urban branch conducts campaign based on seasonality/ local conditions/ festivals, to step up agriculture credit. 6.1.2. Branches not extending jewel loan shall introduce jewel loan facility immediately. Jewel loan is a preferred form of credit by the farming community and shall continue to be marketed aggressively. All Jewel Loan products like Agri Jewel loan, Agri Term Loan against Gold Ornaments, Jewel Loan (Non Agri), Jewel loan for Traders scheme, Jewel loan (Non Priority) and Jewel loan to Senior Citizens shall be aggressively marketed by the branches. 6.1.3: Interest subvention for crop loans at the applicable rate shall be implemented as per periodic guidelines of GOI/RBI in this regard. (Present rates are 2% interest subvention + 3% ince ntive subvention for prompt repayment). Benefits of interest subvention will be available to small and marginal farmers having Kisan Credit Card (KCC) for a further period of upto six months post harvest on the same rate as available to crop loan against negotiable warehouse receipt for keeping their produce in warehouses. Branches are, therefore, advised to ensure that all crop loans against which they are claiming interest subvention should satisfy, inter alia, the following criteria:

I. The borrower should be an agriculturalist II. The rate of interest charged should not exceed the rate stipulated by Govt. of

India. III. The amount of loan is fixed according to the prescribed scale of finance for

agricultural loans and the loan is used for stated purpose. IV. Seasonality is observed in regard to both disbursement and recovery.

Branches have to strengthen their systems for pre-sanction scrutiny and post-disbursement supervision and also consider carrying out post-disbursement audits to ensure that all crop loans for which interest subvention is being claimed are being used for the stated purpose and that there is no diversion of funds.


11

Branches should not claim any interest subvention for loans not meeting the above criteria as these will not be treated as ‘agricultural’ loans. 6.1.3.1 In order to accelerate the credit flow to small and marginal farmers, share croppers, oral lessees, landless labourers the following relaxations in lending norms as advised by RBI have been communicated to the field level functionaries. a. For small loans up to Rs.50000/- to small and marginal farmers, share croppers

and the like, obtaining “No due certificate” has been dispensed with. Instead field level functionaries are advised to obtain a self- declaration from such borrowers.

b. In case of crop loans up to Rs.50000/- to landless labourers, share croppers and oral lessees, where there exists the problem of absence of documents verifying their identity and status, certificates provided by local administration, panchayat raj institutions regarding cultivation of crops may be accepted. Where there are difficulties in getting certification from local administration/panchayat raj institutions regarding cultivation of crops, branches may accept the affidavit submitted by the above borrowers.

c. No margin and security shall be insisted for agricultural loans as per RBI guidelines from time to time (both crop loans as well as term loan) presently up to Rs.100000/-. However, assets created out of loans should be charged to the Bank like hypothecation of crops, equipments, etc as primary security.

6.1.4 All supply chains, market yards provide reasonably good scope for the Bank

for financial intervention. Such new opportunities shall be created for achieving the volume projected.

6.1.5 Tie up arrangement with dairies shall be encouraged . 6.1.6 Tie up arrangement with cold storage units, reputed godowns/warehouses

etc., shall be vigorously pursued in all states including metro centers. 6.1.7 Provision of infrastructure facilities in the rural areas, Scheme for

Development /Strengthening of Agricultural Marketing, Grading and Standardization shall be aggressively marketed.

6.1.8 Produce marketing loans: When there is a glut in the market, farmers normally hold their produce till the prices improve. Provision of Produce Marketing loans to these farmers will have three fold advantage of i)adjusting the existing STPL outstanding, ii) providing fresh credit iii)enabling the farmers to meet other family expenses. In view of the said advantages field level functionaries shall actively take up produce marketing loans.

6.1.9 Agricultural Structured Loan products like ‘Revised KCC scheme’ shall be aggressively marketed. All fresh loans including renewal of agricultural loans (short term and long terms) have to be considered under the new KCC scheme only.

6.1.10 Fresh water Pisciculture/ Shrimp Farming are getting popular with enterprising farmers and those activities shall be encouraged.

6.1.11 Services of Managers (Agri Business Marketing) and Agricultural Officers are to be utilised to market agriculture loan products aggressively and identify new areas of Agri business opportunities.

6.1.12 Cross Selling: Jewel loan customers are to be canvassed by Branches for cross selling Agriculture term loan and credit products, which will pave way for


12

mobilizing additional business substantially(eg: each Jewel loan customer shall be canvassed for a milch animal loan).

6.1.13 It shall be the endeavor to provide credit linkage to all SHGs, which have accounts with us and completed satisfactory lead period of 6 months.

6.1.14 Branches shall give more thrust to bring into our fold new SHGs and ensure credit link to them.

6.1.15 Wherever there are more SHGs and there is scope for SHG coverage Micro Credit Kendras shall be designated.

6.1.16 Microstate Branches shall focus exclusively on direct lending to SHGs. 6.1.17 Bank shall popularize SHG programme in the North and Northeast, which

are SHG deficient, to exploit the potential. 6.1.18 Farmers’ club plays important role in identification of potential in the command

area. These clubs are instrumental in improving quality of lending, deposit mobilization, recovery of overdue loans, formation of SHGs etc. Formation of farmers’ club not only improves the image of the Bank through our services to the farmers but also enhance the rural business by tapping all potential activities and clientele base. All our Rural & Semi Urban Branches shall sponsor/organize at least one Farmers’ club per Branch during the year.

6.1.19 In order to provide credit and noncredit services in a concentrated manner, Bank is implementing “ Village Adoption Scheme” . All eligible borrowers in the adopted villages shall be provided with credit linkage.

6.1.20 New Delivery Channels: Thrust shall be given for financing vulnerable farmers viz. Small and Marginal Farmers, Tenant Farmers, Share Croppers, Oral Lessees either directly or through Joint Liability Groups.

a) Business Facilitator/Business Correspondent Model: The Bank has put in place a scheme for utilizing the services of Business Facilitator/ Business Correspondent for enhancing the flow of credit and Banking services to rural areas. Thrust shall be given for enhancing credit flow through these delivery channels. To enhance the scope of the scheme further our Bank has issued separate guidelines for engaging Business Correspondents for delivery of banking services at the doorsteps of the customers including cash payment and receipts etc. The Business Facilitator/Business Correspondent also canvass new business. b) Specialized Branches for Microfinance: The Bank has opened Microstate Branches in Metro, Tier-I and Tier-II centers across the country to cater the credit needs of the urban poor who are formed in to SHGs/JLGs. These Microstate Branches are serving as one stop shop to address all the financial needs of the underprivileged. The Microstate Branches shall focus on SHG/JLG Bank linkage and may take up credit linkage through reputed Micro financing Institutions.


13

c) Information and Communication Technology initiative s: The Bank which pioneered the formation of Self Help Groups and introduction of Financial Inclusion in the country is endeavoring with several ICT (Information and Communication Technology) initiatives like Smart cards, Rural Internet Kiosks, Bio-metric ATMs, Banking Service Centre using internet technology for increasing outreach under Financial Inclusion. These initiatives shall be continued and operationalised in the current year also. 6.1.21 Capacity Building Initiatives: a. Rural Training Centre (RTC): A Rural Training Center established at Karaikudi

which is jointly sponsored by Indian Bank, Indian Overseas Bank and NABARD with the main objective to train the rural youth and to impart them with the knowledge and skills required for taking up self employment in rural areas.

b. Andhra Pradesh Banker’s Institute for Rural & Entre preneurship

Development (APBIRED): The Bank in association with Government of Andhra Pradesh, NABARD, and five other Nationalised Banks have established APBIRED at Hyderabad to extend skill development training to unemployed youth, training to farmers on technology transfer, training to SHG members for their empowerment.

c. Formation of Indian Bank Trust for Rural Develop ment: As a step towards getting closer to the rural people, the bank has set up a Trust by name "Indian Bank Trust for Rural Development'' (IBTRD) for undertaking various developmental activities.

Financial Literacy and Credit Counselling Centres ( FLCCs) & INDSETIs: Under the Trust, based on the directions of RBI, with the objective of providing free financial literacy / education and credit counselling for the benefit of rural and urban populace,” Indian Bank Trust for Rural Development (IBTRD)” of the Bank established “Financial Literacy Centres (FLCs) at fourteen centres in our Lead Districts namely Chittoor, Cuddalore, Dharmapuri, Kancheepuram, Krishnagiri, Kollam, Namakkal, Puducherry, Salem, Tiruvallur, Thiruvannamalai, Villupuram, Vijayawada and Vellore besdes three urban FLCs at metros viz., Chennai, Delhi and Mumbai. Another two block level FLCs have also been established at Chadayamangalam and Parassala in Kerala. The Bank has established “Indian Bank Self Employment Training Institute” (INDSETI) in twelve centres at Chittoor, Cuddalore, Dharmapuri, Kancheepuram Krishnagiri, Namakkal, Salem, Puducherry, Tiruvallur, Thiruvannamalai, Vellore and Villupuram in Bank’s Lead Districts for providing training to the rural below poverty line (BPL) families. The Bank proposes to open INDSETIs in all districts where bank is assigned with Lead Bank role 6.2. Retail Trade (Small Service Enterprises): Branches shall ensure that all eligible accounts falling within the following categories are classified under Small Service Enterprises (Retail Trade) (Priority Sector):


14

i. Advances granted to private retail traders under TRADE WELL scheme with

credit limits not exceeding Rs 500 lakh ii. Advances granted to SHGs for undertaking Retail Trade activity, iii. Advances granted under various Govt. Sponsored Schemes/DRI scheme for

undertaking Retail Trade activity, iv. Advances granted to retail traders dealing in essential commodities (fair price

shops),consumer co-operative stores, v. Jewel loans for traders (provided in select Branches).

6.3 Micro Credit: Provision of credit and other financial services and products of very small amounts not exceeding Rs.50,000/- per borrower to the poor, either directly or indirectly through a SHG/JLG mechanism or any intermediary (including NBFC/NGO/MFI), or to an NBFC/NGO engaged in provision of credit to the poor up to Rs. 50,000/- per borrower will constitute micro credit. Financing to Self Help Groups: Cash Credit : All fresh SHGs are to be sanctioned in the form of Cash Credit limit only and the existing Term Loans are to be converted into Cash Credit limit for the reason that it will avoid repeated documentation which involves lot of activity for the groups as well as for the branch of the Bank. Branches are advised to follow the detailed operati onal guidelines issued vide Circular No. ADV.127/2011-12 dated 17.12.2011. Command area: Separate guidelines are being issued by CO/RBD regarding “Command area” for extending small loans, SHG. 6.4 Educational Loans:

� .The comprehensive model educational loan scheme, formulated by Indian Banks’ Association, is in force in our bank with effect from 04.07.2001. Branches should follow the guidelines evolved by IBA and communicated by Corporate Office for processing of educational loans. (Ref: CO Circular no. Adv.94/2011-12 dated 16.09.2011, Adv.43/2014-15 dated 30.06.2012, Adv.48/2014-15 dated 17.07.2012 Adv.63/2014-15 dated 03.09.2012 Adv.78/2014-15 dated 09.10.2012 and Adv.120/2014-15 dated27.12.2012).

� The students secured admission under Management Quota also are eligible under modified IBA guidelines The students pursuing regular Degree/Diploma courses in nursing where the institution is approved by Indian Nursing Council or any other regulatory body as the case ma y be , pursued in India is eligible under modified IBA Scheme. (Ref: Adv.78/2014-15 dated 09.10.2012 and Adv.120/2014-15 dated27.12.2012).

� Bank has implemented IBA Model Loan Scheme for Vocational Education and Training with effect from 1st July, 2012 for pursuing a course run or supported by Ministry/Dept/ Organisation of the Govt.etc.preferably leading to a Certificate/ Diploma/ Degrees for pursuing Vocational / Skill Development courses of duration from 2 months to 3 years. For salient features of the


15

scheme details please refer Circular ADV-43/2014-15 dt 30.06.2012 and Adv.63./2014-15 dated 03.09.2012.

� Bank has formulated a scheme titled “Education Loan (Non IBA Scheme) ” for all studies/courses which are not covered under IBA Education Loan scheme and the scheme guidelines are detailed out in our circular Adv.107/2011-12 dated 10.10.2011.

� Field level functionaries shall popularize the Educational Loan scheme by keeping liaison with reputed educational institutions, participation in educational loan fairs, and opening special counters/stall at the Counseling centres at reputed colleges at the time of admission.

� Student Meets have to be organized at least once in a year by Branches/Zonal Offices to create requisite awareness among the student borrowers and their parents regarding, interest subsidy norms, need for improving the employability levels, repayment norms etc.

� Bank has introduced web based on line educational loans request system for speedy disposal of educational loans.

6.4.1Central Scheme to provide Interest Subsidy (CS IS) for IBA Educational Loan. To provide relief to students belonging to Economically Weaker Section (EWS).

� Implemented by Government of India, Ministry of HRD, from the academic year 2009-10.

� Students from Economically Weaker Sections are eligible. � Parental/family annual income up to Rs.4.5 lakhs. � Educational loans availed under IBA scheme to pursue technical/professional

courses (after class XII) are eligible for studies in India. � Income certificate to be issued by the Designated Authority nominated by

concerned State Government for this purpose. � Nodal Bank for administration of subsidy -- Canara Bank.

Branches have to prefer eligible claims in the template hosted by CO: Project Office whenever Nodal bank permit us to prefer claim within the stipulated time since no extension of time is permitted by Govt. of India/Nodal Bank 6.5 Rural Housing Housing Loans up to Rs 20 lakhs granted in rural and semi urban areas where the population does not exceed 50000 as per 1991 census (should be reported under Golden Jubilee Rural Housing Finance Scheme) shall be encouraged. 6.6. Interest Subsidy Scheme for Housing the Urban Poor (ISHUP) To enable the Economically Weaker Sections(EWS) and Low Income Group (LIG) in urban area to construct/ purchase home by providing interest subsidy of 5% on loans up to Rs.One lakh. Ministry of Housing and Urban Poverty Alleviation has intimated the revised income ceiling for Economically Weaker Sections (EWS) and Lower Income Group (LIG) is as follows:

� EWS: Rs.1,00,000/- as household income per annum. � LIG: Rs.1,00,001/- to 2,00,000/- as household incom e per annum.


16

• All eligible loan applications complete in all respects to be sanctioned within 14 days.

• Declined/ineligible applications should be sent back with reasons for rejection. • All loans sanctioned should be disbursed immediately. • Subsidy should be claimed immediately after loan release even if it is a part

release. • Incomplete applications to be returned back to the concerned authorities.

This scheme is subject to extension of Scheme by Govt. of India after 31.03.2013

6.7 Strategies for enhancing flow of credit to Micro, S mall and Medium Enterprises sector 2014-15::

Please refer MSME Policy Annexure 1 for strategies for enhancing flow of credit to micro, small and medium enterprises sector . 6.8 Goals / strategies for enhancing flow of quali ty retail credit under Personal Segment Loan Products: The retail assets of the Bank including Housing Loans and Personal Banking Loans, which are now being offered have continued to grow, contributing good revenues to the Bank. However, increase in delinquency, frauds and overheads to service the retail loans, warrant careful scrutiny of the loans during pre-sanction and post sanction stages. Every effort should be made to build up a healthy portfolio of retail assets. The following strategies are to be adopted while financing retail loan segments: � Efforts shall be made to market the retail loans evaluating the quality and

margin of the asset. Offer of special rates and terms shall be used sparingly so that margins are not eroded.

� The range of personal banking loan schemes of the Bank has been expanded adding several new products each catering to a specific customer need. There should be conscious effort to promote growth under all the products, with special emphasis on secured loan schemes.

� Preference may be accorded to financing groups of borrowers from reputed institutions/corporate under a system of mandated recovery of loan installments

� Stronger Due Diligence of personal loans and Housing Loans and strict adherence to KYC norms are called for particularly in establishing customer identity and the genuineness of the salary certificates and documents of title to prevent impairment of asset quality.

� In centres where the enlisting of the services of professional Credit Verification Agencies has been permitted, services of these agencies shall be mandatorily utilized to ensure that fresh retail credit added is of the right quality.

� Make good use of the consumer credit history available with the data base of Credit Information Bureau (at present CIBIL) which is now being populated with valuable credit information on individual borrowers drawn from a majority of the banks in the country.


17

� Branches/Offices shall invariably draw CIBIL Detect Search Report in addition to CIBIL Credit Information Report and satisfy themselves that there is no adverse information about the borrower in the reports drawn.

� Continue initiatives to align Bank's retail loan schemes with market expectations and customer requirements.

6.8.1 ZLCCs have to adopt strategies unique and suitable to their area of

operation and to conduct various Home Loan Fairs. 6.8.2 The top priority is to ensure that enquiries and in -principle sanctions given

are fast converted into actual business by having continuous follow up with the prospective borrowers

6.8.3 A Nodal Officer is to be identified at Zonal Office to follow up with branches for quick disposal of proposals.

6.8.4 Establish liaison with reputed architects/builders. 6.8.5 Financing of Home Loans in big Projects can be made by appropriately

studying and approving the Project, before hand. This would obviate the delay in considering each and every home loan in the same project. Zonal Offices should take up approval of Projects as a measure to improve Home Loan portfolio. As far as possible the convenience of giving Home Loans in approved Projects should be encouraged.

6.8.6 Tie-up with large institutions where bulk business is available. 6.8.7 Young Professionals with good educational background to be made as target

group for lending. 6.8.8 Structured Loan Products as such cater to the targeted groups. As for as

possible lending to the targeted groups without deviations would have in built risk mitigation measures. Whenever relaxation in the norm is considered, appropriate risk mitigation angle to be thought of for implementation. Relaxation as a course should not be attempted.

6.8.9 Cross selling of Home Loans, Vehicle Loans etc. and Insurance products through good clients of Credit Division, SME and RBD.

6.8.10 (a) Personal Segment Loan Products – Delegation of san ctioning powers to Branch Managers and above– As given in Credit and credit related administrative booklet dated 16.08.2013. Powers have been delegated to various sanctioning authorities

Proposals under Pension Loans, Jewel Loans (Non-Pri ority) and Loan on Deposit / NSC/KVP/LIC Policy in the Personal seg ment Loan Product.

All Branches may take up fresh proposals of the above products, irrespective of their NPA level under total PSLP and the sanction may be accorded by respective sanctioning authority/ies. Proposals under other products of Personal Loan Seg ment:

In case of Zones with NPA level of more than 5% and that of Branches with NPA level more than 10% under PSLP (Excluding Educational loan and Loan against NSC/KVP/LIC), COLCC (ED) may permit such Zones / Branches to take up fresh proposals under PSLP.


18

For the above purpose, NPA as on the date of immedi ately preceding month has to be reckoned with. While calculating the NPA percentage, Branches have to exclude the balance outstanding under Educational loan and Loan against NSC/KVP/LIC from the total balance under PSLP and also exclude NPA balance under Educational loan and Loan against NSC/KVP/LIC from the NPA balance under PSLP. While exercising the powers, Branch Managers should ensure

• Sanction of Personal Segment Loans without delay • Strict adherence to various norms, systems and procedures • Sanction of loans without sacrificing quality of advances

Sanctioning powers for Second in Command at ZO for SLPS; Second in command committee at ZO is empowered to sanction all the SLPs.

Detailed guidelines are given in Circular ADV-155/2 011-12 DT 28/2/12. 6.8.10(b) Home loan property can be extended as security for other structured/ non structured loans/advances by way of extension of EM based on the residual value after maintaining requisite margin for the Home loan throughout the tenor of the loan. Zonal Managers shall be the sanctioning authority for permitting the extension of EM to the other loans. However, under IB Home Loan plus scheme, Branch Managers (who are empowered to sanction the loan) are permitted to extend EM on the home loan property to IB Home loan plus under their powers based on the residual value after maintaining margin of 10/20/25 percentage on RSV of the Home loan/SHL property.

6.8.11. Fixed Rate Home Loans: Home Loans with Fixed ROI sanctioned on or after 20.05.2010 are subject to reset clause at the end of every 5 years (revised from the earlier reset of once in 2 years) 6.8.12. Repayment of loans of Non-resident close re latives by residents ( RBI/2011-12/183 notification dt September 16, 2011) : The Committee to review the facilities for individuals under the Foreign Exchange Management Act (FEMA), 1999 has in its Report recommended that resident individuals may be granted general permission to repay loans availed of from banks in Rupees in India by their NRI close relatives as defined under Section 6 of the Companies Act. The extant provision has now been reviewed and it has been decided that where an authorised dealer in India has granted loan to a non-resident Indian in accordance with Regulation 7 of the Notification No. FEMA 4/2000-RB, dated May 3, 2000 viz. Foreign Exchange Management (Borrowing and Lending in Rupees) Regulations, 2000 such loans may also be repaid by resident close relative (relative as defined in Section 6 of the Companies Act, 1956), of the Non-Resident Indian by crediting the borrower's loan account through the bank account of such relative.


19

6.8.13. Sanctioning of Retail Loans in bulk / to a group of borrowers: In order to maintain healthy asset portfolio and to avoid incidence of frauds in retail loans sanctioned in bulk / to a group of borrowers, policy guidelines have been evolved. Policy guidelines (Board approval dt 14/12/11) are given in Circular ADV 140 dt 03/01/12 6.8.14.Guidelines for revising the repayment period for Home Loans (with variable rate of interest) keeping the EMI constant , irrespective of revision in interest rate is given below: (ADV 136 dt 31.12.11) In terms of RBI’s master circular on income recognition and asset classification dated 1.07.2013 , extension in repayment tenor of a floating rate loan on reset of interest rate, so as to keep the EMI unchanged provided it is applied to a class of accounts uniformly will not render the account to be classified as ‘Restructured account’. In other words, extension or deferment of EMIs to individual borrowers as against to an entire class, would render the accounts to be classified as 'restructured accounts’ Wherever there is revision in rate of interest for Home Loans with variable interest rate, EMI is to be kept constant at the existing level and repayment period is to be revised accordingly, subject to the following conditions:

• Maximum repayment period of the loan should not exceed 35 years including the extension granted.

• If the repayment period goes beyond 35 years, the enhancement of repayment period should be restricted to such 35 years, and the balance amount at the end of that period has to be recovered from the borrower as Bullet Payment, at the end of the enhanced period. However, Rate of interest is to be continued based on the originally sanctioned loan amount and repayment period.

• Notice of revision in rate of interest, repayment period and bullet payment, if any, is to be communicated to the borrower.

• Borrower may choose to remit higher EMI without any additional charges (pre-payment charges).

• EMI is to be kept constant at the existing level, irrespective of increase / decrease in rate of interest and repayment period to be revised accordingly. However if there is continuous reduction in rate of interest and the revised repayment period goes below the sanctioned period by keeping the EMI constant, the borrower may be given an option to revise the EMI suitably, so that the loan is adjusted within the originally sanctioned period. Rate of interest is to be continued based on the originally sanctioned loan amount and repayment period.

� The above guidelines will be applicable for Home Loans (Home Loan, Plot Loan, Home Improve) sanctioned to Residents and Non-Resident Indians with

a) Variable Rate of Interest and b) Step-up rates of interest (i.e., fixed interest rate for first few years and

variable interest rate thereafter) after they switch over to variable interest rate and fixation of EMI under variable interest rate.


20

6.9 Strategies for enhancing flow of Corporate Cr edit: Objectives: The main objectives of our Bank’s Credit Policy are: 1. Ensure balanced deployment of credit to various sectors and geographical

regions with special emphasis on Agriculture, Corporates, Infrastructure, Housing and Micro, Small and Medium Enterprises.

2. Adoption of a forward-looking and market-responsive approach within the framework of policy guidelines for moving into profitable new areas of lending which are emerging in the market. Enlarging client base of Non-Retail Credit without compromising on quality of assets

3. .Maximizing interest yields from the credit portfolio through a judicious management of varying spreads for loan assets based upon their size, revised credit rating framework and tenor

4. Ensuring ALM-driven deployment of resources for getting desired returns and managing liquidity.

5. Ensuring due compliance with various regulatory norms/guidelines issued by Government/RBI

6. Fulfilling corporate social responsibilities of the Bank. 7. Disseminating information on best practices and methods relating to credit

dispensation and management for effective performance in credit 8. Cautious approach to sensitive sectors, mainly real estate sector. Within the

framework of regulatory prescriptions, corporate goals and Bank's social responsibilities, the overall objective of Credit Policy of the Bank is to achieve a healthy balance between : - Capital driven credit growth Earnings - asset Quality

Credit Strategies: Strategies for accomplishing the objectives: Bank’s strategies to meet the Business Objectives are described below: (a) Business Strategies: Corporate Lending – Selective Approach Emphasis is given to rating of the borrower to ensure better quality of credit. It is the endeavour of the Bank to extend credit to good quality corporate clients ensuring optimum returns. Better the rating of the corporates; the more is the safety of principal and income to the Bank. Bank believes in being selective in choosing corporate exposures with an eye on pricing considerations.. The competitive constraints under corporate lending, need to be overcome to a large degree by adopting some of the strategies listed below –

1. Careful selection of corporate and institutional exposures after thorough appraisal of risks

2. Assessment of the volumes generated against the value in terms of income earned while approving corporate credit requests with due regard for pricing.


21

The additional requirements of existing customers with good external and internal ratings should be addressed in totality with speed and flexibility in terms. While assessing the working capital needs of existing borrowers, adequate provision should be built in to meet the seasonal variations in credit requirements taking into account peak and lean seasons. Strengthen in-house knowledge and expertise in lending to various sectors through ongoing industry studies and information available otherwise. (b) Efforts to achieve fresh sanctions at all level s: Top rated corporates and institutions that are sanctioned large value credit limits often shift to other banks for better rates and terms. Hence, excessive dependence on large value exposures for growth of business results in volatility. This can be overcome by increasing sanctions at branch and Zonal levels. Efforts shall be made to step up growth through an increase at every level including branch/Zonal level under medium and smaller sized sanctions, which also command better pricing to improve both interest yield and stability. (c) Diversification of Credit Portfolio:

a. Continue to look for openings in new sectors/segments and lines of business after a careful appraisal of the risks involved.

b. Design and launch more new products especially those aimed at encashing fresh opportunities presented by the market.

(d) Credit Supervision and Monitoring: Maintenance of quality of loan assets is to be ensured through an ongoing system of continuous review and supervision. Potential problem accounts to be identified through the system of Special Monitoring Accounts and such accounts shall be monitored continuously and effectively to prevent slippage to NPA category. Efforts must be made for expeditious recovery, wherever possible, in all such cases by offering, if necessary, concession in interest, as laid down in the Bank’s Policy for Recovery of Loans and Advances. Pre-sanction appraisal at branch level requires improvement and adherence to systems and procedures to be ensured. Pre and post sanction inspection and unit visits needs to be improved, so also, post sanction follow up and monitoring. ZO shall ensure joint appraisal in all high value advances (more than Rs 5 crores), wherever feasible and possible and such advances are extended only through designated branches in the Zone. CMC shall specifically to monitor SMA and Restructured accounts so as to ensure that there is timely follow up and slippage is avoided. (e) Focused Branches: Specialized branches shall focus their energies on achieving a higher level of growth in the specified area of business assigned to them. These branches should also take adequate steps to supplement their income through ancillary business.


22

(f) Fair Practices Code: In managing relationships with the Bank’s customers, the Bank would continue to maintain its cherished tradition of high quality service and fair customer practices so that the strong customer base of the Bank is maintained and improved. Bank has implemented the Fair Practices Code for Lenders introduced by RBI, reinforcing its commitment to customer care and fair business practices. (g) Market Intelligence: Confidential opinion on the applicant should be gathered from market sources by making discreet enquiries from persons connected with similar lines of business as also by visiting his place of business/residence. Enquiries may also be made with the buyers of products and suppliers of raw materials, etc, about the applicant’s reputation and to ascertain the quality of products as also his financial discipline. In the case of existing borrowers too, the branches should gather market intelligence on their activities/performance through press reports/other banks/credit rating agencies, etc. Constant touch with the market would enable the branch to know the status of the borrower’s business. In the case of small borrowers, the branch should satisfy itself whether the borrower resides/undertakes activity within the area of operation of the branch. Further, his residential/business premises should be got confirmed through ration cards, voter ID cards, tax paid receipts, licence for carrying business, etc. Discreet enquiries should be made from the local residents and nearby shops/establishments about the financial standing/ reputation of the borrower. Offices/branches shall make use of the meetings at Panchayat/ Block/Corporation level meetings for getting market reports on parties, local industries, etc. Branches shall also share information about the prospective customers with peer banks and financial institutions. Branches shall make frequent visits to the existing and prospective borrowers and also meet the creditors and debtors of borrowers, who will give vital information about the customers, performance of the industry, how they are behaving, etc. Wherever multiple finance is involved, offices/branches shall exchange information with other banks as per the periodicity and procedure laid down. (h) Fee based income : In order to improve the fee based income of the Bank ZOs and Branches shall make earnest efforts to increase the fee based income, by contacting the existing/prospective borrowers and enquire about their future business plans. Branches shall utilize the consortium for scouting new business. Quoting competition or the interest rates offered by other banks, recommendations are made for concessions in service charges, processing charges, commission, rate of interest etc. Any borrower to be classified as a good borrower should conform to the criteria that not only the borrower’s asset quality is good but also profitable to the bank. Wherever concessions are deemed necessary, it should also be ensued that such concessions are off set by fee based income from other types of activities of the borrower. It is observed that credit facilities are availed with


23

concession, but all ancillary business are passed on to other banks. It is also observed that concessions are recommended for non fund based facilities, even for unsecured BG, which is a loss making proposition. Hence, ZOs shall recommend concessions, very selectively. (i) Focus Sectors. Based on Bank’s experience in lending to different sectors and considering the dynamics of economic growth, Government directives, national priorities, social and economic obligations, as also the delinquency and margin aspects, the following sectors are identified as focus areas for Credit dispensation. -- Agriculture -- Micro, Small and Medium Enterprises -- Housing -- Exports -- Education -- Trade and Services -- Infrastructure 6.9.1 Zonal Offices to identify the Corporate who are not banking with us and take

efforts for bringing reputed corporate into our fold. 6.9.2 Advantages of new delivery channels under CBS has to be focused for adding

more corporate clients. 6.9.3 New Business Group; before submission of detailed proposal, New Business

Group shall consider acceptance of the borrower, exposure and pricing with minimum details about the borrower.

6.9.4 NBG Proposals:

Clearance of New Business Group Committee shall be obtained for new proposals of only new borrowers seeking credit facilities above Rs 10 crores and the same is not required in case of existing borrowers seeking enhancement in limits. Clearance accorded by New Business Group Committee shall be valid for a period of 90 days only. NBG clearance is only in principle approval for evincing interest in the proposal. Sanction is subject to compliance of banks policy guidelines. NBG proposals for Infrastructure lending, the same shall be referred to Corporate Office only, irrespective of the exposure. NBG proposals involving exposures above Rs 10 crore s and upto the powers of COLCC (GM) , COLCC (GM) committee at Corporate office will consider the in principle clearance. In respect of exposures falling under the powers of COLCC(ED) and above, NBG committee at corporate office will consider the in principle clearance.


24

However, in case of takeover of accounts where enhancement beyond 50% in the first year of shifting of the account and thus the exposure exceeds Rs 10 crores, the proposal shall be referred to NBG. Any increase in exposure after One year from the date of takeover will be considered as a normal enhancement. No enhancement is permitted along with takeover , other than for capital expenditure like expansion of the units, purchase of new plant and machinery etc For the group accounts of existing satisfactorily conducted accounts, NBG clearance is not needed. In other cases i.e., fresh exposures to Companies / Firms / Groups with External Rating (Bank loan rating) of “AA” and above, no NBG approval is necessary. In respect of proposals falling under the powers of CO NBG, the Preliminary Information Memorandum should be first discussed in the NBG meeting held at the respective Zonal Offices and then forward the PIM to Corporate Office, alongwith the Minutes / deliberations of the meeting. The following aspects should be specifically covered in the deliberations at Zonal office meeting:

• Compliance to our Bank’s Loan Policy with specific reasons if there is any

deviation.

• Credit Rating (RAM) –specifically whether it satisfies our Bank’s entry level

criteria.

• Visit to the site / unit by any official of our Bank from the Zone

• Due diligence on the promoters.

• Comments on the financials – with specifics on DSCR (in case of TLs),

Current ratio (in case of Working capital)

6.9.5 Loan Syndication is one of the avenues for improving our credit portfolio as well as non-interest income. 6.9.6 Branch Segmentation :

With a view to acquiring new borrower customers and increased penetration into existing customer relationships, especially in credit, Board has approved the Policy on Focused lending through Corporate and Credit Intensive category of Branches. 6.9.7. Export Credit :

The increase in credit to Export Sector is not in proportion to general growth in credit. This causes decline in percentage of export credit to total credit. Our Bank has


25

introduced Gold Card Scheme for exporters. All efforts are to be taken to increase the Export Credit to reach the targeted level of 12% of the total advances. 6.9.8 Focus on non fund business : In the light of competition, Net Interest Margin is shrinking over the years. There is an utmost need for improving avenues for non interest income. The following steps are to be taken to improve the same:

a. Ensure proportionate non fund based facilities in all Consortium accounts, b. Expedite availment of unavailed/partially availed NFB limits and ensure

maximum availment in NFB limits sanctioned by keeping a regular touch with our existing borrowers,

c. Scrutinize the balance sheets of our customers/potential customers where imported raw material is being consumed and take up with the companies for fresh improved LC business,

d. Take up with our customers/potential customer at the early stage of the new projects/expansion plans involving imported machinery for LC business

e. Prepare a list of the leading contractors and tap their requirements for guarantee facility required in their business,

f. Liaise with the stock brokers listed with stock exchanges for their guarantee needs,

g. Focus to bring our corporate customers under CMS PLUS scheme, h. Cross selling of products like MCA 21, insurance products to the corporate

customers and their staff. i. Acquiring the job role of facility agent, security trustee, TRA/ESCROW accounts

under project funding for improving the fee based income, j. To improve non interest income, focus may be given for loan syndication.

6.9.9 .Dealing with RBI on Credit related issues: Reserve Bank of India has brought to the notice that our Branches are taking up the matter with RBI directly on Policy matters which was not appreciated by RBI. Branches to desist from writing directly to the Regulator / GOI for clarification of their queries. All requests pertaining to credit viz. Policy matte rs/clarification on RBI Circulars etc. should be addressed to Corporate Off ice only. (Circular ADV-100/2011-12 dt 29/09/11) 7. Mandatory guidelines of RBI: The gist of mandatory guidelines of RBI relating to advances are enclosed as Annexure 2 of this policy. Branches shall continue to adhere to the guidelines of the RBI in letter and spirit without fail.


26

8. Bank Policy Guidelines 8.1 Policy guidelines related to Agriculture: All Short Term Production loans to farmers shall be routed through revised Kisan Credit Card (KCC) only. All revised KCC account holders shall be covered under Personal Accident Insurance Scheme (PAIS), Health Insurance (wherever product is available and have premium paid through his/her KCC account). Necessary premium will have to be paid on the basis of agreed ratio between bank and farmer to the insurance companies from KCC accounts All eligible loanee farmers in notified areas for the notified crops shall be compulsorily covered under National Agricultural Insurance Scheme (NAIS) Branches should ensure 100% crop insurance coverage of all crop loans sanctioned for notified crops in notified areas. Weather Based Crop Insurance Scheme (WBCIS) is being implemented on a pilot basis.

In case of other crops (non- notified crops / non-notified areas as per NAIS) and certain plantation crops where insurance coverage is available other than NAIS, farmers shall be persuaded to avail the same.

All eligible Jewel Loans disbursed for cultivation of crops shall be covered under revised KCC scheme. At least 5 new investment activities/ schemes/ projects per year under agriculture sector to be financed by each rural/semi urban branches. 8.2 Financial Inclusion Package (FIP): 8.2.1 Financial Inclusion Plan (FIP ):

Our Bank is implementing Financial Inclusion Plan (FIP) for providing Banking services to unbanked villages. Bank has provided banking services to 4122 villages with population above 2000 as well as below 2000 through various delivery channels as below.

o 3991 villages through Smart card based Business Correspondent(BC) Model o 34 villages through Banking Service Centres (BSCs) o 31 villages through Brick and Mortar branch o 66 villages through Mobile Branch/Van

Bank is in the process of providing banking services to all the villages with population below 2000. The Bank has entered into agreement with M/s.TCS Limited for end to end outsourced ICT based smart card enabled BC Model. Smart cards are provided to the customers for doing transactions in the villages through POS machine by Biometric authentication.


27

8.2.2.Financial Inclusion Products for Inclusive Gr owth:

o Under FIP, Overdraft in Basic Savings Bank Deposit Accounts with limit upto Rs.10000 to be allowed to non-farmers and landless labourers to meet the contingencies.

o General Credit Card facility upto Rs.25,000/- to be provided for taking up economic activities

o Kisan credit cards to be sanctioned to all eligible farmers in the FI villages. o Awareness and Publicity campaigns to be organised in all FI villages to create

awareness about FI products.

8.2.3.Banking Service Centre (BSC) : The Bank has established Banking Service Centres (Internet Kiosks) which are manned by Bank staff. The BSCs act as extended arm of branches for increasing the outreach under financial inclusion with the help of technology. At present, 52 BSCs are functioning across the country. These BSCs canvass new proposals from the villages for business development.

8.2.4 Mobile Branch (van): Under Financial Inclusion Plan, banking services have been provided to 66 villages through Mobile branches (Vans). The Mobile Van is operated from the base branch on all working days. The Van visits each village on specified days and specified hours, so that its services could be fully utilized by the villagers. All the banking services available in a CBS branch is extended to the villages through these Mobile branches. These mobile branches canvass new business proposals for their bank branches.

8.2.5 Ultra Small Branches : Bank has established permanent structures called Ultra Small Branches (USBs) in the villages covered through the Business Correspondents. These USBs are regularly visited by one officer from the base branch with a lap top where he/she provides the details of transactions carried out by the customers and balance enquiry. The officer not only interacts with the villagers regarding the services rendered by the BC, but also counsels the villagers about various banking products and services. The Officer collects account opening forms and loan application forms and canvass new business for the Bank. Detailed guidelines are provided in Circular ADV.33/2012-13 dated 09.06.2012. 8.3 Biometric Smart Card Banking : The Bank shall pursue with implementing Pilot Projects on Biometric Smart Card Banking for increasing outreach under Financial Inclusion. 8.4 Policy Guidelines for Financing Microfinance Institutions for on lending

to the poor Branches shall continue to follow the modified policy guidelines for financing Micro Finance Institutions for on lending to the poor as per CO RBD Circular Adv.78/2011-12 dated 03.08.2011 &Adv.76/2012-13 dt 06.10.2012


28

8.5 Policy for Poultry Financing

Parameter Norms

1. Industry Exposure

In the context of reasonable demand for poultry, an increase in outstanding by Rs.150 crores over 31.03.2013 (including enhancement of limits for existing clients) for the year 2014-15 is envisaged The above limit will be disaggregated to various ZOs based on the potential by CO:RBD.

2. Per borrower exposure

Per borrower exposure (Fresh/ enhancement alone) fixed as Rs.10 Crores

3. Birds strength

a) Financing poultry units of either existing or erstwhile clientele of our Bank could be considered by ZLCC with minimum bird strength of 30000 in case of layers & 30,000 in case of broilers( subject to viability of the unit) subject to administrative clearance from Corporate Office Level Credit Committee (GM) (COLCC(GM)).

b) In case of integration / contract farming, Zonal Level Credit Committee (ZLCC) are authorized to consider financing the units of any strength of birds, taking into consideration the sponsor company’s financials and their market standing as well as the support services, including assured marketing tie-up provided by the sponsor company subject to administrative clearance from COLCC(GM).

c) In case of well maintained existing units having smaller size than the stipulated bird strength, if the unit wants to upscale their operations by increasing the bird strength, ZLCC may consider the same under their powers subject to administrative clearance from COLCC (GM).

4. Promoter’s Experience

ZLCCs are authorized to take up new poultry proposals subject to the condition:

(1) The borrower should have previous experience in poultry farming.

(2) Fresh financing may also be considered for well run poultry farms/units.

(3) Administrative clearance from COLCC (GM). 5. Powers to

consider Poultry Proposals

(ii) Financing Poultry sector is placed under “Selective Financing Category” and any fresh / enhancement / additional exposure under this segment requires administrative approval as detailed below

(iii) ZLCCs can consider fresh / enhancement proposals up to Rs.2.00 Cr under their powers in case of integration /contract farming [ please refer 3 b)] and incase of well maintained existing units going for expansion [please refer3 c)].

(iv) Fresh proposals for new units and fresh / enhancement proposals above Rs.2.00 Cr in case of integration / contract farming and existing units going for expansion , ZLCCs shall obtain case by case approval from Corporate Office as


29

Parameter Norms

follows: a. Administrative clearance for each proposal (Fresh/

enhancement alone) above Rs. 2 Crs and up to Rs.10 Cr shall be accorded by COLCC (GM)

b. For each proposal (Fresh/ enhancement alone) with limits above Rs.10.00Cr, administrative clearance to be obtained from COLCC(ED).

6. Security

Security : To be insisted. Existing Units : For ‘A’ and above rated accounts, Security is 150% of the amount financed (Both Primary and Collateral) of which minimum 100 % coverage by way of EM of immovable properties eith er Primary or collateral or both put together. New Units : For new units, security coverage of 200% both primary and collateral together, of the amount financed, of which minimum 100% coverage by way of EM of immovable properties eith er Primary or collateral or both put together to be insisted. Take over of Units: In case of takeover of units, the securities given to existing Bankers should be taken. However, it has to be ensured that the value of securities available is not less than 150% of the amount financed in case of take over units. The value of primary and collateral security in the form of immovable properties should not be l ess than 100%of the loan amount.

• Any relaxation in the parameters/ norms stipulated under the guidelines for poultry financing shall require recommendations of CO: Credit Steering Committee.

7. Rate of interest

Credit sanctioning authorities have been permitted to sanction both working capital and term loan at applicable rate of interest for the poultry units irrespective of loan amount subject to compliance of rating parameters. Card rate for Poultry financing will be reviewed periodically Reference shall be made to interest rate circulars issued separately .

8. Takeover of poultry accounts

• ZLCCs can take over poultry accounts from other Banks/Financial Institutions as per extant guidelines up to the powers delegated. They should be selective in takeover of the account and target only clients/promoters with high net worth and good track record for the last 3 years after obtaining administrative clearance from Corporate Office. CO norms with regard to Takeover should be strictly complied with.

9. Waiver of Bird’s

• Credit sanctioning authorities at CO have been permitted to waive insurance for birds for diseases only after taking into


30

Parameter Norms

insurance

consideration the risk mitigation measures taken by the borrower and subject to various conditions stipulated by CO(given below). Birds have to be insured for all other risks other than diseases.

• Waiver of poultry insurance can be considered in loans only where the fixed assets coverage ratio (inclusive of fixed additional securities) is more than 2.

• COLCC(GM) can consider waiver of insurance to birds for the units with exposure up to the credit discretionary powers of COLCC(GM).

• Waiver of insurance for the units with exposure beyond COLCC(GM) powers, waive to be accorded by COLCC(ED) up to COLCC(ED)’s credit discretionary powers and by CAC for exposure beyond COLCC(ED)’s credit discretionary powers.

10. Terms & conditions for waiver of Poultry Bird I nsurance I) General conditions 1. Waiver of insurance is allowed only on written request of the

borrowers. 2. An Undertaking letter from the borrower to the effect that waiver of insurance is at the sole risk and responsibility of the borrower and the Bank will not be held responsible for any consequential loss that may arise due to wavier of insurance. 3. Waiver of Insurance for birds against diseases alone will be permitted on meritorious cases but all other risks such as fire, theft, burglary etc and insurance for items like sheds, machinery, vehicle, equipment, feed and medicine stocks etc should be comprehensively insured against all attendant risks with Bank clause. 4.As a risk mitigation measure on account of waiver, risk fund to be created equivalent to the premia in RIP, which will come in handy to the farmers in case of any loss ( to an extent exceeding 10% incase of layers and 5% in case of Broilers) they suffer. This amount to be kept free of encumbrance. In the event of loss it is to be released only with the approval of the credit sanctioning authorities.

Risk Fund:

The Risk Fund maintained in RIP shall be taken into account for the limited purpose of arriving Current Ratio a nd not for the assessment of working capital.


31

II) Specific cond itions A. Existing Units

a) Account should be a standard account. b) Borrower should have been banking with us for more than 3 years. c) All broiler units irrespective of Bird strength (where mortality is around 3-5 % only). d) Layer farms which are well managed with mortality rate less than 10%. e) All hatchery units ( layers and broilers) irrespective of the size – as they are scientifically and hygenically run and adopt better bio-security measures, leaving little scope for the outbreak of diseases.

B. New Units

In case of new units, insurance is mandatory for the initial period of two years for layers and one year for broilers except in case of units promoted by qualified personnel, as the new entrants may lack financial strength in case of loss occuring to the firm. Waiver as above may be allowed by CO selectively on a case to case basis.

C. Take over units

a) The account should be a standard account. b) All broiler units irrespective of Bird strength ( where mortality is around 3-5% only). c) Layer farms which are well managed with mortality rate less than 10%. d) All hatchery units ( layers and broilers) irrespective of the size.

8.6 Discussion with borrower with regard to terms & con ditions: Corporate Office is receiving number of requests for amendment of sanction terms and it is on the rise. This causes unnecessary and avoidable work load at the credit desk in Branches / Zonal Office / Corporate Office as also frequent visits to Management Committee of the Board / sanctioning authority. This also delays credit disbursements and in certain cases, the delay has resulted in our losing the business.

It is reiterated that the proposed ROI / Margin / Securities / Specific or general terms and conditions including Pre-disbursement and Post-disbursement conditions must be discussed with the applicant and a specific confirmation from ZLCC in the covering letter of the proposal, that the proposed terms have the consent of the applicant, must be submitted. 8.7 Assessment of the profile of the borrower: A Comprehensive assessment of the profile of the borrower has to be made on the following aspects while appraising the credit needs of the borrower: a. Purpose / need for credit, b. Types of facilities required, c. Due diligence on the Borrower(s) /Guarantor(s)/Group(s) d. Borrower’s business expertise, status of his economic activity, e. Current risk profile and its sensitivity to changes, f. Internal Credit rating, g. External credit rating, if available,


32

h. Track record of repayment / cash flow projections for capacity to repay, i. Legal capacity to assume the liability, j. Adequacy and enforceability of the tangible securities / guarantees under

various scenarios. k. Verification of PAN Card details l. Verification of DIN/Father’s name m. Verification of CIBIL Detect n. Market information on Promoter(s)/company/firm/group companies / firms 8.8 Standards for presentation of credit proposal and methods of appraisal and standards for financial norms: 8.8.1 The method of appraisal as defined in Credit Risk Management Policy 2014 15 shall be followed for assessment. Adoption of MPBF methodology: The MPBF may be computed as under: ( Rs. In Crs)

Gross Current Assets A

Less: Current Liabilities other than Bank Borrowings B

Working Capital Gap ( A – B ) C

Less: 25% margin on “ A “ , other than Export Receivables D

Actual / Projected NWC E

Working Capital Gap – Margin ( C – D ) F

Working Capital Gap – NWC ( C – E ) G

Maximum Permissible Bank Finance – F or G, whichever is lower

8.8.2 a) Proposal for Fresh sanction/Renewal/ /Enhancement of limits of Rs.1.00 Crore

and above should be submitted in the Board format and all the columns should be filled with specific information.

b) All requests for Adhoc limits / Excesses / Finer Rate of Interest / One time requests etc. shall be submitted by branches in CO prescribed format along with Cost Benefit Analysis, wherever applicable.

c) Review of term loans will be undertaken by Credit Monitoring Cell (CMC) at corporate office/zonal office depending on the sanction powers as per the structured format to be circulated by CO CMC.


33

8.8.3 Standards for Financial Norms: The standard financial norms for considering credit proposals are given below:

S.No Key Ratios Bench M ark (minimum) 1. Current Ratio (i) 1.33 (without inclusion of annual maturing term

liabilities as current liability) (ii) 1.17 (with inclusion of annual maturing term

liabilities as current liability) (iii) 1.00 (including annual maturing term

liabilities in exceptional cases like sugar industry)

(iv) For Micro and Small Enterprises -- 1.25 (without inclusion of annual maturing term liabilities as current liability)

(v) For Micro and Small Enterprises -- 1.17(with inclusion of annual maturing term liabilities as current liability)

2. Debt Equity Ratio * (i) 2:1 for Medium & Large Scale industries. (ii) 4:1 for Infrastructure Project (iii) 3.1 for Micro and Small Enterprises

3. TOL/ANW 4:1 for manufacturing 6:1 for Trade and Services accounts 3:1for all other borrowers with exception to the

following sectors: 5:1 for Infrastructure Project 9:1 for Contractors (including guarantees-NFB)

otherwise 3:1 For NBFC –1:1 for Residuary NBFC 10:1 for Registered NBFC 3:1 for Unincorporated NBFC (including Nidhi companies) 10:1 for NBFC (AFC) 16:1 for Housing Companies

4. DSCR Average : 1.5 to 2. Any year shall not be lower than 1.25 during the repayment period

5. Interest Coverage Ratio

1.5 times

6. Security Coverage Ratio

(i) 1.25 times for WC limits. (ii) 1.20 for Term Loans.

7 FACR 1.20 *For any special schemes by Reserve Bank of India / Govt. of India respective scheme ratios will be applicable. For NBFCs -- DER & Current Ratio not applicable. Total Outside Liabilities (TOL): TOL includes all forms of debts such as current and term liabilities, off balance sheet liabilities, subordinated debts, optionally convertible debentures, redeemable preference shares having residual maturity of less than 12 years, deferred payment credits, bills discounted etc. TNW = Net Worth - Intangible Assets.


34

Net Worth = Paid up equity capital, free reserves (excluding revaluation reserve), preference share capital due for redemption after 12 years, instruments such as compulsorily convertible preference shares, share application money* and fully convertible debentures, Central / State Subsidy, Long term unsecured loan from (a) Government, (b) Government Agencies redeemable beyond 7 years. * Under revised schedule VI, the company need to disclose, the terms and conditions including the number of shares proposed to be issued, the amount of premium, if any, and the period before which shares shall be allotted have to be disclosed. It has also to be disclosed whether the company has sufficient authorized capital to cover the share capital amount resulting from allotment of shares against share application money. Further, the period for which the share application money has been pending beyond the stipulated period for allotment along with the reasons for delay should be disclosed. Hence full amount as per audited balance sheet may be considered. Intangible Assets = Items such as goodwill, miscellaneous expenditure, deferred payment expenditure, Preliminary / Pre operative Expenses, Deferred Tax Asset, Accumulated Losses etc., Adjusted Net Worth (ANW) : Tangible Net worth net of investment made in group companies. Relaxation : a) Any relaxation in the above norms can be considered only at the level of ZLCCs

and above based on commercial judgement. b) A need-based assessment of working capital shall be made based on the

reasonable projected level of activity and the track record of performance to avoid sanctioning of ad-hoc limits frequently.

c) While arriving at MPBF, nil margin may be considered for Export receivables and eligible MPBF may be arrived accordingly. Segregation of pre sale/post sale limit may be considered on a case to case basis, based on projections/requirement.

d) FBN may be considered outside the purview of MPBF with applicable margin subject to ensuring there is no double financing on this account. Since IBN facility is also backed by Inland LC’s, IBN also may be considered outside the purview of MPBF (ie) outside the overall assessed eligible FBWC limits subject to ensuring there is no double financing on this account subject to overall discretionary powers. Once bills under IBN/FBN are accepted for payment by the nominated bank, the relevant outstanding can be excluded while allowing the IBN/FBN limits subject to the condition that the total outstanding under the IBN/FBN is within the single borrower limit.

e) Compliance of current ratio need not be insisted for Educational institutions, Hospitals and Hotels subject to assessment based on cash budget. DER & CR not applicable for NBFCs.

f) The appraisal shall evaluate the key risk indicators of the relevant industry in which the borrower is engaged.


35

g) Joint appraisal system introduced would continue to be effectively practised for high value loans (more than Rs 5 crores) to reduce the time taken for conveying the decision.

h) In all credit proposals, the details of inspection of securities, observation, follow up action taken and compliance of Terms & Conditions of the sanction to be incorporated. In case of Export advances, adverse features noticed shall be informed to ECGC along with the action taken thereon, under reference of ECIB cover.

i) Deferred Tax Liability shall not be added with Net worth of the company. Deferred tax asset should be reduced for net worth computation. For calculation of ratios, Deferred Tax Liability need not be added with Total Outside Liabilities.

j) For calculation of FACR only the tangible assets charged to the bank as security shall be considered.

k) Specific exemption favouring PSUs is dispensed with and normal credit appraisal is applicable in cases of PSUs also.

l) Branches should monitor and factor the Buyers Credit being availed by the borrowers while assessing the working capital limits.

m) Further, margin against LCs & Money guarantees should not be funded through Fund based Working Capital Limits. However, it may be netted from the Creditors / advances from Customers under current liability

n) In case of Bid-bond and Performance Guarantees, a careful risk evaluation methodology should be followed and separate margin money requirement coupled with security cover should be ensured. Even such facilities should not be extended to the parties who are not enjoying Fund based Working Capital facilities .

o) LC, BG & PBGs should not be extended outside Working Capital Consortium and proportionate sharing to fund based limits should be ensured. Such cases should be referred to Corporate Office for decision detailing the circumstances. However, in cases where negotiation of bills drawn under LC is restricted to a particular bank and the beneficiary of the LC is not a constituent of that bank, the bank concerned may negotiate such an LC, subject to the condition that the proceeds will be remitted to the regular banker of the beneficiary

k. A quarterly report on ILCs, FLCs & BGs duly certified by Company’s Statutory Auditor should be obtained from the borrowers and should be verified with the transactions in the concerned borrowers Current / OCC Account.

8.9 Consortium Arrangement : a. Wherever advances are sanctioned under consortium arrangement, Bank shall

prescribe a condition that the borrowers shall not avail any facility (fund based or non-fund based) from a Bank, which is not a member of the consortium.

b. Borrowers may be permitted to open current account with a bank outside the consortium only after obtension of NOC from the Consortium

c. Branches should desist from opening current accounts of business entities, who enjoy borrowing arrangements with other banks and Compliance of circular ADV 105/2013-14 dt 26.12.13 to be adhered to. A reference to Credit report – CIBIL is to be made and verified to find out the borrowings of the entity

d. As far as possible, lending outside the consortium shall be discouraged. Field level functionaries shall not exercise their powers to consider any advance (both


36

FB & NFB Limits) outside the consortium. This covenant also includes consideration of NFB limits with 100% cash margin. Sanctioning Authorities at CO may consider such proposals upto their delegated powers. Letter of consent shall be obtained from the consortium members for extending any advance to a borrower in Consortium / Multiple Banking Arrangement.

e. Exchange of Information should be as per the guidelines in circular ADV 78 dt 4.10.2013 in regard to consortium and multiple banking accounts.

f. At the time of opening of current accounts, a declaration to the effect that the account holder is not enjoying any credit facility with any other bank should be insisted. No current account shall be opened of the entities which enjoy credit facilities ( fund based or non fund based ) from the banking system without specifically obtaining a no-objection certificate from the lending bank(s).

g. Regular quarterly review meetings are to be held to review the performance as per QIS statements submitted by the companies.

h. Joint Inspections shall be carried out once in a year. Inspection at regular intervals on rotation basis by member banks shall also be carried out.

i. Wherever our Bank is the leader of the consortium, Drawing Power (DP) shall be arrived on a monthly basis and the same shall be intimated to other member Banks. Where our Bank is a member Bank, the details of DP shall be obtained from the Leader Bank on a monthly basis.

j. Infrastructure funding should be only under consortium. Participation / Taking stand in Consortium Meeting –

Where we are the leader: i. The Consortium meetings should invariably be conducted once in every

quarter. In case of restructured account or accounts causing concern, the frequency may be once in a month.

ii. The agenda for the meeting should be carefully drafted by the branch in consultation with Zonal Office. All pending issues / directions pending compliance/ performance details / irregularities observed / views of member banks/ any decisions to be taken must be forming part of the agenda. Any request from the borrower pending may also be included in the agenda.

iii. A background note on the agenda items must be prepared and approved by ZM .Thereafter it may be circulated to member banks and the borrower.

iv. The agenda and the background note should be forwarded to Functional General Manager at Corporate Office at least one week in advance. The Zonal Office should give their views / recommendations on the agenda items and seek concurrence / approval from the sanctioning authority before the meeting.

v. The meeting must be presided by ZM/ or Second in command of the Zone (not less than AGM) unless a superior executive from Corporate Office is required to attend the meeting in which case the Superior Executive shall preside over the meeting.

vi. The minutes of the meeting should be prepared the next day and approved by the ZM. No issue should be recorded as having been approved by the consortium unless prior mandate from Corporate Office had been obtained on the issues for the accounts falling under the powers of CO.


37

vii. The approved minutes should be circulated to the member banks / Corporate Office within 3 days of the meeting.

Where we are a member :

i. Keep in regular touch with the leader to call for consortium meeting once in a

quarter. The meeting must be attended by Second in-command along with Branch Manager. Wherever major irregularities are persisting, it is advisable that ZM to attend the meeting.

ii. The notice for the meeting and agenda should be forwarded by the branch to Zonal Office and Branch / Zonal Office to give their comments on each issue to Corporate Office and seek mandate, wherever required, sufficiently in advance.

iii. Our Bank’s representative shall not give assent to any decision unless they have the mandate from Corporate Office / ZLCC.

iv. For induction of an additional banker in to the consortium where we are already a member, approval of COLCC (GM) at CO for CO sanctioned accounts to be obtained, where majority of the members have approved for induction of an additional banker, subject to the induction of the member is well within the assessed limit.

The above guidelines should be followed in Coordination Committee Meetings under Multiple Banking Arrangement (MBA) also except that there is no leader and the Bank having the largest share of financing the borrower will be the coordinator.

8.10. Multiple Banking Arrangement: With regard to financing under Multiple Banking Arrangement, the Bank shall adopt common code provided by IBA Working Committee, comprising of approaches to the factors namely appraisal / assessment, documentation, security sharing, exit option,rehabilitation, recoveries & control over cash flows and information sharing as per RBI guidelines. 8.11. JOINT DOCUMENTATION CONSORTIUM / MBA ACCOUNTS : If there is any delay in execution of Joint documentation, bank specific individual documents to be taken (after obtaining specific permission of the COLCC (GM) at CO for accounts under the powers of CO and ZLCC for other accounts) pending joint documentation by the member banks and charges to be registered with ROC wherever applicable. Satisfaction of Charge for such individual documents shall be filed on completion of joint documentation by the branches. 8.12. Joint Lending Arrangement (JLA): Detailed guidelines are furnished in Annexure 4. 8.13 Exposure to Defaulters/Wilful Defaulters: The Bank will keep in view as to whether the names of the borrowing entity/ Guarantors/Directors / Partners/Trustees of the borrowing entity are listed in the


38

latest caution list / defaulter’s list circulated by RBI / ECGC (SAL). Reports of CIBIL and EXPERIAN are to be verified for Personal loan products. Detailed guidelines are furnished in CO Cir. PBD. 53 dt. 05.08.2013 and Adv.114/2013-14 dt. 22.01.2014. For other category of borrowers CIBIL reports are to be verified. The existing guidelines for sanctioning fresh facilities will be continued and the relevant guidelines are furnished below: a) For Borrowers / Guarantors/ Directors/Partners/Trustees appearing in the

Defaulters’ list of RBI non-suit filed accounts, fresh sanction/enhancement of the limit/review/renewal shall be considered first time at CO by COLCC(GM) on merits, upto its powers and respective sanctioning committee at CO for others. Subsequent review/renewal/enhancement shall be considered by the committee based on the exposure.

b. As per RBI directives, no additional facilities shall be granted to the willful defaulters whose name appear in the RBI willful defaulters’ list. 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 from the scheduled commercial banks for 5 years.

c. Review / Renewal of willful defaulter’s account and its group accounts shall be considered only at the level of Management Committee of the Board. However, if such Director is an independent Director / Nominee Director from any financial / Government Institution / Body, facilities to other companies where the said independent / Nominee Director is a Director, may be considered by the respective sanctioning authority.

d. If the names of borrower / Guarantor/ partner/ director / company/trustee appear in

the Specific Approval List (SAL) of ECGC, prior permission from ECGC to be obtained for coverage. Administrative clearance from COLCC (GM) to be obtained to consider fresh sanction / enhancement of the limit / review / renewal on merits by the respective sanctioning authority.

8.14 Delegation of sanctioning powers for various author ities:

a. Powers delegated as per booklet on credit and credit related administrative power to various authorities, which are in force, and any further amendments shall be applicable.

b. The Norms for take over of Standard Accounts are as per the guidelines . c. Credit limits to infrastructure sector (other than Educational Institutions &

hospitals) can be considered from the level of COLCC(GM) and above under their respective delegated monetary powers

8.15 Excess Drawings Discretion in higher authority san ctioned accounts In order to enforce appropriate credit climate and credit discipline in working capital accounts, field level functionaries have to evaluate borrower’s credit requirements


39

periodically and normally there should not be any need for allowing excess drawings. Need based adhoc limits may be sanctioned. Tolerance level and powers for Excess / Adhoc working capital limits of fund based and non fund based limits are given in credit related power booklet para no. 2.6.3. In case of MC sanctioned accounts, excess can be considered by the branch level sanctioning authorities upto their delegated powers only after getting prior permission of ZLCC. ZLCC may permit excess upto the delegated powers in the cred it related power booklet. In the absence of ZLCC, prior permission must be obtained from the COLCC(GM) at Corporate Office. The delegated powers exercised for granting excess shall be reported on the same day and shall not in any event, await adjustment of excess granted. In respect of accounts sanctioned by MC, the excess allowed should be reported immediately to CO. Adjustment of excess should be monitored and where the excess granted is not so adjusted within the time frame, it shall be reported to MC immediately thereafter. 8.15.1 Sanctioning of Adhoc Limit - Discretion All Adhoc proposals should be properly appraised / sanctioned and cover documents obtained. Adhoc limits should be supported by adequate drawing power and it should not be for ever greening of the account. The circumstances and the reasons for considering adhoc limit should be analyzed. Discretionary powers are given to sanctioning authorities for allowing adhoc up to 20% (of Fund Based and Non-fund Based (LC) working capital limits) on SME advances on merits. Adhoc for IBEX Gold Cardholders by ZLCC and above and for SME units at all levels upto 20%* shall be considered. * of fund based working capital limits and non fund based working capital (LC) limits a) In Higher Authority Sanctioned Accounts : Adhoc (upto 10% / 5%)* may be sanctioned by a lower authority upto the powers permitted for excess, subject to the tolerance level / ceiling as per credit and credit administrative power booklet Such adhoc/excess should be reported to the sanctioning authority on the same day for confirmation. For MC sanctioned accounts, prior approval of COLCC (GM) should be obtained before allowing adhoc limits. * of fund based working capital limits and non fund based working capital (LC) limits Adhoc limits are valid only for a period upto a ma ximum of THREE months and should not be rolled over beyond the said valid ity period. b) ADHOC by the same sanctioning authority:

Credit Sanctioning Authority at the levels of BM, ZLCC(ZM/SIC) and above shall accord sanction of Adhoc Working Capital Limits under their credit sanctioning powers over the existing or as fresh limit for the purpose of Working Capital from the existing level of total Working Capital Limits, sanctioned by the respective Sanctioning Authority provided:


40

i. Total credit exposure (i.e. regular plus adhoc) should not exceed 120% of the ceiling delegated for that category/ purpose/ security per borrower for Fund based / Non-fund based powers to the Sanctioning Authority.

ii. The period shall be upto a maximum of three months and based on merits, iii. Adhoc is to be properly appraised, assessed and sanctioned. iv. Adhoc is to be disbursed on completion of documentation covering the Adhoc

limits. v. Adhoc sanction exceeding the delegated ceilings / period are to be referred to

the next higher authority.

c) Adhoc in lower authority sanctioned accounts: Adhoc limits (with a validity period of not exceeding three months) can be permitted / confirmed by a higher authority in lower authority sanctioned accounts upto the general delegated powers of the said higher authority 8.16 Compromise settled accounts With regard to sanctioning of additional facilities to any account connected with a compromise settled borrowal account, prior permission of competent authority as per recovery policy shall be obtained.

However, subsequent review sanctions / enhancements / modifications can be considered in these accounts by the respective sanctioning authority. Any facilities to a newly floated entity under the same group shall be placed to the COLCC(GM) for clearance/approval. 8.17 Entities of group accounts with facilities in multiple Zones:

Discretionary power: As per Credit &Credit related Administrative power Book (refer AP-13,Para XXIII). Other operative guidelines are as follows

a. The ZLCCs themselves at different Zones shall handle proposals of the Units

/ Borrowers of the group. b. The Other ZLCCs should furnish the Sanction Ticket / Review / Renewal

sanction copies to the Zones, where the Maximum quantum of facility enjoying unit is handled.

c. If the combined exposure exceeds Rs.50 lakhs, Legal Audit shall be carried out for such accounts where collaterals are available..

d. If any company is having multiple exposure at domestic and overseas branches – sanctioning powers shall be restricted to Corporate Office

8.18 IDO Report / TEV Study report for manufacturi ng companies and other projects: Techno economic viability forms an integral part of credit appraisal for manufacturing companies and other projects. All the credit proposals for the manufacturing segment (fresh/additional/expansion) for limits of more than Rs.1 crores and upto Rs 5 crores shall be accompanied by IDO’s report. For the limits beyond Rs 5 crores TEV study from a reputed agency has to be obtained. Zonal offices should identify and empanel such agencies .In case of non availability of services of IDO for any


41

reason, the TEV study report can be obtained. The performance of the above empanelled agencies may be reviewed by zonal offices once in a year. 8.18.1 RDOs Report for Agricultural Proposal All agricultural proposals above Rs.10 lakhs (except Farm mechanization) shall be accompanied by RDOs report on the technical feasibility of the proposal 8.19 Obtention of Income Tax / Sales Tax / VAT ass essment copies: Income Tax / Sales Tax / VAT assessment copies of the borrower has to be obtained for considering fresh / renewal of advances in all cases. In case of Trusts exempted under income tax act, copy of current exemption shall be obtained and kept as record along with other loan documents. 8.20 Capital infusion by borrowers Besides submission of Chartered Accountant’s certificate for the already infused capital by the borrowers, the capital to be infused in future by the borrowers shall be through the account maintained with our Bank or with co-lenders. The Branches shall also obtain Chartered Accountant’s certificate to this effect after the capital has been infused. 8.21 Declaration regarding dues to statutory authorities Branches should ensure that the Government Dues owed by the borrowing entities such as dues to Provident Fund, Employees State Insurance Corporation, CENVAT, Sales Tax, Income Tax, Labour Dues are paid up to date. Branches shall obtain a Certificate from an independent Company Secretary or from a Chartered Accountant to this effect on a yearly basis, for the borrowal accounts of Rs. 5 crores and above, and keep the same on record after verification. 8.22 Sanction of Pre-shipment / Post Shipment Expor t Credit - adherence of operating cycle Pre-Shipment and Post –Shipment Export Credit shall be assessed based on the operating cycle of the borrower. To comply with this, the operating cycle of the borrower shall be analyzed and recommended to the sanctioning authorities. Branches shall desist from allowing Pre-Shipment / Post Shipment Credit limits without an assessment of the operating cycle of the borrower up to maximum periods. 8.23 Information of Pledge of Shares by promoters: To ensure non-dilution of the stake by the promoters of the company for which Bank has considered facilities, the information / data of pledge of shares by the promoters to other Financial Institutions/Banks needs to be in place. SEBI has mandated disclosures regarding pledge of shares by the promoter and persons forming part of the promoter group to the stock exchanges, where shares of the company are listed.


42

Hence, the Branches / Zonal Office shall collect copy of the details submitted to SEBI from the listed companies for whom our Bank has considered facilities (more than Rs.10 crores) on a monthly basis and submit the same to the sanctioning authority. If the borrower is an unlisted company, the information shall be obtained from the company / signed by the company secretary and submitted to Sanctioning Authority. 8.24 a. Furnishing of Registration Number and Complete address by Practicing Company Secretary/ Chartered Accountant/ Stock Auditors-Verification of address of CA through website of IC AI Wherever certificates from the Company Secretary / Chartered Accountant / Cost Accountant/Stock Auditors are submitted, the Institute registration number and full address should be obtained. Wherever Certificates from CAs are obtained, the same need to be verified with the CAs concerned as to their genuineness and obtention of signature of the Borrower and CA/Comp any Secretary/Stock Auditor . The audited balance sheet received from the customers are to be sent to respective chartered accountants/chartered accountants firms through registered post/speed post and seek their confirmation in writing with regard to the genuineness of the same. If no reply is received within 15 days from the date of receipt at their end it should be construed that the same are genuine. The above time frame should be indicated in the letter addressed to the Chartered accountants/Chartered accountants firm. Further ROC site is also to be verified in all the cases where the filings by the borrowers is mandatory and record of such verifications shall be kept on the records .. The name, status of membership and address of the CAs need to be verified from the ICAI site http://220.227.161.82/locm.asp. Wherever the financials certified by CAs are found to be fudged, procedural guidelines of the Bank for reporting their names as third party entities involved in frauds, to IBA (through CO/Inspection Department) should be complied with. b. Procedure to send Confirmation of Balances & Scr utiny of Financial Statements: ( RBI letter DBS.CO. PPD.No.15106/ 11.01.005/2010-11 dated 29.04.2011) Based on the recommendations of the high powered committee set up by the Institute of Chartered Accountants of India on the Satyam episode, RBI, directed the following (i) branches should send confirmation balances in deposit and advances accounts of their entities/ customers directly to the respective auditors when called for and (ii) as a part of strengthening the credit assessment / monitoring framework of Banks, Branches should ensure that the financial statements of borrowers are reviewed diligently. c. Role of third party intermediaries (Department of Financial Services, Ministry of Finance have sent actionable points emerged out of the conference of CVO’s of PSBs, FIs and PSICs held on 02/11/2011 at New Delhi ) :


43

In the light of the guidelines issued by DFS, MOF, wherever there is a contract with intermediaries while entrusting the job of Stock Audit, Concurrent Audit, Legal Audit, Legal opinion, Engineer’s valuation, Chartered Accountant Certificates etc, a condition to be incorporated that “I/We certify that this certificate is issued afte r verifying the necessary details and I / we are awar e that giving false certificate is a criminal act and is a punishable offence”. T he condition is to be incorporated in all letters issued while appointing Advocates, Valuers, Chartered Accountants for Legal Audit, Stock Audit, Legal opinion, Engineer Valuation etc and also for getting all Chartered Ac countant certificates.

8.25 Escrow Account / Trust and Retention Account (TRA) / Debt Service

Reserve Account (DSRA) / Interest Service Reserve A ccount (ISRA): Wherever project finance is considered, Bank shall stipulate, maintenance of Escrow / Trust & Retention account with our Bank where we are leaders of the Consortium. Wherever our Bank has maximum exposure under Multiple Banking Arrangement, a condition shall be stipulated for maintenance of Escrow account / TRA with our Bank unless specifically otherwise permitted by the sanctioning authority. Wherever, we are co-lenders, the Branches shall endeavor for obtention of proportionate share in the DSRA / ISRA instead of maintenance with single lead institution. In case of infrastructure financing , the project cost may include the amounts to be maintained in Debt Service Reserve Account (DSRA), Trust Retention Account (TRA). 8.26 Subordinated debt / unsecured loan as quasi equity: Subordinated debt may be considered as quasi equity subject to obtention of Letter of Pegging. Unsecured Loans from promoters/relatives/friends can be considered as quasi-equity to a maximum of 100% of the capital .The same comes into effect from 1.04.2014.However, if USLs are treated as quasi equity for arrival of tangible net worth, the same shall be supported by obtention of letter of pegging. The unsecured loan shall not be withdrawn during the pendency of the loan. Under exceptional cases, withdrawal shall be permitted only with the prior consent of the sanctioning authority provided leverage ratios conforms to the standard financial norms / stipulated financial covenants. Interest on unsecured loan, if any, shall not be more than rate of interest stipulated by bank. An undertaking from the borrower to this effect is to be obtained. 8.27 Financing for disinvestment by the Govt: Proposals seeking financial assistance for acquiring stake in a company under disinvestment by Govt. of India / State Governments can be considered by the Management Committee.


44

8.28 Sanction of Term Loans to Housing Finance Instituti ons: Term Loans to Housing Finance Institutions and Housing intermediary agencies shall be considered based on the financial performance of the companies. 8.29 Monitoring of implementation of project In project financing, one of the major risk is the implementation risk leading to revision in estimation of outlays, time limits and consequent impairment of credit quality. The revised guidelines of RBI are communicated to branches vide CO Cir. Adv.62/2013-14 dt. 23.08.2013. The salient features / changes in respect of DCCO/ COD are as under: Infrastructure and non infrastructure projects Mere extension of DCCO would not be considered as restructuring, if the revised DCCO falls within the period of two years and one year from the original DCCO for infrastructure projects and non-infrastructure projects respectively. In such cases the consequential shift in repayment period by equal or shorter duration (including the start date and end date of revised repayment schedule) than the extension of DCCO, would also not be considered as restructuring provided all other terms and conditions of the loan remain unchanged. CRE Projects Mere extension of DCCO even in the case of CRE projects would not be treated as restructuring if the revised DCCO falls within the period of one year from the original DCCO and there is no change in other terms and conditions except possible shift of the repayment schedule and servicing of the loan by equal or shorter duration compared to the period by which DCCO has been extended. Such CRE project loans will be treated as Standard assets Infrastructure projects under Public Private Partne rship: Extensions in DCCO on account of shift in Appointed Date (as defined in the concession agreement) due to the inability of the Concession Authority to comply with the requisite conditions and such extensions will not be treated as restructuring, subject to following conditions: a. The project is an infrastructure project under PPP model awarded by a public

authority; b. The loan disbursement is yet to begin; c. The revised date of commencement of commercial operations is documented by

way of a supplementary agreement between the borrower and lender; and d. Project viability has been reassessed and sanction from appropriate authority has

been obtained at the time of supplementary agreement

In all the above cases of restructuring where regulatory forbearance has been extended, the Boards of banks should satisfy themselves about the viability of the project and the restructuring plan


45

Monitoring of the project acquires importance to ensure proper / timely implementation of the project. Hence, progress report on implementation of the project duly counter signed by the Lenders’ Engineer / Chartered Accountant shall be obtained and forwarded to the sanctioning authority on quarterly basis in the prescribed format (given in Annexure). 8.30 Policy on Foreign Currency Loan Resident constituents can be allowed loans in foreign currency to meet their foreign exchange as well as rupee needs out of Bank’s Foreign Currency resources.

The following aspects have to be taken care of while sanctioning foreign currency loans i. Loans can be sanctioned for meeting working capital/capital expenditure

needs subject to the prudential norms, credit discipline and credit monitoring guidelines in force.

ii. No personal loans and loans for consumer durables be provided, under any circumstances.

Only forex authorized branches (A & B category) can give loans in foreign currency to Resident customers.

Eligibility i. To avail this facility, respective credit sanctioning authorities should have already

accorded necessary sanction. ii. As the credit risk on account of foreign currency loans is significantly greater as

compared to rupee loans, this scheme is confined only to resident customers whose borrowal accounts are classified as “Standard Assets”. However, preference for availing the facility shall be given to the borrowers having natural hedge ( in the same currency of the FCL ) and others will have to necessarily obtain forward covers for the exchange risk. Current prudential norms, credit discipline and credit monitoring as applicable to the other domestic credit shall, mutatis mutandis, apply for these loans also. As sanction under the scheme is subject to availability of foreign currency resources, sanctioning authorities should get the funds clearance from CO: International Division, before sanction.

Operational Guidelines

1. Considering the Asset Liability mismatch arising due to large / very large tenor of FCL, it is advisable to keep the FCL maturity for near term only. Hence even though FCL is sanctioned for longer maturity, the funds clearance from CO: ID will be applicable for 6 months only. At the end of six months fresh funds clearance is to be obtained from CO: ID before roll over date. The branch should obtain specific details from the borrowers as to the tenor of the loans and must insist on strict repayment as per schedule so as to facilitate proper funds management by Treasury branch.

2. Any subsequent extensions can be granted by the sanctioning authority on a roll over basis, subject to funds clearance from CO International Division. Branches should seek funds clearance from CO: ID at least one week before maturity of the FCL. If funds clearance from CO:ID is not obtained the FCL


46

liability should be crystallized on the due date by the Branches, suo-moto, and the liability maintained only in Rupees

3. CO: Credit Division sanction for FCL shall be provisional only and branch shall communicate the sanction only after obtaining funds clearance from CO: ID and such funds clearance will depend on the availability of FC resources at the time of actual disbursal.

4. Pricing for FCL may be determined by CO: Credit Division after obtaining the cost of FC resources from CO:ID

5. The loans will be only in US Dollar and request for Foreign Currency Loan in other currencies will be considered on case to case basis.

Repayment of Foreign Currency Loan

a. In case of demand loan, the loan should be repayable on or before due date / immediately upon expiry of the period for which the loan was sanctioned.

b. As for term loans, the loan shall be repayable as per repayment schedule prescribed in the sanction ticket.

c. Foreign currency loan shall be repaid by rupee proceeds to the debit of customer’s account with us. On the date of closure of FCL account, the principal amount should be converted at TT selling rate and the rupee equivalent debited to party’s account and FX holding account of the Treasury branch should be credited. The interest amount should be reckoned in Foreign currency first and converted at TT selling rate and recovered from the party’s account and credited to interest on FCL.

d. Interest should be charged and recovered every month as in the case of Rupee Loan / OCC accounts and at the time of closure. While adjustment of principal amount requires a ready sale report to be made, and such reporting is not necessary for the interest amount.

8.31 Policy on Bridge Loan RBI guidelines on Bridge Loans

1 Banks have been permitted to sanction bridge loans to companies for a period not exceeding one year against expected equity flows/issues. Such loans should be included within the ceiling of 40% of the banks net worth as on March 31 of the previous year prescribed for total exposure including both fund based and non fund based exposure to capital market in all forms.

2 Banks should formulate their own internal guidelines with the approval of their Board of Directors for grant of such loans, exercising due caution and attention to security for such loans.

3 Banks may also extend bridge loans against the expected proceeds of Non Convertible Debentures, External Commercial Borrowings, Global Depository Receipts and/or funds in the nature of Foreign Direct Investments, provided the banks are satisfied that the borrowing company has already made firm arrangements for raising the aforesaid resources/funds.

Based on the above the following policy guidelines on Bridge Loan are approved:


47

Guidelines on Bridge Loans:

Bridge loans may be granted against

i ) Expected equity flows/issues whether in India or abroad.

ii) Expected proceeds of Non Convertible Debentures, External Commercial Borrowings, Global Depository Receipts and/or funds in the nature of Foreign Direct Investments, provided the borrowing company has already made firm arrangements for raising the aforesaid resources/funds and as per the respective guidelines in force.

iii) The loans are to be repaid within a maximum period of twelve months. Bridge loan proposals should be considered and on a selective basis. The loans can be sanctioned only by the authorities at Corporate Office in terms of the powers delegated to them.

iv) The exposure on such loans against expected equity flows/issues are to be categorized under capital market exposure and capital market exposure ceiling limit prescribed by RBI to be adhered .

v) Companies (other than NBFCs) which are ‘A' rated and above and of 'Standard Assets' classification whose equity shares are proposed to be quoted in at least one major stock exchange in India are eligible for the loan.

Securities:

The following securities are preferable though not mandatory.

a. Personal guarantee of promoter directors other than nominee / professional directors

b. Exclusive and / or second charge on the fixed assets of the company, existing and / or to be created

Conditions:

a. Bridge Loans can be sanctioned only by Management C ommittee of Board.

b. End use of the loan should be strictly ensured by the disbursing authority and closely monitored by the controlling authorities. The bridge loan should be disbursed for the purpose for which the issue is intended and there should be no diversion of the loan for other purposes.

c. The equity issues should have the clearance and consent of Board / shareholders wherever required and the company should have initiated the process for the launch of the issue.

d. The extent upto which the bridge loan can be sanctioned should be reckoned with reference to the amount annually called up each time and not with reference to the total quantum of the issue. In case the share application money is called for in two or more calls, the bridge loan will be restricted to 50% of the share application money called for in terms of Offer document/Prospectus. To ensure compliance of this guideline, suitable


48

certificates should be obtained from other banks and financial institutions under consortium/syndicate/multiple banking arrangement in order to ascertain the amount of total bridge loans enjoyed by the unit.

e. The period of bridge loan normally should not exceed the time taken for completion formalities related to the issue, as the bridge loan should be adjusted from out of the proceeds of equity issue/NCD/ECB/GDR/FDI. The maximum period of the bridge loan, however, should not exceed twelve months under any circumstances.

f. No bridge loan should be extended without obtaining No Objection Certificate (NOC) /consent of the borrower's consortium/syndicate bankers, where we are not a member of such an arrangement and NOC/consent from the sole/multiple Bank/s where we are not the regular financing bank.

g. In case of consortium accounts, where only our Bank sanctions the Bridge Loan, information is to be given to other members of the consortium.

h. A compliance certificate by the disbursing authority viz., the Branch Manager stating that all terms and conditions have been fulfilled should be forwarded to the Credit desk concerned at Corporate Office and the controlling offices.

i. The compliance certificate by the disbursing authority should be verified independently by the inspecting officials/concurrent auditors and any deviation/violation of sanction terms should be reported to the sanctioning/controlling authorities.

j. Company should undertake to remit the Bridge loan amount with interest out of the proceeds of the issue and also provide a post dated cheque covering the liability under the Bridge loan. A copy of such undertaking letter thus obtained should be filed with the Bankers to the company/Bankers to issue/Escrow Bank with a request that the issue proceeds when received in their account subsequent to allotment and completion of SEBI/Stock Exchange formalities should be transferred to the company’s loan account with us.

Relaxations of any the norms discussed above may be considered at the level of CAC. Bridge Loan against Receivables from Government As per RBI directives, Banks should not extend Bridge Loans against amounts receivable from Central / State Governments by way of subsidies, refunds, reimbursements, capital contributions, etc. The following exemptions are, however, made

a) Banks may continue as a purely temporary measure to finance subsidy receivable under the normal Retention Price Scheme (RPS) for periods upto 60 days in case of fertilizer industry. No other subsidy receivables such as, those in respect of claims raised by units on the basis of expected revision in retention price because of escalation in costs of inputs and in respect of freight, etc., should be financed by the banks.


49

b) Banks may continue to grant finance against receivables from Government to exporters (viz. Duty Draw Bank and IPRS) to the extent covered by the existing instructions.

8.32 BONUS LOAN POLICY:

The Bank as a regular policy for over a period has been sanctioning Bonus Loans as Short Term Loan with six months tenor exclusively to our existing Corporate and Non-Corporate clients including service institutions such as hospitals and educational institutions during the year. Short Term Loan repayable in 6 monthly instalments is extended for enabling the management of the industrial establishment to meet the commitment on Bonus and to tide over temporary cash flow mismatches.

Target Group covered under the Policy:

1. Existing borrower Customers enjoying Working Capital facility under Corporate as well as Non-Corporate can borrow.

2. Any borrower customer either under manufacturing or under service industry like educational institutions, hospitals, etc can borrow.

3. Bonus loan can be considered for any festival only once in a financial year.

Terms & Conditions: > Loan will be considered only for borrowers classified as Standard Assets and

for units under rehabilitation which are regular in their repayment obligations as per nursing programme.

> In respect of accounts which are temporarily irregular / substandard, the Bonus Loan may be sanctioned by Management Committee on selective basis.

> Earlier Bonus Loan should have been adjusted on the due date

> Monthly interest charged on all existing accounts should have been serviced up to the end of the previous month.

> Bonus Loan of up to the statutory minimum of 8.33% of the Salary and Wages may be sanctioned without any margin. Bonus Loan sanctioned in excess of 8.33% subject to a maximum of 20% will carry a margin of 25%.

> Loan to be repaid in 6 equal monthly instalments excluding one month holiday period.

> Borrowers to submit cash flow statement which must reflect sufficient cash generating capacity to service the loan.

> Existing charge on current assets to be extended to cover the Bonus Loan also. Wherever exclusive charge on fixed assets is available to Bank, they should be extended to cover Bonus Loan.


50

> In case of consortium accounts, where we are a member, and only if our Bank sanctions Bonus Loan, we should obtain undertaking letter from the company prioritizing the monthly repayment of the bonus loan over the other loans and NOC to be obtained from other participating Banks

> In case of consortium accounts Where we are leader, lending such loans to be considered subject to obtention of NOC from other member banks for;

i) Ceding pari passu charge on current assets and

ii) our prior charge on future cash flows for monthly repayment of bonus loan.

> Repayment of Bonus Loan should not cause any irregularity in existing cash credit accounts.

> Last audited financials statements submitted to the bank should not be more than 6 months old.

Interest rate: Interest on Bonus Loan shall be at 1% over the prescribed rate (prescribed rate is the applicable rate of interest for working capital limits sanctioned / approved to the respective borrower) or Base Rate +4.25% whichever is higher. Discretionary powers for sanction:

> Zonal Level Credit Committees of General Manager headed Zones to sanction Bonus Loan to Standard borrowal accounts of respective Zones, irrespective of sanctioning authority for regular limits.

> Zonal Level Credit Committees of zones headed by Executives, other than the rank of General Managersto sanction bonus loans within their discretionary powers for standard accounts under ZLCC sanction.

> COLCC (GM) at Corporate Office for CO sanctioned Standard Accounts, falling under Zones that are headed by executives other than General Managers.

8.33 Infrastructure Policy 8.33.1 A credit facility extended by lenders (i.e. banks and select AIFIs) to a borrower

for exposure in the following infrastructure sub-sectors will qualify as ‘infrastructure lending’:

Sl No

Category Infrastructure sub-sectors

1 Transport i. Roads and bridges ii. Ports iii. Inland Waterways iv. Airport v. Railway Track,tunnels,viaducts,bridges ( A) vi. Urban Public Transport(except rolling stock in case of


51

urban road transport)

2 Energy i. Electricity Generation ii. Electricity Transmission iii. Electricity Distribution iv. Oil pipelines v. Oil/Gas/Liquefied Natural Gas(LNG) storage facility (B) vi. Gas pipelines (C)

3 Water Sanitation

i. Solid Waste Management ii. Water supply pipelines iii. Water treatment plants iv. Sewage collection,treatment and disposal system v. Irrigation( dams,chanels,embankments etc.,) vi. Storm Water Drainage System vii. Slurry pipelines

4 Communication

i. Telecommunication{Fixed Network} (D) ii. Telecommunication towers iii. Telecommunication & Telecom Services

5 Social

and Commercial Infrastructure

i. Education Institutions{capital stock} (E) ii. Hospitals (capital stock) iii. Three star or higher category classified hotels located

outside cities with population of more than One million iv. Common infrastructure for industrial parks,

SEZ,tourism facilities and agriculture markets v. Fertilizer(capital investment) vi. Post harvest storage infrastructure for agriculture and

horticultural produce including cold storage vii. Terminal markets viii. Soil testing laboratories ix. Cold Chain (F) x. Hotels with project cost of more than Rs.200 crores

each in any place in India and of any star rating;. xi. Convention Centres with project cost of more than

Rs.300 crore each. A. Includes supporting terminal infrastructure such as loading/unloading

terminals, stations and buildings, Capital dredging. B. Includes strategic storage of crude oil C. Includes city gas distribution network D. Includes optic fibre/cable networks which provide broadband/internet E. Includes Medical colleges, Para Medical Training Institutes and Diagnostic Centres F. Includes cold room facility for farm level pre-cooling, for preservation or

storage of agriculture and allied produce, marine products and meat

Projects under the existing definition of infrastructure will continue to get the benefits under ‘infrastructure lending’ till the completion of the projects. . Eligible costs exclude cost of land and lease charges but include interest during construction.


52

8.33.2. Criteria for Financing: Financing of infrastructure is to be for technically feasible, financially viable and bankable projects undertaken by both public sector and private sector undertakings subject to:-

8.33.2.1 The amount sanctioned should be within the overall ceiling of prudential exposure norms for infrastructure financing fixed by credit risk management policy.

8.33.2.2 In respect of projects undertaken by public sector units, term loans can be sanctioned only for Corporate entities (Undertakings registered under Companies Act or a Corporation established under relevant statute).

8.33.2.3 Such term loans should not be in lieu of or to substitute budgetary resources envisaged for the project.

8.33.2.4 Term loan could supplement the budgetary resources if such loan was contemplated in project design.

8.33.2.5 In case of Special Purpose Vehicles (SPV) in public sector registered under Companies Act set up for financing infrastructure, it should be ensured that these loans / investments are not used for financing the budget of the state governments.

8.33.2.6 Whether such financing is done by way of extending loans or investing in bonds, bank should undertake due diligence on the viability and bankability of such projects to ensure "Revenue Stream" from the project is sufficient to take care of the debt servicing obligations. The repayment / servicing of debt should not be out of budgetary resources.

8.33.2.7 It should be ensured that the funding proposals in the case of financing of SPVs are for specific monitorable projects.

8.33.3 SPVs in Private Sector

8.33.3.1 For SPVs in private sector, registered under Companies Act, we may lend for directly undertaking infrastructure projects which are financially viable and not for acting as mere financial intermediaries.

8.33.3.2 Sanctioning authorities to ensure that bankruptcy or financial difficulties of the parent / sponsor should not affect the financial health of SPV.

8.33.4 Types of financing

8.33.4.1 To meet financial requirements of infrastructure projects bank may extend credit by way of Working Capital finance, Term Loan, Project Loan, Subscription to bonds and debentures / preference shares / equity shares acquired as a part of project finance package which is treated as "deemed advance" and any other form of funded or non-funded facility.

8.33.4.2 Take-out financing: Take-out financing structure is essentially a mechanism designed to enable banks to avoid asset-liability maturity mismatches that may arise out of extending long tenor loans to infrastructure projects. We may have an arrangement with IDFC/ IIFCL or any other financial institution


53

for transferring to the latter the outstanding in our books on a pre-determined basis.

8.33.4.3 Inter Institutional Guarantees: We may issue guarantees favouring other lending institutions in respect of infrastructure projects subject to the guidelines in Credit Risk Management Policy 2014-15.

8.33.5 Financing promoter's equity;

In terms of RBI Circular No. DBOD. Dir. BC. 90/ 13.07.05/ 98 dated August 28, 1998, the promoter's contribution towards the equity capital of a company should come from their own resources and the bank should not normally grant advances to take up shares of other companies. In view of the importance attached to the infrastructure sector, it has been decided that, under certain circumstances, an exception may be made to this policy for financing the acquisition of the promoter's shares in an existing company, which is engaged in implementing or operating an infrastructure project in India. The conditions, subject to which an exception may be made are as follows: The bank finance would be only for acquisition of shares of existing companies providing infrastructure facilities. Further, acquisition of such shares should be in respect of companies where the existing foreign promoters and / or domestic joint promoters voluntarily propose to disinvest their majority shares in compliance with SEBI guidelines, where applicable.

The companies to which loans are extended should, inter-alia, have a satisfactory net worth.

The company financed and the promoters/ directors of such companies should not be a defaulter to banks/ FIs. In order to ensure that the borrower has a substantial stake in the infrastructure company, bank finance should be restricted to 50% of the finance required for acquiring the promoter's stake in the company being acquired.

Finance extended should be against the security of the assets of the borrowing company or the assets of the company acquired and not against the shares of that company or the company being acquired. The shares of the borrower company / company being acquired may be accepted as additional security and not as primary security. The security charged to the banks should be marketable.

Maintenance of stipulated margins at all times.

The tenor of the bank loans may not be longer than seven years. However, the Board can make an exception in specific cases, where necessary and financial viability of the project. This financing would be subject to compliance with the statutory requirements under Section 19(2) of the Banking Regulation Act, 1949. Financing acquisition of equity shares by promoters should be within the regulatory ceiling of 40 per cent of their net


54

worth as on March 31 of the previous year for the aggregate exposure to the capital markets in all forms (both fund based and non-fund based).

The proposal for bank finance for financing promoter’s equity should have the approval of the Board. 8.33.6. Appraisal of Infrastructure Project Loan Lendings to Infrastructure projects shall be under Consortium Arrangement only. Infrastructure projects are often financed through Special Purpose Vehicles. Financing of these projects would, therefore, call for special appraisal skills on the part of lending agencies. Identification of various project risks, evaluation of risk mitigation through appraisal of project contracts and evaluation of credit worthiness of the contracting entities and their abilities to fulfill contractual obligations will be an integral part of the appraisal exercise. Often, the size of the funding requirement would necessitate joint financing by Banks/FIs or financing by more than one Bank under Consortium or Syndication arrangements. In such cases, RBI permitted participating Banks / FIs may, for the purpose of their own assessment, refer to the appraisal report prepared by the lead Bank / FI or have the project appraisal jointly. We may follow the same. 8.33.7. Sanctioning Authority: Credit limits to infrastructure sector can be considered from the level of COLCC(GM) and above under their respective delegated monetary powers. 8.33.8. Period of loan for Infrastructure products : The quantum of credit dispensation in the form of term loans should be in accordance with the Bank’s policy based on the maturity pattern of Bank’s assets and liabilities. Period of the loan for financing promoter’s equity should not exceed 7 years. For other type of term loans under infrastructures, COLCC(GM) and above at CO shall approve repayment upto 25 years (including the holiday period/implementation period) within their delegated powers. 8.33.9. Time Frame Submission of Preliminary Information Memorandum : Proposals shall be handled only at Corporate or Cl branches. The application for financing any infrastructure project shall be taken up with New Business Group for in-principle sanction immediately.

Maximum time frame : In normal course, the proposal for infrastructure shall be disposed / sanctioned within three months from the date of receipt of comprehensive proposal at the Branch. Date of receipt of comprehensive proposal at branch should be furnished in the proposal submitted to the respective sanctioning authorities. 8.33.10. Monitoring of implementation of project : as detailed in para 8.29


55

8.33.11 Promoters’ contribution In respect of all Project loans, the entire Promoters’ Contribution has to be brought in upfront by the Promoters before release of limits. In case of inability of the Promoters to bring the entire money upfront, branches should ensure that the prior approval of the Sanctioning authority is obtained for bringing in the Promoters Contribution proportionately. (Subject to minimum stipulated under Credit Risk Management Policy) a) Project finance credit proposals should consist of the following details:

• Details of promoters contribution- • Source of the contribution with quantum/ expected period of infusion.

b) Branches to ensure utilization of term loan proceeds/infusion of funds as

projected in the proposal, by obtention of quarterly project implementation report duly signed by CA/Lenders Engineer.

8.34 CASHEW LOAN POLICY Working capital for cashew borrowers

� Availability of raw cashew nut is a key factor in the Cashew Industry. The processing activity spread over the entire year, is dependant on availability of raw cashew nut.

� Considering the seasonal nature of availability of raw cashew, working capital Assessment shall be based on past actual peak level inventory holding of raw materials (RM), work in process (WIP) and finished goods (FG) separately.

� Other current assets not more than 5% of the total peak level holding of RM, WIP and FG based on past actual.

Method for assessing the working capital:

� Second method of lending (MPBF) � Export receivables may be financed with NIL margin separately.

Bifurcation of working capital limits

Pre – Sale Limits

For Export Sale PC (Hypothecation)(PCH) PC (Pledge)(PCP) (in Rupee and Foreign Currency)

For Domestic Sales OCC / Clean CC / Sec. OD

Post-Sale Limit

For Export Sales FBP/FBN/AA FOBC(in Rupee and Foreign Currency)

For Domestic Sales Doc. BP Break up of pre-sale export limits: PC LIMITS:

� For those who cannot offer additional collateral, the present bifurcation of PC limits into PCH and PCP at 80%:20% shall continue.

� Bifurcation of pre sale PC limits (i.e ratio of PCH/PCP) shall be dispensed with if an additional collateral security norm as per this policy is complied with

� Other limits such as Secured Overdraft and Documentary Bills Purchase, OCC etc., be considered within over all Presale limit.


56

� The drawings for High sea Sales, advance remittances and domestic sales shall be made out of Clean OCC limit which should be covered with Collateral Securities

High Sea Sales done by Cashew Borrowers: The high sea sale effected is also part of the sales achieved as payments are made before receipt of goods, either by way of advance remittance or by clearing the import bills on CAD basis before the goods arrive at the port. Post sale limits: Post sale limits (FBN/FBP on DP/DA basis) shall be considered outside MPBF. Maximum two months of annual projected export sale or value based on Economic Order Quantity (EOQ) of container dispatch pattern whichever is higher shall be considered as post sale limit. NFB limits: Import LC Limit : 1. Import LC(DP/DA) limit shall be assessed based on the following factors on a

case to case basis.

a) The percentage of imported raw nut consumption b) The number of cycles through which the total imported raw nuts will be procured

has to be ascertained in particular, and accordingly the Import LC limit has to be fixed.

Guarantee Limit: We may consider the requirements of guarantee limit on a case-to-case basis with justification. Financial parameters : General Benchmark financial parameters are applicable for cashew industry also. In case the parameters are not achieved in a particular year, efforts should be made for improving the financials in the next year and course of action towards improvement to be furnished. Flexibility in allowing operations: The existing policy of allowing Flexibility/Interchangeability in operations are permitted on a case to case basis on merits.

• To allow excess in FBN/FBP limits within overall fund based limits. • To allow excess in LC limit by earmarking unavailed PC limits

Advance remittance: Advance remittance shall be permitted as per the RBI guidelines and policy approved by the CO: International Division from time to time Release of FCPC: Before release of FCPC, Branch/Zone to ensure the following:


57

� Cost Benefit analysis � FCPC is released selectively to very important long standing clients with due

assessment of value and benefits accruing to the Bank. � Prior Funds clearance for Foreign Currency is available from CO: International

Division. Additional Security Coverage: As per the existing policy by giving due weight age to Net Owned Funds in business, the additional security coverage is proposed as under:

If Net worth is more than 50% of Pre-sale Limits

Additional security to the extent of not Less than 25% of PCH and Clean Limits

If Net worth is less than 50% of Pre-sale limits

Additional security to the extent of not less than 50% of PCH and Clean limits

Reduction in Additional security can be considered on a case by case basis depending on merits by the next higher authority upto accounts falls under ZLCC’s powers and by respective sanctioning authority for accounts falls under the CO powers 8.35 TAKE-OVER POLICY OF BORROWAL ACCOUNTS Takeover of good borrowal accounts from other banks or Financial Institutions directly is one of the ways to achieve healthy credit expansion. Effective use of pricing advantage can be employed in taking over well-conducted accounts from other banks/FIs. As no lender would normally wish to lose a good bor rowal account, precautions have to be observed while taki ng over borrowal accounts . A few accounts taken over from other banks had suffered quick mortality and turned into NPAs and in some cases, rephased within one/two years of taking over, indicating deficiencies in the initial appraisal of the borrowers. Therefore, due care and diligence as per policy, shall be followed before a decision on takeover of borrowal accounts is taken at various levels. Take over of accounts with enhancement and involving finer rate shall be evaluated more diligently. 1. General :

• Good independent market report • Statement of account with existing banks for One year reflecting satisfactory

operations, to be obtained. • Sanction letter of existing banker to be obtained t o confirm that the

repayment of loan is in order and is as per the san ction terms. • Satisfactory Credit opinion from the existing bank / CIBIL to be obtained

before release of facilities (At the time of submission of proposal, if Credit Opinion of the other bank is not available, at least account operations should be verified for a period of two years and credit opinion is to be obtained before release of sanctioned facilities).

• Credit Information Report (CIR) can be obtained from CIBIL, EXPERIAN, EQUIFAX , HIGHMARK in lieu of credit opinion from banks. Once the system of obtaining CIBIL report gets stabilised, Credit Information Report (CIR) can


58

be obtained from CIBIL in lieu of credit opinion from the banks. CIBIL Detect information to be verified.

• Standard Asset Classification for the last two years with the existing banks. Certificate / credentials to that effect to be verified from the banks.

• Account should have recorded net profit after tax in the previous year and at least two years out of last 3 years and business conditions to indicate improvement in profitability, unless the account is in operation for less than three years.

• Agricultural loans: Request for take over with immediate enhancement/ Request for take over from borrowers hailing from or having their operations at service areas other than the operational jurisdiction of the branch are to be entertained with caution. Services of credit investigation agencies with approved legal framework may be utilized to enlist and ascertain the information/market report of the borrowers.

• Entry into consortium / multiple banking arrangement in a new account need not be regarded as a take-over. In a running consortium / Multiple Banking arrangement, our Bank may propose to takeover the existing / fresh share of lending from the existing member Banks and such entry is subject to the above conditions.

1.1 Additional Guidelines:

Take over of accounts from Co-operative Banks and O TS settled accounts with other banks is not permitted irrespective of nature of the facility . Takeover guidelines will be applicable to an entity which has closed their liability with their existing bankers before three months period. However such facilities need not classified as takeover accounts.If the sanction is after three months of closure of the liability with other banks, the same need not be considered as takeover subject to ensuring due diligence. No enhancement is permitted along with takeover , other than for capital expenditure like expansion of the units, purchase of new plant and machinery etc

The powers for takeover of accounts, other than the exempted categories of accounts mentioned in the above paragraph, as per Credit and Credit related administrative powers booklet dated 16.08.2013, Chart V S.NO XIII, Page NO AP7 shall continue. Takeover accounts should be rated externally by any of the approved agencies (SMERA in case of SMEs) and rating shall not be less than BBB (+/-). In case of take over of accounts from erstwhile bank/s of CMD/ED and the said authority was a part of the decision making process in sanction of the loan in that bank, the same should be recorded and prior approval of the Board of Directors should be taken to take over such accounts.

2. OTHER TERMS: 2.1 While considering take-over of borrowal accounts, all facilities of the borrower

(instead of select facilities) should be taken over from the existing banks.


59

2.2 Security: While taking over of facilities from othe r banks, the security of assets charged for the facilities (Primary, Collate ral, Personal / Corporate Guarantee) will continue as security to our Bank. R elaxation may be considered by COLCC (GM).

2.3 Security Coverage: The proportion of security coverage for the liabilities proposed to be taken over should be in accordance with terms of our Bank's policies / based on the exposure and commercial judgement.

2.4 Liquidation of liabilities: In respect of take-over of standard accounts, we may consider liquidation of liabilities of loan from the erstwhile FIs like IDBI/ICICI / banks, provided those liabilities were / are in order.

2.5 Repayment Terms: Repayment terms are same as per existing loan taken over from other banks / financial institution s. i.e. no extension from the original repayment.

2.6 Rating Parameters: Entry level for take-over should be as per Bank's periodical Credit Risk Management Policy covenants.

2.7 Due Diligence: Due diligence of clients based on various parameters like market report, statement of account, rating etc., is required in respect of all clients whether belonging to private or public sector banks .

2.8 Accounts which have been restructured should not be considered for take over. 2.9 If any of the Group/Associate account is NPA (non suit filed), take over of

account should not be considered. 2.10 Standard financial norms as applicable under Loan Policy / CO Circulars

issued from time to time to be complied with in respect of the following ratios • Current Ratio • Debt Equity Ratio • TOL/TNW • DSCR • Interest Coverage Ratio

2.11 Accounts not eligible for takeover, unless any relaxation is permitted by MC A Parties appearing in the Defaulters' List of RBI / CIBIL; (or) Wilful Defaulters'

List of RBI/CIBIL (or) ECGC's Specific Approval List (SAL), RBI Caution List

B Accounts in the NPA category (Sub-standard/Doubtful/Loss classification) with other banks except under OTS settlements

C Borrowers and their group accounts under suit filed category except under OTS settlements

D For liquidating liabilities with private money lenders / multani bankers. E Advances restricted by our Bank's Loan / Credit Risk Management Policy

Relaxation to the above (except to willful defaulted borrower) may be accorded by MC in individual cases of borrowers.


60

Delegated Powers for Approval of Takeover: Approval of takeover of standard Borowal accounts Nature of advance Authority to approve takeover A Agriculture Branch Managers upto Rs. 2 lakhs only. Above

Rs.2 lakhs sanction powers shall be vested with ZLCCs. Administrative clearance for Takeover of agri advances is vested with ZLCC.

B Home Loans: Administrative clearance may be given by the ZLCCs for takeover of home loan accounts within the extant guidelines and sanction may be given by the respective sanctioning authorities.

C All other advances For structured products (Other than Home Loans): As per norms stipulated in the scheme (with administrative clearance from ZLCC ) Other advances(including Trade finance): ZLCC: upto committee’s powers Respective sanctioning authority : above ZLCC powers

In respect of willful defaulters no facilities by way of fresh sanctions / enhancement of limits should be granted as per RBI directives. 3. Export Credit

Gold Card Scheme: Export Credit from other banks can be considered for take-over under Gold Card Scheme in our Bank, if they comply with the Gold Card eligibility criteria of our Bank irrespective of any of the above said parameters. If the exporter does not comply with Gold Card Scheme parameters, the account can be considered for takeover without Gold Card, as per the norms.

4. Relaxation in norms: Relaxation in norms may be approved as per the following delegation, if the

relaxation will not dilute the security coverage / recovery prospects / health of the account.

Relaxation in takeover norms (subject to non-di lution in security coverage)

Authority to approve relaxation

a Any one of the stipulated norms ZLCC in zones headed by General Manager / COLCC (GM)

b Any two of the stipulated norms COLCC(GM) upto the powers of COLCC(GM) and respective sanctioning authority for other accounts.

5. AGRICULTURAL ADVANCES - TAKEOVER GUIDELINES

In respect of agricultural accounts, the general guidelines / norms shall be complied and the following additional guidelines shall be adhered to.


61

5.1 Reasons other than pricing (interest rate) of t he product for take over should be deeply analysed while entertaining / canv assing proposal for takeover. 5.2 Takeover should be subject to technical feasibility and financial viability of the activity. While fixing repayment, economic life of the asset created should be kept in focus. 5.3 Integrity of the customer / borrower to be ascertained and verified and the connection should be beneficial to the Bank. Activities which are under holiday period, like poultry, banned activities like aquaculture, can not considered for takeover and powers can't be exercised by ZLCCs. Activities under Selective financing /restricted list can be considered for ta ke over with due diligence/compliance of take over norms and adminis trative clearance to be sought from CO. 5.4 No irregular account / unsatisfactory accounts should be considered for takeover from other banks.

6.Take over guidelines for home loans Take Over of Home Loan accounts from othe r Banks/Financial Institutions/ – Policy guidelines - General guidelines for take ove r of Home Loans: • Utmost care should be exercised while entertaining take over proposals.

Takeover should not be entertained as a routine measure • The assessment of the borrower should be made as in the case of regular

home loan accounts.

• The repayment period can be extended beyond the period sanctioned by the original lender subject to a maximum of 25 years including the period already run in the existing institution.

• All securities including personal guarantee, collateral given to the other Bank / Institution should be made available for our advance (example: LIC Policies etc. / FDRs if any)

• At the time of takeover, the sanctioning authority, based on merits of the case and requirements / eligibility of the borrower can sanction an additional Loan for additional construction / repair / renovation. The said additional limit is to be released only after receipt of original documents from the existing lending institution, creation of valid EM and Registration of Memorandum of Deposit of Title Deeds (wherever applicable).

• Agreement for subrogation of mortgage by the borrower in case of takeover of accounts is to be obtained.

• The other requirements and the subsequent formalities for sanction/disbursal


62

of the loan will remain applicable

• The disbursement of the loan should be made direct to the original lender. A letter advising them to appropriate the said amount towards the particular loan account only and to deliver the documents to the Bank’s representative named in the letter should be sent.

• Upon receipt of the Title Deeds etc, the Bank must apprise the borrower in writing, the details of the documents received from the original lender in order to avoid any legal complications later on in case some documents/securities are not received.

Take over guidelines for home loans from other Bank s /Financial Institutions

Take-over of home loan accounts shall be permitted by ZLCC within the extant guidelines and only Standard accounts are to be taken over. Pass Book entries / Statement of account both savings as well as Home Loan from other Banks for the past one year are to be scrutinized to screen that only good applicants come to our Bank’s fold. As take over is permitted only for completed Buildings, no holiday period is to be allowed. Further it is to be ensured that

a) Original sanction letter or the letter containing terms and conditions obtained from the original lender should be verified with the latest statement of the loan account to ensure that the instalments have been paid as per the terms of sanction.

b) Possession House / Flat have been taken by the borrower. Applicant’s possession of the property should be independently verified.

c) The borrower has valid documents evidencing his title to the house / flat. d) Search report of the property /EC should be obtained on the basis of the

photocopies of the title to the property available with the applicant. e) List of documents deposited with the existing Bank / FI for creation of EM

is to be obtained. f) It should be ensured that the loanee should have brought in margin for

Home Loans (taken from other Bank) from his own sources and not raised yet another personal loan / consumer loan for such margin.

g) Valuation Report / Legal Opinion duly authenticated by the Bank / Institution from where the account is taken over only should be accepted and the title deeds should be got scrutinized by our Bank’s approved Advocate and upto date EC should also be obtained. If such authenticated reports are not made available, fresh Legal Opinion and Engineer Valuation should be obtained from our panel lawyer and Engineer respectively at borrower’s cost.

h) The prospective borrower should submit to our Bank a letter requesting us to repay his outstanding loan with the original lender by debit to the loan account with us.

i) The borrower should address a letter to the Bank/FI from whom the finance has been availed asking them to deliver the title deeds and other


63

security documents, if any, direct to our Bank upon receipt of the loan amount.

j) For creation of EM in the case of take over of accounts, obtention of documents shall be simultaneous with the handing over of Draft / Pay order to the other institution or on realization of the instrument. In the meantime, Branch to take a Memorandum of EM based on copies of documents and undertaking to create EM on original documents on receipt of the same directly from the previous Bank / Financial Institution.

k) Registration of Memorandum of Title Deeds in our Bank’s favour is to be done.

l) If the EM had already been registered in favour of the previous Bank/ FI, the branch should follow up with the borrower for getting the same discharged.

m) Modification of our Bank’s interest in Insurance Policy in case of take over accounts to be obtained.

8.36 Advances to commercial Real estate: While appraising loan proposals involving commercial real estate, it should be normally ensured that the borrowers have obtained requisite approvals / permission from Government / local Governments / other statutory authorities for the project / construction activities etc., prior to sanction of the facility, wherever required. In order that the loan approval process is not hampered because of this, while the proposals could be sanctioned in normal course, the disbursements shall be made only after obtention of requisite clearances from the Government authorities. Assessment of credit needs shall be under Cash Budget method as per Credit Risk Management Policy 2014-15. As the required approvals may vary from State to State, our Zonal Offices shall have a comprehensive list of such approvals applicable for the State(s) and circulated to the Branches. The official, who conducts Pre-release Audit, shall have to certify regarding obtention of necessary approvals. Project specific loans shall be extended to builders of repute, employing professionally qualified personnel on commercial terms. Such proposals shall be considered on selective basis. The period of the loan shall be up to the marketing / completion of the said project and to be secured by mortgage of properties. (Please refer Credit Risk Management Policy 2014-15 for detailed guidelines). 8.37 Loans to Private Builders/Real Estate Develope rs. Loans shall not be sanctioned for purchase of lands under project finance for development of property. Buying of lands in different names (to circumvent the guidelines of land ceiling laws or other statutes) other than the borrowing company’s name shall not be permitted. 8.38 Lending to Non Banking Finance Companies (NBFC ): The ceiling on Bank Credit linked to Net Owned Funds of such companies which are statutorily registered with RBI and are engaged in principal business of equipment leasing, hire purchase, loan and investment activities has been withdrawn by RBI


64

and full operational freedom has been bestowed upon Banks in the matter of credit dispensation. A separate category of NBFC has been created viz; Non Banking Financial Company-Micro Finance Institution(NBFC-MFI). Accordingly, Working Capital credit needs of NBFCs (Asset Finance Companies, Investment Companies and Loan Companies) will be assessed based on second method of lending (MPBF). Lending to NBFC is restricted and to be considered at the level of Functional COLCC(GM) at CO and above as per credit risk management policy 2014-15. 8.38.1 Bank shall not grant any finance to NBFCs f or :

a. Bills discounted / rediscounted (except arising from sale of commercial

vehicles, two wheelers and three wheelers), b. Investments made by NBFCs in shares, debentures, advance to

subsidiaries/group companies, in other companies and inter-corporate loans, c. Bridge loans of any nature or interim finance against capital / debenture

issues by the Bank to NBFCs, d. Unsecured loans / inter-corporate deposits by NBFCs to/in any company, e. All types of loans / advances by NBFCs to their subsidiaries, group

companies / entities f. Finance to NBFCs for further lending to Individuals for subscribing to Initial

Public Offerings (IPOs) and for purchase of shares from secondary market. Further, Shares and Debentures can not be accepted as collateral securities for secured loans granted to NBFCs borrowers for any purpose. Banks should not execute guarantees covering inter-company deposits / loans thereby guaranteeing refund of deposits / loans accepted by NBFCs / firms from other NBFCs / firms. The restriction would cover all types of deposits / loans irrespective of their source, including deposits / loans received by NBFCs from trusts and other institutions. Guarantees should not be issued for the purpose of indirectly enabling the placement of deposits with NBFCs 8.39 Loans and Advances against Shares & Debentures etc. to Individuals,: Name of the Scheme Margin Max. ceiling Against security of shares, convertible bonds, convertible debentures and units of equity oriented mutual funds to individuals

50% Rs.10.00 lakhs if the securities held in physical form and Rs.20 lakhs if held in demat form

Against security of shares, convertible bonds, convertible debentures and units of equity oriented mutual funds to individuals

50% Max. of Rs.10.00 lakhs


65

for subscribing to IPO Under ESOP (extending finance to employees for purchasing shares of their own company. Banks are prohibited to extend advance to their employees / employee trust for the purpose of purchasing their (bank’s) own shares under ESOP / IPO or from the secondary market.)

10% Max. of Rs.20.00 lakhs

Against security of shares to stock brokers & Market makers a minimum cash margin of 25% within the said 50% margin shall be maintained

50% Maximum Rs.50 crore

Branches shall obtain a declaration from the borrower indicating the details of loans / advances availed against shares and other securities specified above, from any other banks in order to ensure compliance with the ceilings prescribed for the purpose. While granting advance against shares held in joint names to joint holders or to third party beneficiaries, Branches should be vigilant and ensure that granting advances to other joint holders or third party beneficiary to circumvent the limits placed on loans / advances against shares do not defeat the objective of the regulation and other securities specified above. The shares should be from the specific approved list from time to time and to be continuously monitored in respect of compliance of margin. 8.40 DEEMED EXPORT: Besides permitting facilities by way of pre-shipment / post shipment finance to the exporters, lending made to manufacturers / services given from Domestic Tariff Area to Special Economic Zone Area shall be treated as deemed exports as per EXIM Policy of Govt. of India. Deemed export bills have to be realised within 30 days. The terms of sanction shall be similar to Export Credit and are to be covered by ECGC Insurance Policy. 8.41.1. Short Term Loan Depending on market situation, Short-Term Loans may be extended to Public Sector Undertakings / reputed Corporates, as a clean advance. End use should be ensured for all short term loans. Pricing of STL will be based on recommendations of Funds and Investment Committee.

All unsecured short term loans shall have to be placed before the Management Committee of Board and cannot be done through Circular Resolution. This applies to such loans which are being extended without any security and are of short term in nature.

In case any such loans have become NPA, details of the cases to be submitted to DFS, MOF, Govt of India, through Corporate Office. The cases of roll-over of short term loans, where proper pre-sanction assessment has been made, and the roll-over is allowed based on the actual requirement of the borrower and no concession has been provided due to credit weakness of the


66

borrower, then these might not be considered as restructured accounts. However, if such accounts are rolled-over more than 2 times, then third roll-over onwards the account would have to be treated as a restructured account. It is clarified that Short Term Loans for the purpose of this provision do not include properly assessed regular Working Capital Loans like revolving Cash Credit or Working Capital Demand Loans.

Field level sanctioning authorities (ZLCC / BM) shall not roll over STLs without adjustment of the existing STLs.

8.41.2. Corporate Loans :

One of the favoured strategies for building up lending volumes is to step up short-term exposures to good corporate with sound financials characterized by healthy cash flows, operating in industries/sectors showing signs of vitality and growth. Corporate Loan request can be considered only on selective basis to existing above BBB rated customers and the same should be restricted to 10% of the working capital facility if the purpose of the loan is to improve the NWC. The power to consider corporate loan is vested with Corporate Office level committees. Repayment should be supported by cash flows/DSCR and the repayment of corporate loan for NWC improvement should be restricted to 3 years. Corporate Loan should have the Fresh additional security ( over and above the existing securities) support with appropriate margins. Any Relaxation in additional securities for corporate loan is to be permitted only by CAC. Personal guarantee of Directors Should be made available for the corporate loan. In the case of CDR restructured accounts, the corporate loan can be considered by the respective sanctioning authority as per the terms of the Final Package of the Monitoring Institution subject to approval of CDR.

8.41.3 Line of credit The line of credit will be allowed to meet requirement under working capital facilities (funded and/ or non -funded) /short term loan(both secured and unsecured) to have a flexibility to the borrower for utilizing the limit as per requirement. This system will essentially facilitate medium/large business units in efficient management of their borrowing requirements within the sanctioned Line of Credit facility. A combined limit may be sanctioned under the Line of Credit as short term loan, Cash Credit (stocks and receivables), LC (DA), BG Limits for giving freedom for the borrower to utilize the entire sanctioned limit as per their need. Bank may cater to their needs depending upon mutually agreed terms and conditions. The facility shall be permitted only to PSUs and blue chip companies which are rated ‘A’ and above falling under the powers of COLCC(ED) / CAC / MCB. End use should be ensured in all sanctions/disbursements. However, CAC shall be authorized to permit relaxation in credit rating on case to case basis. The period shall be a maximum of 1 year These facilities shall be unconditionally cancellable in case of non-availment.


67

8.41.4. Obtaining of Quotes for Short term Loans / Quotes for loans to PSUs etc. For the limits falling up to the powers COLCC(ED), COLCC(ED) will approve the quotes. For other accounts falling under the powers MC and CAC, CAC will approve the quotes. The request for obtaining quotes should be submitted in the format for adhoc limits as per Annexure 8. 8.42 Clean Loans: RBI has withdrawn the cap on unsecured exposure and assigned freedom to the Board of the Banks to have their own policy on unsecured exposure. Accordingly our Bank has evolved a policy on the same and the exposure limit is defined in Credit Risk Management Policy 2014-15. 8.43 Types of clean loans: a) While evaluating the working capital requirement, any short fall / gap in

chargeable current asset, is assisted by way of unsecured facility, to be cleared over a period depending on the cash generation, and on the merit of the case.

b) Clean packing credit for the purpose of meeting processing charges, freight charges to be adjusted by way of negotiation / discount of bills.

c) Special loans to Staff earmarking their PF contribution. d) Personal loans such as loan to salaried class, professionals, pensioners under

structured schemes and clean loans to societies/association for disbursement to their members. Salary loans to Individual/Group outlay.

e) Wherever security is not a pre-requisite as per RBI guidelines – such as Small loans up to Rs.50,000/-, Educational loans up to Rs.4.00 lakhs and f) Funding of shortfall in DP as WCTL for the restructured accounts under

restructuring programme not covered any other collateral security. g) Bonus loans / Loans for VRS scheme of the borrower company based on future

cash generation not covered any other collateral security. h) Clean Corporate loan to tide over the temporary mismatch and building up of

NWC for the corporates with good track record i) Non fund based facilities like sanction of performance guarantees where advance

value of available collateral securities is inadequate to cover the unsecured portion.

j) However, for the purpose of Balance Sheet, Fund based/ Non Fund based with more than 10% security will be considered as secured.

Wherever feasible, collateral securities shall be insisted upon [except (e)]. 8.44 Withdrawal Against Uncleared Cheques Branch Managers are permitted to sanction WAUCE limits within the respective delegated powers for purchase of instruments.(i) Drawn by Govt., Semi-Govt bodies and public sector companies/ undertakings; (ii)Bank drafts/pay orders. And for other instruments clean powers for the respective category may be exercised taking into account past track record / credit worthiness of the borrower. The minimum margin


68

may be NIL or as determined by the sanctioning Authorities. – Field Level Functionaries has to report in the AUW about their sanctions under WAUCE. 8.45 Operation in Secured OD accounts: Secured Overdraft(SOD) can be considered only for specific segments – Trade, services/contractors/SME . Sanction powers of SOD limits for branch managers stands withdrawn . It can be considered only by ZLCC and above. Secured Overdraft facility may be sanctioned only after due assessment working capital requirement based on the past performance and projections and as per the normal method of assessment approved in the Risk management policy. 8.46 Non-Fund Based (NFB) Limits:

It will be the endeavor of the Bank to increase the income from Non-Fund Based business, which at present is relatively less as compared to other leading banks and also less as a ratio of total income. The spreads on fund based lending have been declining. In order to maintain bank’s profitability, the bank shall focus on non-fund business mainly by way of guarantee and L/Cs. With heavy investment being made under infrastructure and also due to revival of industrial activity, the demand for LC and Guarantee business has increased substantially. As such, all the proposals of non fund based facilities be disposed on priority basis to ensure increase in non- interest income.

a. The assessment of NFB limits such as Letter of credit shall be made based on the actual credit period available/lead time and the quantum requirement vis-à-vis the total purchase made per annum, with minimum margin as per Credit & Administrative power booklet. Letter of credit permitted for the import / purchase of capital goods shall be based on the time schedule envisaged in the project and with adequate margin inclusive of obligations under import / customs duty / transportation charges. All such imports i.e. either for raw material or for capital goods has to be covered by transit insurance.

b. The Bank would apply the same diligence while appraising Non-fund Based exposure as is done in the case of Fund based exposures.

c. Charge on assets should be extended for NFB limits also. d. No bank guarantee should normally have a maturity of more than 10 years.

Wherever we are extending long term loans for periods longer than 10 years for various projects, issuance of guarantees beyond 10 years may be considered at CO level. Guarantee limits towards Earnest Money Deposit, Performance Guarantee, and Export Performance Capital Goods Scheme Guarantee (EPCG) shall be based on the requirement of the business. Field level functionaries are authorised to issue EPCG Guarantee upto their delegated powers as per the requirement of DGFT as per existing guidelines.

e. In case of DPG the requirement will be evaluated on similar lines as appraisal for term loans and for other financial guarantees on the basis of cash flows over the time horizon of the specific contracts and determining the viability of the project.


69

f. For appraisal of performance guarantee, ability to perform and past track record are to be analysed.

g. Clean Non Fund Based facilities backed by other scheduled commercial bank guarantees / letters of commitment can be considered by the respective sanctioning authority up to the powers delegated.

h. Branches shall caution the beneficiaries that they should, in their own interest, verify the genuineness of the guarantee from the controlling office of the respective banks.

i. Branch Managers have no powers to open further LC when devolved LC liability is outstanding. ZLCCs are empowered to permit Branches to open further LCs, in case of any specific requirement within the sanctioned limit.

In respect of Performance Bank Guarantees, the foll owing procedure should be followed by the Branches : a. The capacity and ability of the borrower to execute the job within the prescribed

time limit should be critically examined b. Milestones should be stipulated for completion of the project and consequently

in case of Events of Default (EOD), the flexibility of increasing the margin and commission rate by changing the terms and conditions should also be stipulated.

c. An EOD trigger should be introduced in the system. d. A separate limit/ sub-limit should be sanctioned for issuance of PBGs. e. In case foreign exchange element is envisaged in the PBG, a condition may be

stipulated regarding the forex risk to be borne by the borrower. f. A condition with regard to submission of periodical review of the status of the

project for which PBG is issued should be stipulated. Monitoring Mechanism: Further, keeping in view the risk associated with P BG assistance, the following additional measures, would be applicable to PBG of over Rs 5 crores and with tenor of over one year. a. The projects under PBGs should be monitored with respect to the envisaged

milestones and reviewed by the respective branches on quarterly basis. For the purpose, the company should be advised to submit project specific progress reports at quarterly intervals.

b. The branches should visit periodically the project site to verify the physical progress achieved.

c. The branches should have discussions with the beneficiary regarding milestones achieved, quality of the work done, etc.,

d. In case of non achievement of milestones in physical progress, the actions under EOD should be triggered for corrective measures.

e. Inter - changeability of normal BGs to PBGs should be permitted only on selective bases.

f. While submitting the Annual Loan Review note to the concerned authority a special mention may be made in respect of status of the projects with regard to mile stones covered under PBG, including project wise Risk Analysis.


70

8.47 Guarantee on behalf of Special Purpose Vehicl e (SPV) – Subsidiary Companies are forming SPVs as subsidiaries / joint ventures and finding it difficult to get guarantee limits sanctioned for them. After analyzing the eligibility and requirement of the SPV , guarantees shall be issued earmarking in the limits of the parent company, subject to availability of counter guarantee by the parent company as well as Special Purpose Vehicle (SPV) 8.48 Issuance of Guarantees / Co-Acceptance by the Bank favouring other

Banks / FIs / other lending agencies for additional loans extended by them:

Please refer Credit Risk Management Policy 2014-15 8.49 Guidelines on issue of Bank Guarantees: a. All guarantees issued by the branch should be serially numbered accounted in

the system in order to prevent unaccounted issue of Guarantees as well as fake Guarantees.

b. Guarantees shall be issued under signatures of two powered officers, in triplicate. The original guarantee has to be forwarded to the beneficiary , the second copy has to be sent to the Controlling office and third copy to be retained at the Branch.

8.49.1 Margin on guarantee / Charging of commission on guarantee Margin on guarantee may be maintained either in term deposit or in margin on guarantee account till guarantee liability is reversed. Field level functionaries are authorized to issue EPCG Guarantee upto their delegated powers as per the requirement of DGFT as per existing guidelines. ZLCCs are authorized to permit the Branches for charging commission on Annual Basis in respect of guarantees issued for more than 1 year, on a case to case basis with a condition that the charges are recovered on annual basis without fail and there is no leakage of income. 8.49.2 Issue of bank guarantees with assignment cl ause : Issue of bank guarantees with assignment clause is restricted only to select customers viz., public sector undertakings. For other borrowers, the facility is subject to availability of 100% cash margin. Sanctioning power is restricted to COLCC(GM) and above at Corporate Office. For each case, legal clearance from CO: Legal has to be obtained. 8.50 Honouring of Bank Guarantees:

Where guarantees are invoked, payment should be made to the beneficiaries without delay and demur. Delays on the part of banks in honouring the guarantees when invoked tend to erode the value of the bank guarantees, the sanctity of the scheme of guarantees and image of banks. It also provides an opportunity to the parties to take recourse to courts and obtain injunction orders. In the case of guarantees in


71

favour of Government departments, this not only delays the revenue collection efforts but also gives an erroneous impression that banks are actively in collusion with the parties, which tarnish the image of the banking system.

Bank is required to ensure that the guarantees issued by us are honoured without delay and hesitation when they are invoked by the Government departments in accordance with the terms and conditions of the guarantee deed, unless there is a Court order restraining the bank. Any decision not to honour the obligation under the guarantee invoked may be taken after careful consideration, at Corporate office level, and only in the circumstances where the bank is satisfied that any such payment to the beneficiary would not be deemed a rightful payment in accordance with the terms and conditions of the guarantee under the Indian Contract Act.

Where bank guarantees are executed in favour of Customs and Central Excise authorities to cover differential duty amounts in connection with interim orders issued by High Courts, the guarantee amount should be released immediately when they are invoked on vacation of the stay orders by Courts. Bank should not hold back the amount on the pretext that it would affect their liquidity position. 8.51 Issue of Bank Guarantee in favour of Foreign A irlines/IATA Indian agents of Foreign Airline companies, who are members of International Air Transport Association (IATA), are required to furnish bank guarantees in favour of the foreign airline companies / IATA, in connection with their ticketing business. As this is a standard requirement in this business, Authorised Dealer Banks in their ordinary course of business can issue guarantees in favour of the foreign airline companies / IATA on behalf of Indian agents of foreign airline companies, who are members of International Air Transport Association (IATA), in connection with their ticketing business. 8.52 Letter of comfort (LOC)/Letter of undertaking( LOU): Trade Credits for imports into India – Credit extended for imports directly by the overseas supplier, bank and financial institution for original maturity of less than three years is hereinafter referred to as ‘trade credit’ for imports. Depending on the source of finance, such trade credit will include suppliers’ credit or buyers’ credit. It may be noted that buyers’ credit and suppliers’ credit for three years and above come under the category of External Commercial Borrowings (ECB), which are governed by ECB guidelines issued vide A. P. (DIR Series) Circular No. 60 dated January 31, 2004 and modified from time to time. AD banks can approve trade credits for imports into India up to USD 20 million per import transaction for import of all items (permissible under the current foreign trade policy of DGFT) with a maturity period (from the date of shipment) up to one year. For import of capital goods, AD banks may approve trade credits up to USD 20 million per import transaction with a maturity period of more than one year and less


72

than three years. No roll-over/ extension will be permitted by the AD banks beyond the permissible period. General permission has been granted to Authorised Dealer banks to issue guarantees/ Letter of Undertaking (LoU)/ Letter of Comfort (LoC) in favour of the overseas supplier, bank and financial institution up to USD 20 million per import transaction for a period up to one year for import of all non-capital goods permissible, under the Foreign Trade Policy (except gold,Palladium,Platinum,Rodium,Silver etc ) and up to three years for import of capital goods, subject to prudential norms issued by the Reserve Bank from time to time. The period of such guarantees/LoUs/LoCs has to be co-terminus with the period of credit, reckoned from the date of shipment. The companies in the infrastructure sector, where “infrastructure” is as defined under the extant guidelines on External Commercial Borrowings (ECB) have been allowed to avail of trade credit up to a maximum period of five years for import of capital goods as classified by DGFT subject to conditions that the trade credit must be abinitio contracted for a period not less than fifteen months and should not be in the nature of short-term roll overs. However, the condition of 'abinitio' buyers'credit would be for 6 (six) months only for trade credits availed of on or before December 14, 2012. AD banks shall not approve trade credit exceeding USD 20 million per import transaction. In respect of companies in the infrastructure sector as mentioned above, AD banks are not permitted to issue Letters of Credit/guarantees/Letter of Undertaking (LoU) /Letter of Comfort (LoC) in favour of overseas supplier, bank and financial institution for the extended period beyond three years. (as amended vide AP DIR Circular No.28 dated 11.9.2012) As regards reporting arrangements, Branches are required to furnish data on issuance of guarantees/LoUs/LoCs in a consolidated statement, at quarterly intervals to CO/INTERNATIONAL DIVISION COLCC (GM) at Corporate Office shall consider request for LOC/ LOU for all accounts of “BBB” and above rating (as per RAM). COLCC(ED) shall be the sanctioning authority for accounts rated below “BBB”.

The General Guidelines on letter of comfort:

a. The LOC/ LOU have to be treated equivalent to Money Guarantee and appropriate margin, commission as applicable shall be prescribed as per norms in force .

b. Since the exposure under LOC / LOU being a foreign currency exposure, appropriate hedging mechanism shall also be prescribed in the proposals.

c. For the LOU/ LOC covering import of raw materials, the stock received under LOC/LOU/LC amount shall be deducted from the value of chargeable assets before arriving drawing power for OCC/ Operative Account and the LC limit, to the extent of outstanding LOC/LOU shall be earmarked.


73

d. For the LOC/ LOU covering Capital Goods, the building up of margin for payment on the due date may be recommended wherever feasible along with a margin covering any adverse fluctuations in the Foreign Currency Exposure as mitigation.

e. Contingent liability shall be vouched separately and monitored. Recovery of commission on Letters of Comfort The commission chargeable on issue of letter of comfort shall be at par with commission chargeable for foreign money guarantees i.e. 0.20% per month with a minimum of 0.35% (subject to minimum of Rs.575/- per guarantee) for the specified period of liability in months or part thereof. 8.53 Guidelines on classification of LC–DA / Guaran tees as Secured Exposure: Board on July 21, 2007 approved the change of classification of LC-DA as Secured. Accordingly, field level/ Credit functionaries may exercise their discretionary powers delegated / vested with them under secured category for sanctioning LC-DA. But this should be secured with goods under the LC. However, LC-DA for services where there are no movement of goods will continue to be treated as unsecured. (e.g., Payment of installments etc.) Circular ADV 44/2007-08 dt 07/09/07. 8.54 Settlement of claims under Letters of Credits (LCs) In case the bills drawn under LCs are not honoured on due date, it would adversely affect the credibility of the entire payment mechanism through Banks and affect the image of the Bank. Branches should, therefore, honour their commitments under LCs and make payments promptly on the due dates strictly as per LC terms. 8.54.1 Accounting procedures for devolved letter of credit (DA) In order to have close monitoring of the devolved letter of credit the following modifications are issued with effect from 01.10.2009.

Where the customer is not arranging funds for meeting the LC commitment on due date: The dues under LC / DA will be debited to “Devolved Liability under LC / DA account” and amount remitted to negotiating Bank / Branch. LC contra to be reversed (Earlier directions of debiting the cash credit account stand withdrawn and the amount shall be retained under the devolved liability under LC DA head till adjustment) Branches have to ensure immediate reversal of the devolved letter of credit liability by following up with the party. Drawing limit in Cash Credit shall be reduced to the extent of devolved LC liability till adjustment. Further utilisation of the limit for opening LC / issuing guarantee shall not be allowed as a matter of routine, when the devolved liabilities are outstanding. Branch Managers have no power to open further LC till the excess or overdraft caused due to devolved LCs regularised. ZLCCs are empowered to permit branches to open further LCs in case of any specific requirement within the sanctioned limit. On adjustment of the devolved letter of credit liability, regular drawing limit in Cash Credit account shall be restored. Drawing limit reduction is suggested to have effective monitoring of the account.


74

Wherever margin on Letters of Credit is held, on devolvement of any LC, the net amount after appropriating the proportionate margin for that particular LC to be debited to the devolved LC liability. If there are devolved LC / defaulted Guarantee or BP Returned Unpaid, the liability under such item has to be provisionally earmarked under the sanctioned limit for LC / Guarantee / BP as the case may be. All the other existing guidelines remain the same. 8.55. Forward Contracts/Hedging: Importers / exporters may be permitted to book forward contracts as per RBI guidelines in force from time to time given in Annex 2. RBI directives with regard to forward cover contract in force shall be complied with. Exposure under forward contract shall be included in arriving at various exposure limits like single borrower, group borrower, industry wise exposure as per off-balance sheet items(current exposure method) detailed in Credit Risk Management policy 2014-15. The forward contract for import and Export transactions separately shall be within the overall limit / ceiling stipulated by RBI from time to time and as per Bank’s Loan Policy / Credit Risk Management Policy.

a) All foreign exchange exposures shall be hedged against exchange risk. Waiver of hedging on account of availability of natural hedge or otherwise shall be considered only at the level of Functional General Managers at CO and field level functionaries shall have no powers to waive hedging of the foreign exchange exposure. Hedging is advisory without any obligation on the part of the Bank or any of its officials and it will be the decision of the borrower which would be implemented and it be made clear to the borrower in all our communications whether oral or written.

b) In view of the peculiar nature of Public Sector undertakings and also PSUs are having their own Currency Risk Management committee covering aspects namely risk identification, currency risk management, hedging and risk appetite, hedging policy etc, Public Sector undertakings are exempted from the above

c) In case of Consortium / Multiple Banking accounts, regarding foreign currency exposures, the same has to be taken up with the Leader Bank / Bank having the largest share, for hedging of the foreign exchange exposures and the details to be incorporated in the review / renewal proposals.

d) All credit proposals should rigorously evaluate the risks arising out of unhedged foreign currency exposure of the corporate and waiver (as per the extant guidelines) if any to be obtained without omission.

e) Authorised Branches shall take up foreign exchange transactions on behalf of their customers and also for the customers of non authorized branches with forward cover or with the certification of obtention of waiver for hedging from appropriate authority.

f) Authorised Branches will enter into forward contracts on behalf of their own customers or customers of non authorized branches only on the requesting branch certifying that the forward Contract is within the ceiling fixed by RBI and also complies with Bank’s Loan Policy / Credit Risk Management Policy.


75

g) For Corporate Clients an additional condition is to be incorporated while sanctioning forward contract limit that the board of directors of the company must have a risk management policy / guidelines for concluding the forward contract transactions and institutionalize the arrangements for a periodical review of operations. The periodical review reports and annual audit reports should be obtained from the concerned corporate by the AD branch. The above policy guidelines are in addition to the instructions contained as per Credit Risk Management Policy 2014-15 on Forward Cover.

h) As per RBI guidelines, unhedged foreign currency exposure should recognize the risks arising on account of its clients from ‘all sources’.

The exchange of information from all Banks will serve as a tool to study the unhedged exposures of the borrower from all sources as the Annex II – Part V deals with unhedged foreign currency exposures. The details of borrowers’ unhedged exposures not only from our Bank but also from ‘all the sources’ (The exposure includes both exposure with our Bank and exposure outside our Bank including Foreign Currency Convertible bonds, External Commercial Borrowing, Global Depository receipts, Foreign currency Loan, FCPC, Foreign guarantees, import LCs, Letter of comforts, etc) are to be incorporated in the proposals and the impact / risk mitigation to be analysed without fail

No forward cover shall be booked without a sanction ed limit from the competent authority. A reference of the limit sanctioned and balance outstanding should be verified at the time of booking of the forward cover. If it is on underlying contract basis, the same should be recorded at the time of booking itself, even within the sanctioned limit.

The forward contract for Import and Export transactions separately shall be within the overall limit/ceiling stipulated by RBI from time to time and as per Bank's Loan Policy. At present there is no ceiling stipulated by RBI when forward contracts are booked on the basis of underlying transactions. However when forward contracts are booked on the basis of declaration of an exposure and based on past performance, overall ceiling is stipulated. Two percent of the exposure under forward contract shall be included in arriving at various exposure limits like Single Borrower/Group/Industry wise exposure. RBI's Overall ceiling : RBI Ceiling is applicable only when forward contracts are booked on the basis of declaration of an exposure. At present, the overall ceiling on forward contract on the basis of guidelines of the following: (These limits shall be computed seperately for import / export transactions) Upto the average of the previous three financial years (April to March) acutal import / export turnover (or) previous year’s actual import / export turnover, whichever is higher. For importers availing of the above past performanc e facility, the facility stands reduced to 25% of the limit as comp uted above, i.e. 25 percent of the average of the previous three financial years’ (April to March ) actual import / export turnover or the previous year’s actual import / export turnover, whichever is


76

higher. In case of importers who have already utilized in e xcess of the revised / reduced limit, no further bookings may be allowed u nder this facility. All forward contracts booked under this facility by both exporters and importers hence forth will be on fully deliverable basis. In case of cancellations, exchange gain, if any, should not be passed on to the customer. The above ceiling is subject to revision by RBI. Bank's Internal ceilings (within RBI's Overall Ceil ing) Sanction of Forward contract limits:

All foreign exchange exposures shall be hedged against exchange risk. Waiver of hedging on account of availability of natural hedge or otherwise shall be considered only at the level of COLCC (GM ) at CO and field level functionaries shall have no powers to waive hedging of the foreign exchange exposure. Forward booking can be done as per the chart below (working to be done separately for import and export) : For borrowal customers enjoying regular relevant fo rward contract limits with our Bank Delegation i) Forward contract limits upto the underlying credit limits

Branch Managers

ii) For limits beyond (i) but within RBI norms ZLCC For Non-borrowal customers / One-time Exporter or I mporter / Customers not enjoying regular relevant credit limits

Delegation i) Forward contract limits upto the underlying credit limits

ZLCC

ii) For limits beyond (i) but within RBI norms COLCC(GM)

Cash

Margin Delegation

Rs. one crore (or) upto the value of the underlying contract if backed by documentary evidence (or) as per RBI guidelines based on past performance whichever is less

5%

Branch Manager of authorised branches (A & B category) and Branch Managers of Credit Intensive / Corporate Branches

Upto the value of the underlying contract backed by documentary evidence (or) as per RBI guidelines based on past performance

5% ZLCC

Relaxation of cash margin on a case-to-case basis

ZLCC


77

8.55.1 Capital and Provisioning Requirements for Ex posures to entities with Unhedged Foreign Currency Exposure

Unhedged foreign currency exposures of the entities (those entities which have borrowed from banks including borrowing in INR and other currencies ) are an area of concern not only for individual entity but also to the entire financial system; entities who do not hedge their foreign currency exposures can incur significant losses due to exchange rate movements. These losses may reduce their capacity to service the loans taken from the banking system and thereby affect the health of the banking system.

RBI has issued various guidelines advising banks to closely monitor the unhedged foreign currency exposures of their borrowing clients and also factor this risk into the pricing. However, the extent of unhedged foreign currency exposures of the entities continues to be significant and this can increase the probability of default in times of high currency volatility. It has, therefore, been decided by RBI to introduce incremental provisioning and capital requirements for bank exposures to entities with unhedged foreign currency exposures. For calculating the incremental provisioning and capital requirements, the following methodology may be followed:

a. Ascertain the amount of Unhedged Foreign Currency Exposure (UFCE):

Foreign Currency Exposure (FCE) refers to the gross sum of all items on the balance sheet that have impact on profit and loss account due to movement in foreign exchange rates. This may be computed by following the provisions of relevant accounting standard. Items maturing or having cash flows over the period of next five years only may be considered.

UFCE may exclude items which are effective hedge of each other. For this purpose, two types of hedges which may be considered are - financial hedge and natural hedge. Financial hedge is ensured normally through a derivative contract with a financial institution. Hedging through derivatives may only be considered where the entity at inception of the derivative contract has documented the purpose and the strategy for hedging and assessed its effectiveness as a hedging instrument at periodic intervals. For the purpose of assessing the effectiveness of hedge, guidance may be taken from the pronouncements of the Institute of Chartered Accountants of India on the matter.

Natural hedge may be considered when cash flows arising out of the operations of the company offset the risk arising out of the FCE defined above. For the purpose of computing UFCE, an exposure may be considered naturally hedged if the offsetting exposure has the maturity/cash flow within the same accounting year. For instance, export revenues (booked as receivable) may offset the exchange risk arising out of repayment obligations of an external commercial borrowing if both the exposures have cash flows/maturity within the same accounting year.

b. Estimate the extent of likely loss:

The loss to the entity in case of movement in USD-INR exchange rate may be calculated using the annualised volatilities. For this purpose, largest annual volatility seen in the USD-

INR rates during the period of last ten years may be taken as the movement of the USD-INR rate

in the adverse direction2.


78

c. Estimate the riskiness of unhedged position and provide appropriately:

Once the loss figure is calculated, it may be compared with the annual EBID3 as per the latest quarterly results certified by the statutory

auditors. This loss may be computed as a percentage of EBID. Higher this percentage, higher will be the susceptibility of the entity to

adverse exchange rate movements. Therefore, as a prudential measure,

all exposures to such entities (whether in foreign currency or in

INR) would attract incremental capital and provisioning

requirements (i.e., over and above the present requirements) as under:

Likely Loss/EBID (%)

Incremental Provisioning

Requirement on the total credit exposures over and above extant

standard asset provisioning

Incremental Capital Requirement

Upto15 per cent 0 0 More than 15 per cent and upto 30 per cent

20bps 0

More than 30 per cent and upto 50 per cent

40bps 0

More than 50 percent and upto 75 per cent

60bps 0

More than 75 per cent4 80 bps 25 per cent increase in the risk weight

Please refer to RBI’s Circular – DBOD.No. BP.BC.85/21.06.200/2013-14 dt. January 15, 2014. The framework is to be implemented from April 1, 2014. Please also refer CO:CDN Circular Adv.123/ 2013-14 dt 07.03.2014 for guidelines on reporting etc.

8.56 Monitoring:

8.56.1 Compliance of Terms and Conditions of sancti ons The management of credit portfolio has three important stages:

a. Pre sanction appraisal b. Sanction and disbursal c. Post sanction follow-up and monitoring

8.56.2 The success of a project of a borrower and the success of an advance of a bank is interrelated. Compliance of terms and conditions of sanction is the first and foremost formality in credit management. 8.56.3 The quality of advance is judged not only by the regular repayment of the loan but also by the quality of securities provided, risk factors associated with it, compliance of terms and conditions of sanction etc., so, there is every possibility of


79

an advance becoming bad due to non-adherence of terms and conditions of sanction. 8.56.4.a Non-compliance of Terms and Conditions of sanctions by Branches should be avoided. Reporting of non-compliance of terms and conditions of sanction shall not be construed as approval of the sanctioning authority for release of credit facility pending compliance of the terms and conditions of sanction. 8.56.4.b CVC Directions: Field level functionaries are precluded from disbursements without compliance of terms of sancti on . 8.56.5 Release of sanctioned limits shall be done only after full tie up as per terms and conditions of sanction or after obtaining permission from the competent authority. 8.56.6 Compliance of terms &conditions and submission of feed back reports shall be done without fail for all sanctions. 8.56.7 Pre Release Audit : Pre release audit to be ensured as per the guidelines in risk management policy 8.56.8 Legal Audit by panel advocate – Legal audit is applicable in all advances of Rs.50 lakhs and above, with immovable property/ies as either primary or collateral security. In compliance of RBI Circular our Inspection department vide circular ADMIN-27/2013-14 dated 27.08.2013 , issued the following procedural guidelines: 1. While the existing procedure for legal audit continues for all credit exposures of Rs 50.00 lacs and above, in case of all credit exposure of Rs 5.00 crores and above, title deeds and other documents should be subjected to legal audit and re verification of title deeds with relevant authorities periodically. Periodicity of legal audit will be within one year from the last legal audit in case of all credit exposure of Rs 5.00 Crores and above 2. The above audit exercise will continue till the loan stands fully repaid. 3. For effective follow up, the branches are advised to diarize the legal audits to carry out the legal audits in time and as per periodicity 4. The legal audit exercise should be verified by Concurrent auditors and a quarterly statement is to be attached to the Concurrent Audit Reports after making due verification. Valuation of properties – counter checking from available market sources (Reserve Bank of India vide Ref DBS.CO.PPD.6600/11.01.005/2011-12 dated Nov 15, 2011) RBI has brought to the notice regarding the modus operandi of availing of loans against leased landed properties, with highly inflated values. It is therefore


80

directed that in addition to complying the existing regulatory guidelines, to counter check the valuation of the properties from the available market sources before finalizing the lending arrangement a gainst property. 8.56.9. Obtaining Second Legal Opinion for advances of Rs.50 lacs & above: (Audit Committee directions dt 24/5/2011) Broad guidelines were issued for obtention of Legal Scrutiny Report (LSR) vide CO:O&M Circulars ADV.31/2005-06 dated 21.05.2005 and ADV.49/2005-06 dated 18.07.2005. Guidelines regarding the opinion to be given by the advocate with regard to “Flow of Title” was modified vide circular No.ADV.149/2005-06 dated 22.02.2006. Legal Scrutiny Report (Revised) format was circulated to all branches along with the circular ADV.74/2010-11 dated 23.08.2010. Second Legal Opinion be obtained for securities/ properties to b e charged to advances of Rs.50 lacs and above. (Circular ADV. 71/2011-12 dt 27/7/11) 8.57 MONITORING OF LARGE BORROWAL ACCOUNTS The key objective of monitoring of borrowal accounts is to ensure that the asset quality of each borrowal account and that of the credit portfolio as a whole is kept under ‘Standard’ category at all points of time. Monitoring also enables the branch managers / controlling authorities to identify/ encash the growth opportunities available for the Bank. The performance of business enterprises is impacted by the ‘business cycle’. If the business cycle is on a descending scale and the depression is prolonged, business enterprises are likely to become sick, if they are not able to overcome the problem. Symptoms of sickness, weakness and deterioration of asset quality must be recognized well in time and acted upon promptly through effective monitoring / alertness to capture the early warning signal, which would minimize the incidence of NPAs. The various aspects of monitoring have been covered in the Manuals of Instruction, CO circulars issued at periodical intervals Monitoring’ activity commences immediately on receipt of a credit proposal for processing (both fresh and renewal) a. Changes in constitution of the Board of Directors / Partnership firm,, resignation

of Technical / Key Personnel may impact the performance of the borrower. b. Project report submitted by the proposed borrower should address the issue of

interest payable during construction period, cost of raw material needed during the period of trial run (as part of preoperative expenses

c. While assessing working capital, besides focusing on current asset, current liability and net working capital, it should be ensured whether the borrower could achieve projected profit as detailed in the operating statement. Estimated increase in profit, as percentage to the actuals should be studied in depth. Debt Equity, Current Ratio, TOL/TNW and DSCR should conform to our standards.

d. When term loan proposals are considered for financing expansion of capacity, it should be ensured that there will be adequate demand / market for the product.


81

e. NOC from existing bank / members of consortium for sanction of limits / additional limits and creation of security should be obtained.

f. In respect of accounts to be taken over from other banks, it should be ensured that the bench marks stipulated for take over, as per our Bank’s Policy for take over, should be complied with.

Post sanction monitoring should focus on a. Documentation, complying with legal requirements, disbursement in accordance

with the sanctioned terms and post disbursement follow-up. b. Anticipation of problems in advance and initiating proactive measures to ensure

that performance levels are as per projections, security cover is adequate and in tact and borrower is keeping up his commitments.

DOCUMENTATION Sanction should be communicated to the borrower and their acknowledgement / acceptance by the authorized person/s, to the terms / conditions stipulated be obtained and kept with other documents. Advance should be released only after completion of documentation in all respects. RELEASE- DISBURSAL OF LIMIT – TERM LOAN Term Loan would normally be disbursed only in stages in conformity with the terms of sanction, after completion of documentation and pre-release audit (wherever applicable). At every stage of release, branch should ensure / verify that the end use of loan released earlier has been met. Statement of progress report covering physical and financial progress should be obtained at periodical intervals as prescribed in the loan policy and critically analysed.Wherever necessary, Licences / approvals from Govt. Agencies / Departments / Pollution Control Boards, which are critical for project implementation, should have been obtained. . Adequate insurance cover should be taken during construction period and risk associated with construction should be covered under the insurance policy. DISBURSAL OF WORKING CAPITAL Working capital advances should be released only after ensuring completion of project in all aspects including obtention of power connection (for new projects) At any point of time stipulated margin should be available. Whenever diversion is observed or improper end use of funds is noticed, such aspects should be thoroughly gone into, analyzed. Proper record of proof for such instances should be maintained for initiating action. Amount diverted must be made good. In case further loans are to be considered, recurrence of such diversion should be avoided and adequate securities must be taken.


82

MONITORING OF SECURITIES The securities should conform to the terms of sanction. They should be adequate in value, in good condition and readily realizable. All existing securities out of the securities stipulated should be inspected before release of the facilities. Both the additional securities and primary securities should be inspected at periodical intervals and a record of observation should be maintained by the branch for future reference. This applies for both current and fixed assets. DAILY TRANSACTION SCRUTINY: Scrutiny of the day to day transactions on a continuous basis gives better insight into the nature of dealings of the borrower customer, whether

i. Accounts are operated at the top of the limit indicating possible liquidity crisis. ii. The company is able to keep up their payment schedule to creditors. iii. Cheques issued bounce frequently. iv. Cheques deposited into the account are usually realized on presentation or

have to be represented on more occasions. v. Effective control over the bank account is exercised, etc. vi. Monthly interest debited is serviced promptly.

Based on the sales turnover reported in MSOD (and our share in the consortium) whether entire sale proceeds (pro rata share of sales) are being routed through the account with us. STOCK AND BOOK DEBT STATEMENTS Drawals in the cash credit account should be against availability of adequate Drawing Power. Follow up for submission of periodical stock statement is an essential pre requisite. The security offered to the bank is by way of hypothecation of stocks / book debts. While the borrower is entitled to use the stock / realize the receivables, it is mandatory that such proceeds must be utilized again to build up the current assets. MSOD / QIS Submission of Monthly Select Operational Data (MSOD) is applicable for all manufacturing concerns enjoying working capital limit of Rs.10 lacs and above and Quarterly Information System (QIS) is applicable for borrowers enjoying working capital limit of Rs.1 crore and above from the banking system. Timely submission of MSOD / QIS should be ensured by close follow up. While non-submission / delayed submission attracts penal rate of interest charging penal interest is not the remedy and is only to discipline the borrower. CONSORTIUM MEETINGS In case of consortium accounts where we are the leader / member, the consortium meetings offer excellent scope to understand the performance of the borrower. With


83

many banks participating, divergent views on taking up additional commitments, on the operations in the accounts, overdues, specific problems faced by other units in the same industry would come to light. The agenda in the consortium meeting and the stand to be taken in such meeting must be got approved by the appropriate authority, well in advance. Some of the key areas are listed below:

a. Observations made by member banks during stock inspection, stock audit. b. Comments by the inspection officials of our Bank. c. Comments by RBI officials in Annual Financial Inspection. d. Comments made by the external auditors in the LFAR. e. Actual performance vis-à-vis the projections. f. Observations on the CMA data submitted if assessment of limits is

involved. g. Submission of QIS, MSOD, Balance Sheet. h. Cash budget Vs actual cash flow. i. Likely liquidity problem / non-availment of limit. j. Security creation / pending issues relating to documentation. k. Experience of other banks in similar situations and remedial measures

adopted. l. Adherence to the code of conduct applicable for consortium advances.

All monitoring statements like stock statements, MSOD, QIS, unit inspection report, progress report on implementation of project should be obtained and critically analysed by the branches whether we are leader or member of the Consortium. Though the lending is under consortium arrangement, monitoring of the performance has to be done on independent basis without relying on the other bank or leader of consortium. 8.58 Quality of Credit: The following systems are in place for retention of Healthy Credit Portfolio:

a. Monitoring by CRM’s and submission of monthly reports. b. Exchange of information with other banks in respect of Consortium / Multiple

Banking Arrangements. c. Obtention of QIS statements and monitoring of the account based on QIS data

submitted. d. All SMA category accounts are to be monitored through Special Mention

Account (SMA) system for recovery of overdues. e. Framework for Revitalising Distressed Assets in the Economy – Guidelines on

Joint Lenders’ Forum (JLF) and Corrective Action Plan (CAP); Framework for Revitalising Distressed Assets in the Economy - Refinancing of Project Loans and Other Regulatory Measures as per annexure 5 and 6 (RBI circular 97 & 98 dated 26.02.2014 ) are to be followed .Detailed guidelines will be issued CO Credit Monitoring Cell .

f. Review / Renewal of accounts are to be taken up on Half-yearly / Annual basis of all the borrowal accounts.

g. Loan Review Mechanism – Independent review of borrowal accounts with risk perception under LRM / Credit Audit to identify early warning signals and suggest remedial measures to maintain / improve the quality of the assets.

h. Rating under RAM model and a migration analysis based on the rating.


84

i. For all the borrowal accounts with an exposure exceeding Rs. 5 crores , it is the endeavour of the Bank to be rated by an approved external Rating Agency.

j. Stock audit to be conducted as per stipulation in Credit Risk Management Policy 2014-15 on an yearly basis (the gap between two such audits not to exceed 15 months) for the working capital standard advances and on half yearly basis for the non performing assets. Detailed guidelines with regard to quantum of advance based on the type of borrowers are furnished in the Credit Risk Management Policy 2014-15.

k. Format of revised Stock Audit Report is given as annexure 8.59.a. Visit by the ZM or the Second in command: The ZM or Second in command shall visit the unit of the Top Twenty Five Borrowers of the Zone in a financial year. The officials shall meet the promoters / senior officials, to discuss about the prospects of the industry and to explore fresh business opportunities including cross selling of Personal Segment Loan products. 8.59.b. Unit Visit by Zonal Offices: In respect of fresh proposals, before sanction of any facility to the borrower, unit visit to be taken up at the Zonal Office level by ZM/ Second in command / any other senior Officer at Zonal Office, dealing the account, in respect of proposals falling under the powers of Zonal Office and Corporate Office. The indicative threshold limit for such unit visit is as follows: Threshold limit for fresh credit proposals

Aut hority to undertake unit visit

Rs.10 crs and above ZM Rs.5 crs & above and below Rs.10 crs Second in command Rs.2 crs & above and below Rs.5 crs Official nominated by Zonal Manager The visit by Zonal Office officials, besides the visit by branches, will strengthen the credit quality at the sanction stage itself. 8.59.c Preparation of Credit Reports on Borrowers: Detailed guidelines have been given, on compilation of credit reports on borrowers and sources of information, in Conventional Advances Manual (Chapter No:6, Para Nos.3&4). Further, Branches are advised to prepare credit reports on borrowers not only on the basis of information/statements furnished by the borrowers but also by verifying the data from independent sources and market enquiries. 8.60 Branch Segmentation: Branches are segmented as Corporate/Credit intensive Branches with the following objectives:

a. Importance of response-time to customer’s request and preparedness with required level of expertise,

b. Elimination of duplication of work at different tiers, to save on time c. Industry-wise focus, d. Facilitating refined data base by concentrating on a few branches constituting

major share of bank’s advances,


85

e. Pooling of skilled human resources to handle big-size lending with competence and efficiency,

f. Concentrating on a few branches in providing infrastructure and achieving cost efficiency.

Towards achieving the above objectives and ensuring asset qualities and to cut short the process time/delay it has been now decided as under: iv. In each of the urban and metro centre a minimum of one designated branch will

be identified by zonal offices for handling high value proposals (more than Rs 5 crores)

v. All high value proposals (more than Rs 5 crores) will be subjected to joint appraisal with branch and zonal office.

vi. All proposals of Rs 50 crores and above shall be emanated from the presently designated credit intensive/corporate branches only. Any further identification shall be done by corporate office based on the requirement.

8.61 RESTRUCTURING GUIDELINES: Reserve Bank of India vide Circular No RBI/2008-09/143 DBOD.No.BP.BC.No.37/21.04.132/2008-09 dated 27/08/08 has spelt out the fresh Guidelines on Restructuring of Advances by Banks on principles governing restructuring of different types of advances superseding all the guidelines issued on the subject so far. RBI further modified the guidelines vide Circular dated 08/12/08, 16/12/08 02/01/09 and 04.02.09.,Latest guidelines dt. 30.05.2013, RBI’s guidelines dt. 01.11.2012 for MSME. (our circulars CO: CREDIT circular ADV.162/2008-09 dated 05.01.2009, CO: PBD circular No.ADV.147/2008-09 dated 18.12.2008 and CO: SME circular No.ADV.117/2008-09 dated 10.11.2008 , CO credit circular adv 184 dated 07.02.2009 CO Credit circular adv.109 dated 19.10.2009, CO Credit Circular Adv 51 dated 03/07/2010 and CO Credit Circular Adv 99 dated 20/10/2010, HO RBD Circular ADV 97/2010-11 dated 14.10.2010, CO Credit Circular ADV 162 /2010-11 dated 15.02.11, CO MSMED Circular ADV 189/2010-11 dated 31.03.2011, CO MSMED Circular ADV 55/2011-12 dated 04.07.2011, CO MSMED Circular ADV 154/2011-12 dated 20.02.2012. CO MSMED Circular ADV 11/2014-15 dated 23.04.2012, CO MSMED Circular ADV 34/2014-15 dated 11.6.2012, Credit- Adv. 62/2013-14 dt. 23.08.2013, CO:RBD- Adv. 39 dt. 29.06.2013, CO:MSMED 38/2013-14 dt. 19.06.2013 ( for MSME restructuring). Salient features : OBJECTIVE: To enable various segments to withstand the adverse effects of global recessionary trends, slow down in domestic economy and to help borrowers who are affected by developments, events beyond their control. Restructuring of the accounts will lead to classifying of the account as non performing asset in the following sectors:

• Consumer and personal advances (Home loans and educational Loans are not considered as personal advances and hence eligible for special regulatory treatment).

• Capital market exposures • Commercial real estate exposures


86

Eligible sectors for restructuring: All the other sectors are eligible for special regulatory treatment and asset classification will not be downgraded on account of restructuring. ASSET CLASSIFICATION (UNDER SPECIAL REGULATORY TREA TMENT) Standard accounts classified as NPA and NPA accounts retained in the same category on restructuring by the bank should be upgraded only when all the outstanding loan/facilities in the account perform satisfactorily during the ‘specified period’, i.e. principal and interest on all facilities in the account are serviced as per terms of payment during that period. Specified period is redefined as a period of one year from the commencement of the first payment of interest or principal, whichever is later, on the credit facility with longest period of moratorium under the terms of restructuring package Income recognition norms Interest income in respect of restructured accounts classified as 'standard assets' will be recognized on accrual basis and that in respect of the accounts classified as 'non-performing assets' will be on cash basis Provisioning norms Normal provisions As per existing provisioning norms (for standard / NPA accounts). Provision for diminution in the fair value of restructured advances Reduction in the rate of interest and /or reschedulement of the repayment of principal amount, as part of the restructuring, will result in diminution in the fair value of the advance. Such diminution in value is an economic loss for the bank and will have impact on the bank’s market value of equity. It is, therefore, necessary for banks to measure such diminution in the fair value of the advance and make provisions for it by debit to Profit & Loss Account IN ADDITION TO THE NORMAL PROVISIONING AS PER NPA GUIDELINES. The erosion in the fair value of the advance should be computed as the difference between the "the present value of future cash flows (principal and interest) reckoned based on the current Base rate as on the date of restructuring plus the appropriate term premium and credit risk premium for the borrower category on the date of restructuring", and ‘the present value of future cash flows’ (principal and interest) based on rate charged as per the restructuring package). Sacrifice : The erosion in the fair value of the advance should be computed as the difference between the fair value of the loan before and after restructuring. Fair value of the loan before restructuring will be computed as the present value of cash flows representing the interest at the existing rate charged on the advance before restructuring and the principal, discounted at a rate equal to the bank's BPLR or base rate (whichever is applicable to the borrower) as on the date of restructuring


87

plus the appropriate term premium and credit risk premium for the borrower category on the date of restructuring.(as per Minimum Band) Fair value of the loan after restructuring will be computed as the present value of cash flows representing the interest at the rate charged on the advance on restructuring and the principal, discounted at a rate equal to the bank's BPLR or base rate (whichever is applicable to the borrower) as on the date of restructuring plus the appropriate term premium and credit risk premium for the borrower category on the date of restructuring (as per Minimum Band) Any change in BPLR/Base Rate will be taken in to account for future review of NPV of such account RESTRUCTURED ADVANCES -- Additional provision requ irement (RBI Circular DBOD.No.BP.BC.99 /21.04.132/2012-13 dated May 30, 2013) Reserve Bank of India has decided to enhance the provisioning requirements on certain categories of non-performing advances and restructured advances and advised as follows: 1) Restructured accounts classified as standard adv ances – Increase in provision to 5 per cent in respect of new restructured standard accounts (flow) with effect from June 1, 2013 and in a phased manner for the stock of restructured standard accounts as on March 31, 2013 as under: • 3.50 per cent – with effect from March 31, 2014 (spread over the four quarters of 2013-14)

• 4.25 per cent – with effect from March 31, 2015 (spread over the four quarters of 2014-15)

• 5.00 per cent – with effect from March 31, 2016 (spread over the four quarters of 2015-16)

2) Restructured accounts classified as non-performi ng advances , when upgraded to standard category will attract a provision as above. Branches need not make any provision at their end. The above enhancement of rates are over and above the Net asset value provision made on restructured accounts based on diminution in fair value. (Circular ADV. 48 / 2010-11 dt 16/6/11) SPECIAL REGULATORY TREATMENT:

Special regulatory treatment has the following two components (i). Incentive for quick implementation of the restructuring package.

(a) Within 120 days from the date of approval under the CDR Mechanism. (b) Within 120 days from the date of receipt of application by the bank in non-

CDR cases. Retention of the asset classification of the restructured account in the pre restructuring asset classification category.


88

CONDITIONS FOR SPECIAL REGULATORY TREATMENT :

1. The dues to the bank are ‘fully secured’ (primary, collateral, bank guarantees, State Government Guarantees and Central Government Guarantees and not intangible form like guarantee of promoters / others etc). The condition of being fully secured by tangible security will not be applicable for (a) SSI (MSME) borrowers, where the outstanding is up to Rs.25 lakh (b) Infrastructure projects (provided the cash flows generated from these projects are adequate for repayment of the advance, the financing bank(s) have in place an appropriate mechanism to escrow the cash flows, and also have a clear and legal first claim on these cash flows) and (c) WCTL

2. The unit becomes viable in 10 years, if it is engaged in infrastructure activities, and in 7 years in the case of other units from the date of restructuring).

3. The repayment period of the restructured advance including the moratorium, if any, does not exceed 15 years in the case of infrastructure advances and 10 years in the case of other advances.(The maximum repayment period of 10 years is not applicable for home loans and the same is detailed in Circular ADV 147 dt 18/12/08). The repayment period of the restructured advance including the moratorium would be reckoned from the date of restructuring.Promoters' sacrifice and additional funds brought by them should be a minimum of 20% of banks' sacrifice. (Reduction in the rate of interest on principal or FITL or modification of repayment period, as part of the restructuring, will result in diminution in the fair value of the advance).

(i) The promoters’ sacrifice and additional funds required to be brought by them should be minimum of 20 per cent of banks’ sacrifice or 2 per cent of the restructured debt, whichever is higher. This stipulation is the minimum and a higher sacrifice by promoters may be decided depending on the riskiness of the project and promoters’ ability to bring in higher sacrifice amount. Further, such higher sacrifice may invariably be insisted upon in larger accounts especially in CDR accounts. The promoters’ sacrifice should invariably be brought upfront while extending the restructuring benefits to the borrowers Detailed guidelines in respect of CDR Restructuring is made available in Bank’s Intranet-Circulars- CDR Master Circular 2012.

(ii) Prior to May 30, 2013, if banks were convinced that the promoters face genuine difficulty in bringing their share of the sacrifice immediately and need some extension of time to fulfill their commitments, the promoters could be allowed to bring in 50% of their sacrifice, i.e. 50% of 15%, upfront and the balance within a period of one year. However, in such cases, if the promoters fail to bring in their balance share of sacrifice within the extended time limit of one year, the asset classification benefits derived by banks will cease to accrue and the banks will have to revert to classifying such accounts as per the asset classification norms


89

It is further clarified that contribution by the promoter need not necessarily be brought in cash and can be brought in the form of de-rating of equity, conversion of unsecured loan brought by the promoter into equity and interest free loans. iii) Personal guarantee is offered by the promoter except when the unit is affected by

external factors pertaining to the economy and industry The restructuring under consideration is not a 'repeated restructuring’ Financial norms: Return on Capital Employed -A minimum ROCE equivalent to 5 year G-Sec plus 2% may be considered as adequate Debt Service Coverage Ratio The adjusted DSCR should be >1.25 within the 5 years period in which the unit should become viable and on year-to-year basis DSCR to be above 1. The normal DSCR for 10 years repayment period should be around 1.33:1. Gap between Internal Rate of Return and Cost of Fun ds- The benchmark gap between Internal Rate of Return and Average Cost of Funds should be at least 1%. Diminution in the fair value of restructured advances to be recomputed on each balance sheet date . Break-Even Analysis. Break-even analysis should be carried out. Operating and cash break-even points should be worked out and they should be comparable with the industry norms Gross Profit Margin It is necessary that various elements of profitability estimates such as capacity utilization, price trend and price realization per unit, cost structure, etc. should be comparable to those of the operating units in the same industry. It is also suggested that the company’s past performance for say last 3-5 years and future projections for next 5 years should be given in the restructuring package on the same worksheet to have comparison of sales, sales realization, cost components, GP, GPM, interest cost, etc. Loan Life Ratio (LLR) A benchmark LLR of 1.4, which would give a cushion of 40% to the amount of loan to be serviced, may be considered adequate. LLR is calculated by way of dividing Present value of total available cash flow(ACF) during the loan life period ( including interest and principal) by Maximum amount of loan Viability time- It should be ensured that the unit taken up for restructuring achieves viability in 8 years if it is engaged in infrastructure activities and in 5 years in other cases.


90

Sanctioning powers: The sanctioning authorities shall exercise the powers as per Booklet on Credit and Credit Related Administrative Powers – CP 15 and CP 16. Satisfactory performance: Satisfactory performance during the specified period means adherence to the following conditions during the specified period. Non-agricultural cash credit accounts: In the case of non-agricultural cash credit accounts, the account should not be out of order any time during the specified period, for a duration of more than 90 days. In addition, there should not be any overdues at the end of the specified period. Non-agricultural term loan accounts : In the case of non-agricultural term loan accounts, no payment should remain overdue for a period of more than 90 days. In addition there should not be any overdues at the end of the specified period. All agricultural accounts: In the case of agricultural accounts, at the end of the specified period the account should be regular Restructuring of SME Accounts: Debt Restructuring Mechanism for Small and Medium Enterprises(SME)- as detailed in CO MSMED circular ADV 33/2013-14 dated 19.06.2013 RESTRUCTURING OF PERSONAL SEGMENT LOAN PRODUCTS: Restructuring of Home Loans: Based on the RBI’s prudential guidelines on Restructuring of Advances, our Board has approved Policy on Restructuring Home Loans. This supersedes our earlier guidelines on Restructuring of Structured Loan Products. Some of the salient features of our Restructuring Policy are: 1. Standard / Sub-standard / Doubtful category accounts under Home Loan Products

(Home Loan to residents, NRI Home Loan, Home Improve, Plot Loan to residents and NRI) shall be eligible for Restructuring.

2. Restructuring of Home Loans to be considered in respect of accounts where default has arisen due to delayed completion of housing project / medical expenses / any other genuine reasons which is beyond the control of the borrowers.

3. Restructuring to be taken up only on specific request from the borrower and repayment capacity as per terms of the proposed restructuring to be ensured.

4. Extension of Holiday Period upto 6 months based on genuine reasons such as non completion of housing projects, etc. may be permitted

5. Extension of Repayment period upto 5 years (including Holiday period extension) may be permitted (Max. repayment period including extension should not exceed 25 years)


91

6. Interest rate as per slab applicable for original repayment period to be continued even after extension of repayment period.

7. EMI to be re-fixed based on the revised residual repayment period. 8. As per RBI guidelines, Home Loans on Restructuring are eligible for Special

Regulatory Treatment, if restructuring is implemented within 90 days from the date of taking up restructuring and asset classification will not be downgraded on account of Restructuring i.e. An existing ‘standard asset’ will not be downgraded to sub-standard category on restructuring

9. During the ‘Specified Period’, the asset classification of the sub-standard / doubtful accounts will not deteriorate upon restructuring, if satisfactory performance is demonstrated during the ‘Specified Period’.

10. NPA accounts which have been restructured would be eligible for up-gradation to the ‘Standard’ category after observation of ‘satisfactory performance’ during the ‘Specified Period’.“Specified Period’ means one year from the date when the first payment of interest or installment of Principal falls due under the terms of Restructuring Package.

Restructuring shall be permitted only at the level of ZLCC for Home Loan accounts upto their delegated powers for sanction of Home Loan. Accounts beyond ZLCC powers should be referred to CO. In case of non-agricultural term loan accounts, satisfactory performance during the specified period means, the account should not be out of order any time during the specified period, for a duration of more than 90 days. In addition, there should not be any overdues at the end of this specified period. Restructuring of Personal Segment Loan Products (ot her than Home Loans and Educational Loans): Upon Restructuring, other Personal Segment Loan Products (other than Home Loan and Educational Loan) will not be eligible for Special Regulatory Treatment and these accounts shall have to be downgraded from ‘Standard’ to ‘Sub-standard’ category upon restructuring. The details of Restructuring Policy are communicated through Circular No. ADV 147/2008-09 dated 18.12.2008, ADV 162/2008-09 dated 05.01.2009 & ADV 172/2008-09 dated 24.01.2009. Project Loans for Infrastructure Sector 8.61.1 A loan for an infrastructure project will be classified as NPA during any time before commencement of commercial operations as per record of recovery (90 days overdue), unless it is restructured and becomes eligible for classification as ‘standard asset’ in terms of paras 8.61.3 to 8.61.5 below. 8.61.2. A loan for an infrastructure project will be classified as NPA if it fails to commence commercial operations within two years from the original Date of Commencement of Commercial Operations (DCCO), even if it is regular as per


92

record of recovery, unless it is restructured and becomes eligible for classification as ‘standard asset’ in terms of paras 8.61.3 to 8.61.5 below. 8.61.3 If a project loan classified as ‘standard asset’ is restructured any time during the period up to two years from the original DCCO, in accordance with the restructuring guidelines as per para 8.61, it can be retained as a standard asset if the fresh DCCO is fixed within the following limits , and further provided the account continues to be serviced as per the restructured terms. (a) Infrastructure Projects involving court cases Up to another 2 years (beyond the existing extended period of 2 years i.e total extension of 4 years), in case the reason for extension of date of commencement of production is arbitration proceedings or a court case. (b) Infrastructure Projects delayed for other reasons b eyond the control of promoters Up to another 1 year (beyond the existing extended period of 2 years i.e. total extension of 3 years), in other than court cases.

8.61.4 The dispensation in para 8.61.3 is subject to adherence to the provisions regarding restructuring of accounts which would inter alia require that the application for restructuring should be received before the expiry of period of two years from the original DCCO and when the account is still standard as per record of recovery. The other conditions applicable would be: a. In cases where there is moratorium for payment of interest, we should not book

income on accrual basis beyond two years from the original DCCO, considering the high risk involved in such restructured accounts.

c. Bank should maintain provisions on such accounts as long as these are classified

as standard assets as under: If the revised DCCO is within two years from the original DCCO prescribed at the time of financial closure

0.40%

If the DCCO is extended beyond two years and up to four years or three years from the original DCCO, as the case may be, depending upon the reasons for such delay.

Project loans restructured with effect from June 1, 2013: 5.00 per cent – From the date of such restructuring till the revised DCCO or 2 years from the date of restructuring, whichever is later

Stock of project loans classified as restructured as on June 1, 2013:

* 3.50 per cent - with effect from March 31, 2014 (spread over the four quarters of 2013-14)

* 4.25 per cent - with effect from March 31,


93

2015 (spread over the four quarters of 2014-15)

* 5.00 per cent - - with effect from March 31, 2016 (spread over the four quarters of 2015-16) The above provisions will be applicable from the date of restructuring till the revised DCCO or 2 years from the date of restructuring, whichever is later.

8.61.5 For the purpose of these guidelines, mere extension of DCCO would not be considered as restructuring, if the revised DCCO falls within the period of two years from the original DCCO. In such cases the consequential shift in repayment period by equal or shorter duration (including the start date and end date of revised repayment schedule) than the extension of DCCO would also not be considered as restructuring provided all other terms and conditions of the loan remain unchanged. As such project loans will be treated as standard assets in all respects, they will attract standard asset provision of 0.40 per cent In case of infrastructure projects under implementation, where Appointed Date (as defined in the concession agreement) is shifted due to the inability of the Concession Authority to comply with the requisite conditions, change in date of commencement of commercial operations (DCCO) need not be treated as ‘restructuring’, subject to following conditions: a) The project is an infrastructure project under public private partnership model awarded by a public authority; b) The loan disbursement is yet to begin; c) The revised date of commencement of commercial operations is documented by way of a supplementary agreement between the borrower and lender and; d) Project viability has been reassessed and sanction from appropriate authority has been obtained at the time of supplementary agreement 8.61.6 Project Loans for Non-Infrastructure Sector 8.61.6.1 A loan for a non-infrastructure project will be classified as NPA during any time before commencement of commercial operations as per record of recovery (90 days overdue), unless it is restructured and becomes eligible for classification as ‘standard asset’ in terms of paras 8.61.6.3 to 8.61.6.4 below. 8.61.6.2. A loan for a non-infrastructure project will be classified as NPA if it fails to commence commercial operations within one year from the original DCCO, even if it is regular as per record of recovery, unless it is restructured and becomes eligible for classification as ‘standard asset’ in terms of paras 8.61.6.3 to 8.61.6.4 below.


94

8.61.6.3 In case of non-infrastructure projects, if the delay in commencement of commercial operations extends beyond the period of one year from the date of completion as determined at the time of financial closure, banks can prescribe a fresh DCCO, and retain the "standard" classification by undertaking restructuring of accounts in accordance with guidelines under para 8.61 provided the fresh DCCO does not extend beyond a period of two years from the original DCCO. This would among others also imply that the restructuring application is received before the expiry of one year from the original DCCO, and when the account is still "standard" as per the record of recovery. The other conditions applicable would be: a. In cases where there is moratorium for payment of interest, banks should not book income on accrual basis beyond twelve months from the original DCCO, considering the high risk involved in such restructured accounts. b. Banks should maintain provisions on such accounts as long as these are classified as standard assets as under: a. If the revised DCCO is within six months from the original DCCO prescribed at the time of financial closure

0.40%

If the DCCO is extended beyond six months and up to one year from the original DCCO prescribed at the time of financial closure.

Project loans restructured with effect from June 1, 2013: 5.00 per cent –From the date of restructuring for 2 years . @ The above provisions will be applicable from the date of restructuring for 2 years

@ Stock of project loans classified as restructured as on June 1, 2013:



* 5.00 per cent - - with effect from March 31, 2016 (spread over the four quarters of 2015-16) 8.61.6.4 For the purpose of these guidelines, mere extension of DCCO would not be considered as restructuring, if the revised DCCO falls within the period of one year from the original DCCO. In such cases the consequential shift in repayment period by equal or shorter duration (including the start date and end date of revised repayment schedule) than the extension of DCCO would also not be considered as restructuring provided all other terms and conditions of the loan remain unchanged. As such project loans will be treated as standard assets in all respects; they will attract standard asset provision of 0.4 per cent.


95

Project Loans for Commercial Real Estate Commercial real estate (CRE) projects also face problems of delays in achieving the DCCO for extraneous reasons. Therefore for CRE projects mere extension of DCCO would not be considered as restructuring, if the revised DCCO falls within the period of one year from the original DCCO and there is no change in other terms and conditions except possible shift of the repayment schedule and servicing of the loan by equal or shorter duration compared to the period by which DCCO has been extended. Such CRE project loans will be treated as standard assets in all respects for this purpose without attracting the higher provisioning applicable for restructured standard assets. However, the asset classification benefit would not be available to CRE projects if they are restructured. 8.61.7 Other Issues 8.61.7.1 All other aspects of restructuring of project loans before commencement of commercial operations would be governed by the guidelines under para 8.61. Restructuring of project loans after commencement of commercial operations will also be governed by these instructions. 8.61.7.2 Any change in the repayment schedule of a project loan caused due to an increase in the project outlay on account of increase in scope and size of the project, would not be treated as restructuring if:

(i) The increase in scope and size of the project takes place before commencement of commercial operations of the existing project.

(ii) The rise in cost excluding any cost-overrun in respect of the original project is 25% or more of the original outlay.

(iii) The bank re-assesses the viability of the project before approving the enhancement of scope and fixing a fresh DCCP.

(iv) On re-rating, (if already rated) the new rating is not below the previous rating by more than one notch.

8.62 Review/Renewal of Advances: The process of Review / Renewal of a loan account gives an opportunity to set right the deficiencies / irregularities that may be creeping in / persisting. Timely review / renewal exercise is a vital tool to mitigate the vulnerable risks like possible deterioration in asset quality. c. Generally, all working capital accounts should be renewed normally for a period

one year and request for renewal for more than one year with annual review shall be considered by various sanctioning authorities as detailed at point 8.91 of this policy. Term loan accounts will be reviewed as per the structured format devised by Credit Monitoring Cell (CMC).Hence Branches should collect the required data for taking up renewal three months before the due date of renewal to ensure obtention sanction in time. In case of C & CC rated accounts the accounts should be reviewed as per Credit Risk Management Policy 2014-15 on a quarterly basis.


96

d. Guarantees are to be periodically monitored at the time of review / renewal by obtaining progress /status report on the accomplishment of the purpose for which the non-fund based facility is sanctioned.

8.63 Realignment of limits/modification of limits Realignment of limits/modification of limits within the overall limits and without dilution of security coverage (realignment includes fund based into non fund based) a. For MC/CAC/COLCC(ED) sanctioned accounts of limits: COLCC(GM). b. For accounts sanctioned by other sanctioning authority: Respective sanctioning authority 8.64 Permitting release of security (primary/additi onal/collateral) If direct/indirect liability in group account exists. (on complete adjustment of account)

All CO sanctioned accounts

COLCC(GM)

For other accounts:

ZLCC

8.65 End Use of Funds: The health of the loan assets has a direct relationship with the utilization of the funds for the purpose for which they were extended. RBI has advised that steps should be initiated by banks/FIs to check willful defaults by ensuring that end use of funds forms part of their loan policy documents and by putting in place appropriate systems and measures for this purpose. Therefore, as part of the strategy to protect the quality of the portfolio, end use of funds lent should be closely monitored. Certificates from the borrower's auditors/supplier of asset financed, confirming end utilization of loan proceeds has to be obtained and kept on record. This will ensure that the borrower has not diverted and/or siphoned off the loan proceeds and the amount has been used for the purpose for which it was extended. Utilization of large value working capital limits shall be tracked, particularly in the corporate and export segments, to identify instances of unusual increases in credit growth not in consonance with the regular requirements of the borrowers. There shall be a stronger monitoring of end utilization of funds lent to borrowers so as to spot drawals which are not need-based. Further as advised by RBI, in order to ensure end use of funds, disbursements of Term Loan amount shall not be made to current/cash credit accounts and exclusive reliance on the certificate of Chartered Accountants both in regard to infusion of promoters’ contribution and deployment of bank’s funds shall be avoided. The following steps shall be taken by branches to ensure end use of the funds lent. 1. Operation in the OD account shall be monitored. 2. Both withdrawals and debit of cheques/remittances through NEFT/RTGS, etc ,

shall be regularly kept track of, to ensure that funds are not diverted.


97

3. Meaningful scrutiny of the periodical progress reports and operating/financial statements of the borrowers shall be made.

4. Periodical scrutiny of the books of account of the borrowers shall be made and stock audit shall be conducted.

5. A suitable certificate shall be obtained from the borrower to the effect that the funds have been utilized for the purposes for which it is sanctioned and in case the same is found to be incorrect, he shall be liable for legal action besides withdrawal of facilities sanctioned. During internal audit/inspection all aspects of diversion of funds shall be examined.

In respect of term loans, excepting for petty expenses like payment of labour charges etc, it is to be ensured that the major part of the payment is directly made to the supplier of equipments/plant and machinery/other fixed assets after verifying the credentials and genuineness of the suppliers. All term loans are to be released in stages based on progress of the project and after ensuring the end use of the earlier disbursements. In respect of working capital, major portion of the limit is to be released first time direct to the supplier of raw material etc after verifying the credentials and genuineness of the suppliers and subsequent release shall be in a phased manner. The loans sanctioned by the Bank, particularly the general-purpose loans, are to be used for the purpose for which it is sanctioned and not diverted to the capital market, etc, Undertaking letter shall be obtained from borrower for the loans sanctioned up to Rs.25.00 lakhs and for the loans sanctioned above Rs.25.00 lakhs, certificate from chartered accountant shall be obtained for proper end use of the loan proceeds. Branches to take a declaration mentioning the purpose to ensure the end use of funds for Loan against Deposits of above 1 crore to commercial firms and corporate entities. Unit inspection: Wherever we are sole banker, inspection of goods secured under KCC/OCC/PC is to be carried out on monthly/quarterly or periodicity decided by the sanctioning authority on rotation basis to ascertain of end use of funds. The unit inspection also should cover the availability and condition of the fixed assets financed by bank, random verification of book debts and comparison of stock statements/ receivables with books of the company. In the case of consortium/ multiple banking accounts, the unit inspection should be carried out on rotation basis as decided by members. Unit inspection for term loans: Unit inspection at least once in a year to be conducted Stock Audit : Stock and book-debt audit should be conducted as per stipulations in Credit Risk Management policy for the working capital advances. Thus, end use of funds to be ascertained in all the borrowal accounts to ensure that the credit disbursed is utilized for the purpose for which it was sanctioned.


98

8.66 Loans Against Immovable Property of Education al Institutions Run By Public Trust a. Fresh advances/enhancements to Educational Institutions run by Public

Trusts, where the trust property situated in Tamilnadu is offered as security, the Bank will consider only if the clearance under Sec.37 B of the Tamilnadu Land Reforms Act is obtained from the Government of Tamilnadu, by these institutions.

b. Wherever similar guidelines are prevalent in other States, the Branches shall comply with those guidelines.

c. In all cases of Trust, Societies, Legal Audit is necessary before disbursement of the loans.

8.67 ECGC Cover for Bid Bonds & Export Performance Guarantees: a. All Pre shipment / Post shipment advances, Bid Bonds & Export Performance

Guarantees are to be covered by ECGC Insurance. Normally no waiver of insurance shall be considered.

b. For Bid Bonds & Export Performance Guarantee, GMs (at CO and Zonal Offices) shall consider any request for waiver of the cover based on merits.

For Export credit Insurance to Banks (pre-shipment and post-shipment) guidelines

as per Credit Risk Management Policy 2014-15 shall be adhered. 8.68.a. Maintenance of Application Received / Rejected Regi ster Register of applications received and rejected for loan proposals shall be maintained by Corporate office / Zonal Office / Branches. A Software package is ported in the Intranet and the Branches / Zonal Offices shall enter the details of all the proposals received and disposed in the intranet. The Branch Managers and the Controlling offices shall monitor the disposal of loan application and adherence to time norms. 8.68.b. Loan tracking -- web based status view faci lity to applicants of credit limits (Board directions dt 07/10/11) As per CVC directions, Banks have to provide facility to the customers to know the status of their credit application by leveraging the technology. In compliance of the directions, a new web based facility was introduced by our Bank with effect from 31-03-2009 through which applicants seeking credit facilities from our Bank can view the status of their application through our web site www.indianbank.in .Detailed procedural guidelines were issued vide Circular ADV. 213/2008-09 dt 31/3/2009 and were reiterated vide our Circulars ADV. 41 /2010-11 dt 14/06/10 and ADV-117- 2011-12 dt 03/11/2011. As directed by Ministry of Finance, Government of India, our Board at the meeting held on 07/10/11 approved the time norms for disposal of loan applications and further directed to

• Ensure on-line monitoring of proposals. • Conduct an audit on the above in select branches.

Proposals without the ID NO and not entered in the system shall not be taken up for consideration at Zonal Office/Corporate Office.


99

8.69 Compliance of Codes of Commitment to Customers and MSE of BCSBI. Our Bank has subscribed to the Codes of Commitment to Customers and MSE of BCSBI. Hence, the Bank is bound to honour the commitments under the Codes as applicable to the borrowers / customers. Adetailed list of commitments under the codes is is available on our website : www.indianbank.in. Any deviation in complying with the relevant sections of the codes applicable to the borrowers / customers is likely to make our Bank liable to customers and adverse comments may be passed against the Bank.. . For Education loans : Parent(s)/student(s) should be informed of the checklist of documents/credentials required to be submitted by them along with the loan application in one lot, to avoid time delay in processing. Clarifications if any, should also be sought in one lot only. Collecting information in piecemeal basis should be avoided. Applications received from the applicants should be forwarded to the Zonal Office concerned then and there with all the required details and recommendations for early sanction, without giving room for any ambiguity. Upon receipt of application, standard acknowledgement with reference number is to be issued. The acknowledgement should contain contact details of the Branch Manager/ designated official who could be contacted in case of delay in disposal of application. It is to be ensured, sanction/rejection has to be communicated within 15 days of receipt of duly completed application with supporting documents.( RBD circular ADV 51 dt.01.08.2013 )


100

8.70 Disposal of Loan applications Ministry of Finance, Department of Financial Services vide their communication Ref No.7/99/2011-BOA dated 02/09/11 & 09/09/11

• All loan proposals which are to be approved at Corporate Office level may be reviewed on a fixed day by the CACs/MDs and EDs together in order to ensure that there is no pendency above three months. While reviewing, CACs/MDs and EDs may discuss the same with the Field Officers through video conference for instant feedback.

• All loan proposals which are to be approved at the Zonal Office or Branch level may be reviewed by the ZLCCs on a fixed day in a week so that there is no pendency for over 45 days.

• The loan applications which are pending for want of response / information from different State Governments – whether to be approved at Corporate Office level or Zonal Office level, may be followed up by the concerned Zonal Offices with the respective departments of the State Governments for expeditious clearance. Matters relating to applications to be disposed of by Branch Managers, may be taken up by the Branch Managers in District Coordination Committees on a monthly basis.

• The State Level Bankers Committee may also consider requesting the Chief Secretaries of the respective states for expeditious clearance of the projects coming up in the State where banks / financial institutions have sanctioned the projects but disbursement is pending for want of clearances.

As per the Citizen’s Charter, the time lines to be observed are: Sanctioning Authority Time lines for disposal of loan

applications Approvals to be granted by the Branch Managers

within 30 days of receipt of loan application

Approvals to be granted by the ZLCCs within 45 days of receipt of loan application Approvals to be granted by the Corporate Office

within 90 days of receipt of loan application

Board approval dt 07/10/11 -- Circular ADV.117- 2011-12 dt 03/11/11 The date of receipt of comprehensive proposal at branch is to be noted and furnished in the proposals submitted to ZO/CO without fail .Due acknowledgement is to be issued to the applicants. 8.71 Guidelines on Taking Agricultural Lands as Collater al Security: For accepting agricultural lands as collateral for purposes other than the agricultural activity shall be considered at the level of ZLCC and above after taking into account the local State Government guidelines.


101

8.72 Policy on Charging of Interest and Charges from Bor rowers:

a. Our Bank's rate of interest and other service charges are notified through circulars and ported in Website in conformity with the normal banking prudence and are not usurious.

b. Field level functionaries have to adhere to the banks laid down policy on charging of interest and other service charges to avoid receiving complaints regarding levying of excessive interest rates and charges. Branches are not authorised to charge more than the interest rates and other service charges notified by CO.

c. Recovery of interest shall be made for withdrawal against un-cleared effects as per extant guidelines.

8.73 Charging of Interest (Per Annum /Payable Month ly Basis) Under CBS, interest is applied on monthly basis in the loan / CC / OD accounts (other than exempted categories like agricultural loans). Since CBS is charging interest on quarterly compounding only, Branches should not incorporate discounted rate of interest in the system. Interest is on per annum / payable monthly basis and hence interest has to be recovered immediately. The excess will be treated as overdue and will attract penal interest if the interest is not serviced. As per the IRAC norms, the account will be classified as NPA, if the interest is not serviced within 90 days from the end of the respective quarter. For fixed interest rates borrowal accounts with reset clause, the Interest rate shall be modified on the due date / reset date without omission but after an approval by the appropriate sanctioning authority. In case of time lag in obtention of an approval, the branches shall calculate the interest manually and collect the interest besides marking the same in the system. Interest on monthly compounding : Consequent to deregulation of interest rates, interest rates are linked to base rate with appropriate risk premium / operative expenses. Interest to be charged at monthly rests with monthly compounding. This is applicable for all the accounts – fresh / r eview/ renewal / enhancement / reset. (Other than agriculture/Govt sponsored Schemes/ exempted category). Sanctioning authorities to clearly mention in the sanction ticket with respect to charging of interest on monthly compounding basis (both in respect of fixed and floating rate accounts). Documents to be suitably modified in consultation w ith CO:Legal Department 8.74 Quoting of Variable Interest Rate in Lieu of Floating Rate of Interest for our loan products Interest rate to be quoted as variable interest rate for our loan products other than fixed rate interest. Quoting floating rates for our loan products is dispensed with


102

since as per RBI, floating rate has to be linked to external benchmarks like G Sec rate, MIBOR etc. 8.75 Base rate The Base Rate system, replaced the BPLR system with effect from July 1, 2010. For loans sanctioned up to June 30, 2010, BPLR will be applicable.. However, for those loans sanctioned up to June 30, 2010 which come up for renewal from July 1, 2010 onwards, Base Rate would be applicable. Base Rate shall include all those elements of the lending rates that are common across all categories of borrowers. Even after introduction of the Base Rate system, bank would have the freedom to offer all categories of loans on fixed or variable rates. Where loans are offered on fixed rate basis, notwithstanding the quarterly review of the Base Rate, the rate of interest on fixed rate loans will continue to remain the same subject to the condition that such fixed rate should not be below the Base Rate. Applicability of Base Rate With effect from July 1, 2010, all categories of loans should be priced only with reference to the Base Rate.

However, the following categories of loans could be priced without reference to the Base Rate: (a) DRI advances (b) loans to banks’ own employees (c) loans to banks’ depositors against their own deposits. In those cases where subvention is available to borrowers, it is clarified as under:

(i) Interest Rate Subvention on Crop Loans a) In case of crop loans up to Rupees three lakh, for which subvention

is available, bank should charge farmers the interest rates as stipulated by the Government. If the yield to the bank (after including subvention) is lower than the Base Rate, such lending will not be construed to be violative of the Base Rate guidelines. b) As regards the rebate provided for prompt repayment, since it does not change the yield to the banks [mentioned at (a) above] on such loans, it would not be a factor in reckoning compliance with the Base Rate guidelines.

(ii) Interest Rate Subvention on Export Credit The interest rates applicable for all tenors of rupee export credit advances will be at or above the Base Rate. In cases where subvention is available in terms of RBI Circular DBOD.Dir.(Exp.).BC.No.94/04.02.001/2009-10 dated April 23, 2010, bank will have to reduce the interest rate chargeable to exporters as per Base Rate system by the amount of subvention available. If, as a consequence, the interest rate charged to exporters goes below the Base Rate, such lending will not be construed to be violative of the Base Rate guidelines.


103

(iii) Restructured Loans In case of Restructured loans if some of the WCTL, FITL, etc. need to be granted below the Base Rate for the purposes of viability and there are recompense etc. clauses, such lending will not be construed to be violative of the Base Rate guidelines.

National Scheduled Tribes Finance and Development C orporation : ( RBI/2011-12/170 DBOD.Dir.BC.34 /13.03.00/2011-12 dt September 9, 2011, The guidelines for implementation of the Micro Credit Scheme of National Scheduled Tribes Finance and Development Corporation (NSTFDC) were issued by IBA vide their circulars SB/Govt/113 dated November 22, 2007 and SB/CIR/Govt/NSTFDC/43 dated April 6, 2009. Under the scheme, banks may extend subsidised loans to eligible beneficiaries/SHGs for undertaking Self Employment Ventures/activities at interest rates not exceeding six per cent/eight per cent where refinance at three per cent/five per cent from NSTFDC is available. Similarly, banks may extend subsidised loans to eligible beneficiaries under the various schemes of National Handicapped Finance and Development Corporation (NHFDC) at interest rates prescribed therein where refinance from NHFDC is available. In this context, Banks may charge interest at the rates prescribed under the schemes of NSTFDC /NHFDC to the extent refinance is available. Such lending, even if it is below the Base Rate, would not be considered as a violation of our Base Rate Guidelines. Interest rate charged on the part not covered under refinance should not be below Base Rate .The Base Rate could also serve as the reference benchmark rate for floating rate loan products, apart from external market benchmark rates. The floating interest rate based on external benchmarks should, however, be equal to or above the Base Rate at the time of sanction or renewal. Since the Base Rate will be the minimum rate for all loans, bank is not permitted to resort to any lending below the Base Rate Bank is required to review the Base Rate at least once in a quarter with the approval of the Board or the Asset Liability Management Committees (ALCOs) as per the bank’s practice. Since transparency in the pricing of lending products has been a key objective, bank is required to exhibit the information on their Base Rate at all branches and also on their websites. The Base Rate system would be applicable for all new loans and for those old loans that come up for renewal. Existing loans based on the BPLR system may run till their maturity. In case existing borrowers want to switch to the new system, before expiry of the existing contracts, an option may be given to them, on mutually agreed terms. Bank, however, should not charge any fee for such switch-over. Interest rates under the BPLR system are applicable to all existing loans sanctioned up to June 30, 2010. However, wherever loans sanctioned up to June 30, 2010 come up for renewal from July 1, 2010, the Base Rate system would be applicable. CONCESSIONS IN RATE OF INTEREST: As per interest rate policy.


104

8.76.a. Pricing for the accounts under Consortium / Multipl e Banking Arrangement on account of change in BPLR/Base Rate

Whenever there is a change in Base Rate of ours or other member banks we have to re -price by reducing/increasing our reverse spread. Any delay on our part to re-price in concurrence with other member banks may result in switch over by some of our valued customers to other member banks whose interest rate may be attractive to them even for short duration. Functional General Managers at Corporate Office may fix appropriate negative spread in tandem with the pricing of leader of consortium/Multiple Banking Arrangement for the price sensitive borrowers, if warranted. However in absolute terms, it should not result in any reduction in the absolute ROI. 8.76.b. Undertaking letter to be obtained from borr owers for the facility/ies getting changed to Base Rate from BPLR based system on renewal : So long as the terms and conditions of sanction remain the same, there is no need to obtain fresh documents (including DPN) for renewal of facilities. But, as Base Rate based interest rate will be applicable, on renewal of limits, (which were earlier under BPLR based system) branches shall obtain an Undertaking letter as annexed to the Circular ADV.36/2011-12 dt 25/5/11, provided there are no other changes in the existing limit, security etc., 8.77 Charging of Interest on Priority Sector Advances Charging of interest on various categories of priority sector advances will be as per RBI directives issued from time to time, which are as follows.

a. No Penal interest should be charged for loans under priority sector up to

Rs.25000/- b. Total interest debited to an account should not exceed the principal amount in

respect of short-term advances granted to small and marginal farmers. c. With regard to short duration crops and allied agricultural activities such as dairy,

fishery, poultry, bee – keeping etc., sanctioning authorities should take in to consideration of due dates fixed on the basis of fluidity with the borrowers and harvesting / marketing seasons while charging interest and compounding the same if the loan / installments becomes overdue.

d. All agricultural accounts shall be reviewed by the field level functionaries and ensure that interest is charged on monthly rests wherever there is fluidity with borrowers particularly in the activities allied to Agriculture like dairy, fishery, poultry, bee-keeping etc and recovered then and there.

e. In respect of direct agricultural advances, interest should not be compounded in the case of current dues, i.e., crop loans and installments not fallen due in respect of term loans, as the agriculturists do not have any regular source of income other than the sale proceeds of their crops.

f. When crop loans or installments under term loans become overdue, interest shall be added to the principal.


105

g. Regarding rescheduled Agricultural loans, when the overdue become current dues interest should not be compounded.

h. Interest on agricultural loans for long duration crops should be compounded annually, and could be compounded if the loan/ installment become overdue.

Branches should club term loans and working capital advances together for the purpose of determining the size of the loan and applicable rate of interest. For the same borrower, different CIF shall not be assigned under CBS. If different CIF are assigned, the system cannot determine the overall exposure of the borrower and charge appropriate interest, processing charges. 8.78 Levying of Penal Interest on Advances: Penal interest, as prescribed in service charges Circular No. Genl.20 dated 30.06.2008 shall be levied for reasons such as default in repayment, non-submission of financial / monitoring statements, non-compliance of terms and conditions/financial covenants 8.78.1 Penal Interest for not obtaining external ra ting: Additional Interest of 0.75% should be charged to the borrowal accounts which are required to be rated by external agencies but not rated till completion of external rating. 8.79 MORATORIUM OF PAYMENT OF INTEREST AND PRINCIPAL (a) Agricultural advances Realistic and activity based gestation and repayment periods are to be fixed by the sanctioning authorities for agricultural loans based on NABARD guidelines and as per CO: RBD circular Adv.59/2005-06 dated 13.08.2005 and as per Rural Banking Manual 2008 of our Bank. (b) Other than agricultural advances

a. Holiday period for payment of interest shall not be more than 2 years and the moratorium period for repayment of the principal shall not exceed 3 years.

b. Sanctioning Authorities at the level of COLCC(GM) and above at CO are empowered to permit holiday period of more than 2 years for interest and 3 years for principal for accounts up to their delegated powers on a case-to-case basis.

c. Other than the specific agricultural loans, payment of interest shall be on a monthly basis with quarterly compounding.

8.80 Recovery of Service Charges / NFB Income: a. Branches have to recover the service charges as per Bank’s tariff/schedule. The

Branch level functionaries shall not have discretion to grant concession and such discretion is vested with ZLCC and above only.


106

b. Any revalidation and / or modification in sanction terms after 15 days from the date of communication of sanction by the Bank / Branch will attract further processing charges at 25% of the original processing charges stipulated.

c. In case of any rephasement during the currency of the term loan, the borrower will be required to pay processing charge at 50% of the appropriate processing charges/upfront fees

d. Lead Bank Charges has to be collected for working capital and term loans including NFB limits.

e. Short-term loan is repayable in installments and hence processing charges should be charged as applicable to term loan unless specific waiver have been obtained from competent authority. Processing charges for term loans to be recovered as per Circular Gen.20 / 2008-09 dated 30.06.2008. Processing charges should be charged for both fund based and non-fund based limits on yearly basis irrespective of renewal of limits.

f. Unavailed limits attract capital charges as per BASEL II guidelines. The Bank is providing additional capital for the limits unavailed without earning any income from that account. Hence branches may endeavor to collect the commitment charges on the unavailed portion wherever applicable. Waiver of commitment charges shall be considered by ZLCC in the Zones headed by GM and for other Zones COLCC(GM) at CO up to their delegated powers. The unavailed limits are cancellable unconditionally.

g. In project finance, draw down schedule and Commencement of operation date are important milestones for monitoring of the progress of implementation. In case of stage wise implementation and credit sanction, the Bank needs to maintain capital only for the current stage and future stages will not attract capital charge.

h. For crop loans under Kisan Credit Card Scheme, processing fee/renewal fee for crop loans (including Agri Jewel Loans) and inspection charges for crop loans with limit upto Rs.3.00 lakhs are waived. (Ref: CO RBD Circular ADV.88/2011-12 dated 10.09.2011).

i. Charges for EM / Extension of EM, Charges for CIBIL / EXPERIAN reports are to be recovered.

j. Charges towards CERSAI registration shall be recovered @ Rs. 500/-+ applicable Service Tax, shall be recovered per each document / property registered.

8.81. Justification for Reduction/Waiver of Penal Interes t/ Service Charges. a. Concessions extended in borrowal accounts: (MC Directions dt 14/12/11) In all the proposals submitted in future, the sacrifice involved due to concession extended and the benefits from ancillary services be given along with the cost benefit analysis. The details are to be incorporated in all the credit proposals.

8.81. b.Delegation of powers for Reduction / Waiver of Penal interest /Service Charges /Prepayment penalty: Per financial year per borrower

CAC COLCC (ED)

COLCC (GM)

ZLCC (GM)

ZLCC (DGM)

ZLCC (AGM)

Upto Rs.400.00 lakh

Upto Rs.100.00 lakh

Upto Rs.25.00 lakh

Upto Rs.10.00

lakh

Upto Rs.5.00

lakh

Upto Rs.2.00

lakh


107

8.81. c. Pre-closure charges on Home Loans: For all kinds of Home Loans (Home Loans, Plot Loans & Home Improve), Pre-closure charges has been abolished. (Circular No. ADV- 138 / 2011-12 dated 02.01.2012) 8.82 Policy on refund of Processing Charges Processing Charges collected as upfront for general advances at the time of submission of application is refundable (other than Home Loan) if the loan is not sanctioned by the bank. 0.225% of loan amount with a maximum of Rs. 20,000/- for Home Loan Product collected as upfront at the time of submission of application is not refundable if the loan is not sanctioned by the bank. 0.28% of loan amount of General advances and 0.225% of loan amount with a maximum of Rs. 20,000/- for Home Loan Product collected as upfront at the time of submission of application is non refundable if the sanctioned limit is not availed by the borrower. 8.83.a. Registration of Equitable Mortgage (EM): With growth in mortgage loans, banks have come across large number of fraudulent transactions where fraudulent title documents were submitted for availing loans. Absence of a centralized arrangement for registering of equitable mortgage transactions made it difficult to verify prior charges resulting in multiple loans against a property. Branches have to ensure that EM is to be registered with Sub-Registrar’s Office for all properties in the states where registration of EM is permitted unless specific waiver of the same is obtained. If extension of EM is to be done on the same property for additional limits for which registration is done already, registration of extension of EM may be waived by the respective sanctioning authority.

Wherever Registration of EM/Extension of EM is comp ulsory, no waiver can be permitted.

8.83.b. CENTRAL REGISTRY : All mortgages ( except EM on agricultural lands for which SARFAESI Act is not applicable) created by deposit of title deeds wef 31/3/2011will have to be mandatorily registered with Central Registry. The provisions of Central Registry are in addition to and not in derogation of provisions of Registration Act, Companies Act, Merchant Shipping Act, Patents Act, Motor Vehicles Act, Designs Act etc., or any other law requiring registration of charges and shall not affect the priority of charges or validity thereof under those Acts or laws. Therefore, the net effect is that registration of charges, wherever required as per extant legislations / guidelines will have to be adhered to and cannot be dispensed with. In the instances of initial creation of mortgage having been done before 31/3/2011 and subsequent exstension of EM being done after 31/03/2011, then extension of EM have to be registered with Central Reegistry reflecting the overall limit. Any delay in filing particulars of transaction for registration / modification attracts fine which are detailed in the various Circulars. (CO/Legal Department Circular ADV:07/2011-12


108

dated 09.04.2011, CO/Credit Division Circulars ADV 13 dated 29.04.2011 and ADV 33/2011-12 dated 21.05.2011) Recovery of service charges towards CERSAI registration shall be recovered @ Rs. 500/-+ applicable Service Tax, shall be recovered per each document / property registered. 8.84 Personal guarantee of the mortgagor Generally personal guarantee of third party, who is offering his property as security should be obtained. However, in specific cases, sanctioning authority at the level of ZLCC and above can waive the personal guarantee of the person, who is offering the property as collateral on merits. 8.85 Collection of Inspection charges for Personal segment Loan Products. Periodical Inspection Charges on Personal Segment Loan Products are not to be levied unless if it is specifically mentioned in the scheme. 8.86 Accessing of Consumer Credit Information from CIBIL/ EXPERIAN/ EQUIFAX/ HIGHMARK Data Base Branches/ ZLCCs as sanctioning authorities should sanction Home Loan and other Personal Segment Loan Products only after a due diligence and after verification of CIBIL and EXPERIAN Data Base. The prescribed charges for CIR verification should be recovered from the customer. (Circular No. ADV 19/2008-09 dated 06.05.2008) AND Adv. 53/2013-14 dt. 05.08.2013. Guidelines for accessing Credit Information Report from Credit Information Companies other than CIBIL/EXPERIAN will be issued in due course. 8.87 Getting Acknowledgement of the Borrower and Gu arantor in Duplicate Copy of the Sanction Ticket As per the General terms & conditions of sanction, a copy of the Branch sanction letter duly signed and accepted by the borrower and guarantor should be received back and kept with the documents. In case of corporate accounts, societies and Trusts, the facilities sanctioned and other terms and conditions have to be accepted by the Company’s Board of Directors/ General Body / Trustees and the Branch should obtain a resolution to this effect. The resolution should specifically state the names of persons authorized to execute the security documents. Only after obtention of acknowledgement on the copy of the Branch Sanction letter, the Branch Managers shall allow the Borrowers to execute the document. 8.88 Assignment of Brand Name With the advent of globalization and entry of various players in FMCG segment, Brand name assumes greater importance and has good economic value. For building up of Brand, companies are investing huge money. As the Brand is having its own value, assignment of Brand will be an additional comfort in maintaining asset quality. The credit proposals should incorporate the details of the Brand and feasibility of assignment as a condition for sanction for various facilities. If not, reasons to be submitted for non-assignment.


109

8.89 Oral Sanctions Approvals Oral sanctions if any, made by sanctioning authorities has to be entered in the register by the office receiving the oral sanction and statement to be submitted to Corporate Office through the Zonal Offices on monthly basis. The field level functionaries shall make no oral sanction without recording the same. Confirmation for the oral sanction has to be obtained and recorded in the register. 8.90 Period of Term Loan The quantum of credit dispensation in the form of term loans should be in accordance with the Bank’s policy to reduce the blocking of funds for longer period, to facilitate planning and management of the maturity pattern of Bank’s assets and liabilities. Proposals for clearance other than structured loan products exceeding 10 years of repayment including holiday period shall be approved by COLCC (GM) and above at CO within their delegated powers subject to a maximum of 25 years. 8.91 PERIOD OF WORKING CAPITAL: (Corporate Borrowal accounts)

Credit limits are sanctioned normally for a period of 1 year for all accounts other than Term loans repayable in instalments and export credit under the Gold Card Scheme (GCS). Any request for working capital limits for more than year, shall be considered by COLCC(GM) at Corporate Office upto his powers based on eligibility and requirement. For accounts under COLCC(ED)/CAC and MC powers, respective sanctioning authority shall have the power to consider such request. 8.92 Revalidation of credit sanctions All credit limits sanctioned shall be availed by the borrower within a period of 3 months from the date of sanction/ communication. Term Loan shall be availed within 3 months of sanction/communication and preferably a drawing schedule may be obtained for funds planning. In case of non – availment, Revalidation upto 3 months can be permitted by the respective sanctioning authority for accounts sanctioned upto the powers of ZLCC. For accounts sanctioned beyond ZLCC powers, revalidation can be permitted by COLCC (GM) for 6 months in case of Infrastructure projects and up to 3 months in all other cases. Further revalidation for all accounts shall be permitted only by the respective sanctioning authority. If the revalidation is with change/s in sanction terms, such revalidation shall be permitted only by respective sanctioning authority. 8.93.Trade finance scheme : In exceptional cases, finer rate of interest may be considered by CO sanctioning authorities within their delegated powers.

Structured guidelines are prescribed for Tradewell Scheme to have a customer friendly approach; the same is not a Structured Loan Product like Home Loan, Vehicle Loan etc.Standards for Financial Norms as per Loan Policy are applicable for Trade well scheme, except the Current ratio which is applicable as per the scheme.


110

8.94 ISSUANCE OF CERTIFICATE FOR THE PURPOSE OF GETTING VISA Central Vigilance Commission (CVC) and Ministry of Finance, Government of India has stated that with a view to enable a person to get a visa, certain banks are resorting to an unethical practice to issue them a certificate showing an amount of deposit that the person has at the Branch. Banks are thus becoming a party along with the visa agents who rather defraud a foreign embassy to obtain visa from them on the basis of deposit certificates thus obtained from the bank. This may cause damage to the image of the Bank as well as of our country. CVC has advised for not allowing advances on deposits on the day of deposit itself and make it obligatory on the part of the bank to include the amount of advance and the date of deposit as well as the age of banking relationship with the party in the certificate so that the foreign embassy may take a well informed decision in the matter.

Field level functionaries to exercise caution while issuing solvency / capability certificate for the purpose of getting visa and ens ure that

• KYC norms are fulfilled and there are no deviations. • Loan against deposit on the same day of deposit itself be avoided. However,

to ensure that denial of loan against deposit on the same day would not infringe upon the depositors’ right of loan over their deposits and would not violate RBI guidelines.

• To mention in the solvency /capability certificate, details of amount of Loan against deposit/s, since when the customer is banking with our bank

(Circular ADV-120/2011-12 dt 08/11/11) 8.95 Instructions from GOI regarding e-payment : ( GOI, Department of Financial Services, Ministry of Finance vide ref letter ref F No 31/3/2011-BO.II (part) dated 11/10/2011) GOI advised for insertion of a clause / condition in the Agreements with the borrower / investee institutions, corporate or otherwise for ensuring payments to staff, vendors and clients only through electronic mode. In respect of all Institutions (except individuals) , to incorporate a condition in all the sanction tickets that

• They make payments to staff, vendors and clients electronically except for office petty cash requirement.

• They receive all payments electronically except when cheques are drawn on banks which are not on NEFT / RTGS.

• The Borrower to agree that he will upon every request of the Bank allow the Bank and any nominee, servant or Manager of the Bank to inspect the Borrower’s business premises for ensuring that the Borrower had duly complied with the above terms.

Since, the default of the above directions will be treated a major default , all field level functionaries to ensure that the borrowers have complied the above instructions and necessary record to be maintained for sending compliance to the ministry.


111

8.96 UTILISATION OF FLY ASH -- Inclusion of a claus e in loan agreement for compliance of Ministry of Environment and Forest No tification (IBA letter dt 05/04/11) In India, about 53.3% of electricity is produced by using coal as fuel and about 150 million tons of coal ash is produced as a by-product every year, with electricity generation the quantity of fly ash is also increasing year after year. The Ministry of Environment & Forest (MoEF), Government of India has brought out a Notification on fly ash on Sep 14th, 1999 and amended in the year 2003 and then again amended on November 3rd, 2009. With a view to utilize ash in different segments of construction, specific actions have been stipulated for different agencies in the said Notification. One such actions fall in the purview of Banking sector. The said notification dated 03/11/09 mentions that: All Financial Institutions and Agencies, which fund construction activities shall include as Clause in their loan or grant document for compliance of the provisions of this notification. In this regard, in respect of funding of construction activities, a condition has to be included in the specific terms and conditions / documentation, a cl ause towards utilization of fly ash as per the notification issued by Ministry of Environment & Forest notification on Fly Ash dated November 3 rd 2009. 8.97 Merger / Amalgamation of entities : Based on the commercial decision, often requests are being received for merger/amalgamation of Proprietorship / Partnership firms with Limited companies and vice versa. The following powers are delegated wherever requests for merger / amalgamation (including change of management) of entities are requested:

The above is subject to:

• No dilution of securities/waiver of personal guarantees on merger. • However, substitution of securities / personal guarantees is permitted. • Approval of consortium / MBA is obtained, wherever applicable. • Formalities as per the applicable Acts are obtained.

8.98 Scheme for financing of ATMS/cash Dispensers: As per Circular letter CDN/GEN/517/2012-03 dated 07.05.2012 8.99 Issuance of LCs and Guarantees through SFMS Modifications have been made in the formats/agreements and changes have been effected in the Exim Bills package and CBS System. Work flow for handling of SFMS messages (Outward and Inward) has also been revised. Detailed guidelines are given in Circular No. Genl 81/2012-13 dated 28.12.2012.

Merged entity’s exposure falling under the powers of

Authority to approve merger / amalgamation

Upto ZLCC powers ZLCC (any deviation of items listed below functional COLCC-GM at CO)

COLCC(GM) /COLCC(ED) / CAC / MC powers

COLCC(GM)


112

9. Formation of committees at Corporate and Zonal l evel: Credit approval committees have been formed at Corporate and Zonal Office levels for approval of credit and credit related matters. Detailed guidelines issued. Credit approval committees formed at Corporate and Zonal Office levels for approval of credit and credit related matters to exercise their powers based on the power booklet. EXIT POLICY: The Bank has adopted an exit policy to contemplate exit even from the Standard category accounts on the followings circumstances: When the concentration is at higher level (industry-wise and group-wise) which exposes the bank to adverse changes: Where the borrower profile emanates warning Signals of probable slippage in asset quality / Probable Default. The Bank may even go for one time settlement through OTS for such exit. The above policy shall continue for 2014-15 CONCLUSION: In case of any policy guidelines not defined herein, Branches may take up through their Zonal Offices with Corporate office for guidance and decision based on the facts and regulatory guidelines. The loan policy contemplates creation of quality assets and meeting the genuine needs of the borrowers. There shall be mutual appreciation of the requirements of both the customers and the Bank for improving the quality asset and the bottom line. In view of the global financial development, RBI and Govt of India are considering certain relaxations as a temporary measure. Those guidelines will override the regular guidelines in the loan policy.


113

ANNEXURE-1 Policy of the Bank for Micro, Small and Medium (MSM E) Enterprises

(THIS IS PART OF BANK’S LOAN POLICY)

� Micro and Small Enterprises (MSMEs) have been accepted as the engine of economic growth and for promoting equitable development. The major advantage of the sector is its employment potential at low capital cost. The labour intensity of the MSME sector is much higher than that of the large enterprises.

� The MSMEs constitute over 90% of total enterprises in most of the economies and are credited with generating the highest rates of employment growth and account for a major share of industrial production and exports.

� In India too, the MSMEs play a pivotal role in the overall industrial economy of the country. In recent years the MSME sector has consistently registered higher growth rate compared to the overall industrial sector. With its agility and dynamism, the sector has shown admirable innovativeness and adaptability to survive the recent economic downturn and recession.

� As per available statistics (4th Census of MSME Sector), this sector employs an estimated 59.7 million persons spread over 26.1 million enterprises. It is estimated that in terms of value, MSME sector accounts for about 45% of the manufacturing output and around 40% of the total export of the country. In order to provide for facilitating the promotion and development and enhancing the competitiveness of micro, small and medium enterprises and for matters connected therewith or incidental thereto, Government of India has enacted The Micro, Small and Medium Enterprises Development Act (MSMED Act) w.e.f. 02.10.2006. The Act defines Micro, Small and Medium Enterprises in both manufacturing and services sector.

The SME policy of the Bank in vogue is detailed bel ow for ready reference: I. Definition of Micro, Small and Medium Enterprises a s per MSMED Act 2006

Micro Enterprises Micro (manufacturing) Enterprises Enterprise engaged in the manufacture/production or preservation of goods and whose investment in plant and machinery (original cost excluding land and building and the items specified by the Ministry of Small Scale Industries vide its notification No. S.O. 1722(E) dated October 5, 2006 as furnished in Annexure - I ( a ) does not exceed Rs. 25 lakhs, irrespective of the location of the unit.

Micro (service) Enterprises Enterprise engaged in the providing/rendering of services and whose investment in equipment (original cost excluding land and building and furniture, fittings and other not directly related to the service rendered or as may be under the Micro, Small and Medium Enterprises Development, (MSMED), Act 2006, does not exceed Rs. 10 lakhs.


114

SMALL ENTERPRISES Small (manufacturing) Enterprises Enterprise engaged in the manufacture/production or preservation of goods and whose investment in plant and machinery (original cost excluding land and building and the items specified by the Ministry of Small Scale Industries vide its notification No. S.O. 1722(E) dated October 5, 2006 as furnished in Annexure- I ( a ) does not exceed Rs. 5 crores Small (service) Enterprises Enterprise engaged in the providing/rendering of services and whose investment in equipment (original cost excluding land and building and furniture, fittings and other not directly related to the service rendered or as may be under the Micro, Small and Medium Enterprises Development, (MSMED), Act 2006, does not exceed Rs. 2 crores. MEDIUM ENTERPRISES Medium (manufacturing) Enterprises Enterprise engaged in the manufacture/production or preservation of goods and whose investment in plant and machinery (original cost excluding land and building and the items specified by the Ministry of Small Scale Industries vide its notification No. S.O. 1722(E) dated October 5, 2006 as furnished in Annexure- I (a) exceeds Rs.5 crores & does not exceed Rs. 10 crores Medium (service) Enterprises Enterprise engaged in the providing/rendering of services and whose investment in equipment (original cost excluding land and building and furniture, fittings and other not directly related to the service rendered or as may be under the Micro, Small and Medium Enterprises Development, (MSMED), Act 2006) exceeds Rs.2 crores & does not exceed Rs. 5 crores. II. Classification of Enterprises under Priority an d Non Priority Sector

Sector Aggregate Loan Limit

Category

Micro and Small Enterprises (Manufacturing Enterprises)

Irrespective of Aggregate Loan Limit

Priority

Micro and Small Enterprises (Service Enterprises)

Aggregate Loan Limit upto Rs 5.00 crores

Priority

Micro and Small Enterprises (Service Enterprises)

Aggregate Loan Limit above Rs 5.00 crores

Non Priority

Medium Enterprises (Manufacturing / Service Enterprises)

Irrespective of Aggregate Loan Limit

Non-priority


115

Micro and Small Enterprises (Direct & Indirect Fina nce) for Priority Sector Classification Direct Finance to Micro and Small Enterprises:

Manufacturing Enterprises The Micro and Small enterprises engaged in the manufacture or production of goods to any industry specified in the first schedule to the Industries (Development and regulation) Act, 1951. The manufacturing enterprises are defined in terms of investment in plant and machinery. Loans for food and agro processing Loans for food and agro processing will be classified under Micro and Small Enterprises, provided the units satisfy investments criteria prescribed for Micro and Small Enterprises, as provided in MSMED Act, 2006. Service Enterprises Bank loans up to Rs.5.00 crores per unit to Micro and Small Enterprises engaged in providing or rendering of services and defined in terms of investment in equipment under MSMED Act, 2006. Export credit to MSE units (both manufacturing and services) for exporting of goods/services produced by them. Khadi and Village Industries Sector (KVI) All loans sanctioned to units in the KVI sector, irrespective of their size of operations, location and amount of original investment in plant and machinery. Such loans will be eligible for classification under the sub-target of 60 percent prescribed for micro enterprises within the micro and small enterprises segment under priority sector. Indirect Finance to Micro and Small Enterprises: ix. Loans to persons involved in assisting the decentralised sector in the supply

of inputs to and marketing of outputs of artisans, village and cottage industries.

x. Loans to cooperatives of producers in the decentralised sector viz. artisans village and cottage industries.

xi. Loans sanctioned by banks to MFIs for on-lending to MSE sector as per the conditions specified by RBI.

III. Targets under Micro & Small Enterprises(MSE s ector)

• As per RBI guidelines (a) 40 per cent of the total advances to Micro and Small Enterprises sector

should go to micro (manufacturing) enterprises having investment in plant and machinery up to Rs. 10 lakh and micro (service ) enterprises having investment in equipment up to Rs. 4 lakh ;

(b) 20 per cent of the total advances to Micro and Small Enterprises sector should go to micro (manufacturing) enterprises with investment in plant and machinery above Rs. 10 lakh and up to Rs. 25 lakh, and micro (service) enterprises with investment in equipment above Rs. 4 lakh and up to Rs. 10 lakh.


116

As such, 60% of MSE advances should go to the Micro Enterprises.

• The Annual growth in the number of Micro Enterprises accounts is fixed at 10%.

• There should be minimum 20% Y-O-Y growth in advances to MSE Sector . IV Other Guidelines:

a. Disposal of Applications The time norms for disposal of MSME applications complete in all aspects accompanied by documents as per checklist , are as follows:

a) Loans upto Rs 5 Lakhs, within two weeks.

b) Above Rs 5 Lakhs and upto Rs 25 Lakhs, within four weeks.

c) Above Rs 25 Lakhs within eight weeks. b. Composite loan A composite loan limit of Rs.1crore can be sanctioned to enable the entrepreneurs in Micro and Small Enterprises sector to avail of their working capital and term loan requirement through Single Window. c. Credit Proposal Tracking System for MSME � Online submission of MSME application and e-tracking of loan

applications from the point of submission of online application is in existence. The system automatically generates acknowledgement number under this facility. The operating and processing guidelines are furnished in CO: MSMED Dept Circular No. Adv 71/2012-13 dt 27.09.2012.

� In respect of applications received by the branches, physically , from MSME customers , the applications are to be entered and reference number of the application to be generated to facilitate the customer to track their application using that reference number. The guidelines are furnished in CO: MSMED Deptt Circular No Adv 70 / 2013 – 14 dtd 14.09.2013.

d. Acknowledgement of MSME applications: An online system for acknowledgement of applications received manually at Branches, with running serial number (generated by centralized server) recorded on the acknowledgement receipt is in place. The system is being followed up across all the Branches of our Bank. The operating guidelines are furnished in CO: MSMED Dept Circular No. Adv 98/2012-13 dt 17.11.2012. e. MSE Code:

Our Bank has adopted revised MSE Code 2012 as prescribed by Banking Codes and Standards Boards of India (BCSBI) and details communicated vide our circular ADV 84 dated 22.10.2012 and ADV 05 dtd 12.04.2013. Field level functionaries are advised to ensure compliance with guidelines prescribed under MSE Code.


117

f. Rehabilitation of MSME : Bank shall rehabilitate MSME unit proactively and the efforts should start at handholding stage ie a stage when any of the three events (delay in commencement of commercial production by more than 6 months, losses for two years or cash loss for one year beyond accepted time frame, capacity utilization less than 50% of projections or sales less than 50% of projections during a year) is triggered. The declaration of the unit as unviable, as evidenced by viability study should have the approval of the next higher authority and an opportunity should be given to the unit to present the case to next higher authority. Detailed guidelines in this regard are spelt out in our circulars ADV 33 dtd 19.06.2013 and ADV 62 dtd 23.08.2013.

g. Rate of interest on Micro and Small Enterprises: For the purpose of determining Rate of interest on Micro and Small Enterprises, the definition of such Enterprises as per MSMED Act 2006 shall be taken into consideration and suitable rate of interest as prescribed from time to time shall be charged.

h. One time Incentive for ISO Certification: Our Bank has put in place a Policy to give Rs. 10,000/= as one time incentive to our MSME customers for obtaining ISO Certification. In addition to obtaining ISO certification, certain key financial / performance indicators have also to be taken into account and the minimum cut-off marks to be scored by a MSME customer is 60 marks out of total 100 marks (Details as per CO:MSME Circular dated 12.02.09).

i. Inspection of accounts to be sanctioned under CG TMSE Scheme: Before sanctioning advances above Rs 50 Lacs, under CGTMSE Scheme, feasibility/ Viability/ Unit Inspection report by IDO or any other Officers of ZO/ Branch who are conversant with credit, to be obtained and viability/feasibility to be ascertained.

j. Application form for MSME borrowers Common application form as annexed vide our circular ADV 45 / 2013 – 14 dtd 17.07.2013 is applicable for all categories of MSME loans

V Growth Projection (MSME SECTOR)

� There needs to be a minimum year on year growth of 20% under SME sector. � We need to provide credit cover on an average to at least 5 new Micro, small

and medium enterprises at each of semi urban/urban branches per year. � Within MSME growth, the thrust area would be lending to viable units in Micro

Enterprises to achieve the 60% target prescribed by RBI .


118

VI MSME Financing - Growth Strategies: For giving thrust to MSME lending by the Bank, the following measures have been initiated: • Discretionary powers given to sanctioning authorities for allowing adhoc of 20%

on SME advances on merits as spelt out in discretionary powers booklet.

• Branch Managers are permitted to exercise 120% of their normal delegated powers for MSME Sector.

• To follow the regulatory guidelines from time to time with regard to limit for credit

facilities to be sanctioned without prescribing any collateral security. (Present limit Rs.10 lakhs).

• On merits of the case, collateral free loans may be considered upto Rs. 1.00

crore with CGTMSE Coverage.

• Bank has devised various tailor made products to suit specific needs of various segments of Micro and Small Enterprises, besides Govt sponsored schemes like PMEGP. We are introducing various cluster specific products also to ensure sustained growth. More MSME clusters shall be taken up for study and need based area specific products introduced.

• Special Campaign for extending credit to MSE Sector shall be undertaken

frequently and salient features of various schemes communicated to customers through meetings and advertisements (hoardings and advertisements in vernacular daily newspapers etc).

• Specialised MSME branches shall be given target to increase number of MSE accounts by minimum 20% and amount by minimum 30% year-on-year. Other branches to bring minimum 5 new MSE accounts per year into our fold.

• Zones to conduct customer meet for SME customers (e xisting and potential) with a view to enhancing our visibility. Special staff meetings and MSME customer Meets shall be conducted periodically at all Zonal Offices and branches with focus on extending credit to MSE Sector.

• Structure for monitoring the performance under Small, Micro and Medium

Enterprises sector: � Branches review by Zones on monthly basis and Review of Specialised

MSME Branches by ZM on fortnightly basis. � Zonal review and Review of Specialised MSME Branches by Corporate

office on a monthly basis through video conferencing. � Focus will be on addition of new clients in the monthly review. � Reporting performance to the BOARD on quarterly basis. � Quarterly Review by CMD / ED regarding addition of new accounts.

• Performance details are extracted from the CBS by the MIS. Focus shall be given on the Data cleaning to have credible data. Restructured Accounts shall be properly flagged in the CBS.


119

• Zonal offices shall study various MSME clusters and propose opening of

specialized MSME branches especially in clusters where banking facilities are insufficient.

• For wider dissemination and easy accessibility of policy guidelines, our Bank’s

MSME Policy, Debt Restructuring Policy, details on various MSME schemes and MSE code are displayed on our website.

• System of MSME credit proposal tracking system through centralized server will be popularized.

• Different Product Codes and Activity Codes are given in the CBS depending on scheme of financing and activity of the borrower. Performance under various schemes and activities shall be reviewed by GM / ED quarterly.

• All MSME customer complaints shall be properly redressed. Any grievances

will be acknowledged immediately within two days and disposed within a fortnight. Controlling Offices shall have a separate desk for grievance redressal of MSME sector.

• SMA accounts are monitored by the SAMC at CO and ZO and proactive steps

shall be initiated for restructuring / rehabilitation of the accounts wherever necessary.

• Focussed attention for expansion of credit to Service sector under SME such

as tourism, health care, logistics, contractors etc.

• IMAGE & Staff Training Centres to include a session on SME financing in all their regular training programs to sharpen the knowledge base of the desk officers.

• Our Bank has entered into an MOU with NSIC for augmenting business under

MSME sector.

• Possibilities of Indirect finance to MSMEs shall be explored by way of financing Industrial Parks and other Infrastructural facilities linked to MSME clusters.

• Our Bank has opened Cell for Innovation and Start up finance for MSMEs at T.Nagar, Chennai, to take care of innovative / start-up projects. Chief Manager/ AGM, Incharge of Cell shall have discretionary powers to sanction all sort of Micro and Small Enterprises Loans, upto the ceiling prescribed under CGTMSE Scheme (presently Rs 1 crore).

VII. Credit Guarantee Fund for Micro & Small Enterprise: Collateral free loans to MSE sector upto Rs 1 crore shall be covered under the Scheme (except Retail Trade, SHGs and Educational Institutions).


120

Extent of guarantee: The Trust shall provide guara ntee as under:

Category Maximum Extent of Guarantee where Credit Facility is Upto Rs. 5 lakhs Above Rs. 5 lakhs

and upto Rs. 50 lakhs

Above Rs. 50 lakhs and upto Rs. 100 lakhs

Micro Enterprises 85% of the amount in default subject to a maximum of Rs. 4.25 lakhs

75% of the amount in default subject to a maximum of Rs. 37.50 lakhs

50% of the amount in default subject to overall ceiling of Rs. 50 lakhs

Women entrepreneurs / Units located in North Eastern Region (including Sikkim) (other than credit facility upto Rs. 5 lakhs to Micro Enterprises)

80% of the amount in default subject to a maximum of Rs. 40 lakhs


All other categories of borrowers

75% of the amount in default subject to a maximum of Rs. 37.50 lakhs


• Composite all-in-Guarantee fee, as under, of the sa nctioned shall be paid,

up-front to the Trust: (applicable only for loans sanctioned on or after 01.01.2013)

Credit Facility

Annual Guarantee Fee (AGF) [% p.a.] Women, Micro Enterprises and

units in North East Region (incl. Sikkim)

Others

Upto Rs.5 lakh 0.75 1.00 Above Rs.5 lakh and

upto Rs.100 lakh 0.85 1.00

Other guidelines, as per various CO circulars / Circular letters on CGTMSE Scheme from time to time to be complied with. VIII. Margin requirements for MSME Sector

S No Facility Margin 1 OCC &

OD / Book Debts 20% ( Micro & Small Enterprises – Priority & Non Priority ) 25% ( Medium Enterprises )

2 Term loan / Land & bldg 40% ( Micro & Small Enterprises – Priority & Non Priority ) 50% ( Medium Enterprises )

Other margin requirements shall be as prescribed under Discretionary Power Booklet from time to time


121

IX. Interest Rate Structure for MSME Sector: • Interest rate under MSME sector is risk based. Interest rate is kept

competitive with the aim to increase our market penetration, broad basing clientele base and provide a market edge to our field level functionaries to bring in new business to our fold.

• Interest concession for external rated SME units with top notch ratings with credit limits upto Rs 2 crore.

X. Standards for Key Financials, for Micro and Smal l Enterprises: S.No Key Ratios Bench Mark (minimum)

1 Current Ratio

a) 1.25 (without inclusion of annual maturing term liabilities as current liability)

b) 1.17 (with inclusion of annual maturing term liabilities as current liability) Compliance of current ratio need not be insisted for Educational institutions, Hospitals and Hotels subject to assessment based on cash budget.

2 Debt Equity Ratio 3:01

3

TOL / ANW, DSCR, Interest coverage

Ratio,Security coverage Ratio, FACR

As per Standard financial norms applicable under Loan Policy.

Standard financial norms as applicable under Loan Policy / CO Circulars issued from time to time to be complied with for Medium Enterprises.

XI. Service charges including processing charges, Loan covenants, Exposure ceilings, Take-over norms, Monitoring mechanism, Prudential norms and other specific norms not spelt out in MSME policy will be as applicable to other advances and as spelt out by respective departments. XII. Structured Loan Products under SME: The following structured loan products fall under MSME Sector (Please refer our Master Circular on SLP Products ADV 159 dtd 30.03.2013 and further circulars from time to time

1) IND SME Secure 2) IB Doctor Plus 3) IB Vidya Mandir 4) IB My own Shop 5) IB Contractors 6) IB Star Rice Mill 7) IB – BAL Commercial Vehicle 8) Ind Auto


122

TRADE WELL SCHEME Detailed guidelines of the scheme are spelt out in our circular ADV 43 / 2013 – 14 dtd 05.07.2013

XIII. Schemes to facilitate growth of MSME sector:

The Bank actively participates in Government Schemes like Prime Minister’s Employment Generation Programme (PMEGP), Revival, Reform and Restructuring Package for Handloom sector, Weavers’ Credit Card Scheme, Artisan Credit card Scheme, Credit linked Capital Subsidy Scheme for Technology Upgradation of Micro, Small & Medium Enterprises (CLCSS), Credit Linked Capital Subsidy Scheme for Technology Upgradation Fund Scheme for Textile units (CLCS TUFS), CGTMSE etc. Extant guidelines prescribed under these schemes shall be followed.

XIV. PURCHASE OF POOL ASSETS:

To facilitate purchase of assets through direct assignment of cash flows and the underlying assets from other Banks / FI / NBFC etc as a step towards financing MSME under bulk lending. Bank’s policy guidelines furnished under Annexure 1-b of MSME policy 2013 – 14 (page nos 103 – 116 of Loan Policy 2013 – 14 ).

XIV. Authority to Amend/ Vary Terms of MSME Policy :

This Policy covers extant guidelines exclusively applicable to MSME sector and wherever specific guidelines are not given, general loan policy guidelines shall be applicable. The directions / guidelines issued by Reserve Bank of India and Govt of India from time to time shall automatically form part of the policy. The Chairman and Managing Director shall have the authority to interpret/ amend/ vary/ cancel any of the terms of the policy and the decision shall be final.


123

ANNEXURE 1-a

MINISTRY OF SMALL SCALE INDUSTRIES NOTIFICATION New Delhi, the 5th October, 2006 S.O. 1722(E) – In exercise of the powers conferred by sub-section (1) of 2006, herein referred to as the said Act, the Central Government specifies the following items, the cost of which shall be excluded while calculating the investment in plant and machinery in the case of the enterprises mentioned in Section 7(1)(a) of the said Act, namely:

i. equipment such as tools, jigs, dyes, moulds and spare parts for

maintenance and the cost of consumables stores; ii. installation of plant and machinery; iii. research and development equipment and pollution controlled

equipment iv. power generation set and extra transformer installed by the enterprise

as per regulations of the State Electricity Board; v. bank charges and service charges paid to the National Small Industries

Corporation or the State Small Industries Corporation; vi. procurement or installation of cables, wiring, bus bars, electrical control

panels (not mounded on individual machines), oil circuit breakers or miniature circuit breakers which are necessarily to be used for providing electrical power to the plant and machinery or for safety measures;

vii. gas producers plants; viii. transportation charges ( excluding sales-tax or value added tax and

excise duty) for indigenous machinery from the place of the manufacture to the site of the enterprise;

ix. charges paid for technical know-how for erection of plant and machinery;

x. such storage tanks which store raw material and finished produces and are not linked with the manufacturing process; and

xi. firefighting equipment.

2. While calculating the investment in plant and machinery refer to paragraph 1, the original price thereof, irrespective of whether the plant and machinery are new or second handed, shall be taken into account provided that in the case of imported machinery, the following shall be included in calculating the value, namely;

a) Import duty (excluding miscellaneous expenses such as transportation from the port to the site of the factory, demurrage paid at the port); Shipping charges;

b) Customs clearance charges; and c) Sales tax or value added tax.


124

ANNEXURE 1-b

Guidelines on Purchase of Pool Assets

1. REQUIREMENTS TO BE MET BY THE ORIGINATING BANKS 1.1 Assets Eligible for Transfer 1.1.1 Under these guidelines, banks can transfer a single standard asset or a part of such asset or a portfolio of such assets to financial entities through an assignment deed with the exception of the following:

(i) Revolving credit facilities (e.g. Cash Credit accounts, Credit Card receivables etc.)

(ii) Assets purchased from other entities (iii) Assets with bullet repayment of both principal and interest.

1.1.2 However, these guidelines do not apply to:

(i) Transfer of loan accounts of borrowers by a bank to other bank/FIs/NBFCs and vice versa, at the request/instance of borrower; (ii) Inter-bank participations; (iii) Trading in bonds; (iv) Sale of entire portfolio of assets consequent upon a decision to exit the line of business completely. Such a decision should have the approval of Board of Directors of the bank;

(v) Consortium and syndication arrangements and arrangement under Corporate Debt Restructuring mechanism;

vi)Any other arrangement/transactions, specifically exempted by the Reserve Bank of India.

1.2 Minimum Holding Period (MHP) Minimum number of installments to be paid before transfer Repayment

frequency- Weekly

Repayment frequency- Fortnightly

Repayment frequency- Monthly

Repayment frequency- Quarterly

Loans with original maturity upto 2 years

12 6 3 2

Loans with original maturity of more than 2 years and upto 5 years

18 9 6 3

Since our Policy envisages that door to door maturity of the pool assets shall not be more than 60 months, MRP is respect of Loans with original maturity of more than 5 years is not applicable.


125

1.3 Minimum Retention Requirement (MRR) 1.3.1 The originating banks should adhere to the MRR detailed in the Table below while transferring assets to other financial entities:

Type of asset MRR Assets with original maturity of 24 months or less

Retention of right to receive 5% of the cash flows from the assets transferred on pari-passu basis.

Assets with original maturity of above 24 months

Retention of right to receive 10% of the cash flows from the assets transferred on pari-passu basis.

1.3.2 In the case of partial sale of assets, if the portion retained by the seller is more than the MRR required as per para 1.3.1 above, then out of the portion retained by the seller, the portion equivalent to 5% of the portion sold or 10% of the portion sold, as the case may be, would be treated as MRR. However, all exposures retained by the selling bank including MRR should rank pari-passu with the sold portion of the asset. 1.3.3 Banks should not offer credit enhancements in any form and liquidity facilities in the case of loan transfers through direct assignment of cash flows, as the investors in such cases are generally the institutional investors who should have the necessary expertise to appraise and assume the exposure after carrying out the required due diligence. Banks should also not retain any exposures through investment in the Interest Only Strip representing the Excess Interest Spread/ Future Margin Income from the loans transferred. However, the originating banks will have to satisfy the MRR requirements stipulated in para 1.3.1 above. Banks’ retention of partial interest in the loans transferred to comply with the MRR indicated in para 1.3.1 should be supported by a legally valid documentation. At a minimum, a legal opinion regarding the following should also be kept on record by the originator:

(a) legal validity of amount of interest retained by the originator; (b) such arrangement not interfering with assignee’s rights and rewards

associated with the loans to the extent transferred to it; and (c) the originator not retaining any risk and rewards associated with the loans to

the extent transferred to the assignee.

1.3.4 MRR will have to be maintained by the entity which sells the loans. In other words, it cannot be maintained by other entities which are treated as ‘originator’ in terms of para 5(vi) of RBI circular dated February 1, 2006 containing guidelines on securitisation of standard assets. 1.3.5 The level of commitment by originators i.e., MRR should not be reduced either through hedging of credit risk or selling the retained interest. The MRR as a percentage of unamortised principal should be maintained on an ongoing basis except for reduction of retained exposure due to proportionate repayment or through the absorption of losses. The form of MRR should not change during the life of transaction.


126

1.3.6 For complying with the MRR under these guidelines, banks should ensure that proper documentation in accordance with law is made. 1.4 Accounting, Asset Classification and provisioni ng norms for MRR The asset classification and provisioning rules in respect of the exposure representing the MRR would be as under:

a) The originating bank may maintain a consolidated account of the amount representing MRR if the loans transferred are retail loans. In such a case, the consolidated amount receivable in amortisation of the MRR and its periodicity should be clearly established and the overdue status of the MRR should be determined with reference to repayment of such amount. Alternatively, the originating bank may continue to maintain borrower-wise accounts for the proportionate amounts retained in respect of those accounts. In such a case, the overdue status of the individual loan accounts should be determined with reference to repayment received in each account. b) In the case of transfer of a pool of loans other than retail loans, the originator should maintain borrower-wise accounts for the proportionate amounts retained in respect of each loan. In such a case, the overdue status of the individual loan accounts should be determined with reference to repayment received in each account.

c) If the originating bank acts as a servicing agent of the assignee bank for the loans transferred, it would know the overdue status of loans transferred which should form the basis of classification of the entire MRR/individual loans representing MRR as NPA in the books of the originating bank, depending upon the method of accounting followed as explained in para (a) and (b) above. 1.5 Disclosures by the Originating Banks Disclosures to be made in Servicer/Investor/Trustee Report The originating banks should disclose to investors the weighted average holding period of the assets sold and the level of their MRR in the sale. The originating banks should ensure that prospective investors have readily available access to all materially relevant data on the credit quality and performance of the individual underlying exposures, cash flows and collateral supporting exposure as well as such information that is necessary to conduct comprehensive and well-informed stress tests on the cash flows and collateral values supporting the underlying exposures. The disclosure by an originator of its fulfillment of the MHP and MRR should be made available publicly and should be appropriately documented; for instance, a reference to the retention commitment in the prospectus for securities issued under that securitisation programme would be considered appropriate. The disclosure should be made at origination of the transaction, and should be confirmed thereafter at a minimum half yearly (end-September and March), and at any point where the requirement is breached. The above periodical disclosures should be made separately for each securitisation transaction, throughout its life, in the servicer report, investor report, trustee report, or any similar document published.


127

1.6 Loan Origination Standards The originating banks should apply the same sound and well-defined criteria for credit underwriting to exposures to be securitised as they apply to exposures to be held on their book. To this end, the same processes for approving and, where relevant, amending, renewing and monitoring of credits should be applied by the originators. 1.7 Treatment of Assets sold not Meeting the Requir ements stipulated above All instructions contained in this paragraph except in para 1.4 will be applicable only to the new transactions undertaken. Instructions in para 1.4 will be applicable to both existing and new transactions. If an originating bank fails to meet the requirement laid down in paragraphs 1.1 to 1.6 above, it will have to maintain capital for the assets sold as if these were still on the books of the bank (originating bank). 2. REQUIREMENTS TO BE MET BY THE PURCHASING BANKS 2.1 Restrictions on Purchase of loans Banks can purchase loans from other banks/FIs/NBFCs in India only if the seller has explicitly disclosed to the purchasing banks that it will adhere to the MRR indicated in para 1.3 on an ongoing basis. In addition, for domestic transactions, purchasing banks should also ensure that the originating institution has strictly adhered to the MHP criteria prescribed in the guidelines in respect of loans purchased by them. The overseas branches of Indian banks may purchase loans in accordance with the regulations laid down in those jurisdictions. 2.2 Standards for Due Diligence 2.2.1. Due diligence / KYC certification in respect of each of the obligors shall be done by originator and 100% verification of documents obtained towards KYC compliance shall be done by our Bank. It shall be ensured that the originator has obtained all the prescribed documents from all the obligors. Copies of such documents, duly authenticated by the originator, shall be kept on record. In respect of minimum 5% of the randomly selected obligors (in number), Branch Manager and nominated officer from ZO shall cross verify the information obtained under KYC norms by actually contacting the obligors or / and visiting their premises and record the same. Branch Manager and the nominated officer from ZO shall also check compliance by the originator with the documented policy regarding credit appraisal and repayment record with regard to the randomly selected obligors (minimum 5% in number).

2.2.2 Before purchasing individual loans or portfolio of loans, and as appropriate thereafter, bank shall demonstrate that we have a comprehensive and thorough understanding of and have implemented formal policies and procedures commensurate with the risk profile of the loans purchased analysing and recording:


128

a) Information disclosed by the originators regarding the MRR, on an ongoing basis; b) The risk characteristics of the exposures constituting the portfolio purchased (i.e., the credit quality, extent of diversification and homogeneity of the pool of loans, sensitivity of the repayment behavior of individual borrowers to factors other than their sources of income, volatility of the market values of the collaterals supporting the loans, cyclicality of the economic activities in which the underlying borrowers are engaged, etc.); c) The reputation of the originators in terms of observance of credit appraisal and credit monitoring standards, adherence to MRR and MHP standards in earlier transfer of portfolios and fairness in selecting exposures for transfer; d) loss experience in earlier transfer of loans/portfolios by the originators in the relevant exposure classes underlying and incidence of any frauds committed by the underlying borrowers, truthfulness of the representations and warranties made by the originator; e) The statements and disclosures made by the originators, or their agents or advisors, about their due diligence on the assigned exposures and, where applicable, on the quality of the collateral supporting the loans transferred; and

f) Where applicable, the methodologies and concepts on which the valuation of loans transferred is based and the policies adopted by the originator to ensure the independence of the valuer. 2.3 Stress Testing Banks shall regularly perform their own stress tests appropriate to the portfolios of loans purchased by them. For this purpose, various factors which may be considered include, but are not limited to, rise in default rates in the underlying portfolios in a situation of economic downturn and rise in pre-payment rates due to fall in rate of interest or rise in income levels of the borrowers leading to early redemption of exposures. The results of stress test shall be taken into account in Pillar II exercise under Basel II framework and additional capital be held to support any higher risk, if required. Stress Testing will be done by CO/ RMD on yearly basis and required data / monitoring reports will be collected by CO / MSMED for loans in MSME sector and respective functional departments in case of loans in other priority sector segments. 2.4 Credit monitoring 2.4.1 The purchasing banks need to monitor on an ongoing basis and in timely manner performance information on the loans purchased and take appropriate action required, if any. Action may include modification to exposure ceilings to certain type of asset classes, modification to ceilings applicable to originators etc. For this purpose, banks should establish formal procedures appropriate and commensurate with the risk profile of the purchased loans. Such procedures should be as rigorous as that followed by the bank for portfolios of similar loans directly originated by it. In particular, such procedures must facilitate timely detection of signs of weaknesses in individual accounts and identification of non-performing borrowers as per RBI guidelines as soon as loans are 90 days past due. The information collected should


129

include the exposure type, the percentage of loans more than 30, 60 and 90 days past due, default rates, prepayment rates, loans in foreclosure, collateral type and occupancy, and frequency distribution of credit scores or other measures of credit worthiness across underlying exposures, industry and geographical diversification, frequency distribution of loan to value ratios with band widths that facilitate adequate sensitivity analysis. Such information, if not collected directly by the bank and obtained from the servicing agent, should be certified by the authorized officials of the servicing agent. Banks may inter alia make use of the disclosures made by the originators in the form given in Appendix 1 to monitor the exposures. 2.4.2 Depending upon the size of the portfolio, credit monitoring procedures may include verification of the information submitted by the bank’s concurrent and internal auditors. The servicing agreement should provide for such verifications by the auditors of the purchasing bank. All relevant information and audit reports should be available for verification by the Inspecting Officials of RBI during the Annual Financial Inspections of the purchasing banks. 2.5 True Sale Criteria 2.5.1 The ‘sale’ (this term would hereinafter include direct sale, assignment and any other form of transfer of asset, but does not include loan participation through Inter-Bank Participation Certificates, bills rediscounted, outright transfer of loan accounts to other financial entities at the instance of the borrower and sale of bonds other than those in the nature of advance) should result in immediate legal separation of the ‘selling bank’ (this term hereinafter would include direct selling bank, assigning bank and the bank transferring assets through any other mode), from the assets which are sold. The assets should stand completely isolated from the selling bank, after its transfer to the buyer, i.e., put beyond the selling bank’s as well as its creditors' reach, even in the event of bankruptcy of the selling/assigning/transferring bank. 2.5.2 The selling bank should effectively transfer all risks/ rewards and rights/ obligations pertaining to the asset and shall not hold any beneficial interest in the asset after its sale except those specifically permitted under these guidelines. The buyer should have the unfettered right to pledge, sell, transfer or exchange or otherwise dispose of the assets free of any restraining condition. The selling bank shall not have any economic interest in the assets after its sale and the buyer shall have no recourse to the selling bank for any expenses or losses except those specifically permitted under these guidelines. 2.5.3 There shall be no obligation on the selling bank to re-purchase or fund the re-payment of the asset or any part of it or substitute assets held by the buyer or provide additional assets to the buyer at any time except those arising out of breach of warranties or representations made at the time of sale. The selling bank should be able to demonstrate that a notice to this effect has been given to the buyer and that the buyer has acknowledged the absence of such obligation.


130

2.5.4 The selling bank should be able to demonstrate that it has taken all reasonable precautions to ensure that it is not obliged, nor will feel impelled, to support any losses suffered by the buyer. 2.5.5 The sale shall be only on cash basis and the consideration shall be received not later than at the time of transfer of assets. The sale consideration should be market-based and arrived at in a transparent manner on an arm's length basis. 2.5.6 If the seller of loans acts as the servicing agent for the loans, it would not detract from the 'true sale' nature of the transaction, provided such service obligations do not entail any residual credit risk on the sold assets or any additional liability for them beyond the contractual performance obligations in respect of such services. 2.5.7 An opinion from the selling bank's Legal Counsel should be kept on record signifying that: (i) all rights, titles, interests and benefits in the assets have been transferred to the buyer; (ii) selling bank is not liable to the buyer in any way with regard to these assets other than the servicing obligations as indicated in para 2.5.6 above; and (iii) creditors of the selling bank do not have any right in any way with regard to these assets even in case of bankruptcy of the selling bank. 2.5.8 Any re-schedulement, restructuring or re-negotiation of the terms of the underlying agreement/s effected after the transfer of assets to the buyer, shall be binding on the buyer and not on the selling bank except to the extent of MRR. 2.5.9 The transfer of assets from selling bank must not contravene the terms and conditions of any underlying agreement governing the assets and all necessary consents from obligors (including from third parties, where necessary) should have been obtained. 2.5.10 In case the selling bank also provides servicing of assets after the sale under a separate servicing agreement for fee, and the payments/repayments from the borrowers are routed through it, it shall be under no obligation to remit funds to the buyer unless and until these are received from the borrowers. 2.6 Representations and Warranties An originator that sells assets to other financial entities may make representations and warranties concerning those assets. Where the following conditions are met the seller will not be required to hold capital against such representations and warranties. (a) Any representation or warranty is provided only by way of a formal written agreement. (b) The seller undertakes appropriate due diligence before providing or accepting any representation or warranty. (c) The representation or warranty refers to an existing state of facts that is capable of being verified by the seller at the time the assets are sold. (d) The representation or warranty is not open-ended and, in particular, does not relate to the future creditworthiness of the loans/underlying borrowers. (e) The exercise of a representation or warranty, requiring an originator to replace asset (or any parts of them) sold, on grounds covered in the representation or


131

warranty, must be: undertaken within 120 days of the transfer of assets; and conducted on the same terms and conditions as the original sale. (f) A seller that is required to pay damages for breach of representation or warranty can do so provided the agreement to pay damages meets the following conditions: the onus of proof for breach of representation or warranty remains at all times with the party so alleging; the party alleging the breach serves a written Notice of Claim on the seller, specifying the basis for the claim; and damages are limited to losses directly incurred as a result of the breach. (g) A seller should notify RBI (Department of Banking Supervision) of all instance where it has agreed to replace assets sold to another financial entity or pay damages arising out of any representation or warranty. 2.7 Re-purchase of Assets In order to limit the extent of effective control of transferred assets by the seller in the case of direct assignment transactions, banks should not have any re-purchase agreement including through “clean-up calls” on the transferred assets. 2.8 Applicability of Capital Adequacy and other Pru dential Norms 2.8.1 The capital adequacy treatment for direct purchase of corporate loans will be as per the rules applicable to corporate loans directly originated by the banks. Similarly, the capital adequacy treatment for direct purchase of retail loans, will be as per the rules applicable to retail portfolios directly originated by banks except in cases where the individual accounts have been classified as NPA, in which case usual capital adequacy norms as applicable to retail NPAs will apply. No benefit in terms of reduced risk weights will be available to purchased retail loans portfolios based on rating because this is not envisaged under the Basel II Standardized approach for credit risk. However, banks may, if they so desire, have the pools of loans rated before purchasing so as to have a third party view of the credit quality of the pool in addition to their own due diligence. However, such rating cannot substitute for the due diligence that the purchasing bank is required to perform in terms of para 2.2. 2.8.2 In purchase of pools of both retail and non-retail loans, income recognition, asset classification, provisioning and exposure norms for the purchasing bank will be applicable based on individual obligors and not based on portfolio. Banks should not apply the asset classification, income recognition and provisioning norms at portfolio level, as such treatment is likely to weaken the credit supervision due to its inability to detect and address weaknesses in individual accounts in a timely manner. If the purchasing bank is not maintaining the individual obligor-wise accounts for the portfolio of loans purchased, it should have an alternative mechanism to ensure application of prudential norms on individual obligor basis, especially the classification of the amounts corresponding to the obligors which need to be treated as NPAs as per existing prudential norms. One such mechanism could be to seek monthly statements containing account-wise details from the servicing agent to facilitate classification of the portfolio into different asset classification categories. Such details should be certified by the authorized officials of the servicing agent. Bank’s concurrent auditors, internal auditors and statutory auditors should also conduct checks of these portfolios with reference to the basic records maintained by


132

the servicing agent. The servicing agreement should provide for such verifications by the auditors of the purchasing bank. All relevant information and audit reports should be available for verification by the Inspecting Officials of RBI during the Annual Financial Inspections of the purchasing banks. 2.8.3 The purchased loans will be carried at acquisition cost unless it is more than the face value, in which case the premium paid should be amortised based on straight line method or effective interest rate method, as considered appropriate by the individual banks. The outstanding/unamortised premium need not be deducted from capital. The discount/premium on the purchased loans can be accounted for on portfolio basis or allocated to individual exposures proportionately. 2.9 Treatment of Exposures not Meeting the Requirem ents Stipulated Above The investing banks will assign a risk weight of 1111% to the assignment exposures where the requirements in paragraphs 2.1 to 2.8 above are not met. While banks should make serious efforts to comply with the guidelines contained in paragraphs 2.1 to 2.4, the higher risk weight of 1111% for non-compliance of these paragraphs is applicable with effect from October 01, 2012. Other guidelines as already approved by our Board regarding Purcahse of Pool Assets: The pool should consist of loan assets either eligible for direct priority sector finance or indirect priority sector, according to which our asset will be classified. CA certification to be obtained by the Bank for portfolio classification. The pool should be rated by External Rating Agency as Highest Safety (like "AAA" / “AA” or equivalent rating by any accredited rating agencies). Along with the proposal, rating papers must be submitted. The door to door maturity of the pool asset shall not be more than 60 months.


133

Appendix 1 Format for disclosure requirements in offer documen ts, servicer report, investor report etc. Name / Identification no. of transaction: Sl No

Nature of disclosure

Details Amount/ percentage/ years

1 Maturity characteristics of the underlying assets(on the date of disclosure)

i) Weighted average maturity of the underlying assets

ii) Maturity-wise distribution of underlying assets; • Percentage of assets maturing

within one year. • Percentage of assets maturing

within one to three years. • Percentage of assets maturing

within three to five years. • Percentage of assets maturing

after five years.

2 Minimum holding period(MHP) of sold assets

i) MHP required as per RBI guidelines (years /months)

ii) A) Weighted average holding period of sold assets at the time of transaction (years / months)

B) Minimum and maximum holding period of sold assets

3 Minimum retention requirement(MRR) on the date of disclosure

i) MRR as per RBI guidelines as a percentage of book value of assets sold and outstanding on date of disclosure

ii) Actual retention as a percentage of book value of assets sold and outstanding on the date of disclosure

iii) Breaches, if any, and reasons therefor


134

4 Credit quality of the underlying loans

i) Distribution of overdue loans, a) Percentage of loans overdue

upto 30 days. b) Percentage of loans overdue

between 31-60 days. c) Percentage of loans overdue

between 61-90 days. d) Percentage of loans overdue

more than 90 days.

ii) Details of tangible security available for the underlying loans(vehicles, mortgages etc)

a) Security 1(to be named) (% loans covered)

b) Security 2 c) Security n

iii) Extent of security cover available for the underlying loans

a) Percentage of loans fully secured included in the pool(%)

b) Percentage of loans partly secured included in the pool(%)

c) Percentage of unsecured loans included in the pool(%)

iv) Rating-wise distribution of underlying loans(if these loans are rated)

a) Internal grade of the bank/external grade(highest quality internal grade may be indicated as 1) 1/AAA or equivalent 2 3 4 N

b) Weighted average rating of


135

the pool v) Default rates of similar portfolios observed in the past

a) Average default rate per annum during last five years.

b) Average default rate per annum during last year.

vi) Upgradation/recovery/loss rates of similar portfolios

a) Percentage of NPAs upgraded(average of the last five years)

b) Amount written-off as a percentage of NPAs in the beginning of the year(average of last five years)

c) Amount recovered during the year as a percentage of incremental NPAs during the year(average of last five years)

5 Other characteristics of the loan pool

i) Industry-wise breakup of the loans in case of mixed pools(%)

• Industry 1 • Industry 2 • Industry 3 • Industry 4

ii) Geographical distribution of loan pools(state-wise) (%)

• State 1 • State 2 • State 3 • State 4


136

ANNEXURE 2

7. MANDATORY GUIDELINES OF RESERVE BANK OF INDIA:

7.1 KNOW YOUR CUSTOMER (KYC)/Anti Money Laundering Nor ms (AML): While appraising loan applications, KYC/AML norms should be strictly adhered. 7.2 Loans to NRI:

A scheme for Home loans other than Farm House to NRI is put in place and it will continue. In addition, advances in the form of Loans to NRIs can be considered on secured basis against tangible assets in India for education of ward in India and other bankable purposes except the following:

a. The business of Chit funds b. Nidhi Company c. Agricultural or plantation activities or real estate business or construction of

farmhouse. d. Trading in Transferable Development Rights (TDR) e. Investment in Capital Market including margin trading and derivatives.

The Loan amount shall not be credited to NRE / FCNR-B accounts. The loan amount shall not be remitted outside India. The repayment of loan shall be made from out of remittances from outside India through Normal Banking Channels or by debit to NRE / FCNR-B accounts

7.3 Restrictions on Advances against Non-Resident (Exte rnal) Rupee Account

and FCNR (B) deposits:

• Rupee loans in India against NRE/FCNR(B) Fixed deposits / Foreign currency loans in India and outside India against NRE/FCNR(B) Fixed deposits may be allowed to depositor/third party without any ceiling subject to usual margin requirements

• In case of FCNR deposits, margin requirement shall be calculated on the rupee equivalent of the deposits.

• The term ‘loan’ shall include all types of fund based /non fund based facilities. • The facility of pre mature withdrawal of NRE/FCNR deposits shall not be

available where loans against such deposits are to be availed of. • The existing loans which are not in conformity with the above instructions

shall not be rolled over/renewed. 7.4 . COMMERCIAL REAL ESTATE I) Definition: Based on the recent RBI guidelines on Commercial Real Estate (Notification No. RBI / 2009 - 10 / 151 : DBOD.BP.BC. No.42/08.12.015 / 2009-10 dated 09.09.2009), the definition of Commercial Real Estate is revised as under:


137

1. The essential feature of Commercial Real Estate would be that the funding will result in creation / acquisition of real estate (such as, office buildings to let, retail space, multifamily residential buildings, industrial or warehouse space and hotels) where 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 secuirty.

2. The revised definition of Commercial Real Estate also applies to certain cases where the exposure may not be directly linked to the creation or acquisition of Commercial Real Estate but the repayment would come from the cash flows generated by Commercial Real Estate . 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 Commercial Real Estate.

3. The revised classification of Commercial Real Estate is based on the substance of

the transaction rather than the form. ii) Powers for considering further exposure: b) Based on the above revised definition of Commercial Real Estate, loans

extended to entrepreneurs for construction of Hotels, Educational Institutions, Hospitals, etc. would be out of purview of Commercial Real Estate (as the repayment does not depend on the cash flows generated by the sale / lease rentals of the property).

c) In the case of Rent-en-cash, the same need not be classified as Commercial Real Estate provided there is arrangement to insulate the lease rentals from volatility in the real estate prices by way of lease arrangements for periods not shorter than that of the loan and there is no clause which allows downward adjustment in the lease rentals and there exists a record of reasoned note in such cases.

d) The exposure to certain erstwhile CRE categories, administrative clearance from corporate office is necessary as detailed in CRM policy.

e) Housing units upto two units is considered under residential mortage. If the total number of housing units is more than two, the exposure for the third unit onwards has to be treated as Commercial Real Estate exposure, as the borrower may be renting these housing units and the rental income is the primary source of repayment. Further, these exposures shall be considered at CO only , as applicable for other Commercial Real Estate exposures.

7.5 Adherence of National Building Code specifications for safety of buildings The code contains all the important aspects relevant to safe and orderly building development such as administrative regulations, development control rules and general building requirements; fire safety requirements; stipulations regarding materials, structural design and construction (including safety); and building and plumbing services. National Building Code specifications for safety of buildings have to be adhered by the branches.


138

7.5.a National Disaster Management Guidelines on Ensuring Disaster Resilient construction of Buildings and Infrastructure : The National Disaster Management Authority (NDMA), Government of India has formulated guidelines on ensuring disaster resilient construction of buildings and infrastructure financed through banks and other lending institutions. The NDMA has observed that in the context of disaster resilience there are certain critical gaps and the guidelines aim at addressing these gaps in the current process of approving the loan applications. It has been observed that the structural design of the proposed buildings and structures are not completed before submitting the application for a bank loan and no processes are in place at the banks to ensure that disaster resilience has indeed been incorporated in the assets during the design process at least before the construction begins.

As it is in the interest of lenders to ensure that physical assets created through their financing remain safe and disaster resilient, the guidelines prepared by NDMA be adopted by banks and made applicable to new constructions as well as additions, modifications, extensions or alteration of houses financed by them. Further, depending on the nature of the asset and the vulnerability of the location to any of the disasters, banks could insist on ensuring that the disaster resistant features of NDMA guidelines are incorporated in the actual construction before the loan is sanctioned or disbursed so that the disaster management features are built in at the design stage itself. RBI is of the view that adoption of the guidelines would be in the interest of lenders and borrowers. NMDA guidelines are given in Annexure (Forms may be downloaded from the site of NDMA) 7.6 RBI directions on Unauthorized Construction, Misus e of properties and

encroachment on Public Land A. Housing Loan for building construction

i. In cases where the applicant owns a plot/ land and approaches the

banks/FIs for a credit facility to construct a house, a copy of the sanctioned plan by competent authority in the name of a person applying for such credit facility must be obtained by the banks before sanctioning the home loan.

ii. An affidavit –cum-undertaking must be obtained from the person applying for such credit facility that he shall not violate the sanctioned plan, construction shall be strictly as per the sanctioned plan and it shall be the sole responsibility of the executants to obtain completion certificate within 3 months of completion of construction, failing which the bank shall have the power and the authority to recall the entire loan with interest, costs and other usual bank charges.

iii. An architect appointed by the bank must also certify at various stages of construction of building that the construction of the building is strictly as per sanctioned plan and shall also certify at a particular point of time that the completion certificate of the building issued by the competent authority has been obtained.


139

B. Housing Loan for purchase of constructed propert y / built up property i. In cases where the applicant approaches the banks for a credit facility to

purchase the built up house/flat, it should be mandatory for him to declare by way of an affidavit-cum-undertaking that the built up property has been constructed as per the sanctioned plan and /or building bye-laws and as far as possible has a completion certificate also.

ii. An Architect appointed by the bank must also certify before disbursement of the loan that the built up property is strictly as per sanctioned plan and/or building bye-laws.

C. Unauthorised Colonies

No loan should be given in respect of those properties which fall in the category of unauthorized colonies unless and until they have been regularized and development and other charges paid.

D. Commercial Property No loan should also be given in respect of properties meant for residential use but which the applicant intends to use for commercial purposes and declares so while applying for loan. Finance for Housing projects- Incorporating clause in the terms and conditions to disclose in pamphlets/ brochures/adve rtisements information regarding mortgage of property to the bank

RBI directed that while granting finance to specific housing/development projects, banks have to stipulate as a part of the terms and conditions that:

(i) the builder / developer / company would disclose in the Pamphlets /

Brochures etc., the name(s) of the bank(s) to which the property is mortgaged.

(ii) the builder / developer / company would append the information relating to mortgage while publishing advertisement of a particular scheme in newspapers / magazines etc.

(iii) the builder/developer/company would indicate in their pamphlets/ brochures, that they would provide No Objection Certificate (NOC) / permission of the mortgagee bank for sale of flats / property, if required.

Sanctioning authorities for housing projects are advised to ensure compliance of the above terms and conditions and funds should not be released by branches unless the builder/developer/company undertakes to fulfill the above requirements.

Above guidelines are mutatis-mutandis applicable to Commercial Real Estate also.

7.7 Advance against Bullion and Primary Gold: Branches should not grant any advance against Bullion & Primary Gold, Silver Bullion. Branches should not give loan to finance ”Badla” transactions in Silver.


140

However Gold coins are exempted. While granting advance against the security of specially minted gold coins sold by them, branch should ensure that the weight of the coin(s) does not exceed 50 grams per customer and the amount of loan to any customer against gold ornaments; gold jewellery and gold coins (weighing up to 50 grams) should be within the Board approved limit. Branches should also strictly ensure that “Advance against pledge of gold coins should be disbursed only against the coins which are already purchased and possessed by the intending borrowers and in no case, loan should be sanctioned for purchase of new coins and subsequent/ simultaneous pledging of the same.(CO:RBD Cir. No. 24/2013-14 dt. 29.05.2013). Branches should not grant any loan for purchase of gold coins, gold bullion, gold jewellery, units of gold Exchange Traded Funds (ETF) and units of gold Mutual Funds.However finance can be provided for genuine working capital requirements of jewelers. 7.8. Collateral free loans to Micro and Small Enter prises (MSEs) RBI directed that branches should not obtain collateral security in the case of loans extended to the units of MSE sector (both manufacturing and service enterprises under MSMED Act 2006) upto Rs.10.00 lakhs and it is clarified that the guidelines are mandatory and should be adhered to. 7.9 Advance against banned article No loan should be sanctioned for dealing in/against security of any banned article including articles possession/production of which is banned under Wild Life Protection Act, 1972.

7.10 Advances against Sensitive Commodities With a view to preventing speculative holding of essential commodities with the help of bank credit and the resultant rise in their prices, RBI stipulates specific restrictions on bank advances against specified sensitive commodities.

Presently, the following commodities are covered under stipulations of selective credit control only for the purpose of stipulating minimum margin.

a) Buffer stock of sugar with Sugar Mills – minimum margin 0% b) Unreleased stocks of sugar with Sugar Mills representing

i. levy sugar, minimum margin 10% ii. free sugar, minimum margin 10%

Branches should ensure the purpose of directives issued to prevent speculative holding of essential commodities and it should not be defeated while considering loan proposals for this sector.


141

7.11 Valuation of Sugar Stocks

The unreleased stocks of the levy sugar charged to banks as security shall be valued at levy price fixed by Government

The unreleased stocks of free sale sugar including buffer stocks of sugar charged to the bank as security by sugar mills, shall be valued at the average of the price realized in the preceding three months (moving average) or the current market price, whichever is lower; the prices for this purpose shall be exclusive of excise duty. 7.12 Advances against Fixed Deposit Receipts (FDRs) iss ued by other Banks. Branches should not sanction advances against FDRs, or other Term Deposits issued by other banks. 7.13 Advances to Agents/Intermediaries based on Conside ration of Deposit

Mobilization: Branches should not grant loans to intermediaries based on consideration of deposit mobilization. 7.14 Acceptance of 7% Savings Bonds 2002, 6.5% Savings B onds 2003 (Non –

taxable) & 8% Savings (taxable) Bonds 2003 as colla teral security. 7% Savings Bonds 2002, 6.5% Savings Bonds 2003 (Non –taxable) & 8% Savings (taxable) Bonds 2003 issued by RBI can be accepted as collateral security for the loans extended to the holders of the bonds , not to be extended in respect of loans of Third Parties( Ref: Adv.88/2008-09 dated 06.09.2008) 7.15 Advances against Certificate of Deposits (CDs): Loans against CDs held by mutual funds may be considered by CO based on the guidelines of RBI from time to time. For other cases, loans against Certificate of deposits cannot be granted. 7.16 RBI Guidelines on Discounting/Rediscounting of Bill s by Banks Banks should open letters of credit (LCs) and purchase / discount / negotiate bills under LCs only in respect of genuine commercial and trade transactions of their borrower constituents who have been sanctioned regular credit facilities by the banks. Banks should not, therefore, extend fund based (including bills financing) or non-fund based facilities like opening of LCs, providing guarantees and acceptances to non-constituent borrower or / and non-constituent member of a consortium / multiple banking arrangement. Branches should ensure that blank LC forms are kept in safe custody as in case of security items like blank cheques, demand drafts etc. and verified / balanced on daily basis. LC forms should be issued to customers under joint signatures of the bank’s authorized officials.


142

While purchasing / discounting / negotiating bills under LCs or otherwise, banks should establish genuineness of underlying transactions / documents Accommodation bills should not be purchased / discounted / negotiated by banks. The underlying trade transactions should be clearly identified and a proper record thereof maintained at the branches conducting the bills business Branches should be circumspect while discounting bills drawn by front finance companies set up by large industrial groups on other group companies Bills rediscounts should be restricted to usance bills held by other banks. Banks should not rediscount bills earlier discounted by non-bank financial companies (NBFCs) except in respect of bills arising from sale of light commercial vehicles and two / three wheelers In order to promote payment discipline which would to a certain extent encourage acceptance of bills, all corporates and other constituent borrowers having turnover above Rs. 25 crs should be mandated to disclose ‘aging schedule’ of their overdue payables in their periodical returns submitted to banks. 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. All clean negotiations as indicated above will be assigned the risk weight as is normally applicable to inter-bank exposures, for capital adequacy purposes. In the case of negotiations ‘ under reserve’, the exposure should be treated as on the borrower and risk weight assigned accordingly. The practice of drawing bills of exchange claused ‘without recourse’ and issuing letters of credit bearing the legend ‘without recourse’ should be discouraged because such notations deprive the negotiating bank of the right of recourse it has against the drawer under the Negotiable Instruments Act. Bank should not therefore open LCs and purchase / discount / negotiate bills bearing the ‘without recourse’ clause. 7.16.1 Co acceptance of Bills: Co-accepting of Bills by our Bank can be sanctioned only at Corporate Office by COLCC (GM) and above. Limits should be extended only to those customers who enjoy other limits with our Bank. Only genuine trade bills should be co-accepted and valuation of the goods as mentioned in the bills should be verified. Co-acceptance should not be extended to house bills/accommodation bills drawn by group concerns on one another. Banks are precluded from co-accepting bills drawn under Buyers Line of Credit Schemes introduced by IDBI Bank Ltd., and all India Financial Institutions like SIDBI, Power Finance Corporation Ltd (PFC), etc. Similarly banks should not co-accept bills drawn by NBFCs. In addition, banks are advised not to extend co-acceptance on behalf of their buyers/constituents under the SIDBI scheme.


143

7.16.2 Discounting of Bills co-accepted by other Banks: The banks discounting bills co-accepted by other banks, should ensure that the bills are not accommodations bills and that the co-accepting bank has the capacity to redeem the obligation in case of need. Discounting/purchasing bills co-accepted by other banks for Rs.2 lakh and above from a single party, the bank should obtain written confirmation of the concerned Controlling (Regional/Divisional/Zonal) office of the accepting bank and a record of the same should be kept. When the value of the total bills discounted/purchased (which have been co-accepted by other banks) exceeds Rs.20 lakh for a single borrower/group of borrowers, prior approval of the Head Office of the co-accepting bank must be obtained by the discounting bank in writing.

7.17 Financing to Factoring Companies: Financial assistance can be extended to support the factoring business of Factoring companies which comply with the following criteria. The companies qualify as factoring companies and carry out their business under the provisions of the Factoring Regulation Act’2011 and notifications issued by the Reserve Bank from time to time. They derive at least 75 per cent of their income from factoring activity. The receivables purchased/financed, irrespective of whether on ‘with recourse’ or ‘without recourse’ basis form at least 75 per cent of the assets of the Factoring Company. The assets/income referred to above would not include the assets/income relating to any bill discounting facility extended by the Factoring Company. The financial assistance extended by the factoring companies is secured by hypothecation or assignment of receivables in their favour. 7.18 Advances against bank's own shares:

Bank cannot grant any loans and advances on the security of its own shares in terms of Section 20(1) of the Banking Regulation Act, 1949. Branches should not lend to public/staff against the pledge of our bank's shares. Also Lending should not be made against the shares of our own subsidiaries. 7.19 Advances against shares No loan should be granted against partly paid shares and no loans should be granted to proprietorship/ partnership concerns against the primary security of shares and debentures.

7.20 Exposure to Capital Market – Loans extended by banks to Mutual Funds and issue of Irrevocable Payment Commitments (IPCs)


144

Reserve Bank of India has also advised that Irrevocable Payment Commitments (IPCs) are in the nature of NFB credit facility for purchase of shares and are to be treated at par with guarantees issued for capital market operations. So, IPCs in favour of Stock exchanges on behalf of Mutual Funds also be treated as exposure to capital market. As per RBI guidelines entities such as FIIs are not permitted to avail of fund or non fund based facilities such as IPCs from banks.

In terms of para 44(2) of the SEBI (Mutual funds) Regulations 1996 a mutual fund shall not borrow except to meet temporary liquidity needs of the mutual funds for the purpose of repurchase, redemption of units or payment of interest or dividend to the unit holders and further the mutual fund shall not borrow more than 20% of the net asset of the scheme and for a duration not exceeding six months. 7.21 Guidelines in respect of issue of guarantees to st ock exchanges on behalf

of stock brokers Field level personnel and credit desks should ensure compliance with the following:

a. Guarantees to stock brokers in lieu of cash margin with stock exchanges are to be assessed based on parameters like creditworthiness, volume of business turnover, cash margin stipulated by stock exchanges etc.,

b. Share brokers shall submit monthly statement showing details of scrip’s traded, turnover, cash margin stipulated by stock exchanges. A quarterly statement to be submitted duly certified by a chartered accountant. The total of cash margins with the stock exchanges is to be compared / analyzed with the amount of the guarantee issued by the Bank.

c. In case of any increase in cash margin by stock exchanges based on the prices of scrip’s, the Bank reserves to itself the right of increasing the cash margin (above the present level) on the guarantees. A condition to that effect should be stipulated in the sanction ticket for sanction of guarantee facilities.

d. Margin (security by way of stocks & shares / other securities) requirements (including the cash margin requirements) for the guarantee to be maintained

e. Risks inherent in the facility and the mitigants proposed / suggested should be addressed in the appraisal. Risk Management practices adopted by the share brokers for price risks and various other risks should also be analyzed.

7.21.1 Advances to Share and Stock Brokers/Commodit y Brokers: Branches should not undertake financing of “Badla” transactions. Branches shall grant advances only to share and stock brokers registered with SEBI and who comply with capital adequacy norms prescribed by SEBI/Stock Exchange. Branches should not extend credit facilities directly or indirectly to stock brokers for arbitrage operations in Stock exchanges. Share and stock brokers/commodity brokers may be provided need based overdraft facilities / line of credit against shares and debentures held by them as stock-in-trade. A careful assessment of need based requirements for such finance should be made taking into account the financial position of the borrower, operations on his own account and on behalf of clients, income earned, the average turnover period of stocks and shares and the extent to which the broker's funds are required to be


145

involved in his business operations. Large scale investment in shares and debentures on own account by stock and share brokers with bank finance, should not be encouraged. The securities lodged as collateral should be easily marketable The ceiling of Rupees ten lakhs / Rupees twenty lakhs for advances against shares/debentures to individuals will not be applicable in the case of share and stock brokers / commodity brokers and the advances would be need based Working capital facilities can be given to stock brokers registered with SEBI and who have complied with capital adequacy norms prescribed by SEBI / Stock exchanges to meet the cash flow gap between delivery and payment for DVP transactions undertaken on behalf of institutional clients viz. FIs, Flls, mutual funds and banks, the duration of such a facility will be short and would be based on an assessment of the financing requirements keeping in view the cash flow gaps, the broker's funds required to be deployed for the transaction and the overall financial position of the broker. The utilisation will be monitored on the basis of individual transactions. Banks may institute adequate safeguards and monitoring mechanisms. A uniform margin of 50 per cent shall be applied on all advances / financing of IPOs / issue of guarantees on behalf of share and stockbrokers. A minimum cash margin of 25 per cent (within the margin of 50%) shall be maintained in respect of guarantees issued by banks for capital market operations. The above minimum margin will also apply to guarantees issued by banks on behalf of commodity brokers in favour of commodity exchanges viz. National Commodity & Derivatives Exchange (NCDEX), Multi Commodity Exchange of India Ltd. (MCX) and National Multi Commodity Exchange of India Ltd. (NMCEIL), in lieu of margin requirements as per the commodity exchange regulations. These margin requirements will also be applicable in respect of bank finance to stock brokers by way of temporary overdrafts for DVP transactions Guarantees may be issued on behalf of share and stock brokers/commodity brokers in favour of stock exchanges in lieu of security deposit to the extent it is acceptable in the form of bank guarantee as laid down by stock exchanges. Guarantees may be issued in lieu of margin requirements as per stock exchange regulations. Assessment of the requirement of each applicant borrower, should be made usual and necessary safeguards including the exposure ceilings to be observed The requirement relating to transfer of shares in bank's name in respect of shares held in physical form shall not apply in respect of advances granted to share and stock brokers provided such shares are held as security for a period not exceeding nine months. In the case of dematerialized shares, the depository system provides a facility for pledging and banks may avail themselves of this facility and in such cases there will not be need to transfer the shares in the name of the bank DBOD irrespective of the period of holding. The share and stock brokers are free to substitute the shares pledged by them as and when necessary. In case of a default in the account, the bank should exercise the option to get the shares transferred in its name Banks shall grant advances only to share and stock brokers registered with SEBI


146

and who comply with capital adequacy norms prescribed by SEBI / Stock Exchanges 7.22 Restrictions on Holding Shares in Companies 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 pledge, 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. Further, in terms of Section 19(3) of the Banking Regulation Act, 1949, the banks should not hold shares whether as pledge, 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. Accordingly, while granting loans and advances against shares, statutory provisions contained in Sections 19(2) and 19(3) should be strictly observed.

Overseas Investment – Guarantee on behalf of Wholly Owned Subsidiaries (WOSs)/ Joint Ventures (JVs) abroad

Presently, only promoter corporates are permitted to offer guarantees on behalf of their Wholly Owned Subsidiaries (WOSs)/ Joint Ventures (JVs), under the Automatic Route and issue of personal, collateral and third party guarantees requires prior approval of Reserve Bank and is considered by RBI, on a case to case basis.

The scope of guarantees covered under the Automatic Route has been enlarged. Indian entities are now permitted to offer any forms of guarantee – corporate or personal/ primary or collateral/ guarantee by the promoter company/ guarantee by Group Company, sister concern or associate company in India, provided:

a. All "financial commitments" including all forms of guarantees are within the overall prescribed ceiling for overseas investment of the Indian party i.e. currently within 200 per cent of the net worth of the investing company (Indian party).

b. No guarantee is 'open ended' i.e. the amount of the guarantee should be specified upfront, and

c. As in the case of corporate guarantees, all guarantees are required to be reported to RBI in form ODR.

Guarantees issued by banks in India in favour of WOS/ JVs outside India are outside this ceiling and would be subject to prudential norms issued by RBI from time to time.

7.23 Guarantees for Export Advance Some exporters with low export turnover are receiving large amounts as export advances, in low interest rate currencies, against domestic bank guarantees and are depositing such advances with banks in Indian Rupees for interest rate arbitrage against the FEMA guidelines. The guarantees are permitted in respect of debt or other liability incurred by an exporter on account of exports from India. Branches are advised to be careful while extending guarantees against export advances to ensure that no violation of FEMA regulations takes place and banks are not exposed to


147

various risks. It will be important for the banks to carry out due diligence and verify the track record of such exporters to assess their ability to execute such export orders. Branches should also ensure that the export advances received by the exporters are in compliance with the regulations/directions issued under the Foreign Exchange Management Act, 1999. In case of guarantees for project exports, PEM(project export management) guidelines regarding pre award/post award clearances, submission of returns to RBI, obtention of Certificates should be scrupulously followed 7.24 External Commercial Borrowings (ECB) External Commercial Borrowings (ECB) refer to commercial loans [in the form of bank loans, buyers’ credit, suppliers’ credit, securitised instruments (e.g. floating rate notes and fixed rate bonds)] availed from non-resident lenders with minimum average maturity of 3 years. Eligible borrowers

a. Corporates (registered under the Companies Act except financial intermediaries (such as banks, financial institutions (FIs), housing finance companies and NBFCs) are eligible to raise ECB. Individuals, Trusts and Non Profit making Organisations are not eligible to raise ECB.

b. Non-Government Organisations (NGOs) engaged in micro finance activities are eligible to avail ECB. Such NGO (i) should have a satisfactory borrowing relationship for at least 3 years with a scheduled commercial bank authorised to deal in foreign exchange and (ii) would require a certificate of due diligence on “fit and proper” status of the board/committee of management of the borrowing entity from the designated Authorised Dealer (AD) bank.

c. Units in Special Economic Zones (SEZ) are allowed to raise ECB for their own requirement. However, they cannot transfer or on-lend ECB funds to sister concerns or any unit in the Domestic Tariff Area.

End-use

(a) ECB can be raised only for investment [such as import of capital goods (as classified by DGFT in the Foreign Trade Policy), new projects, modernization/expansion of existing production units] in real sector - industrial sector including small and medium enterprises (SME) and infrastructure sector - in India. Infrastructure sector is defined as (i) power, (ii) telecommunication, (iii) railways, (iv) road including bridges, (v) sea port and airport (vi) industrial parks and (vii) urban infrastructure (water supply, sanitation and sewage projects);

(b) ECB proceeds can be utilised for overseas direct investment in Joint Ventures (JV)/Wholly Owned End Uses not permitted Guarantees Security Parking of ECB proceeds overseas Subsidiaries (WOS) subject to the existing guidelines on Indian Direct Investment in JV/WOS abroad.

(c) Utilisation of ECB proceeds is permitted in the first stage acquisition of shares in the disinvestment process and also in the mandatory second


148

stage offer to the public under the Government’s disinvestment programme of PSU shares.

(d) NGOs engaged in micro finance activities may utilise ECB proceeds for lending to self-help groups or for micro-credit or for bonafide micro finance activity including capacity building.

Utilization of ECB proceeds is not permitted for on-lending or investment in capital market or acquiring a company (or a part thereof) in India by a corporate, real estate, working capital, general corporate purpose and repayment of existing Rupee loans. Issuance of guarantee, standby letter of credit, letter of undertaking or letter of comfort by banks, Financial Institutions and Non-Banking Financial Companies (NBFCs) relating to ECB is not permitted. For further operational guidelines please refer circular being issued by CO: International Division on the subject matter. Financing Indian Joint Ventures / Wholly owned subsidiaries abroad for deployment of funds held under FCNRB, EEPC, RFC accounts There shall be proper appraisal based on the viability of the project for financing and not merely on reputation of the promoters backing the project. Any Non fund based facilities are subject to vigorous scrutiny as being done for fund based facilities. There shall not be any restriction from the country where the joint venture / wholly owned subsidiaries are located for raising loans or for repatriation and no legal constraints for creating legal charge on the assets of such companies by the non-resident banks 7.25. Forward Contracts Importers / exporters may be permitted to book forward contracts as per RBI guidelines in force from time to time. The present guidelines are furnished below for ready reference and compliance:

a. Upto the average of the previous three financial years (April to March) actual

import / export turnover (or) previous year’s actual import / export turnover, whichever is higher. For importers availing of the above past performanc e facility, the facility stands reduced to 25% of the limit as computed above, i.e. 25 percent of the average of the previous three financial years’ (April to March ) actual import / export turnover or the previous year’s actual import / export turnover, whichever is higher. In case of importers who have already utilized in excess of the revised / reduced limit, no furthe r bookings may be allowed under this facility. All forward contracts booked u nder this facility by both exporters and importers hence forth will be on fully deliverable basis. In case of cancellations, exchange gain, if any, shoul d not be passed on to the customer .

b. Any forward contract booked without producing documentary evidence will be marked off against this limit. These contracts once cancelled, are not eligible to be rebooked. Rollovers are also not permitted.


149

c. Importers and exporters shall furnish a quarterly declaration to the branch duly certified by the Statutory Auditor, regarding amounts booked with other Authorised Dealers’ Category –I Banks, under this facility.

d. An undertaking may be taken from the customer to produce supporting documentary evidence before the maturity of the forward contract.

e. forward contracts booked by residents irrespective of the type and tenor of the underlying exposure, once cancelled cannot be rebooked .

f. In the case of an Exporter, the amount of overdue bills shall not be in excess of 10% of the turnover to avail the above facility.

7.26 Restriction on Units consuming ozone depleting substances Branches should not extend finance for setting up new units producing / consuming ozone depleting substances. 7.27 Restriction on granting advances to Government / Se mi-Government Branches should not finance for construction of buildings meant purely for Govt/ semi Govt offices including municipal/ panchayat offices. However, branches may grant loans for activities, which will be refinanced by institutions like NABARD 7.28 Restriction on granting advances to Public Sector entities which are not

corporate Projects undertaken by public sector entities which are not corporate bodies (ie public sector undertakings which are not registered under the Companies Act or which are not corporations established under the relevant statute) may not be financed. Even in respect of projects undertaken by corporate bodies, as defined above, branches should satisfy themselves that the project is run on commercial lines and that 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.

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 cashes finance should be restricted to the project cost excluding the amount of subsidy/ capital contribution from the Government. The branches should ensure the commercial viability of the project. 7.29 Restrictions on Advances to Directors/Senior Office rs of our Bank / to

their Relatives / Directors of other banks and thei r relatives Restrictions as detailed in the credit administrative power booklet shall continue. Additional guidelines: RBI has come across an instance, where loans and advances have been sanctioned to the relative of a Director of a bank, at a concessional rate of interest, thereby circumventing the spirit of the restrictions contained under Section 20 of the Banking Regulation Act, 1949.The matter has, therefore, been examined and it has been decided that the restrictions as contained in Section 20 of the Act would apply to grant of loans and advances to spouse and minor/dependent children of the Directors of banks. However, banks may grant loan or advance to or on behalf of


150

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. (RBI/2011-12/385 DBOD.No.BP.BC.79/21.01.001/2011-12 February 3, 2012) 7.30 Legal Compliance Certificate – Dr Mitra Committee R ecommendations on

Legal Aspects of Bank Frauds CO: O & M Division vide their circular no:GENL.11/2004-05 dt.05.07.2004 advised about the implementation of the recommendations of Dr LN Mitra Committee on legal aspects of bank frauds. The recommendations are to be complied with for transactions of Rs.1.00 Crore and above as per the CO circular referred above which is subject to verification by the Statutory Central Auditors.

7.31 Acknowledgement to all loan applicants : Branches have to give acknowledgement to all loan applicants with the likely date of disposal of the application as per commitment to customers / MSE.

7.32 Information to borrowers on penal interest for dela yed payment of

interest, pre payment charges at the time of commun ication of loan sanction

At the time of communication of loan sanction, branches should inform the customers’ rules relating to the account, like penal interest for delayed payment of interest, pre payment charges and under what circumstances the loan will be recalled etc. Disclosing information regarding collection of Processing charges & prepayment charges. As per the norms of RBI, the information about the Upfront Fees, Charges payable by the loan applicants and amount of refund of such fees / charges refundable to the loan applicants in case of non-acceptance of the application by the Bank are to be informed to the borrowers while submission of the loan application itself without any exception . 7.33 Furnishing of true copy of the documents executed

a. A true copy of the documents executed / registered, regarding creation of security (D32/D34) should be handed over to the borrower/ mortgagor against acknowledgement, which would amount to bank giving acknowledgement to the customer for having lodged securities as cover to various credit facilities.

b. Branches are directed to furnish a copy of the loan agreement along with a copy

each of all enclosures quoted in the loan agreement to all the borrowers at the time of sanction / disbursement of loans.

7.34 Provision of copy of Credit Information Report (CI BIL/EXPERIAN/ EQUIFAX/ HIGHMARK) to customers Customers are entitled to get copy of the credit report obtained by us from CIBIL/ EXPERIAN/ EQUIFAX/ HIGHMARK . If a customer requests for a copy of the credit report, Branches has to provide the same after collecting service charges of Rs. 50/- (Maximum at present)


151

7.35 Disclosing all information relating to proces sing fees / charges

All information relating to charges / fees for processing are invariably disclosed in the loan application forms and that banks must inform 'all-in-cost' to the customers to enable them to compare the rates charged with other sources of finance. With a view to bringing in fairness and transparency, RBI advised to disclose to the borrower all information about fees / charges payable for processing the loan application, the amount of fees refundable if loan amount is not sanctioned / disbursed, pre-payment options and charges, if any, penalty for delayed repayments if any, conversion charges for switching loan from fixed to floating rates or vice versa, existence of any interest reset clause and any other matter which affects the interest of the borrower through the website of the banks. Accordingly our bank has displayed the information in the official website for all categories of loan products. Branches should restrain from interference in the affairs of the borrowers except for what is provided in the terms and conditions of the loan sanction documents (unless new information, not earlier disclosed by the borrower, has come to the notice of the Branch).

Branches must not discriminate on grounds of sex, caste and religion in the matter of lending. However, this does not preclude Branches from participating in credit-linked schemes framed for weaker sections of the society.

In the matter of recovery of loans, the Branches should not resort to undue harassment viz. persistently bothering the borrowers at odd hours, use of muscle power for recovery of loans, etc.

In case of receipt of request for transfer of borrowal account, either from the borrower or from a bank/financial institution, which proposes to takeover the account, the consent or otherwise i.e, our objection, if any, should be conveyed within 21 days from the date of receipt of request.

7.36 Term Loan Classification: The definitions of loan repayable on demand and term loan for the purpose of classification of advances in Schedule 9 of the balance sheet are as follows: All loans with maturity in excess of one year may be classified under term loan category. 7.37 Sharing of information under Consortium /MBA As per the directions of RBI, sharing of information with other banks under Consortium / Multiple Banking Arrangements has been made mandatory and the details of which, were circulated to all the branches. The system is extended to the borrowal accounts that are exclusively financed by our Bank. Zonal Office / Branches should ensure that the information sought in the Annexure- I,II & III of the said circulars is submitted to Corporate Office along with the comments of the Branch Manager without fail in future. With effect from January,1,2013 any sanction of fresh loans/ad hoc loans/renewal of loans to new/existing borrowers should be done only after obtaining /sharing necessary information.


152

7.38 Sharing of information on frauds in borrowal accou nts having Multiple

Banking Arrangements .- Under Multiple Banking Arrangements, RBI prescribes a system of obtaining declaration from borrowers, exchange of information among banks on regular intervals and obtaining regular certification by a professional regarding compliance of various statutory prescriptions. As part of ongoing compliance with the instructions of RBI, branches are required to exchange information on multi lateral basis regarding incidents of frauds, legal action taken and covert activities / operations of the borrower after the fraud, etc.

7.39 Meeting Payment obligation to MSMEs by corporate bo rrowers As per RBI directives, Branches / Zonal Offices / Corporate Office while sanctioning / renewing credit limits to their large corporate borrowers (i.e. borrowers enjoying working capital limits of Rs.10 crore and above from the banking system) must fix separate sub-limits, within the overall limits, specifically for meeting payment obligations in respect of purchases from MSMEs either on cash basis or on bill basis. (Please refer circular ADV.153 dated 29.12.08). 7.40 Director Identification Number and RBI Regulatory Requirement: Defaulters list : Many a time, the names of the Directors of various firms / companies are similar. It is therefore, necessary to ensure that directors are correctly identified and in no case, names appearing to be similar to the names of the Directors are appearing in the list of Wilful defaulters / defaulting borrowers, is wrongfully denied credit facilities on such grounds. To avoid such situations, it has been decided by RBI that Director Identification Number (DIN) should be included as one of the fields in the data submitted by Banks to Credit information companies / RBI. As per RBI Circular letter DBOD.NO.CID.40/20.16.046/2010-11 dated 21/09/10, it is a regulatory requirement to incorporate the Director Identification Number (DIN) in all Defaulters / Wilful Defaulters list wef 31/12/10. Hence, branches to obtain the DIN at the time of opening of accounts in respect of all the Limited companies. At the time of entertaining credit proposals, the DIN number to be mentioned for all the Directors in the Credit appraisal format.

7.41Loans/Advances against Indian Depository Receip ts (IDRs): No Bank should grant any loan/advance for subscription of Indian depository Receipts (IDRs). Further, no bank should grant any loan/advance against security/collateral of IDR 7.42Loans for acquisition of Kisan Vikas Patras: Banks should ensure that no loans are sanctioned for acquisition of/investing in Small Savings instruments including Kisan Vikas Patras s issued in India


153

Annexure 3

PROJECT IMPLEMENTATION PROGRESS REPORT PROJECTS UNDER IMPLEMENTATION INVOLVING ACQUISITION OF CAPITAL ASSETS/PROJECT COST OF RS 10 CRORES AND ABOVE REPORT FOR THE QUARTER ENDED: JUNE/SEP/DEC/MARCH (to be submitted by the borrower within 8 weeks from end of respective quarter) Name and address of the concern Branch Location of factory/project Total project cost Term loan component Participating banks

Name of the bank Amount sanctioned

Rate of interest

Date of financial closure Date common loan agreement Date of commercial operation date as per common loan agreement

DRAW DOWN DETAILS: As per common loan agreement

Actual draw down(bank wise)

Reasons for variation if any

TIME SCHEDULE: Details Percentage of completion

expected as per project report Actual completion

Reason for variation if any

Land building Plant and machinery

Other infrastructure


154

A: STATUS OF THE PROJECT (cost incurred) Amount in crores

Sno Particulars Cost Incurred Estimated Date of completion as per appraisal note

Expected date of completion

Remarks

During the quarter

Cumulative upto the quarter

1 Land 2 Building 3 Plant and

machinery

4 Others Total project

cost

In case of any expected variation in cost to be indicated in remarks column B: STATUS OF MOBILISATION OF FUNDS:

Amount in crores Sno Particulars Estima

ted in the proposal

Mobilised Budgeted resource mobilisation during the next quarter

As per estimate when proposed to be raised

Remarks(indicate the name of the bank where the actual credit is received)

During the quarter

Cumulative upto the quarter

1 Share capital Promoters Others 2 Unsecured

loan

Term loans 3 Others Total

In case of any expected variation details to be indicated in remarks column A AND B SHOULD TALLY WITH EACH OTHER (cost incurred and amount moblised should tally with each other).


155

STATUS OF APPROVALS: Whether all statutory approvals are in place? Date: Authorised signatory (borrower) Counter signed by Certified that the company has brought in Rs (Rupees ) on various dates as per the details annexed to this statement and utilized a sum of Rs (Rupees ) towards various expenses as indicated in the table A of this report. Chartered Accountant : Certified that the details of expenditure incurred detailed in the table A and stage/per centage of completion in the time schedule are correct. Approved Engineer/lenders’ engineer: FOR OFFICE USE: Sanctioning Authority Date of Sanction Amount of Loan Sanctioned Whether Under Consortium/Multiple Banking

Total Loan Component Our Share Date of latest unit inspection and name of the official

Date of IDO visit and name of the IDO Servicing of debt/interest upto Insurance details Cost /Time overruns- Various milestones assured in the Detailed Project Report/Information Memorandum

General remarks(including availment, progress of the project etc)

CREDIT MONITORING OFFICER BRANCH MANAGER DATE:

(TO BE SUBMITTED BEFORE 7TH DAY OFJUN/SEP/DEC/MARCH TO ZONAL OFFICE AND CORPORATE OFFICE)


156

Annexure 4 POLICY ON JOINT LENDING ARRANGEMENT (JLA) Formation of the Joint Lending Arrangement (JLA)

1. The scheme 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. All non-investment grade borrowers (ECR below BBB or equivalent), irrespective of the amount of exposure.

2. Banks / 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 the cases of merger, the merged units should be treated as a single unit. In case of split, the separated units should be treated as separate borrowal accounts provided there is more than one published balance sheet.

3. To keep JLA size manageable, the minimum share of a member must be 10% of the aggregate working capital limits for aggregate working capital exposures (FB & NFB) under Rs. 1,000 crores,. For working capital exposures of Rs. 1,000 crores and above, the minimum participation in the working capital JLA should be at least Rs. 100 crores.

4. 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. To that extent, the working capital JLAs can be distinct and separate from term lending syndications / arrangements.

5. In case of large projects, often, the size of the funding requirement as term loans would necessitate joint financing by more than one bank under syndication arrangements. In such cases, participating banks may, for the purpose of their own assessment, refer to the appraisal report prepared by the lead bank / Sub-committee or have the project appraised jointly.

6. While sanctioning credit facilities to the borrower by the JLA members / multiple bankers, credit report on the borrower from various Credit Information Companies like CIBIL has to be perused without fail.

Applicability of JLA

7. New Borrowers -Lending under joint arrangement shall be mandatory for

Public Sector Banks for borrowers falling under the above mentioned criteria 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, or any other Bank as mutually agreed by Member Banks, will be the designated Lead Bank for the JLA.

8. Existing Borrowers - In case of borrowers presently enjoying aggregate limits falling under the above mentioned criteria 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


157

JLA and take initiative for holding the meeting of all financing banks within 3 (three) months from the date of adoption of the policy 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 policy. Further, in the case of borrowal accounts which do not fall under the above mentioned criteria, the concerned banks will be free to enter into a JLA at their option.

9. Existing borrowers seeking enhanced limits - In case of borrowers enjoying aggregate credit limits below the threshold fixed from more than one bank, where further enhancement would take the aggregate limits to cross the threshold limit, should be considered jointly by the financing banks concerned and the bank, which takes up the largest share of the limits, or any other Bank as mutually agreed by Member Banks, shall be deemed to be the leader of the formalized JLA.

10. Existing Consortium Arrangements- The borrowers who are already having formal Consortium Arrangement with limits below the defined threshold limit may continue under such Consortium Arrangement.

11. The lead bank in a syndicate should not reduce or downsell its share for a

minimum period of two years without the consent of other co-lenders.

Institutions to be included in JLA

12. It would be open to a borrower to choose his bank/(s) for obtaining credit facilities as also for the bank/(s) to take a credit decision on the borrower.

13. In case of borrowers enjoying credit facilities 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 subject to the terms and conditions spelt out in this policy and in case of reluctance, the public sector banks may go ahead and form joint lending group on their own amongst themselves.

14. 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.

Terms and Conditions of Operations of JLA 15. The ceilings on a bank exposure to a single borrower or to a ‘group’ of

borrowers will continue to be in force, as hitherto, and banks shall not exceed the prudential exposure limits applicable to them, without the necessary prior approvals.

16. Sub-committee - 17. It is felt that one basic requirement to make lending under JLA effective is to

ensure that the norms applicable to JLA are accepted by all the member banks and the borrowers, in a timely manner. Given the diversity of the financing banks, a mechanism to force a consensus on the issues is necessary. On the other hand, at times it may be difficult on the part of the borrower to run from bank to bank to get certain tasks done, such as obtaining NOC, etc. Accordingly, it is proposed that


158

a) A Sub-committee, comprising at least two member banks having a combined exposure of not less than 50% of the total exposure should be formed, for deciding all matters relating to appraisal, sharing of income and monitoring of the accounts, at the time of initial creation/ formation of the JLA. (specific tasks / responsibilities enumerated in the policy elsewhere). b) The existence and roles of Sub-committee should be formalized in the inter-se agreement at the time of documentation. c) Decision making in the Sub-committee will be by consensus. The decisions of the Sub-committee will be binding on all JLA members. d) The officials nominated by the member-banks to participate in the Sub-committee have to be of a fairly senior level, say DGM and above. e) As decision-making in the Sub-committee will be by consensus, the Sub-committee members would need to take their respective internal approvals before conveying decisions of the Sub-committee. f) The members of the Sub-committee can arrive at decisions through circulation of relevant note/ document, or meeting in person/ audio conference/ video conference. In fact, the practice of convening JLA meetings by requiring the bank representatives to assemble at (or travel to) a specified time and venue should be discouraged

g) Issues referred to the Sub-committee must be decided upon in maximum 30 days (at Sub-committee level 10 days, and at a higher level 20 days). h) The Sub-committee shall be authorized to issue No Objection Certificate (NOC) on behalf of the JLA for any purpose.

25. Enhancements- Existing member banks will take care of the additional requirements in proportion to their exposure. If any bank has a difficulty on account of policy issues or exposure ceiling/ prudential norms to take additional exposure, then its share in full or in part may be offered to the other JLA members. If no member bank is in a position to take the share, a new lender willing to take up the enhanced share can be inducted after obtaining NOC from existing member banks. Sub-committee will examine the requirement only if cost over-run is significant. 26. Ad-hoc facility- To meet the emergent credit requirement of the borrower, an upfront ad hoc facility of maximum 10% of the FB + NFB limits will be sanctioned at the time of sanction/ renewal of limits itself. Documentation will be executed for the exposure including the ad-hoc limit. Ad-hoc limits will be shared by the JLA members in proportion to their sharing pattern. In case of a small adhoc requirement, it can be availed of from one lender within the apportioned share of adhoc limits. Sub-committee will decide on the details and modalities. Sub-committee will examine the requirement if cost overrun is


159

significant. Existing member banks will take care of the additional requirements in proportion to their exposure. 27. Processing Time- It is necessary that lead bank and member bank(s)/institution(s) ensure that formal joint lending arrangement does not result in delay in credit delivery. The Sub-committee will make all efforts to tie up the Arrangement within 90 days of taking a credit decision regarding the proposal. Quite often non-availability of data or submission of incorrect data or non-receipt of required financial statements results in banks being not able to take decisions within a stipulated period of time. These data/statements include, among others, audited financial results for the last two / three 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: (i) For sanction of fresh/ enhanced credit facilities (including Export Credit):

Should not be more than 90 days from the date of applications/ proposals received together with required details / information supported by requisite financial and operating statements by the Lead Bank. a) Appraisal by the Lead Bank/Sub- committee - 35 days, b) Circulation of draft appraisal note by the Lead Bank after convening the JLA meeting - 10 days; and c) Sanction by the member Banks in JLA telescoping with Lead bank/sub-committee proposal - 45 days

(ii) For renewal of credit facilities at existing level (including Export Credit):

Should not be more than 45 days from the date of applications/proposals received together with required details/ information supported by requisite financial and operating statements by the Lead Bank.

a) Appraisal by the Lead Bank/Sub-committee - 20 days b) Circulation of draft appraisal note by the Lead Bank after convening the JLA meeting - 10 days; and c) Sanction by the member Banks in the Consortium- 15 days

In cases, where banks/JLA are unable to adhere to the recommended maximum time-frames for disposal of loan applications/proposals, borrowers will be free to bring in a new bank or new banks to form/to join a JLA/syndicate. Within fifteen days of sanction of any credit facility, such new banks should inform the existing JLA/regular bank/(s) and should not disburse the limit without obtaining ‘no objection’. In case such ‘no objection’ certificate is not received with next forty five


160

days, it would be deemed that existing JLA/regular bank/(s) have no objection to the new bank/(s) joining/forming JLA. 28. 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. Sub-committee will decide the same. 29. 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. .

a) As hitherto, terms and conditions for different categories of credit facilities, 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.

b) Equitable sharing of non-fund based business has to be ensured in a ratio similar to that for fund based exposure. Sub-committee will review the sharing of business as well as charges at periodical intervals, say, on monthly basis.

c) 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.

d) If the borrower has disagreement, he has freedom to substitute bank(s) or form another JLA altogether.

e) 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.

30. Asset Classification - a) Since the counterparty for all the lenders is the same, status of the borrower

across all lenders shall have to be 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 accounts 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.

b) The IRAC status becoming NPA with a lender (s) due to technical reasons, viz., non-submission of stock statements, non-review of facilities, etc. may not arise as the Sub-committee should be the focal agency to address issues of credit administration.

31. 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


161

recovery of these dues will be in compliance with Department of Financial Services, Circular number 23/3/2012-DRT dated April 23, 2012, as given in Annexure to JLA. 32. Documentation and Terms and Conditions of sanction-

a) The set of documents under the Joint Lending Arrangement will be designed and circulated by the Indian Banks’ Association (IBA). IBA approved JLA Documents should be adopted. The documentation process has to be completed within 15 days of acceptance of sanction.

b) The Sub-committee will provide a letter of in-principle sanction detailing the terms and conditions including indicative pricing to the borrowers and obtain their concurrence, upfront.

c) Minimum Rs. 5 lakhs to be recovered as the cost for each modification to minimise frequent revision of terms and other conditions - post sanction of facilities. Sub-committee will decide on the finalisation of the modifications within 15 days time after receipt of all required information from the borrower.

d) In case of any contentious issue, the decision will be taken by member banks having more than 50% share in the exposure to the borrower.

33. Financing outside the Consortium-

a) In the case of borrowers enjoying credit limits from one bank and/or from a JLA/ Multiple lenders, as the case may be, no other bank shall extend any additional banking facility, or extend bill limits, guarantees/acceptances, letters of credit, etc., without concurrence of existing single bank/ consortium/multiple bankers.

b) Similarly in the case of borrowers enjoying credit limits under multiple banking arrangement / consortium, no other bank shall open current account (or any other form of transacting account) without the concurrence of the existing lenders/ consortium. In case any bank opens such account without consent/NOC from the existing lenders, there should be a regulatory provision of penalty on such bank.

34. Disagreement among lenders in case of stressed ass ets- The decision of the majority of member banks with more than 50% exposure shall prevail. 35. Exit from Performing Asset- While a member-bank may be permitted not to take up its enhanced/incremental share, it cannot be permitted to leave the JLA before expiry of at least two years from the date of its joining the Consortium. 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 Consortium. However, the first right of refusal will be of the JLA members. 36. Exit from Stressed / Non-performing Asset- Members should not be ordinarily permitted to exit from stressed accounts. Exit may be allowed in exceptional cases, with the approval of all JLA members, at a hair-cut which should be decided by the member banks.


162

37. Information sharing- The existing monitoring system should be uniformly adopted by all banks/ FIs through periodical submission of

a) Monthly Select Operational Data (MSOD) b) Financial Follow-up Reports (FFR)

On 21st November, 2012, RBI has issued Circular no. RBI/2012-13/304 DBOD.BP.BC.No. 62/21.04.103/2012-13 vide which it has asked all the banks to strictly adhere to the instructions regarding sharing of information relating to credit, derivatives and unhedged foreign currency exposures among themselves and put in place an effective mechanism for information sharing by end-December 2012. Any sanction of fresh loans/ad hoc loans/renewal of loans to new/existing borrowers with effect from January 1, 2013 should be done only after obtaining/sharing necessary information. Non-adherence to the above instructions by banks would be viewed seriously by the Reserve Bank and they would be liable to action, including imposition of penalty, wherever considered appropriate. 38. Any breach of the covenants or discipline stipulated for JLA/ multiple lending will be treated as an event of default. Breaches will include:

- Any attempt by a borrower to raise funds without the knowledge of the existing lenders - Opening of any type of accounts or routing transactions through banks other than the existing lenders

- The Sub-committee will decide what constitutes an event of default

39. Forward Contracts & Derivatives- a) All PSBs would ensure that export Credit to any borrower under JLA will be

extended only by those Banks that have extended Working Capital Loans to the borrower. The lending banks will ensure that RBI’s guidelines in respect of pre-shipment credits are meticulously ad hered to.

b) All PSBs would ensure that they would share data relating to sanction of any Forward Contract and Derivatives with all member Banks in the JLA.

c) The Lead Bank of the JLA would obtain on quarterly basis, a certificate from the Chartered Accountants of the concerned corporate stating and certifying all the outstanding Forward and Derivative Contracts across the banking system and that the same has not exceeded the underlying exposure.

***


163

Annexure to JLA

No. 23/3/2012-DRT Ministry of Finance

Department of Financial Services Jeevan Deep Building,

Parliament Street, New Delhi, Dated the 23rd April, 2012

To The CACs/CEOs of all PSBs and FIs.

Subject: Sale of immovable secured assets though private treaty. Sir, I am directed to say that the Security Interest (Enforcement) Rules, 2002 provide for selling of the whole or any part of the immovable secured asset by obtaining quotations/ inviting tenders/by holding public auction or by private treaty. Instances have come to the notice of this Ministry where the provision of private treaty has been misused. It has further been noticed that the immovable secured assets have been sold through private treaty for an amount lower than the assessed value/ reserve price. 2. The matter has been considered in this Ministry and it is felt that alternative of private treaty should generally be resorted to only the other more transparent methods of obtaining quotations / inviting tenders or public auction etc. have not been successful. It would also be desirable to prescribe a minimum number of attempts of sale of immovable secured assets through other more transparent methods depending upon the assessed value / reserve price fixed for the secured assets. It is suggested that al least one such attempt is prescribed for assets with a value up to Rs. One crore and two such attempts for value more than Rs. one crore. However, the alternative of private treaty may be considered without resorting to other methods if all the dues of the bank/ banks in the case are being fully recovered. 3. Further, where the dues of the banks) are not being fully recovered and the amount recoverable through sale in private treaty is less than the assessed value/ reserve price, the approval of one level above the authority competent to enter into the private treaty should invariably be obtained. The banks may, if considered appropriate, constitute a committee of officers including one GM level officer from the Head/Corporate Office of the Bank to consider such issues. 3. You are requested to consider the above suggestion and appropriate instructions/ guidelines within this broad framework may be finalised and issued immediately to all Branches. Please confirm action taken accordingly.

Yours faithfully,

(V K Chopra)

Deputy Secretary to the Government of India Tele No. 23748738


164

Annexure 5 Framework for Revitalising Distressed Assets in the Economy – Guidelines on Joint Lenders’ Forum (JLF) and Corrective Action Pl an (CAP) RBI has issued detailed guidelines on formation of Joint Lenders’ Forum (JLF) and adoption of Corrective Action Plan (CAP) for operationalizing the above Framework.These guidelines will be applicable for lending under Consortium and Multiple Banking Arrangements (MBA) [except instructions in paragraphs 2.1, 7.1, 8 & 9, which will be applicable in all cases of lending], and should be read with RBIs latest Master Circular on ‘Income Recognition, Asset Classification and Provisioning Pertaining to Advances’ and any other instruction issued in this regard from time to time. 1. Formation of Joint Lenders’ Forum Before a loan account turnsinto a NPA, banks are required to identify incipient stress in the account by creating three sub-categories under the Special Mention Account (SMA) category as given in the table below: SMA Subcategories

Basis for classification

SMA-0 Principal or interest payment not overdue for more than 30 days but account showing signs of incipient stress*

SMA-1 Principal or interest payment overdue between 31-60 days SMA-2 Principal or interest payment overdue between 61-90 days

* SMA-0 Signs of Stress Illustrative list of signs of stress for categorisi ng an account as SMA-0: 1. Delay of 90 days or more in (a) submission of stock statement / other stipulated operating control statements or (b) credit monitoring or financial statements or (c) non-renewal of facilities based on audited financials. 2. Actual sales / operating profits falling short of projections accepted for loan sanction by 40% or more; or a single event of non-cooperation / prevention from conduct of stock audits by banks; or reduction of Drawing Power (DP) by 20% or more after a stock audit; or evidence of diversion of funds for unapproved purpose; or drop in internal risk rating by 2 or more notches in a single review. 3. Return of 3 or more cheques (or electronic debit instructions) issued by borrowers in 30 days on grounds of non-availability of balance/DP in the account or return of 3 or more bills / cheques discounted or sent under collection by the borrower. 4. Devolvement of Deferred Payment Guarantee (DPG) instalments or Letters of Credit (LCs) or invocation of Bank Guarantees (BGs) and its non-payment within 30 days. 5. Third request for extension of time either for creation or perfection of securities as against time specified in original sanction terms or for compliance with any other terms and conditions of sanction. 6. Increase in frequency of overdrafts in current accounts. 7. The borrower reporting stress in the business and financials. 8. Promoter(s) pledging/selling their shares in the borrower company due to financial stress.


165

RBI will setup set up a Central Repository of Information on Large Credits (CRILC) to collect, store, and disseminate credit data to lenders. Banks will be required to report credit information, including classification of an account as SMA to CRILC on all borrowers having aggregate fund-based and non-fund based exposure of Rs.50 million and above. As soon as an account is reported by any of the lenders to CRILC as SMA-2, banks should mandatorily form a committee to be called Joint Lenders’ Forum (JLF) if the aggregate exposure (AE) [fund based and non-fund based taken together] of lenders in that account is Rs 1000 million and above. Lenders also have the option of forming a JLF even when the AE in an account is less than Rs.1000 million and/or when the account is reported as SMA-0 or SMA-1. While the existing Consortium Arrangement for consortium accounts will serve as JLF with the Consortium Leader as convener, for accounts under Multiple Banking Arrangements (MBA), the lender with the highest AE will convene JLF at the earliest and facilitate exchange of credit information on the account. In case there are multiple consortium of lenders for a borrower (e.g. separate consortium for working capital and term loans), the lender with the highest AE will convene the JLF. It is possible that a borrower may request the lender/s, with substantiated grounds, for formation of a JLF on account of imminent stress. When such a request is received by a lender, the account should be reported to CRILC as SMA-0, and the lenders should also form the JLF immediately if the AE is Rs. 1000 million and above. It is, however, clarified that for the present, JLF formation is optional in other cases of SMA-0 reporting. All the lenders should formulate and sign an Agreement (which may be called JLF agreement) incorporating the broad rules for the functioning of the JLF. The Indian Banks’ Association (IBA) would prepare a Master JLF agreement and operational guidelines for JLF which could be adopted by all lenders. The JLF should explore the possibility of the borrower setting right the irregularities/weaknesses in the account. The JLF may invite representatives of the Central/State Government/Project authorities/Local authorities, if they have a role in the implementation of the project financed. While JLF formation and subsequent corrective actions will be mandatory in accounts having AE of Rs.1000 million and above, in other cases also the lenders will have to monitor the asset quality closely and take corrective action for effective resolution as deemed appropriate. 2 Corrective Action Plan (CAP) by JLF 2.1 The JLF may explore various options to resolve the stress in the account. The intention is not to encourage a particular resolution option, e.g. restructuring or recovery, but to arrive at an early and feasible solution to preserve the economic value of the underlying assets as well as the lenders’ loans. The options under Corrective Action Plan (CAP) by the JLF would generally include:


166

(a) Rectification - Obtaining a specific commitment from the borrower to regularize the account so that the account comes out of SMA status or does not slip into the NPA category. The commitment should be supported with identifiable cash flows within the required time period and without involving any loss or sacrifice on the part of the existing lenders. If the existing promoters are not in a position to bring in additional money or take any measures to regularize the account, the possibility of getting some other equity/strategic investors to the company may be explored by the JLF in consultation with the borrower. These measures are intended to turn-around the entity/company without any change in terms and conditions of the loan. The JLF may also consider providing need based additional finance to the borrower, if considered necessary, as part of the rectification process. However, it should be strictly ensured that additional financing is not provided with a view to ever-greening the account. (b) Restructuring - Consider the possibility of restructuring the account if it is prima facie viable and the borrower is not a willful defaulter, i.e., there is no diversion of funds, fraud or malfeasance, etc. At this stage, commitment from promoters for extending their personal guarantees along with their net worth statement supported by copies of legal titles to assets may be obtained along with a declaration that they would not undertake any transaction that would alienate assets without the permission of the JLF. Any deviation from the commitment by the borrowers affecting the security/recoverability of the loans may be treated as a valid factor for initiating recovery process. For this action to be sustainable, the lenders in the JLF may sign an Inter Creditor Agreement (ICA) and also require the borrower to sign the Debtor Creditor Agreement (DCA) which would provide the legal basis for any restructuring process. The formats used by the Corporate Debt Restructuring (CDR) mechanism for ICA and DCA could be considered, if necessary with appropriate changes. Further, a ‘stand still’ clause could be stipulated in the DCA to enable a smooth process of restructuring. The ‘stand-still’ clause does not mean that the borrower is precluded from making payments to the lenders. The ICA may also stipulate that both secured and unsecured creditors need to agree to the final resolution. (c) Recovery - Once the first two options at (a) and (b) above are seen as not feasible, due recovery process may be resorted to. The JLF may decide the best recovery process to be followed, among the various legal and other recovery options available, with a view to optimising the efforts and results. 2.2 The decisions agreed upon by a minimum of 75% of creditors by value and 60% of creditors by number in the JLF would be considered as the basis for proceeding with the restructuring of the account, and will be binding on all lenders under the terms of the ICA. However, if the JLF decides to proceed with recovery, the minimum criteria for binding decision, if any, under any relevant laws/Acts would be applicable. 2.3 The JLF is required to arrive at an agreement on the option to be adopted for CAP within 30 days from (i) the date of an account being reported as SMA-2 by one or more lender, or (ii) receipt of request from the borrower to form a JLF, with substantiated grounds, if it senses imminent stress. The JLF should sign off the detailed final CAP within the next 30 days from the date of arriving at such an agreement.


167

2.4 If the JLF decides on options 2.1 (a) or (b), but the account fails to perform as per the agreed terms under option (a) or (b), the JLF should initiate recovery under option 2.1 (c). 3. Restructuring Process 3.1 RBI’s extant prudential guidelines on restructuring of advances lay down detailed methodology and norms for restructuring of advances under sole banking as well as multiple/ consortium arrangements. Corporate Debt Restructuring (CDR) mechanism is an institutional framework for restructuring of multiple/ consortium advances of banks where even creditors who are not part of CDR system can join by signing transaction to transaction based agreements. 3.2 If the JLF decides restructuring of the account as CAP, it will have the option of either referring the account to CDR Cell after a decision to restructure is taken under para 2.1 as indicated above or restructure the same independent of the CDR mechanism. 3.3 Restructuring by JLF 3.3.1 If the JLF decides to restructure an account independent of the CDR mechanism, the JLF should carry out the detailed Techno-Economic Viability (TEV) study, and if found viable, finalise the restructuring package within 30 days from the date of signing off the final CAP as mentioned in paragraph 2.3 above. 3.3.2 For accounts with AE of less than Rs.5000 million, the above-mentioned restructuring package should be approved by the JLF and conveyed by the lenders to the borrower within the next 15 days for implementation. 3.3.3 For accounts with AE of Rs.5000 million and above, the above-mentioned TEV study and restructuring package will have to be subjected to an evaluation by an Independent Evaluation Committee (IEC) of experts fulfilling certain eligibility conditions. The IEC will look into the viability aspects after ensuring that the terms of restructuring are fair to the lenders. The IEC will be required to give their recommendation in these cases to the JLF within a period of 30 days. Thereafter, considering the views of IEC if the JLF decides to go ahead with the restructuring, the restructuring package including all terms and conditions as mutually agreed upon between the lenders and borrower, would have to be approved by all the lenders and communicated to the borrower within next 15 days for implementation. 3.3.4 Asset Classification benefit as applicable under the extant guidelines will accrue to such restructured accounts as if they were restructured under CDR mechanism. For this purpose, the asset classification of the account as on the date of formation of JLF will be taken into account. 3.3.5 The above-mentioned time limits are maximum permitted time periods and the JLF should try to arrive at a restructuring package as soon as possible in cases of simple restructuring.


168

3.3.6 Restructuring cases will be taken up by the JLF only in respect of assets reported as Standard, SMA or Sub-Standard by one or more lenders of the JLF. While generally no account classified as doubtful should be considered by the JLF for restructuring, in cases where a small portion of debt is doubtful i.e. the account is standard/sub-standard in the books of at least 90% of creditors (by value), the account may then be considered under JLF for restructuring. 3.3.7 Wilful defaulters will normally not be eligible for restructuring. However, the JLF may review the reasons for classification of the borrower as a wilful defaulter and satisfy itself that the borrower is in a position to rectify the wilful default. The decision to restructure such cases should however also have the approvals of the board/s of individual bank/s within the JLF who have classified the borrower as wilful defaulter. 3.3.8 The viability of the account should be determined by the JLF based on acceptable viability benchmarks determined by them. Illustratively, the parameters may include the Debt Equity Ratio, Debt Service Coverage Ratio, Liquidity/Current Ratio and the amount of provision required in lieu of the diminution in the fair value of the restructured advance, etc. Further, the JLF may consider the benchmarks for the viability parameters adopted by the CDR mechanism (as mentioned in Appendix to the circular No. DBOD.BP.BC.No.99/21.04.132/2012-13 dated May 30, 2013 on ‘Review of Prudential Guidelines on Restructuring of Advances by Banks and Financial Institutions’) and adopt the same with suitable adjustments taking into account the fact that different sectors of the economy have different performance indicators. 3.4 Restructuring Referred by the JLF to the CDR Ce ll 3.4.1 If the JLF decides to refer the account to CDR Cell after a decision to restructure is taken under para 2.1, the following procedure may be followed. 3.4.2 As the preliminary viability of account has already been decided by the JLF, CDR Cell should directly prepare the Techno-Economic Viability (TEV) study and restructuring plan in consultation with JLF within 30 days from the date of reference to it by the JLF. 3.4.3 For accounts with AE of less than Rs.5000 million, the above-mentioned restructuring package should be submitted to CDR Empowered Group (EG) for approval. Under extant instructions, CDR EG can approve or suggest modifications but ensure that a final decision is taken within a total period of 90 days, which can be extended up to a maximum of 180 days from the date of reference to CDR Cell. However, the cases referred to CDR Cell by JLF will have to be finally decided by the CDR EG within the next 30 days. If approved by CDR EG, the restructuring package should be approved by all lenders and conveyed to the borrower within the next 30 days for implementation. 3.4.4 For accounts with AE of Rs.5000 million and above, the TEV study and restructuring package prepared by CDR Cell will have to be subjected to an evaluation by an Independent Evaluation Committee (IEC) of experts. As stated in


169

paragraph 3.3.3, composition and other details of the IEC would be communicated separately by IBA to banks. The IEC will look into the viability aspects after ensuring that the terms of restructuring are fair to the lenders. The IEC will be required to give their recommendation in these aspects to the CDR Cell under advice to JLF within a period of 30 days. Thereafter, considering the views of IEC if the JLF decides to go ahead with the restructuring, the same should be communicated to CDR Cell and CDR Cell should submit the restructuring package to CDR EG within a total period of 7 days from receiving the views of IEC. Thereafter, CDR EG should decide on the approval/modification/rejection within the next 30 days. If approved by CDR EG, the restructuring package should be approved by all lenders and conveyed to the borrower within the next 30 days for implementation. 4. Other Issues/Conditions Relating to Restructurin g by JLF/CDR Cell 4.1 Both under JLF and CDR mechanism, the restructuring package should also stipulate the timeline during which certain viability milestones (e.g. improvement in certain financial ratios after a period of time, say, 6 months or 1 year and so on) would be achieved. The JLF must periodically review the account for achievement/non-achievement of milestones and should consider initiating suitable measures including recovery measures as deemed appropriate. 4.2 Restructuring whether under JLF or CDR is to be completed within the specified time periods. The JLF and CDR Cell should optimally utilise the specified time periods so that the aggregate time limit is not breached under any mode of restructuring. If the JLF/CDR takes a shorter time for an activity as against the prescribed limit, then it can have the discretion to utilise the saved time for other activities provided the aggregate time limit is not breached. 4.3 The general principle of restructuring should be that the shareholders bear the first loss rather than the debt holders. With this principle in view and also to ensure more ‘skin in the game’ of promoters, JLF/CDR may consider the following options when a loan is restructured: • Possibility of transferring equity of the company by promoters to the lenders to

compensate for their sacrifices; • Promoters infusing more equity into their companies; • Transfer of the promoters’ holdings to a security trustee or an escrow

arrangement till turnaround of company. This will enable a change in management control, should lenders favour it.

4.4 In case a borrower has undertaken diversification or expansion of the activities which has resulted in the stress on the core-business of the group, a clause for sale of non-core assets or other assets may be stipulated as a condition for restructuring the account, if under the TEV study the account is likely to become viable on hivingoff of non-core activities and other assets. 4.5 For restructuring of dues in respect of listed companies, lenders may be abinitio compensated for their loss/sacrifice (diminution in fair value of account in net present value terms) by way of issuance of equities of the company upfront, subject to the extant regulations and statutory requirements. In such cases, the restructuring


170

agreement shall not incorporate any right of recompense clause. However, if the lenders’ sacrifice is not fully compensated by way of issuance of equities, the right of recompense clause may be incorporated to the extent of shortfall. For unlisted companies, the JLF will have option of either getting equities issued or incorporate suitable ‘right to recompense’ clause. 4.6 If acquisition of equity shares, as indicated in paragraph 4.5 above, results in exceeding the extant regulatory Capital Market Exposure (CME) limit, the same will not be considered as a breach of regulatory limit. However, this will require reporting to RBI and disclosure by banks in the Notes to Accounts in Annual Financial Statements. 4.7 In order to distinguish the differential security interest available to secured lenders, partially secured lenders and unsecured lenders, the JLF/CDR could consider various options like: · Prior agreement in the ICA among the above classes of lenders regarding Repayments, say, as per an agreed waterfall mechanism; 1. A structured agreement stipulating priority of secured creditors; 2. Appropriation of repayment proceeds among secured, partially secured and

unsecured lenders in certain pre-agreed proportion. The above is only an illustrative list and the JLF may decide on a mutually agreed option. It also needs to be emphasised that while one bank may have a better security interest when it comes to one borrower, the case may be vice versa in the case of another borrower. So, it would be beneficial if lenders appreciate the concerns of fellow lenders and arrive at a mutually agreed option with a view to preserving the economic value of assets. Once an option is agreed upon, the bank having the largest exposure may take the lead in ensuring distribution according to agreed terms once the restructuring package is implemented. 4.8 As regards prudential norms and operational details, RBI’s guidelines on CDR Mechanism, including OTS, will be applicable to the extent that they are not inconsistent with these guidelines. 5. Prudential Norms on Asset Classification and Pro visioning 5.1 While a restructuring proposal is under consideration by the JLF/CDR, the usual asset classification norm would continue to apply. The process of re-classification of an asset should not stop merely because restructuring proposal is under consideration by the JLF/CDR. 5.2 However, as an incentive for quick implementation of a restructuring package, the special asset classification benefit on restructuring of accounts as per extant instructions would be available for accounts undertaken for restructuring under these guidelines, subject to adherence to the overall timeframe for approval of restructuring package detailed in paragraphs 3.3 and 3.4 above and implementation of the approved package within 90 days from the date of approval. The asset classification status as on the date of formation of JLF would be the relevant date to decide the asset classification status of the account after implementation of the final restructuring package. As advised to banks vide RBI circular dated May 30, 2013, the special asset classification benefit as above will however be withdrawn for all


171

restructurings with effect from April 1, 2015 with the exception of provisions related to changes in Date of Commencement of Commercial Operations (DCCO) in respect of infrastructure and non-infrastructure project loans. 5.3 As a measure to ensure adherence to the proposals made in these guidelines as also to impose disincentives on borrowers for not maintaining credit discipline, accelerated provisioning norms (as detailed in paragraph 6 below) are being introduced. 6. Accelerated Provisioning 6.1 In cases where banks fail to report SMA status of the accounts to CRILC or resort to methods with the intent to conceal the actual status of the accounts or evergreen the account, banks will be subjected to accelerated provisioning for these accounts and/or other supervisory actions as deemed appropriate by RBI. The current provisioning requirement and the revised accelerated provisioning in respect of such non performing accounts are as under: Asset Classification

Period as NPA Current provisioning (%)

Revised accelerated provisioning (%)

Sub- standard (secured)

Up to 6 months 15 No change 6 months to 1 year

15 25

Sub-standard (unsecured abinitio)

Up to 6 months 25 (other than infrastructure loans)

25

20 (infrastructure loans) 6 months to 1 year

25 (other than infrastructure loans)

40

20 (infrastructure loans) Doubtful I 25 (secured portion) 40 (secured portion)

100 (unsecured portion) 100(unsecured portion)

Doubtful II 3rd & 4th year 40 (secured portion)

100 for both secured and unsecured portions 100 (unsecured portion)

Doubtful III 5th year onwards

100 100

6.2 Further, any of the lenders who have agreed to the restructuring decision under the CAP by JLF and is a signatory to the ICA and DCA, but changes their stance later on, or delays/refuses to implement the package, will also be subjected to accelerated provisioning requirement as indicated at para 6.1 above, on their exposure to this borrower i.e., if it is classified as an NPA. If the account is standard in those lenders’ books, the provisioning requirement would be 5%. Further, any such backtracking by a lender might attract negative supervisory view during Supervisory Review and Evaluation Process. 6.3 Presently, asset classification is based on record of recovery at individual banks and provisioning is based on asset classification status at the level of each bank. However, if lenders fail to convene the JLF or fail to agree upon a common CAP within the stipulated time frame, the account will be subjected to accelerated provisioning as indicated at para 6.1 above, if it is classified as an NPA. If the


172

account is standard in those lenders’ books, the provisioning requirement would be 5%. 6.4 If an escrow maintaining bank under JLF/CDR mechanism does not appropriate proceeds of repayment by the borrower among the lenders as per agreed terms resulting into down gradation of asset classification of the account in books of other lenders, the account with the escrow maintaining bank will attract the asset classification which is lowest among the lending member banks, and corresponding provisioning requirement. 7. Wilful Defaulters and Non-Cooperative Borrowers 7.1 In addition to the existing instructions regarding treatment of Wilful Defaulters are contained in RBI Master Circular DBOD No. CID.BC. 3 /20.16.003/2013-14 dated July 1, 2013 on ‘Wilful Defaulters’ and with a view to ensuring better corporate governance structure in companies and ensuring accountability of independent/professional directors, promoters, auditors, etc. henceforth, the following prudential measures will be applicable: (a) The provisioning in respect of existing loans/exposures of banks to companies having director/s (other than nominee directors of government/financial institutions brought on board at the time of distress), whose name/s appear more than once in the list of wilful defaulters, will be 5% in cases of standard accounts; if such account is classified as NPA, it will attract accelerated provisioning as indicated at para 6.1 above. This is a prudential measure since the expected losses on exposures to such borrowers are likely to be higher. No additional facilities should be granted by any bank/FI to the listed wilful defaulters. (b) With a view to discouraging borrowers/defaulters from being unreasonable and non-cooperative with lenders in their bonafide resolution/recovery efforts, banks may classify such borrowers as non-cooperative borrowers, after giving them due notice if satisfactory clarifications are not furnished. Banks will be required to report classification of such borrowers to CRILC. Further, banks will be required to make higher/accelerated provisioning in respect of new loans/exposures to such borrowers as also new loans/exposures to any other company promoted by such promoters/ directors or to a company on whose board any of the promoter / directors of this non cooperative borrower is a director. The provisioning applicable in such cases will be at the rate of 5% if it is a standard account and accelerated provisioning as per para 6.1 above, if it is an NPA. This is a prudential measure since the expected losses on exposures to such non-cooperative borrowers are likely to be higher. 8. Dissemination of Information 8.1 In order to make the current system of banks/FIs reporting names of suit filed accounts and non-suit filed accounts of Wilful Defaulters and its availability to the banks by CICs/RBI as current as possible, banks are advised to forward data on wilful defaulters to the CICs/Reserve Bank at the earliest but not later than a month from the reporting date.


173

8.2 In case any falsification of accounts on the part of the borrowers is observed by the banks / FIs, and if it is observed that the auditors were negligent or deficient in conducting the audit, banks should lodge a formal complaint against the auditors of the borrowers with the Institute of Chartered Accountants of India (ICAI) to enable the ICAI to examine and fix accountability of the auditors. Pending disciplinary action by ICAI, the complaints may also be forwarded to the RBI (Department of Banking Supervision, Central Office) and IBA for records. IBA would circulate the names of the CA firms against whom many complaints have been received amongst all banks who should consider this aspect before assigning any work to them. RBI would also share such information with other financial sector regulators/Ministry of Corporate Affairs (MCA)/Comptroller and Auditor General (CAG). 8.3 Banks may seek explanation from advocates who wrongly certify as to clear legal titles in respect of assets or valuers who overstate the security value, by negligence or connivance, and if no reply/satisfactory clarification is received from them within one month, they may report their names to IBA. The IBA may circulate the names of such advocates/valuers among its members for consideration before availing of their services in future. The IBA would create a central registry for this purpose. These guidelines will be effective from April 1, 2014. CO credit Monitoring Cell (CMC) is formulating the necessary policy guidelines with regard to reporting of data to CRILC, formation of joint lenders forum and corrective action plan and placing for approval by Board. The same shall be treated as part of the Loan Policy.


174

Annexure 6 Framework for Revitalising Distressed Assets in the Economy - Refinancing of Project Loans and Other Regulatory Measures RBI vide their circular DBOD.BP.BC.No.98 / 21.04.132 / 2013-14 dated February 26, 2014 issued detailed guidelines on the subject of refinancing of project loans , sale of NPAs by banks and other regulatory measures as under : 1 Refinancing of Project Loans In terms of our circular DBOD.BP.BC.No.37/21.04.132/2008-09 dated August 27, 2008 on ‘Prudential Guidelines on Restructuring of Advances by Banks’, a restructured account is one where the bank, for economic or legal reasons relating to the borrower's financial difficulty, grants to the borrower concessions that the bank would not otherwise consider. Restructuring would normally involve modification of terms of the advances/securities, which would generally include, among others, alteration of repayment period/repayable amount/ the amount of instalments/rate of interest (due to reasons other than competitive reasons). Thus, any change in repayment schedule of a loan will render it as restructured account. Further, in terms of RBI’s circular DBOD.No.BP.BC.144/21.04.048-2000 dated February 29, 2000 on ‘Income Recognition, Asset Classification, Provisioning and other related matters and Capital Adequacy Standards - Takeout Finance’, banks can refinance their existing infrastructure project loans by entering into take-out financing agreements with any financial institution on a pre-determined basis. If there is no pre-determined agreement, a standard account in the books of a bank can still be taken over by other banks/FIs, subject to RBI’s guidelines on ‘Transfer of Borrowal Accounts from one Bank to Another’ issued vide circular DBOD.No.BP.BC-104/21.04.048/2011-12 dated May 10, 2012. In partial modification to the above-mentioned circulars, now RBI has advised that if banks refinance any existing infrastructure and other project loans by way of take-out financing, even without a pre-determined agreement with other banks / FIs, and fix a longer repayment period, the same would not be considered as restructuring if the following conditions are satisfied:

• Such loans should be ‘standard’ in the books of the existing banks, and should have not been restructured in the past.

• Such loans should be substantially taken over (more than 50% of the outstanding loan by value) from the existing financing banks/Financial institutions.

• The repayment period should be fixed by taking into account the life cycle of the project and cash flows from the project.

2. Bank Loans for Financing Promoters’ Contribution In terms of extant instructions on Bank Loans for Financing Promoters Contribution as consolidated in RBI’s Master Circular DBOD.No.Dir.BC.14 /13.03.00 /2013-14 dated July 1, 2013 on ‘Loans and Advances – Statutory and Other Restrictions’, the promoters' contribution towards the equity capital of a company should come from their own resources and banks should not normally grant advances to take up shares of other companies.


175

Now RBI has decided that banks can extend finance to ‘specialized’ entities established for acquisition of troubled companies subject to the general guidelines applicable to advances against shares/debentures/bonds as contained in the above-mentioned Master Circular and other regulatory and statutory exposure limits. The bank’s should, however, assess the risks associated with such financing and ensure that these entities are adequately capitalized, and debt equity ratio for such entity is not more than 3:1.

In this connection, a ‘specialized’ entity will be a body corporate exclusively set up for the purpose of taking over and turning around troubled companies and promoted by individuals or/and institutional promoters (including Government) having professional expertise in turning around ‘troubled companies’ and eligible to make investments in the industry/segment to which the target asset belonged. 3. Credit Risk Management 1. Bank should strictly follow the credit risk management guidelines contained in RBI’s

circular DBOD.No.BP.(SC).BC.98/21.04.103/99 dated October 7, 1999 on ‘Risk Management Systems in Banks’ and DBOD.No.BP.520/21.04.103/2002-03 dated October 12, 2002 on ‘Guidance Notes on Management of Credit Risk and Market Risk’.

2. RBI has reiterated that Bank should carry out independent and objective credit

appraisal in all cases and must not depend on credit appraisal reports prepared by outside consultants, especially the in-house consultants of the borrowing entity.

3. Banks should carry out sensitivity tests/scenario analysis, especially for infrastructure

projects, which should inter alia include project delays and cost overruns. This will aid in taking a view on viability of the project at the time of deciding Corrective Action Plan (CAP) as mentioned in paragraph 3 of RBI’s circular DBOD.BP.BC.No.97/21.04.132/2013-14 dated February 26, 2014 on ‘Framework for Revitalising Distressed Assets in the Economy – Guidelines on Joint Lenders’ Forum (JLF) and Corrective Action Plan (CAP)’.

4. Banks should ascertain the source and quality of equity capital brought in by the

promoters /shareholders. Multiple leveraging, especially, in infrastructure projects, is a matter of concern as it effectively camouflages the financial ratios such as Debt/Equity ratio, leading to adverse selection of the borrowers. Therefore, lenders should ensure at the time of credit appraisal that debt of the parent company is not infused as equity capital of the subsidiary/SPV.

5. Ministry of Corporate Affairs had introduced the concept of a Director Identification Number (DIN) with the insertion of Sections 266A to 266G of Companies (Amendment) Act, 2006. Further, in terms of paragraph 5.4 of RBI’s Master Circular on Willful Defaulters dated July 1, 2013, in order to ensure that directors are correctly identified and in no case, persons whose names appear to be similar to the names of directors appearing in the list of willful defaulters, are wrongfully denied credit facilities on such grounds, banks have been advised to include the Director Identification Number (DIN) as one of the fields in the data submitted by them to Reserve Bank of India/Credit Information Companies.


176

6. RBI has further reiterated that while carrying out the credit appraisal, banks should verify as to whether the names of any of the directors of the companies appear in the list of defaulters/ willful defaulters by way of reference to DIN/PAN etc. Further, in case of any doubt arising on account of identical names, banks should use independent sources for confirmation of the identity of directors rather than seeking declaration from the borrowing company.

7 With a view to monitoring the end-use of funds, a specific certification from the

borrowers’ auditors regarding diversion / siphoning of funds by the borrower may be obtained by awarding a separate mandate to the auditors for the purpose. To facilitate such certification by the auditors appropriate covenants in the loan agreements are to be incorporated.

8 In addition to the above, with a view to ensuring proper end-use of funds and

preventing diversion/siphoning of funds by the borrowers, banks could consider engaging their own auditors for such specific certification purpose without relying on certification given by borrower’s auditors. However, this cannot substitute bank’s basic minimum own diligence in the matter.

4. Reinforcement of Regulatory Instructions In terms of RBI circular DBOD.No.CAS(COD)BC.142/WGCC-80 December 8, 1980 on ‘Report of the Working Group to Review the System of Cash Credit – Implementation’, banks were advised that before opening current accounts/sanctioning post sale limits, they should obtain the concurrence of the main bankers and/or the banks which have sanctioned inventory limits. Such accounts already opened may also be reviewed in the light of these instructions and appropriate action should be taken. Further, in terms of Master Circular DBOD.No.Dir.BC.12/13.03.00/2013-14 dated July 1, 2013 on ‘Guarantees and Co-Acceptances’, bank should refrain from issuing guarantees on behalf of customers who do not enjoy credit facilities with them.

5 Registration of Transactions with CERSAI The Government mandate to register all types of mortgages with CERSAI will have to be strictly followed by banks. Transactions relating to securitization and reconstruction of financial assets and those relating to mortgage by deposit of title deeds to secure any loan or advances granted by banks and financial institutions, as defined under the SARFAESI Act, are to be registered in the Central Registry. 6. Board Oversight RBI has advised the Boards of banks to take all necessary steps to arrest the deteriorating asset quality in their books and should focus on improving the credit risk management system. For early recognition of problems in asset quality RBI has advised that the lenders has to be proactive and make use of CRILC as soon as it becomes functional.

A policy for timely submission of credit information to CRILC and accessing information there from, prompt formation of Joint Lenders’ Forums (JLFs), monitoring the progress of JLFs and adoption of Corrective Action Plans (CAPs), etc. is to be put in place . The policy should be periodically reviewed. The willful defaulters or/and non-cooperative


177

borrowers are to be properly and timely classified and such accounts are to be periodically reviewed.

Credit Monitoring Cell ( CMC ) is placing a Policy note on the above and on approval by Board, the same will be treated as part of this loan policy.


178

Annexure 7 AAAA

Name of the Branch :

STOCK/BOOKDEBTS/RECEIVABLES AUDIT REPORT Stock Audit Conducted from

COMPANY PROFILE: Name and address of the borrower

company

Nature of Business Type of goods Steps involved in manufacture / Process

together with major inputs / outputs at every stage

Installed capacity a. Capacity Utilisation as on the date of

visit. b. Average capacity utilistion during the last financial year. c. Auditors comments, if any

Sole / Multiple / Consortium Date of Commencement and Date of

completion

Audit Based on the Stock / Book Debts declared by the Borrower in their statement as at

10. Sanctioning Authority Sanction Reference No and date

OUTSTANDING BALANCES

1. Indian Bank Amt in Lakhs Sl No Nature of facility Limit Outstanding

Balance as on

2. Bank Amt in Lakhs Sl No Nature of facility Limit Outstanding

Balance as on

3. Bank Amt in Lakhs Sl No Nature of facility Limit Outstanding

Balance as on


179

TOTAL WORKING CAPITAL LOAN OUSTANDING LAKHS

B. PHYSICAL VERIFICATION OF STOCK: 1. Description of stock declared (as

per the latest stock statement as on ………)

Opening stock as on Purchases / Production Used/Sold Closing Stock as on

(kgs) (Rs in Lakhs)

Notes: i) Furnish details both in terms of

quantity and value

ii) Mention major items of Raw Materials (RM), Work in progress (WIP), Finished Goods (FG)

iii) The stock should be valued at cost price or market value, whichever is less

iv) Indicate whether the stock is normally used by the type of manufacture / business carried on by the borrower

2 .Bifurcation of closing stock at various locations / godowns as declared by the borrower (including lying with the processing / outstation godowns. Goods in transits, if any). Where the borrower is having different units/division, furnish the units by / division wise details along with their full address of the location of the premises where the stock are held.

Rs. in Lakhs Quantity in Kgs Particulars Site No (Factory,

processing Unit and Stock in transit)

Site No Consignment Stock

Total

Qty Value Qty Value Qty Value Address and Location of various units: Sl No Name of the Unit Address of the

Unit Job


180

3.Comments on Quantity & Value of Goods:

(Here specify the major items which constitute more than 5% of total value of stocks, if the number / variety of such materials is innumerable)

4. Details of goods, if any received on credit

a. Goods received under LC b. Goods received under BG c. Goods on consignment basis d. Goods on credit purchase e. Any other Stock not paid for

Total

Rs. in Lakhs

5. Whether any stock is received ‘for

processing (job work)? If yes, i) Whether such goods are

separately accounted? ii) Confirm that such stocks

are not included in the stock statements.

6. Stocks physically verified (Closing Stock details on the date of inspection

enclosed separately vide Annexure ) Location of Godown

Inventory raw material

As percentage to total

Finished Goods

As percentage to Total

6. (A) Methodology adopted for physical verification by the Auditor/s (no of bins selected vis-à-vis total number of bins verified)

7. Comments on value of old / obsolete goods non moving stocks


181

sales returns and % of such stocks to the total stocks, if any

8. As per information gathered and to the best of our knowledge, the following

stocks to be further excluded from the stock declared above (This shall include old / obsolete and slow moving goods, goods in transit, goods received from others for processing / job work, goods belonging to sister concerns etc)

Description Quantity Value Rs in Lakhs Reasons for

exclusion C.SYSTEM OF INVENTORY CONTROL:

a. Observation on the quality of stock and include method of storage, safety and security, protection from rain, sun, moisture, dust, pilferage etc)

b. Observation on market condition Demand / Supply position, future prospects, Marketing arrangement, marketability/ Salability of the stock.

c. Whether consumption of Raw materials is commensurate with production activity and other production expenses.

d. Observation regarding movement of stock and holding level of Raw materials, work in process and finished goods

e. Comments of holding level of inventory by Stock and holding level of Raw materials – the borrower company vis-à-vis the Industry

f. Risk perception and suggestions for risk management.


182

g. Comments on Inventory control and management system vogue, comments regarding maintenance of books of accounts, bin cards, procedure adopted for deployment of stocks (FIFO/LIFO) valuation of stock in process and finished goods

h. Brief comments on description of production activity whether there were any special events like break-down in production activity, loss of materials and other relevant issues, which are relevant to the financing bank.

i. Furnish the status of reconciliation between:

a. Ground Balances and book balances

b. Ground Balances and the latest stock

D Method of closing of Raw Materials, WIP and Finis hed Goods:

1. Comment on valuation method adopted by the company. Valuation is done on the basis appropriate to business carried on by the company, applicable accounting standards are followed. Accounting standards followed should be specified

2. A confirmation by the auditor to the effect that the basis / basis of valuation is/

same as that those was used the previous year except as set below: Class of Inventory Basis of this year Valuation of

previous year Effect on change in the basis of valuation


183

Format for adhoc Limits Annexure 8 A

CREDIT DIVISION DATE:

Request for considering adhoc / confirmation of excess / one time request / Modification of sanction terms of securities / Finer rate of interest /

Permission for issuing NOC / Concessions / waiver of charges / Funds clearance etc.

Advance falls under powers of: 1. Name & address of the

applicant

2. Line of activity 3. Constitution 4. Customer Since 5. Date of incorporation 6. Names of directors/partners

and their net worth (of above, directors whose personal Guarantee will be offered)

7. Name of Guarantors and their Worth

8. Group 9. Details of Group companies

Banking with us, if any

10. Whether the names of group Company/borrower/directors/ Partners appear in defaulters’ List/Caution list of RBI/ECGC

11. Existing financing pattern and asset classification with the financing institutions

12. External Credit Rating as on Ram Credit rating as onn

13. Asset clalssification as on 14. a) Date of last sanction/

renewal

15. b) Reasons for non renewal, if not renewed

16. Key Financial indicators


184

17. Facility

Limit

Margin

Rate of Interest

DL Balance as on

Excess

18. Total Exposure of the Group FB NFB 19. Details of securities 20. Whether all sanction terms are

Complied with

21. Any specific conditions / Stipulations made on the Account by MC/CMD/ED/GM Or any other competent Authority

22. Value of the account 23.

Adverse/Major remarks Pointed out in LFAR/RBI/ Internal Inspection reports/ Stock Audit etc. and steps Taken for rectification of the Same with definite time frame

24. Present Request (if term loan for fresh projects, Enclose copy of appraisal note of Lead financial institution)

25. Any concession envisaged in Interest rate/service charges

26. Justification for the request (with attachments like rating Format for finer rate of interest, Cost benefit analysis for Concessions etc.)

27. Deviations, if any with laid Down norsm

28. Brief Appraisal ( to include major risk factors)

29. Industry: 30. Management: 31. Technical 32. Financial

(to discuss critical financial indicators With copies of 3 years Balance Sheet, if Existing entity)


185

33. Market 34. Branch Manager’s recommendations

(with discussions on competion from banks/institutions, benefits which will accrue to the bank, value of the connection, introduction to our bank by, etc.

35. Circle Head’s recommendations: (specify whether the names of borrower/ Directors/partners apprar in defaulters’ List/Caution list)

Remarks on the conduct of the account a. Date of last excess allowed b. Date of adjustment / expected date of adjustment c. Other features (operations, submission of stock statements etc.

Details adhoc limits/Limits for which clearance is sought/confirmation required Facility Nature of

adhoc Limit/Purpose

Limit Margin Interest Period

Securities: Terms and conditions: (The request letter from the company/borrower to be enclosed: ) Branch Manager/Zonal Manager Financials [Rs.in crores]

Last 3 years Current Year (Estimate)

Next Year (Projection) (Audited)

I year (Audited)

II year III year

(Estimates) (Audited)

Sales Other Income Operating Profit Net Profit


186

Cash Profit Paid up Capital TNW Investment in Group accounts

Loans to Group accounts

Long Terms Borrowings

Short Term Borrowings

Fixed Assets Non Current Assets

Current Assets NWC NFB Limits TOL/ TNW with NFB

TOL/TNW without NFB


187

Annexure 9 AAAA

CORPORATE OFFICE, CREDIT DIVISION

Review of Term Loan

1. Note Date 2. Note Number 3. Note to 4. Purpose 5. Name of the Company 6. Address of the Company 7. Names of Directors 8. Sector / Activity 9. Customer since 10. Date of sanction

11. Financing pattern Exclusive / Consortium / MBA

In case of Consortium / MBA : Name of the Leader , Coordinating Bank (in the case of MBA) , members & their share in % terms Our share in Term Loan

10 Asset Classification as on 11 RAM Rating – last year

Current year

12 External Rating by Credit Rating Agencies and risk weight

13. Position of account as on Rs. Crores

Facility Limit DL Balance overdue if

any Overdue since

ROI

14 Position of account with other Banks/FIs Facility FB NFB ROI Asset classification


188

15. Position of Group Accounts:

Name of the company Facilities Balance Excess / OD if any FB NFB FB NFB FB NFB

16. Brief details about the Concessions allowed to the Borrower / Group: 17. Security

Nature and value of security (as stipulated in last sanction): (Rs. in Crores) Nature of security

Description

Value

Valuation date

Date of creation of EM

Date of

Filing of

charge with ROC

Nature of charge

(Paripassu / 1st /

2nd / exclusive

)

Whether held or

not

Primary: Collateral:

18. Documentation and compliance to Sanction Terms & Conditions:

Nature of Irregularity Pending since Likely time frame for rectification

a. Documentation / Inspection irregularities

b. Terms and conditions of last sanction which are yet to be complied with

c. Non obtention of securities stipulated in last sanction

19. Post sanction follows up:

Pending Inspection irregularities/MC/CMD/ED Credit audit AFI/LFAR direction and Status :


189

20. Brief financial indicators

Audited Audited Projection Actual Estimates

Year Ending - >

Paid up Capital Reserves & Surplus Intangible Assets Tangible Net Worth Long Term Liabilities Capital Employed Net Block Investments Non Current Assets Net Working Capital Current Assets Current Liabilities Current Ratio Debt Equity Ratio TOL / TNW Net Sales Other Income Net Profit before tax Net Profit after tax Depreciation Cash accruals DSCR 22. Details of the Term Loan sanctioned:

Date of documentation Date of 1st disbursement Commercial Operation Date as per original sanction

23. The funds mobilised and expended vis-à-vis, the project cost and means of

funding as on a recent date certified by the Chartered Accountant of the company to be furnished below:

Particulars Cost as per the proposal

Expended actual as on


190

Particulars Means as per

the proposal Mobilised

actual as on

24. Status of implementation(physical) as per LIE/approved Engineer’s report.

25. Observations of Corporate Office

Asst General Manager Deputy General Manager

General Manager