loan & npa management policy 2021-22
TRANSCRIPT
Circular No. 06 /2021-22 Dated 01.04.2021
All Offices/ Branches of Jharkhand Rajya Gramin Bank
LOAN & NPA MANAGEMENT POLICY 2021-22 Please refer to our circular no. 04/2020-21 dated 01.04.2020 on Credit Policy 2020-21. The
modified policy has been approved for financial year 2021-22 by the Bank’s Board in its meeting
dated 19.03.2021 as “Loan & NPA Management Policy”
2. Other new policy on “Membership of all 4 Credit Information Company’s (CIC) Reports
Policy” and “Policy on system generated NPAs” have also been approved in Board meeting
dated 19.03.2021. The copy of both policy is enclosed.
3. Please arrange to bring the contents of the Circular/ Policy to the notice of all concerned.
This Circular should be kept in Bank Document, duly entered in Register, after being seen by
all staff.
CHAIRMAN Encl: As above
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JHARKHAND RAJYA GRAMIN BANK
LOAN & NPA MANAGEMENT POLICY
IN
INTRODUCTION
(A) PREAMBLE:
Credit Policy is an embodiment of Banks approach to sanctioning, managing and
monitoring Credit risk and to make the systems and controls effective, guided by high
ethical standards of commercial prudence and business practices and subject to review
by the Board from time to time.
This Policy provides a broad framework for management of loan portfolio putting
emphasis on creation of Products and Services as well as asset quality for fulfilment of
Banks vision.
The provisions of the Credit Policy are applicable to operations of the Bank and includes
Prudential Exposure Norms, Creation of New Loan Products, Income Recognition and
Asset Classification Norms, parameters set for Appraisal, Security, Follow-up,
Coverage of Risk Factors, NPA Management Policy, Write off policy and Early Warning
Signals(EWS).
This Policy deals with broad guidelines and approach to administration of the Credit
portfolio, Bank may from time to time need to relax or waive some of the prescribed
norms based on sound commercial considerations as Special Cases as per Delegation
of power to permit such deviations.
(B) STRUCTURE OF CREDIT PORTFOLIO:
Advances to Agriculture Sector:- Agriculture is the most important activity of Rural
India and our Bank aims at providing diverse loan products under Direct and Indirect
Agriculture like KCC, Irrigation Projects, Farming Machineries/Equipment, Allied
Agricultural Activities, Plantation & Horticulture, Agriculture Clinic , Food Processing &
Agro-Based Industries and all other schemes/activities under Farm Sector as
prescribed by Central / State Government, RBI, NABARD, and other regulatory bodies.
With large number of branches in rural and semi-urban areas, Bank is involved from
inception in disbursal of agricultural credit. However, with changing demography and
lifestyles in rural India, a strong need for providing comprehensive financial services
encompassing savings, credit, remittance, insurance and pension products to the rural
populace, has been felt by the Bank. Among other things, the credit requirements for
not only farming activity, but also for those relating to Agro-based industrial activity,
trade and services and for personal consumption needs of the target group are
addressed by the Bank.
All products offered by the Bank for agriculture segment are in alignment with rules
by and large prescribed by the regulator, NABARD and the State Level Bankers’
Committee (SLBC).
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Bank has recognized that setting up of high value/ hi-tech agricultural projects has been
engaging the attention of entrepreneurs and projects covering Agro / food-processing,
biotechnology, agri-value chain, agri-marketing infrastructure etc. With a view to
responding to emerging opportunities, the Bank extends support in a planned way to
these avenues. Further, Bank has also been identifying the thrust areas for short-term
business opportunities and devising area/activity specific loan products.
Advances to SME Segment: - SME Segment plays a significant role in economic
development of the country generating Self Employment, Job Opportunities and
Incremental Income. Our Bank aims at providing diverse loan products under this
segment under Small Business Finance, Transport Operators, Small Scale Industries,
Service Sector etc. under prescribed rules of RBI, NABARD, Central/State Government
and other regulatory bodies.
Advances to Personal Segment: - Our Bank aims at providing diverse loan products to
meet people’s credit needs in the retail sector specially by way of Personal Loan (PTL),
Auto Loans (Car Loan), Housing Loan, Education Loans, Gold Loan, Loans against
Bank’s Fixed Deposits / Recurring Deposits, NSC/KVPs, Insurance Policies (not linked
to Equity / Unit / Market) etc. The Bank’s extensive network in the state, computerized
operations and a large customer base are significant strengths that enable leveraging
so as to garner a higher share of the available retail market. In view of the Bank’s thrust
on Personal Segment Loans and the steady and significant growth witnessed, the Bank
will periodically undertake assessment of concentration risk in housing loans, auto /
personal loans etc.
Advances under Employment Generation Programme of GOI: - Our Bank is also
implementing schemes/programs launched by Government for employment generation
and poverty alleviation in rural & urban areas under PMEGP, MUDRA, NBCFDC,
NSKFDC, NSFDC, NSTFDC etc.
Non-Priority Sector Advances: - Bank aims in providing diverse Loan Products, under
Non- Priority sector like C&I advances for Commercial Buildings, Schools, Colleges and
other Institutions, Professionals e.g. Doctor Plus Scheme, Housing Loan to Public over
Rs.35/ 25 lakhs (Metropolitan & Other Center Respectively), all type of Loans under
Personal Segment etc.
Micro Credit / Financial Inclusion: - For upliftment of poor mass, the Bank is actively
supporting Self Help Groups, Joint Liability Groups by providing timely Credit within the
prescribed rules framed by RBI, NABRAD, Central / State Government.
Non-Fund Business: - Bank will sanction Bank Guarantee / Bank Guarantee Limit
under NFB. Bank Guarantee can be issued as both Financial and Performance
Guarantee and for a period not exceeding 18 months. For longer period (not more than
10 years) prior administrative approval / clearance from competent authority not below
General Manager shall be essential, subject to 100% Cash Margin. Normally Bank
Guarantee Limit can be sanctioned to high value firms against substantial value of
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Mortgageable property along with minimum 25% of cash margin at the discretion of the
sanctioning authority as per discretionary power delegated to different level of
functionaries of the Bank.
Non-constituent borrowers can also be sanctioned Bank Guarantee against 100% Cash
Margin.
(C) DUE DILIGENCE, STATUTORY & OTHER RESTRICTIONS:
All Credit proposals are subjected to due diligence process with regard to the
Credentials of the Borrower(s) / Guarantor(s), Purpose of Loan, Financial Position of
the Borrower(s), Experience, Professionalism, Integrity, Vision, Governance Practices,
Track Record of Meeting Financial Commitments, Need Based Requirement of Credit
Facilities for Working Capital, Capacity to Service the Loans and Security offered. All
loan proposals must be supported by application duly signed by authorized person /
persons of the borrowing unit.
Careful Selection of Borrower(s) / Guarantor(s) is essential to maintain asset quality.
Hence, scrutiny of credentials and past credit history of Borrower(s) / Guarantor(s) needs
to be carried out carefully for ensuring compliance with KYC and AML under Prevention
of Money Laundering Act.
Financial Due Diligence: -
1. The financials of main borrowing unit and its major Associates / Sister concerns
if any) should be Scrutinized / Reviewed on the basis of Audited financials
(where applicable)
2. Balance Sheet must be free from any adverse remarks of the Auditors and if
any, each to be separately discussed in the evaluation/appraisal process.
3. Verification of Income Tax, Sales Tax, Service Tax, Excise Returns etc. also to
be ensured.
Third Party Entities: -
While Evaluating / Appraising proposals, Bank rely on the Reports / Certificates of
several professionals like Chartered Accountants, Empaneled Lawyers and Valuers
and Credit Information Agencies. Bank has its own empaneled Third-Party Entities for
this purpose.
Diversion of Funds: -
Bank is to take special care of the under noted points in this regard while disbursing
loans or during review / renewal of proposals -
1. Utilization of Short-Term Working Capital for Long Term Purposes.
2. Deployment of Loan amount for creation of assets other than those for which
loan was sanctioned.
3. Transfer of Loan Amount to Subsidiaries / Sister Concerns or other bodies.
4. Opening of Current Account / Routing of Funds through any other Bank.
5. Investment of borrowed fund in Equities / Debt Instruments.
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6. Partial deployment of borrowed fund in the activity for which Loan was
sanctioned and the difference not accounted for.
Statutory and other Restrictions: -
1. In terms of section 20(1) of the Banking Regulation Act, 1949, the Bank cannot
grant any Loans/Advances on the security of its own shares.
2. No credit facility will be extended for speculative purpose and / or any unlawful
activity.
3. In terms of section 20(1) of the Banking Regulation Act, 1949, the Bank cannot
grant loans and advances to the Directors and the firms, in which they hold
substantial interest, barring admissible exceptions, like loan against Life
Insurance Policies, Banks Fixed Deposit etc.
4. No Loan for commercial activity will be granted to Officers/Employees of the
Bank except Specific Staff Loans as decided by the Bank.
5. Bank will not grant any loan to industries Producing / Consuming Ozone
Depleting Substances (ODS) and Chlorofluoro Carbons (CFC).
6. No Loan shall be granted against Shares, Debentures and Bonds.
7. No credit facilities shall be granted against FDRs or Term Deposits of other
Banks.
(D) TAKE OVER OF LOANS:
In the competitive and liberalized financial environment, it has become important for the
Bank to aggressively market for good quality advances. One of the strategies for
increasing good quality assets in the Bank’s loan portfolio is to take over advances from
other Banks / FIs.
Norms for Takeover of Accounts –
Careful selection of borrowers is essential to maintain asset quality. All credit
proposals are subjected to due diligence processes in regard to the credentials
of the borrower, financial soundness of the borrower, ascertaining need-based
requirement of credit facilities, capability to service the loans and security offered
etc. Besides these usual due diligences, some additional safeguards are
prescribed for takeover of advances. Accordingly, a set of norms/ guidelines for
C & I, SME and AGL (Agro based industrial activities) segments have been laid
down for takeover of loans. While the guidelines may be reviewed from time to
time, current instructions in this regard are as under:
Rating criterion
For exposure above Rs. 25 Lakhs:
The CRA of the borrower should be SB-7 or better, and the proposed exposure
must be backed by Collateral Security as per Bank’s norms. Further, it is also to
be noted that no dilution in existing security coverage would be permitted for the
amount taken over.
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Due Diligence:
Operating Units/FOs should assess the requirements of the borrower and obtain
sanction for the proposed limits before actually taking over the outstanding
liability of the borrower from their existing bank/FI. While doing so, the following
aspects should invariably be examined in each case of Take over:
i. Proper due diligence must be carried out on the borrower as well as
borrower group (if applicable) with a view to ensuring the Account
proposed to be taken over is being conducted satisfactorily and not
classified as SMA 2 or NPA in the books of the transferor bank/FI as also
to determine that there are no unsatisfactory features or history of default
in conduct of accounts of the company.
ii. The name of the promoters/directors/guarantors should not be appearing
in the list of defaulters/willful defaulters/caution lists etc.
iii. Discreet enquiries should be made for cross checking the reasons given
by the borrower for moving the account, unless the account is in our target
list for marketing.
iv. Market perception regarding the unit and its management is to be
recorded. (For this, the appraising officials may record briefly enquiries
made and feedback received).
v. Whether potential ancillary business will accrue to the Bank in case
competitive pricing is offered.
vi. Terms and conditions stipulated by the existing bank and those proposed
by our Bank, with particular focus on ensuring that there is no dilution in
security cover in respect of amount taken over.
vii. The Credit Information Report (CIR) from the transferor bank should be
obtained in the prescribed format before disbursement. However,
Statements of all Accounts of the prospective borrower with Bank/ other
banks for the last one year are to be obtained as part of Pre-Sanction
exercise and scrutinized for a feel of conduct / financial discipline of the
account.
viii. A declaration should be obtained from the applicant unit that it does not
have any other credit facility in any bank / FI / NBFC which is irregular and
that there are no overdue statutory dues. Such a declaration should be
supported by a certificate from the Statutory Auditor of the prospective
borrowing company.
ix. To make reference to CRILC data to ascertain whether the prospective
borrower is reported as stressed by any other bank.
x. Comprehensive Report (popularly called Data scrubbing) on the
prospective borrower to be taken from CIBIL or other Credit Information
Company (Equifax, CRIF-Highmark or Experian).
xi. When a Term Loan is also being taken over, it should have a prompt
repayment track record, and should also not have been restructured /
rescheduled in the preceding two years. Further, the terms of repayment
with the existing lender from whom the loan is being taken over must
continue.
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xii. Generally, Takeover of loans below Rs 25 lakhs is to be discouraged.
However, in case of exceptional circumstances, operating units may
consider Takeovers on a case to case to basis where product specific
minimum scores shall be the threshold.
xiii. In all cases of Takeover, branches / FOs should ensure completion of
proper documentation before disbursement.
xiv. Obtention of minimum score under each of the parameters for CRA viz.
Business, Financial & Industry and Management risk is mandatory.
xv. Independent verification about the credibility of the customer to be
ensured. Services of Fintech/technology companies may be used to cross
check the credibility of the borrower.
Collateral Security:
No dilution in existing security coverage is permitted for the amount taken over,
by releasing the existing security charged to the existing banks. In case Takeover
is with enhancement/sanction of additional facilities, the collateral cover for
additional credit facilities sanctioned should be as per the norms prescribed by
the Bank. Substitution of existing security given to other Banks may be permitted
for justifiable reasons by the sanctioning authority, provided the realizable value
of the security offered is not less than the value of existing security with other
banks. Specific approval of appropriate authority will need to be obtained.
Audited Balance Sheet (ABS) should not be older than 12 months. If ABS is older
than 9 months, provisional financials not older than 6 months are to be obtained
and analyzed so as to be satisfied that the activity level and profitability, liquidity
and solvency ratios are broadly in alignment with the estimates / projections.
Ideally, only such accounts should be targeted for Takeover where the unit is in commercial operations for at least two years and no major green field / brown field project is under implementation.
The unit should have been earning profits for at least 2 preceding years. The outlook for sales and profitability should be positive based on realistic estimates of capacity utilization and EBIDTA margins as on the date of assessment.
Stock and Receivables Audit is to be conducted prior to disbursement of any
credit facilities above Rs. 5.00 Crores.
Increase in exposure should not exceed 30% (where total taken over exposure
is up to Rs.1.00 crore) and 15% or Rs. 30 lakhs or amount equivalent whichever
is higher (where total taken over exposure is above Rs.1.00 crore) at the time of
take over from other Banks. Enhancement at the time of subsequent renewals
will be based on guidelines issued by the Bank from time to time. Any deviation
in this regard, authority structure is in place for approval.
Pricing improvement over the existing pricing of other banks should be offered
only for accounts meeting rating criterion for Takeover specified above.
A written communication should be obtained from existing bank indicating the up
to date dues on payment of which all the securities held including release of
personal/corporate guarantees held will be released in favor of our Bank.
Perfection of securities must be completed within 90 days of disbursement.
Takeover norms would apply even if borrower offers to liquidate existing credit
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facilities before disbursement by our Bank. However, if there is a time gap of say
3 months between liquidation of existing facilities and disbursement by our Bank,
the Takeover norms would not apply.
Norms for takeover of advances under Agriculture segment (other than
Agri based industries for which norms contained above are applicable): In
respect of Agriculture segment, all agricultural Term loans and agricultural cash
credits with other banks and Agricultural Credit Societies, Co-operatives are
eligible for takeover, subject to the fulfilment of the following terms and conditions
of Take over:
i) The minimum amount eligible for takeover would be as under:
Nature of Facility Amount
ACC Rs. 1.00 Lakh
ATL – for Allied Activities Rs. 10.00 Lakhs
ATL – for other than allied Activities Rs. 2.00 Lakhs
ii) The maximum amount eligible for takeover would be Rs.2.00 crores.
iii) No prior administrative clearance is required for takeover of agricultural
loan. The reasons for takeover of account are to be discussed in the
proposal based on which the Sanctioning Authority will take an informed
decision.
iv) No dilution in the security in takeover proposals is permitted.
v) Only Standard Assets and regular accounts are eligible for takeover. The
account should have been a standard account in the books of the other
banks/ Financial Institution (FI) during the preceding 2 years.
vi) The term loans of incomplete nature are not eligible for takeover.
vii) ATLs with a minimum 2 years repayment program left are only eligible.
viii) Advances to borrowers falling outside the ‘Service Area’ of the branch are
also permitted for takeover, subject to adherence of the other instructions.
ix) Crop loans converted to Term Loans and Term Loans, which are re-
phased, are not eligible for takeover irrespective of their quantum.
x) Additional norms for takeover of Agriculture Loans of Rs.25.00 Lakhs &
above:
a) The advances to be taken over should be rated SB-7 or better (the unit
should score at least 60% in the financial parameters).
b) The unit should have earned net profits post tax in each of the immediately
preceding 2 years.
Takeover from our Sponsored Bank, i.e. State Bank of India should be avoided.
Under special circumstances, if account is to be taken over from SBI, prior
permission of HO will be required.
In this competitive financial environment and for aggressive marketing of good quality
Loans Bank takes over advances from other Bank by careful selection of borrowers
subjected to due diligence process in all aspects and not diluting existing security
coverage and Credit Rating Norms, but in case of enhancement Collateral Coverage to
be ensured as per Bank’s Norms and if being considered otherwise specific approval
for deviation to be obtained from competent authority before appraising enhancements.
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All take over loans (except Housing Loan) will be sanctioned by Network Credit
Committee / Head Office Credit Committee only. Housing Loan Take over cases
may be sanctioned by respective Sanctioning Authorities.
(E) PRUDENTIAL NORMS:
As per policy for compliance with prudential norms.
(F) Compliance of Mandatory Norms regarding Priority Sector Advances,
Advances to Weaker Section and Exposure to Unsecured Advances:
In compliance of aforesaid norms, Credit Portfolio of the Bank will be managed in the
manner that at any point of time –
1. Outstanding amount of Priority Sector Advances does not fall below 75% of
ANBC or CEOBE whichever is higher.
2. Outstanding amount of Advances to Weaker Section does not fall below 15% of
ANBC or CEOBE whichever is higher.
3. Outstanding amount of Unsecured Advances does not exceed 15% of ANBC or
CEOBE whichever is higher.
4. Outstanding amount of Agriculture Advances does not fall below 18% of ANBC
or CEOBE whichever is higher out of which a target of 10 percent is prescribed
for SMFs.
Revised targets for SMFs will be implemented in a phased manner as indicated
below:
Financial Year Small and Marginal Farmers target *
2020-21 8%
2021-22 9%
2022-23 9.5%
2023-24 10%
PERFORMANCE / FINANCIAL ANALYSIS AND CREDIT RISK MANAGEMENT: -
The primary objective of Performance / Financial Analysis of a firm is to understand and
determine the Profitability, Financial Soundness, Operational Efficiency forecasting future
prospects of the same. Under this process Balance sheet, Profit & Loss Account Cash
Flow Statement etc. are analyzed to determine Solvency, Liquidity, Profitability, sources
& application of funds etc. Various ratios of last 2 years are also calculated to analyze the
same.
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• Quantitative Standards:
The basic quantitative parameters underpinning the Bank’s credit appraisal and the
levels that are desired are as under:
i) Applicable to Manufacturing segment:
Financial Ratio(s) Desired Level Acceptable level
Current Ratio > 1.33 > 1.00 (Minimum)
TOL / Adjusted TNW < 4.00 < 5.00 (Maximum)
Long Term Debt / EBITDA < 3.60 < 4.50 (Maximum)
Interest Coverage Ratio > 2.60 > 2.00 (Minimum)
DSCR > 1.50 > 1.20 (Minimum)
FACR 1.25 1.25
ii) Applicable to Trade and Services segment
Financial Ratio(s) Desired Level Acceptable level
Current Ratio > 1.20 > 1.00 (Minimum)
TOL / Adjusted TNW < 5.00 < 7.00 (Maximum)
Long Term Debt / EBITDA < 4.00 < 6.00 (Maximum)
Interest Coverage Ratio > 2.60 > 2.00 (Minimum)
DSCR > 1.50 > 1.20 (Minimum)
FACR 1.25 1.25
iii) While these are indicative levels, there cannot be a definite benchmark, as
acceptable levels are case specific, guided by the nature, size and scope of
projects and activities. The sanctioning authority considers variations from these
levels based on the justifications placed before them; no specific approval is
required for divergence between the acceptable level and the actuals.
iv) Hurdle rate SB-10 has been prescribed under internal risk rating model for
considering new connection or enhancement in credit limits. In case account is
having CRA SB-11 and worse, then necessary approval is to be obtained from
the competent authority. However, where a unit has not obtained minimum
scores in Financial Risk, Business & Industry Risk and Management Risk under
CRA, separate approval is not required to be sought.
v) In case any variance from the desired/acceptable levels of quantitative
parameters and minimum scores in FR/BR/MR under CRA are to be discussed
in the loan proposal and justifications / mitigation are to be placed before the
sanctioning authority for taking informed decision.
Review / Renewal of Advances:
Working Capital facilities under SME Credit Card are sanctioned for 5 years subject to
review every year and renewal every 3 years.
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Working Capital Facilities under Cash Credit are sanctioned for one-year subject to
renewal every year by obtaining Financial Statement from the borrowing unit.
In case, working capital limit is not renewed for valid reasons, approval for continuation
of limits for a maximum period of 6 months from the due date must be obtained from
the Sanctioning Authority.
Even after expiry of 6 months if renewal process is not complete, approval for further 3
months for continuation of limit along with Review Proposal must be sought for from
Sanctioning Authority.
If even after 9 months, full scale renewal is not found possible for valid reasons,
administrative clearance must be obtained from competent authority for repeating
review in place of renewal along with acceptable justifications, as under -
Limit Sanctioned by
Administrative Clearance to be approved by
Branch Manager Regional Manager
ROCC General Manager
NWCC & HOCC Chairman.
Credit Rating: -
1. All exposures of Rs. 25 lakh and above must be internally rated and CRA must be SB-10 or better.
2. External Credit Rating will be mandatory for exposures of Rs. 50 Crore and above
and ECR should be BBB+ or better. ECR should be obtained from any of the
RBI accredited External Credit Rating Agencies namely CARE, CRISIL, India
Ratings, ICRA, SMERA and Brickwork.
Credit Information Company’s (CIC) Reports:
i. As per Credit Information Companies (Regulation) Act, 2005, collection of information
on borrowers of all Banks and Financial Institutions and its dissemination in the form
of Credit Information Reports is being done by four Credit Information Companies
(CICs) registered with RBI.
The four CICs are:
a. TransUnion CIBIL Limited (TCL)
b. Equifax Credit Information Services Private Limited (ECISPL)
c. CRIF High Mark Credit Information Services Private Limited (CHMISPL)
d. Experian Credit Information Company of India Private Limited (ECICIPL)
ii. CICs are providing Consumer Report for individuals and Commercial Reports for
Non-Individual entities. Whereas TCL, ECICIPL, and CHMISPL are offering CIRs
under Consumer and Commercial, ECISPL is offering only Consumer related CIRs
and not Commercial CIRs. CIBIL and CRIF High Mark have been identified as
preferred CICs for obtaining report for proposal pertaining to MSME/C&I segment
and obtaining report from one or two CICs for these segments will be decided as per
following parameters:
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Type of Advances Report from one CIC Reports from Two CICs
Secured Loan* Limit up to 10 lakhs Limit above 10 lakhs
Unsecured Loan Limit up to 2 lakhs Limit above 2 lakhs
(* Not applicable for Loans against Specified Securities)
(G) ASSESSMENT OF CREDIT FACILITIES: -
Credit Appraisal
The fundamental purpose of credit appraisal in the Bank has been two-fold. First, to be
able to take an informed decision as to the credit worthiness of any proposal; that is,
whether it is prudent, worthwhile and desirable for the Bank to take a credit exposure
on the applicant entity. Thereafter, where a positive decision is arrived at in this regard,
to be able to assess the extent and nature of such credit exposure, the conditions on
which such exposures is acceptable and the pricing at which it is considered prudent
to operationalize such a credit relationship. A decision as to the credit worthiness of a
proposal is arrived at after considering a combination of several factors including:
An assessment of the borrower, covering their background and relevant
experience in the area of the proposed entity.
The previous experience of the Bank with the borrower.
The perceived prospects of the industry or activity proposed.
The already existing extent and quality of the exposure of the Bank to the
industry or activity on the one hand and to the borrower on the other.
Policy relating to exposure levels and norms prescribed by the regulators and
by the bank for the proposed activity / industry.
The perceived financial strength and the risk rating of the borrower.
The extent and nature of credit risk mitigants proposed, etc.
Having decided that the proposal, as a reasonable and acceptable business
risk, is a ‘bankable’ proposition, the next step involves assessing the nature and
extent of the proposed exposure. The Bank provides a range of terms and
working capital facilities, each of which can be structured either as fund-based
products or non-fund-based products or a combination of both.
Methods of Assessment of Credit Facility (ies):
The assessment of working capital is done through –
a) Turnover Method
b) Projected Balance Sheet Method (PBS)
c) Cash Budget Method.
a. Under the turnover method, working capital requirement is computed at a
minimum of 25% of turnover, of which, at least four-fifths is provided by the Bank
and balance one-fifth represents the borrower’s contribution towards margin for
working capital. This method is applicable for sanction of fund based working
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capital limit of up to Rs.5 crores or equivalent, as per recommendations of
Nayak Committee which had looked into issues relating to financing of Medium
& Small Enterprises.
b. Under the PBS method, the fund requirement is computed on the basis of
borrower’s projected balance sheet, the funds flow planned for the current /
following year and examination of the profitability and financial parameters etc.
The key determinants for the limit can, inter-alia, be the extent of financing
support required by the borrower and the acceptability of the borrower’s overall
financial position including the projected level of liquidity. The projected Bank
borrowing thus arrived at, is termed ‘Assessed Bank Finance’ (ABF). This
method is applicable for borrowers who are engaged in manufacturing, services
and trading activities and who require fund based working capital (WC) finance
of above Rs.5 crores or equivalent.
c. Cash Budget method is used for assessing working capital finance for seasonal
industries like sugar, tea and construction activity. This method is also used for
sanction of ad-hoc WC limits. In these cases, the required finance is quantified
from the projected cash flows, and not from the projected values of current
assets and current liabilities. Other aspects of assessment like examination of
funds flow, profitability, financial parameters etc., are also carried out.
After due appraisal and assessment, appropriate authority sanctions the facility as per
Delegation of Power which is already in place, duly approved by the Board.
The working capital facility if not availed within 3 months of the date of sanction or
commencement of production will lapse and require revalidation.
TEMPORARY OVERDRAFT (TOD)/STAND BY LINE OF CREDIT:
This Policy allows sanction of Temporary Overdraft (TOD) / Stand-by Line of Credit
(SLC) for not more than 90 days, to the extent of 15% of sanctioned working capital
limit, appraising the merit of the reason(s) for which TOD / SLC is applied.
1. For a maximum of 3 months, extendable up to another 3 months, at any one
instance.
2. Where SLC remains outstanding for more than the stipulated period, it should
be treated as irregular drawings and reported accordingly. Gaps of less than 15
days to be neglected for calculating the period during which SLC has remained
outstanding for such reporting.
3. There will be no restriction as to the numbers of occasions SLC can be made
available in a calendar year.
4. There should be a gap of 30 days between two successive TOD.
Assessment and Appraisal of Term Loan:
1. On the basis of Performa Invoices
2. Scrutinizing cost estimates to ensure that the Project Cost is accurate,
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comprehensive, reasonable and realistic and if required support from Bank’s
empaneled consultants is taken for verification of the reasonableness of the
project cost.
3. Normally Maturity of Term Loan, including moratorium does not exceed 10 years
except the approved schemes like Housing Loan to Individuals, Education Loan,
Agricultural Term Loans and other specific schemes.
4. Normally Debt Equity ratio of 75:25 is acceptable to the Bank but in approved
specific schemes the same of 90:10 is also accepted.
5. Other Performance Indicators are accepted if within acceptable range, as
discussed above in this Loan Policy.
6. Term loans if not availed within 3 months from the date of sanction, need
revalidation.
7. Date of Completion (DOC) and Date of Commencement of Commercial
Operation (DOCC) to be mentioned in application and appraisal positively.
8. Normally Interest on Term Loan is realized during Moratorium, except the
projects exempted by the RBI. However, in deserving cases Funded Interest
Term Loan (FITL) can be granted strictly for the applied but not realized interest,
due during the moratorium period, by the competent authority not below NWCC.
9. Part of working capital limit can also be converted into WCDL (Working Capital
Demand Loan) WCTL (Working Capital Term Loan) on request of Borrower(s)
properly appraising the merit of the application, by competent sanctioning
authority not below NWCC.
Sanction of Loans:
After due appraisal and assessment, appropriate authority sanctions the loan as per
Delegation of Power which is already in place, duly approved by the Board.
Pricing of Loans:
1. All exposures below Rs. 25 Lakh shall be as per Card Rate approved by the
Board time to time.
2. All exposures of Rs. 25 Lakh and above shall be priced on the basis of Credit
Rating (CRA), as per prevailing norms of Sponsoring Bank.
3. Power to reduce the pricing below Card Rate shall be vested with the NWCC,
for all the cases where sanctioning authority is below NWCC. For other
accounts, the powers will be vested with HOCC.
(I) DELEGATION OF FINANCIAL POWER: -
Delegation of Financial Power, duly approved by the Board is in place which may be
treated as such as part of this policy.
JRGB Loan & NPA Management Policy Page 14 of 48
(J) SECURITY, INSURANCE AND DOCUMENTS: -
All loans are sanctioned with certain terms and conditions to be complied with by the
borrowing unit (covenants) to bring credit discipline amongst the borrowing units, help
monitoring its performance and compliance to credit terms.
The important aspects are as hereunder.
Primary Security: - It is the hypothecated asset created out of the credit facility
extended and by virtue of hypothecation; Bank has the right to seize the asset if the
borrowing unit is not servicing the loan as stipulated in the agreements executed.
Collateral Security: - Collateral security is any security other than the Primary Security
offered to additionally secure the Credit facility sanctioned by the Bank.
Bank follows the Security Norms prescribed by RBI for different schemes/Sectors.
SME Loans (other than Govt. Sponsored Schemes) sanctioned by Bank apart from
creation of charge over Primary Security, are to be covered by Third Party Guarantee,
good for the amount of loan involved.
In case of such loans over Rs.50,000/-, apart from above normally liquid security
amounting 50% of loan amount by way of lien of Bank’s Fixed Deposits / Recurring
Deposits, Pledge of NSC/KVPs, Assignment of Insurance Policies (except Policies
linked to Equity/Unit/Market) is preferred.
No fresh STDR should be accepted as Collateral security for loans. STDR to be
accepted for the purpose of collateral security must have run for some reasonable time.
Where Equitable Mortgage of immovable properties of the value equal to or more than the amount of loan is available, Liquid Security up to 10% of Loan amount is preferred. Valuation Certificate of the property and Legal Opinion to be obtained from empaneled Valuer and Lawyer. In case of proposals for over Rs. 1.00 Crore, Second Valuation Certificate and Legal Opinion to be obtained. However in all cases of mortgages, fresh valuation certificate and legal opinion/TIR shall be obtained every 3 year.
However, in deserving cases, depending upon the merit of the proposal and Credit Worthiness of the Borrowing Units, Liquid Security may be relaxed to a reasonable extent in each case by the competent authority as below: Advances of Rs. 50000/- to Rs.10.00 Lakhs - General Manager. Advances above Rs.10.00 Lakhs – NWCC, subject to control by the Chairman.
In case of Personal Segment Loans, where Check off Facility is available, Third Party
Guarantee good for the amount of loan involved shall be taken along with irrevocable
authority from the Borrower/Drawing-Disbursing Authority for realization of EMI from
Salary Account of the Borrower.
JRGB Loan & NPA Management Policy Page 15 of 48
Insurance Cover of Security Charged to the Bank:
Stocks / Movable / Fixed Assets under Hypothecation / Pledge to the Bank are to be
insured to the extent of market value at the cost of Borrowing Unit unless the Bank has
agreed for waiver of Insurance. The Insurance Policies are to be in joint name of the
Bank and Borrowing unit. In terms of the Documents executed by the borrowing unit,
they will be primarily responsible for insurance of the assets created out of Bank Loan
and to keep the policy alive and if the Borrower(s) fail to do so, the Bank shall insure
the assets by debiting the Loan Account with the Premium amount properly diarizing the
expiry date for further renewal. While insuring mortgaged properties like Buildings,
Factories, Machineries/Fixtures therein, are to be fully insured against Fire, Theft,
Lightening, Cyclone, Earthquake, Flood and other Natural Calamities, Strike, Riot and
Civil Commotion under joint name of Bank and the Borrower(s). Crop Loans are
invariably to be insured under Crop Insurance Schemes as directed by Regulatory
Bodies.
Documents:
Bank has well established documentation system covering all type of Credit facilities to
serve as primary evidence of the debts owed by the Borrower(s) and / or obligation
guaranteed by the Guarantor(s) and to form the basis for enforcing Bank’s right to
recover through legal resources after failure of all other attempts. All the documents are
to be revived periodically by obtaining revival letters from Borrower(s) / Guarantor(s) as
per Bank’s extant instructions.
Consent Clause: All Loan proposals must be accompanied with Consent Clause.
Follow up, Supervision and Monitoring of Advances:
1. Since Sanctions are based on Projections, Periodic comparison of projections
with actual to be ensured.
2. To ensure end use of Funds in to the project for which the loan is sanctioned.
3. Comparing of outstanding of loan with assets available.
4. Taking appropriate action to safe guard Bank’s interest in case of non-
compliance of terms & conditions.
5. To ensure recovery of instalments and interest as per repayment schedule.
6. To ensure Borrowing unit does not have un-authorized current account with
other Banks.
For effective Credit Administration:
1. Each and every Sanction is to be reported to next higher authority for control.
2. Safe preservation of Documents, Ensuring their Validity and Enforceability in
Court of Law.
3. Terms and Conditions Stipulated during sanction to be complied before
disbursement
JRGB Loan & NPA Management Policy Page 16 of 48
4. Follow up for timely submission of stock statement and Book Debts for
computation of Drawing Power (DP).
5. Regular verification of Assets created out of Bank finance.
6. Submission of inspection report to controllers in case of Large Advances.
Credit Process Audit:
Credit Process Audit of loans over Rs.10.00 Lakhs to be conducted mandatorily by
designated Officers of the Bank, before disbursement.
Credit Audit:
Annual Credit Audit to be conducted for all sanctions (FB+NFB) over Rs. 5.00 crore.
Stock Audit:
Stock Audit by Chartered Accountant Firm selected by Bank, for all units with FB
Working Capital exposure of Rs. 2.00 crores and above.
Legal Audit:
Legal Audit to be conducted for all accounts over Rs.1 crore (FB+NFB). Subsequent
Legal Audit to be carried out at the time of enhancement of limits and/or whenever new
documents are executed.
(K) DOCUMENTATION STANDARDS: -
The ultimate objective of documentation - which is to serve as primary evidence of the
debt owed by the borrower, or obligation guaranteed by the guarantor, to be relied upon
in the event of any subsequent dispute between the Bank and the borrower and / or
guarantor. Documents also form the basis for enforcing the Bank’s right to effect
recovery through legal recourse where all other avenues have failed.
Documentation is a continuous and ongoing process covering the entire duration of an
advance comprising the following stages:
i) Pre-execution formalities: Searches at the office of the Land Registry to check the
existence or otherwise of prior charge over the immovable property offered as security,
etc., as also taking other necessary precautions before creating equitable / registered
mortgage, including obtention of the lawyer’s opinion as to the clear, absolute and
marketable title to the property based upon the genuineness, completeness and
adequacy of the title deeds provided.
ii) Execution of Documents: It covers obtention of proper documents, appropriate
stamping, and correct execution and recording thereof as per laid down instructions
and as per terms of sanction of the advance. A copy of the loan agreement along with
all its enclosures will be delivered to the borrower(s) at the time of sanction / disbursal
of loans and acknowledgement of receipt thereof obtained. Embossing of stamps on
loan documents will be done by the Branch Manager of the respective branch
JRGB Loan & NPA Management Policy Page 17 of 48
wherefrom the loans will be advanced. The embossing will be done by the Branch
Manager by putting his signature across the Stamp(s) over the branch’s seal.
iii) Post-execution formalities: This phase covers the completion of formalities in
respect of mortgages, if any, registration with the Registrar of Assurances, wherever
applicable. All existing mortgages and forthcoming mortgages have to be registered,
on an ongoing basis, with the Central Electronic Registry under SARFAESI Act, 2002
- (CERSAI).
• The following types of Security interests are also required to be filed now on
the CERSAI Portal:
a) Particulars of creation, modification or satisfaction of security interest in
immovable property by mortgage other than mortgage by deposit of title deeds
shall be filed in Form I or Form II, as the case may be, and shall be authenticated
by a person specified in the Form for such purpose by use of a valid digital
signature.
b) Particulars of creation, modification or satisfaction of security interest in
hypothecation of plant and machinery, stocks, debt including book debt or
receivables, whether existing or future shall be filed in Form I or Form II, as the
case may be, and shall be authenticated by a person specified in the Form for
such purpose by use of a valid digital signature.
c) Particulars of creation, modification or satisfaction of security interest in
intangible assets, being knowhow, patent, copyright, trade mark, license,
franchise or any other business or commercial right of similar nature, shall be
filed in Form I or Form II, as the case may be, and shall be authenticated by a
person specified in the Form for such purpose by use of a valid digital signature.
d) Particulars of creation, modification or satisfaction of security interest in any
under construction residential or commercial building or a part thereof by an
agreement or instrument other than by mortgage, shall be filed in Form I or Form
II, as the case may be, and shall be authenticated by a person specified in the
Form for such purpose by use of a valid digital signature.
• Protection from Limitation / Safeguarding Securities:
These measures aim at preventing documents from getting time-barred through limitation and at protecting the securities charged to the Bank from being diluted by any subsequent charge that might be created by the borrower to secure his other debts, if any. These objectives are sought to be achieved by:
i) Revival letters being obtained within the stipulated period, from borrower / guarantor.
ii) Obtention of ‘Balance Confirmation’ from the borrower / guarantor at Half-Yearly intervals, i.e. as on 31st March & 30th September of every year from all SME Borrowers (CC & TL) and SHG-NRLM Accounts.
iii) Obtention of ‘Balance Confirmation’ from the Borrower/ Guarantor at annual interval, i.e. as on 31st March of every year in other Loans & Advances (other than SME & SHG-NRLM accounts, where the periodicity of ‘Balance Confirmation’ is Half Yearly.
JRGB Loan & NPA Management Policy Page 18 of 48
iv) Making periodic searches in the records of the Office of the Registrar of Companies
/ Registrar of Assurances;
v) Insuring Assets charged – (unless specifically waived) to safeguard the Bank
against the risk of fire, other hazards, etc.;
vi) Carrying out periodical valuation of securities charged to the Bank;
vii) Periodic inspection of charged assets.
• Keeping the above broad objectives and the documentation process in view, the Bank
has devised standard documents in most cases, for various types of loans given to the
borrowers. Furthermore, changes in the documentation procedures and the implications
involved are circularized from time to time to all the branches / offices so that those who
are responsible for obtaining and safeguarding the documents are made fully conversant
with requirements in this regard. This is further strengthened through training imparted
by the Bank from time to time
• Unconditional Cancellability:
Commitments that are unconditionally cancellable at any time by the Bank without prior
notice or that effectively provide for automatic cancellation due to deterioration in a
borrower’s credit worthiness shall carry a Credit Conversion Factor (CCF) of 0%. As a
result, the credit equivalent for all Unutilized Limits becomes zero, and no Capital
Charge is required for any such undrawn commitments. Therefore, Unconditional
Cancellability clause which gives the Bank the right to cancel the sanctioned limit
without reference to the borrower at any time, needs to be accepted by borrowers to
give effect to the Internal Capital Adequacy Framework guidelines of the RBI.
(L) INTERNAL CREDIT RATING – CREDIT RISK ASSESSMENT (CRA): -
For each credit proposal, a credit rating is assigned using the internal credit rating
system. The Bank as of now has a unified CRA System, which is used for assessing
the credit risk of borrowers as well as facilities (facility rating applicable for exposures
beyond Rs.5 crores) viz., working capital, term loan and non-fund based exposures etc.,
to C&I, SME and AGL segments for total exposure of Rs.25 lakhs and above and scoring
models for all products with exposure of less than Rs.25 lakhs. Based on the CRA score,
risk rating (SB-1 to SB-16) is awarded to the entity. The SB16 rating is assigned to NPA
accounts by default.
• Minimum scores / Hurdle rates of CRA:
The CRA models adopted by the Bank take into account the various risks categorized
broadly into financial, business, industry and management risks as well as the
environmental, demographic and governance aspects of borrowing entities. These risks
are rated separately. Currently, no new connections or enhancements in credit limits are
to be considered in respect of accounts rated worse than SB-10 (i.e. SB11 and worse),
subject to exceptions like availability of Central Govt. guarantee (sovereign
guarantees). The actual models used, the minimum scores under each head, the hurdle
rates, etc. are reviewed at regular intervals.
JRGB Loan & NPA Management Policy Page 19 of 48
(M) FOLLOW UP, SUPERVISION AND MONITORING OF ADVANCES:
1. Broadly, the objectives of post-sanction follow up, supervision and monitoring, and
some of the key areas that need to be kept sight of are:
i) Where sanctions are based on projections, periodic comparison of projections with actuals is most important.
ii) Ensuring end use of funds for only for those activities for which sanction has been accorded. While requisite instructions and procedures to this end have been laid down, it would be the primary responsibility of the borrower to ensure that the funds borrowed have been utilized for the purpose for which they have been lent by the Bank. To this end, the Bank may seek verification, by way of auditor’s certificate, or by way of any other acceptable means.
iii) Comparing the account outstanding to the assets level on a continuing basis. iv) Detecting non-compliance / waivers, from terms and conditions of the sanction
and taking appropriate action to safeguard the Bank’s interest. v) Ensuring recovery of instalments of the principal in case of term loans as per the
scheduled repayment programme. vi) Examination of exception reports and reports in the nature of early warning signals vii) If the Early Warning Signals indicate possibility of any fraudulent transaction,
such accounts may be considered for classification as Red Flagged Accounts and reported as per RBI guidelines.
viii) Compliance with all internal and external reporting requirements for credit discipline.
ix) If irregularity in an account persists for longer period, or occurs repeatedly, the credit facilities may need to be re-assessed and the issues appropriately addressed.
x) Ensuring that the borrowing entity does not have un-authorized current account with other banks.
2. The undernoted are a set of broad, general guidelines that have a bearing on the monitoring, supervision and follow up aspects of credit administration, and thus need to be complied with care:
i) Each and every sanction should be reported for control to the next higher authority/designated authority.
ii) Safe preservation of security documents, and ensuring their validity and enforceability in a court of law are areas that must not be lost sight of.
iii) Before disbursement of loans/credit facilities, a certificate regarding compliance with terms and conditions of the sanction should be placed before the branch head, as per laid down instructions without fail.
iv) Monitoring of large withdrawals with a view to ensuring that they are not unrelated to the unit’s normal activity.
v)Follow up for timely submission of Statements of Stocks and Book Debts, and their careful scrutiny, for correct computation of Drawing Power.
vi) Verification of assets. vii) Where limits have been allocated, allocatee branch must strictly adhere to the
terms and conditions advised by the home branch. viii) Seeking cash flow statements on quarterly or more frequent basis and their careful
analysis in respect of units financed on cash budget method.
JRGB Loan & NPA Management Policy Page 20 of 48
IBPC & PSLC POLICY:-
Banks have been permitted by RBI to purchase/sell their priority sector advances at in
order
i) To meet their statutory requirement of maintaining priority sector advances
stipulated by GOI/RBI from time to time.
ii) To earn an interest margin to enable them to increase profits.
At present our bank is adopting following two methods for sale of priority sector
lending i.e. 1. IBPC 2. PSLC
INTER BANK PARTICIPATION CERTIFICATE (IBPC):-
As per RBI Circular DBOD No.BP.BC.57/62-88 dated 31.12.1988 a scheme of inter-Bank
Participation Certificate (IBPC) was introduced for schedule commercial banks.
In terms of RBI Circular RBI/FIDD/2016-17/34 Master Direction
FIDD.CO.Plan.2/04.09.01/2016-17 July 7, 2016 (updated on 18.06.2019) Regional Rural
Banks.
i) Can issue IBPC of a tenor of 180 days on risk sharing basis to scheduled
commercial banks against their priority sector advances in excess of 75%.
ii) Can also issue Inter Bank Participation Certificates (IBPCs) of a tenor of
180 days (minimum Participation period 91 days) to Regional rural Banks
in respect of their priority sector advances in excess of 75% of their
outstanding advances on risk sharing basis.
SCHEME OF INTER-BANK PARTICIPATIONS-GUIDELINES
Introduction: The Working Group on the Money Market (Chairman Shri N.Vaghul) had
recommended the introduction of Inter-Bank Participations, with a view to providing an
additional instrument for easing out short term liquidity within the banking system. The
said recommendation has been accepted and the following scheme of Participations has
been framed. The salient features of the Scheme are given below:
There will be two types of Participations:
I. Inter-Bank Participations with Risk Sharing; and
II. Inter-Bank Participations without Risk Sharing.
I. Inter-Bank Participations with Risk Sharing: The primary objective of the
Participations is to provide some degree of flexibility in the credit portfolio of banks and
to smoothen the working of consortium arrangements.
1. Applicability of the Scheme: The scheme will be confined to scheduled
commercial banks and Regional Rural Banks.
2. Period of Participations: The minimum period of such Participation will be 91
days, while the maximum period will be 180 days.
JRGB Loan & NPA Management Policy Page 21 of 48
3. Rate of Interest: The rate of interest on Participations would be left free to be
determined between the issuing bank and the participating bank, subject to a
minimum of 14.0 per cent per annum. In terms of RBI Cir.No. DBOD.No.
BC.177/13.07.93 dated 11.10.1993 the stipulation relating to the minimum rate if
interest of 14% per annum on Inter-Bank Participation with risk sharing has been
withdrawn.
4. Selection of Accounts: Banks will allot such Participations only in respect of
advances classified under Health Code No. 1 status (Standard Assets). The
aggregate amount of such Participations in any account should not exceed 40 per
cent of the out standings in the account at the time of issue. During the currency
of the Participations the aggregate amount of Participations should be covered by
the outstanding balance in the account. In case the outstanding balance falls short
of the participations outstanding, the issuing bank will reduce the Participations to
the extent necessary and if need be, issue Participations for smaller amounts.
5. Accounting: In the case of the issuing bank, the aggregate amount of
Participations would be reduced from the aggregate advances outstanding. Such
transactions will not be reflected in the individual borrower's accounts but will be
only netted out in the General Ledger. The participating bank would show the
aggregate amount of such Participations as part of its advances. The issuing bank
will maintain a register to record full particulars of such Participations. There will
be no privity of contract between the borrower and the participating bank and to
avoid any difficulty, banks will incorporate in the cash credit agreement of the
borrowers an appropriate clause permitting the lending bank to shift a part of the
advance to any bank, without notice to the borrowers, by way of Participations.
The agreement may also provide that in the event of issue of Participations the
issuing bank would continue to represent the participating bank in protecting the
latter's interests.
6. Risk: The risk would be deemed to have crystallized when the issuing bank recalls
the advances and stops operations in the relative account. In such a case the
issuing bank would give due notice to the participating bank intimating the default.
7. Repayment: The issuing bank will normally repay the amount of Participations
together with interest to the participant bank on the date of maturity, excepting
when the risk has materialized. In cases where risk has materialized the issuing
bank will take necessary action, in consultation with the participating bank and
share the recoveries proportionately.
8. Documentation: All banks wishing to participate in the scheme should subscribe
to the "uniform code for Participations" prepared by IBA which will spell out clearly
their inter-se rights and obligations in relation to the securities covered by the
advances in question.
9. Transferability: Participations will not be transferable.
JRGB Loan & NPA Management Policy Page 22 of 48
II. Inter-Bank Participations without risk sharing: The primary objective of this type of
Participation is to even out short term liquidity. The Participation should be
backed by the cash credit accounts of the borrowers.
1. Applicability of the scheme: The scheme will be confined to scheduled
commercial banks only.
2. Period of Participation: The tenure of such Participations will not exceed 90
days.
3. Rate of Interest: The rate of interest would be determined by the two concerned
banks subject to a ceiling of 12.5 per cent per annum.
4. Accounting: The issuing bank will show the amount of Participations as
borrowing while the participating bank will show the same under Advances to bank
i.e. due from banks. The Participations would be treated as part of the net Demand
and Time Liabilities and net bank balances for purposes of statutory reserve
requirements.
5. Repayment: On the date of maturity, the issuing bank will pay the amount of
Participations with interest to the participating bank irrespective of the default if
any in the advance in question.
6. Transferability: Participation will not be transferable.
7. Reporting of Data: As a result of outstanding Participations being treated as
borrowings, the issuing bank should report such borrowings in the fortnightly return
under Section 42(2) of the Reserve Bank of India Act, 1934. The same should be
done by including the amount of Participations, by the issuing bank under
'Borrowings from banks' i.e. item l(b) in Form 'A'. The participating bank should
include the amount of Participations taken in advances to banks under item III(c)
in Form 'A'. The amount of Participations so included in the relative items of Form
'A' should be clearly indicated as a foot-note to the return, showing separately also
Participations on risk sharing basis.
PSLC (Priority Sector Lending Certificate)
PSLC (Priority Sector Lending Certificate) is another mode of Purchase/Sale of Priority
sector advances as permitted by RBI. Reserve Bank of India has issued detailed
guidelines vide its Circular No. FIDD.CO.Plan. BC.23/04.09.01/2015-16 dated 07th April,
2016 for trading in Priority Sector Lending Certificates (PSLCs). Priority Sector Lending
Certificate (PSLC) is an alternate to Inter Bank Participation Certificate to enable banks
having surplus priority sector portfolio , to sell it through online trading platform i.e., e-
Kuber portal of RBI.
JRGB Loan & NPA Management Policy Page 23 of 48
Hitherto, we are selling/buying the surplus/shortfall priority sector advances through Inter
Bank Participation Certificate in open market.
In terms of Reserve Bank of India circular guidelines, we can sell surplus Priority Sector
lending for the maximum period that will expire by 31st March and will not be valid beyond
the reporting date i.e., March 31st, irrespective of the date it was first sold. There will be
no transfer of credit risk on the underlying as there is no transfer of tangible assets or
cash flow. The payment of fee by buyer to the seller will be market determined.
In accordance with the above, we propose to issue/purchase Priority Sector Lending
Certificates for the surplus/shortage of priority sector lending of that particular year on E-
Kuber platform.
Accounting: The fee paid for purchase of the PSLC would be treated as an ‘Expense’
and the fee received for the sale of PSLCs would be treated as ‘Miscellaneous Income’.
TURN AROUND TIME (TAT) FORMING THE PART OF CREDIT POLICY:-
TURN AROUND TIME (TAT) UNDER DIFFERENT SCHEMES/ PRODUCT:
1.SEGMENTS: AGRICULTURE
SCHEME/ PRODUCT TURN AROUND TIME (TAT)
Kisan Credit Card(KCC) Within 3 days from completion of
required formalities
Agriculture Term Loan 14 days
SHG NRLM Credit Linkage 7 days
2.SEGMENTS: PERSONAL
SCHEME/ PRODUCT TURN AROUND TIME (TAT)
Car Loan 3 days
Instant Credit 3 days
Home Loan
14 days
(7 days if the proposal is under builder
tie-up)
Education Loan to Public 7 days
DL/OD against Bank’s Term deposit Same day
DL/OD Against Other Liquid Securities 3 days
3.SEGMENT: SME
PARTICULARS TURN AROUND TIME (TAT)
Loan up to 25 Lakhs 14 days
Loan above 25 Lakhs 21 days
JRGB Loan & NPA Management Policy Page 24 of 48
NPA POLICY OF THE BANK
INCOME RECOGNITION, ASSET CLASSIFICATON, PROVISIONING & OTHER
RELATED MATTERS
In order to reflect Bank’s actual financial health in the balance sheet and as per
recommendations made by the M. Narsimham Committee on financial system, the RBI
has introduced prudential norms for Income Recognition, Asset Classification and
Provisioning for the advances portfolio of all the Banks including RRBs. The
classification of assets of the bank is to be done on the basis of objective criteria which
would ensure a uniform and consistent application of the norms & the provisioning is to
be made on the basis of the classification of assets into different categories.
An asset becomes NPA when it ceases to generate income for the Bank. In terms of
international best practices & greater transparency, 90 days overdue norms are to be
followed for identification of NPAs w.e.f 31st March 2004. Hence, an advance would be
a Non-performing asset where –
(i) Interest and / or instalment of Principal remain overdue for a period of more than
90 days in respect of Term Loan.
(ii) The account remains “Out of Order” for a period of more than 90 days in respect
of an Overdraft / Cash Credit (OD/CC).An account should be treated as “Out of
Order”, if the outstanding balance in the account remains continuously in excess
of the limit sanctioned / drawing power. Where the outstanding balance in the
account is less than the sanctioned limit / drawing power, but there are no credits
continuously for 90 days or credits are not enough to cover the amount of interest
debited during the same period, these accounts should be treated as “Out of
Order”.
(iii) The bills overdue for a period of more than 90 days in case of bills purchased &
discounted.
(iv) Any amount to be received remains overdue for a period of more than 90 days in
respect of other accounts.
(v) In case of Direct Agricultural Advances to Individual farmers:
a) A loan granted for short duration crops will be treated as NPA, if the instalment
of principal or interest there on remains overdue for two crop seasons.
b) A loan granted for long duration crops will be treated as NPA, if the instalment of
principal or interest thereon remains overdue for one crop season.
c) Depending upon the duration of crops raised by an agriculturist, the above NPA
norms would be applicable to Agricultural Term Loans availed by them.
JRGB Loan & NPA Management Policy Page 25 of 48
Identification of Assets:
The system has to ensure the identification of NPAs & Classification of Assets are done
on an on-going basis and doubt in asset classification due to any reason are settled
through specified internal channel within one month from the date on which the account
would have been classified as NPA as per prescribed norms. Provisions are to be made
as at the end of each month, so that the income expenditure account and for the
respective quarters as also the Profit & Loss account and Balance Sheet for the year
end reflects the provision made for NPAs.
Treatment of Accounts as NPA:
Record of Recovery – The treatment of an asset as NPA should be based on the record
of recovery. An advance should not be treated as NPA merely due to existence of some
deficiencies which are of temporary in nature. Such as non-availability of adequate
drawing power, balance outstanding exceeding the limits, non-submission of stock
statements and non-renewal of the limits on the due date etc. Where recovery is in doubt
or there is a threat of loss, the asset should be treated as NPA.
Borrower-wise and not facility-wise – In respect of a borrower having more than one
facility with a bank, all the facilities granted by the Bank will have to be treated as NPA
and not the particular facility or part therefore, which has become irregular.
Asset Classification (for SME & PER Segment):
Standard Assets – An advance, where recoveries are forthcoming regularly and there
are no dues in respect of instalment of loan, interest applied in the account, and other
charges, if any debited in the accounts should be treated as standard accounts. Such
an account does not disclose any credit weakness and it does not carry more than
normal risk associated with the advance. However, this includes regular and temporarily
irregular accounts as specified by RBI. IRAC status of such accounts would be 0, 1, 2 &
3.
Probable NPA –
Category 1 – If the due amount (instalment, applied interest & other dues if any) remains
unrecovered up to 30 days. IRAC status of such accounts would be IRAC-1.
Category 2 – If the due amount remains unrecovered above 30 days but less than 60
days. IRAC status of such accounts would be IRAC-2.
Category 3 – If the due amount remains unrecovered above 60 days but less than 90
days, such accounts would be categorized as IRAC-3.
Account having IRAC status 1, 2 & 3 (probable NPAs) should be treated as Standard
Assets.
JRGB Loan & NPA Management Policy Page 26 of 48
Sub-standard Assets – An advance account is identified as sub-standard category of
NPA, where –
(i) Interest and/or instalment of Principal remain over dues / unpaid for a period of
more than 90 days in respect of TL, ATL for allied activities and DL (Gold)
accounts;
(ii) The account remains “Out of Order” for a period of more than 90 days in respect
of an OD/Cash Credit account.
(iii) If instalment of Principal and / or interest thereon in respect of KCC (Crop loans)
and ATL (other than allied activities) accounts remain overdue / unpaid beyond
due date for two crop seasons in case of short duration crops and one crop
season in case of long duration crops.
A loan account on being identified as NPA, it would remain in Sub-standard category till
completion of the age of 12 months.
As on the date of balance sheet, i.e. 31st March, a sub-standard asset will be one which
remained NPA for a period less than or equal to 12 months.
Doubtful Assets – If the arrear amount (Instalment, interest and other charges, if any)
in full is recovered from a sub-standard asset, it will be upgraded and turn-up to Standard
asset. In case, it is not recovered and the account completes the age of 12 months in
sub-standard category, it will automatically go in Doubtful category of NPA.
Doubtful Assets has been classified in three categories:
Doubtful 1 – IRAC Status 5
Doubtful 2 – IRAC Status 6
Doubtful 3 – IRAC Status 7
The periodicity of different categories of Doubtful assets & age of NPA as the date of
balance sheet would be as under:
Doubtful categories – periodicity Age of NPA
D1 – up to 1 year More than 12 months & up to 24 months
D2 – above 1 year and not less than 3 years Above 24 months but less than 48 months
D3 – above 3 years Above 48 months
Loss Assets – A loss asset is one where loss has been identified by the Bank or
internal / external auditor, controlling agencies or RBI, but the amount has not been
written-off fully.
Classification of Loan accounts direct as Doubtful or Loss Category:
In respect of loan accounts, where there is Potential threats for recovery due to erosion
in the value of security by less than 50% of realizable value assessed by the Bank, the
asset may be classified directly as doubtful category. If the realizable value of the security
is insignificant, i.e. less than 10% of outstanding, the asset straightway may be classified
as loss asset.
JRGB Loan & NPA Management Policy Page 27 of 48
Provisioning:
As per policy for compliance with prudential norms.
NPA MANAGEMENT
The Bank has adopted well defined measures for controlling fresh NPA accretion and
resolution of existing NPAs.
1. Review of NPAs / AUCAs: The Bank has formed various committees headed by
Chairman / GM to periodically review SMAs/NPAs/AUCAs and suggest resolution
and turn around strategies.
2. The first focus in management of SMAs will be possible upgradation of the loan
asset through rectification, re-phasing, restructuring or rehabilitation of borrower’s
business. If the branch level review indicates that the problems of the unit are not
temporary, viability studies need to be undertaken on a case-to-case basis.
Restructuring of the account as an alternative, needs to be explored at the early
stages of stress in the account. Viability of the unit and the promoters’ interest and
stake are the basic prerequisites for the Bank to undertake restructuring/
rehabilitation. However, right of recompense will be incorporated in every
rehabilitation proposal.
3. Scheme of outsourcing of recovery through Recovery Agents/Agencies (RAs) has
been reviewed and aligned with RBI Guidelines for Outsourcing of Financial
Services. The detailed guidelines for appointment of Recovery Agents/Agencies
and monitoring of their conduct include:
(i) Model Code of Conduct to be adopted by RAs.
(ii) Declaration- cum- undertaking to be obtained from RAs.
(iii) Model Policy & Operating Guidelines for Repossession of Security.
(iv) Application Form for appointment of RAs.
(v) Grievances Redressal Mechanism.
4. The Bank has also put in place a mechanism for outsourcing of recovery efforts,
to supplement the efforts of the Bank’s staff.
5. Viable units and where promoters show genuine interest in reviving the unit will
continue to be supported. Sale of non-core assets in case of over-leveraged
companies to be pursued vigorously with the promoters to bring down the interest
cost. In other cases, especially where promoters are not cooperating, options to
exit or reducing exposure will be actively explored, where feasible. Where despite
our best efforts in this regard, it is not possible to exit an account or at-least to
reduce our exposure, a reassessment of the situation will be done and if
necessary, Bank will consider either an acceptable OTS or in its absence, even
consider recalling the account. Bank will examine the various options and initiate
measures as appropriate in a time-bound manner, as delays in such situations far
from helping matters are likely to lead to erosion of security and increase in the
ultimate quantum of the NPA.
JRGB Loan & NPA Management Policy Page 28 of 48
6. Settlements through compromise (i.e. one-time settlement of dues) will be a
negotiated settlement under which Bank endeavors to recover its dues to the
maximum extent possible. Detailed guidelines for compromise settlements have
been put in place. Compromise settlements are permitted where cases are
pending before Courts/DRTs subject to consent decree being obtained from the
concerned Court/DRT.
7. In a compromise, as the Bank agrees to accept an amount less than the total
amount due under the relative loan contract, in full and final settlement as a
general policy, it is tantamount to cessation of lender-borrower relationship with
the borrowing unit, its promoters and guarantors. Ordinarily, no fresh finance will
be considered either to the existing unit or to any new unit being promoted by the
same promoters / guarantors. However, exceptions may be made in respect of
settlements under various One Time Settlement Schemes of RBI and similar
Schemes of the Bank, for which separate guidelines are in place.
8. The Bank would follow a policy of taking the NPAs of doubtful/ loss categories
which are either fully or substantially provided for, may be taken off the Balance
Sheet and parked in Advances Under Collection Account (AUCA). Detailed
operating guidelines are in place. This procedure is not expected to dilute in any
way the follow-up for recovery. The structured mechanism prescribed for follow-
up of accounts parked in AUCA will be followed meticulously. All internal reviews
of NPAs will also include accounts transferred to AUCA.
9. Accounts sanctioned and disbursed, and where repayment has been initiated
during the financial year and slipped into NPA category within the first two years
of sanction/repayment commencement fall in the category of Quick Mortality
Loans. In such loans, appropriate steps to be initiated to bring them back to
Standard assets category.
10. Bank has laid down specific instructions in the matter of classification /
declassification of Non-cooperative borrowers.
11. In addition to outsourcing of recovery through Recovery Agents, BCs etc., Officers
retired from the bank (not below Scale-II) will also be engaged for monitoring &
recovery in SMA/NPA & AUCA accounts as per the following arrangement.
Outsourcing of SMA/ NPA: Monitoring & Recovery through Retired Officers
Special Mention Accounts (SMA) presently constitutes around 51% of the total advances
which is very alarming. Hence, focused action by a dedicated team is required to be
made for regularisation / recovery in the coming days. Two Retired Officers will be posted
at each Regional Office under the supervision of Regional Manager for the purpose. SMA
Management Hub will be created at each Regional Office which will be supported by the
retired officers.
JRGB Loan & NPA Management Policy Page 29 of 48
(A) Terms of Engagement for Retired officers:
(i) Official retired from the bank not below Scale-II are eligible to apply for the
engagement. Officers with adequate experience of NPA recovery will be
preferred.
(ii) There should not be a gap of more than two years from the date of retirement at
the time of engaging the officer or as on the date as decided by the Bank.
(iii) The period of engagement of these ex-officials will be for a period of two (02)
years subject to quarterly performance review and renewal of arrangement.
However the engagement of an ex-official will be terminated if he/she attains the
age of 65 years during the period of engagement. The engagement may be
terminated at any point of time by giving 30 days’ notice on unsatisfactory
performance.
(iv) The applicant should be well versed with NPA recovery tools with sufficient
background of NPA recovery.
(v) 15 days’ leave will be allowed for every financial year of the engagement or on
pro-rata basis for part thereof.
(vi) HRA or leased rent will not be paid.
(vii) Engagement will be maximum for two (02) years or up to the age of 65 years,
whichever is earlier.
(viii) The retired officer’s engagement will be based on a selection process detailed
as below.
(B) Coverage of Branches:
The Retired Officer engaged for SMA/NPA: Monitoring & Recovery shall be placed at
any Regional Office of the bank under the supervision of the Regional Manager. The
Regional Manager will assign the job to the engaged officer for recovery & monitoring
in SMA/ NPA & AUCA accounts.
(C) Remuneration:
The remuneration of the retired officer engaged for the purpose may be fixed by the Bank
with the approval of the Board as under:-
Scale II Officers (at the time of retirement): Rs. 25,000/- per month
Scale III/ IV Officers (at the time of retirement): Rs. 30,000/- per month
(Subject to deduction of income tax at source applicable from time to time as per the
Income Tax rules)
In addition to fixed remuneration, Travel Allowance of Rs. 1500/- per month will be paid
on certificate basis.
(D) Selection Process for engagement of Retired Officers:
The selection will be done on the basis of two stage process namely:
a) Screening b) Interview
JRGB Loan & NPA Management Policy Page 30 of 48
Selection will be done on the basis of aggregate marks obtained in the screening (30
marks) and interview (20 Marks). Candidates will have to score minimum 50% marks in
each process.
Screening of application for interview:
Screening will be done by a committee of three members headed by the General
Manager of the Bank. Other two members of the Committee will be Scale IV or V Officers
of the bank. The committee will have the right to reject applications not fulfilling eligibility
criteria. Candidates will be short listed for interview in the ratio of 1:4.
Screening Criteria:
The Screening criteria will be as following.
CRITERIA MAXIMUM MARKS
i) Grade at the time of retirement (Scale-IV Officer): 10 marks
ii) Grade at the time of retirement (Scale-III & II Officer): 08 marks
iii) Previous assignment as RM / Deptt Head (HO): 10 marks
iv) Previous assignment as BM / Desk Officer (NPA): 08 marks
v) Previous assignment as other Officer: 06 marks
vi) Experience & Qualifications: 10 marks
Interview Process of Applicants:
Interview will be conducted by a committee of three members headed by the General
Manager of the Bank. Other two members of the Committee will be Scale IV or V Officers
of the bank. In the interview communication skill, job knowledge and awareness about
the IRAC & provisioning norms and NPA management will be tested.
12. As per RBI guidelines, the bank shall recognize incipient stress in loan
accounts, immediately on default, by classifying such assets as special mention
accounts (SMA) as per the following categories:
SMA Sub-categories Basis for classification –
Principal or interest payment or any other
amount wholly or partly overdue between
SMA-0 1-30 days
SMA-1 31-60 days
SMA-2 61-90 days
JRGB Loan & NPA Management Policy Page 31 of 48
In the case of revolving credit facilities like cash credit, the SMA sub-categories will
be as follows:
SMA Sub-categories Basis for classification –
Outstanding balance remains continuously in
excess of the sanctioned limit or drawing power,
whichever is lower, for a period of:
SMA-1 31-60 days
SMA-2 61-90 days
Accordingly, all loan accounts under stress will be monitored regularly and inspection
of the unit /borrower shall be a mandatory exercise in the under mentioned formats for
all Non-KCC stress accounts. A register for Probable NPA & NPA accounts named as
“PNPA / NPA MONITORING REGISTER” shall be maintained at each branch in the
given format.
JRGB Loan & NPA Management Policy Page 32 of 48
JHARKHAND RAJYA GRAMIN BANK
BRANCH/AMH: REGION:
MONTHLY INSPECTION REPORT OF SMA & NPA NON-KCC ACCOUNTS
1. Details of Loan:
a) Name of the Borrower:
b) Account Number:
c) Mobile Number:
d) Address:
e) Loan Description / Segment:
f) Date of sanction/Last renewal:
g) Limit sanctioned: Rs.
h) Drawing Power: Rs.
i) Outstanding as on …. Rs.
j) Overdue by: Rs.
k) Reasons of Overdue: Non-Servicing of Intt. / EMI etc.
l) IRAC Status: IRAC – 1 / 2 / 3 / 4 / 5 / 6 / 7 / 8 / AUCA
m) Date of NPA / PNPA:
n) Secured Portion of Outstanding: Rs.
o) Nature of Security:
p) Other Loans of the Borrower, if any:
q) Date(s) of Notice(s) sent to the Borrower & Guarantor:
r) Date(s) of Visit(s) to the unit / Borrower:
s) Date(s) of contacting the Borrower over phone:
t) Response of the Borrower for regularisation of loan account:
u) Date of contacting the Guarantor(s) & response:
JRGB Loan & NPA Management Policy Page 33 of 48
2. (i) Details of Security available:
(Rs. in Lacs)
Security Description Estimated
realizable
value
Date of
valuation
of the Security
Insurance
Valid Till
Primary:
Collateral:
Agriculture
Non-agriculture
(ii) Present Position of Primary & Collateral Securities: (Current status of the
security documents held on the account and the charges created in Bank’s favor
with comments on whether security documents are in order, enforceable &
whether Charge is created on property)
(iii) Date of Security Documents / Revival Letter:
3. Comments on Staff accountability, if any:
.
4. Action proposed for Regularisation of loan Account:
5. Probable date of Regularisation:
6. Recommendations of the Branch/AMH:
Date: Branch Manager / AMH Maintenance
Officer
Selfie of Branch / AMH Official with borrower & primary / collateral
securities to be attached.
One copy of the Report along with Selfie to be retained in loan file and
one copy to be submitted to RO immediately.
JRGB Loan & NPA Management Policy Page 34 of 48
JHARKHAND RAJYA GRAMIN BANK
BRANCH: REGION:
PNPA / NPA MONITORING & FOLLOW UP REGISTER FOR NON-KCC
ACCOUNTS
(To be updated on Monthly basis)
Static Data
1. Details of Loan:
a. Name of the Borrower:
b. Account Number:
c. Mobile Number:
d. Address:
e. Loan Description/ Segment:
f. Date of sanction/ Last Renewal:
g. Limit sanctioned: Rs.
h. Drawing Power: Rs.
i. Date of PNPA / NPA:
Monthly Updation after Inspection / Visit to the unit / borrower
(Amt. in Rs.)
Date Outstandi
ng
Overdue IRAC
Status
Date of
Visit
Action plan for
regularization &
Implementation
BRANCH MANAGER / AMH OFFICIAL
JRGB Loan & NPA Management Policy Page 35 of 48
• Wilful default:
Wilful default & action there against - Bank will fully comply with RBI guidelines on wilful
defaulters and action there against in terms RBI’s definitions of ‘wilful default’, ‘diversion
& siphoning of funds’ and ‘end-use of funds. These instructions apply without any
exception to all loan accounts where the outstanding are Rs.25 lakhs or more. The
classification / declassification of Wilful Defaulters will be reported to RBI only on
approval by the HOCC. At the end of this process, list of wilful defaulters to be advised
to CIBIL and other Credit Information Companies (List of Wilful Defaulters– suit filed
cases and non-suit filed cases) where a decision has been taken to that effect. RBI has
decided that the list of wilful defaulters, has to be sent to Credit Information Companies
(CICs) only, on a monthly or a more frequent basis.
• ‘Wilful default’ would be deemed to have occurred if any of the following events is
noted:
i. The unit has defaulted in meeting its payment / repayment obligations to the Bank
even when it has the capacity to honor the said obligations.
ii. The unit has defaulted in meeting its payment / repayment obligations to the Bank
and has not utilized the finance for the specific purposes for which it was availed
but has diverted the funds for other purposes.
iii. The unit has defaulted in meeting its payment / repayment obligations to the Bank
and has siphoned off the funds so that the funds have not been utilized for the
specific purpose for which finance was availed, nor are the funds available with
the unit in the form of other assets.
iv. The unit has defaulted in meeting its payment / repayment obligations to the Bank
and has also disposed of or removed the movable fixed assets or immovable
property given for the purpose of securing a term loan without the knowledge of
the Bank.
v. The identification of wilful default should be made keeping in view the track record
of the borrowers and should not be decided on the basis of isolated transactions
/ incidents. The default to be categorized as wilful must be intentional, deliberate
and calculated.
The legal process, wherever warranted, against the borrowers / guarantors and
foreclosure of recovery of dues shall be initiated expeditiously. The Bank may
initiate criminal proceedings against wilful defaulters, wherever necessary.
The Bank may also initiate criminal action against wilful defaulters, based on the
facts and circumstances of each case after careful consideration and due caution.
JRGB Loan & NPA Management Policy Page 36 of 48
WRITE OFF POLICY
1. Eligibility Criteria: -
(i) It would be essential for NPA to be transferred to Protested Bills / Recalled
Assets before it is written-off.
(ii) Normally NPA having age of more than three years from the date of sanction
/first disbursement would be eligible for write-off.
(iii) Any NPA account irrespective of IRAC status in respect of which legal action has
been initiated for lodging claim with CGTMSE would be eligible for write-off.
(iv) Similarly, any NPA account having no security (primary & collateral) may be
written-off by making 100% provision there against.
(v) The loan accounts classified as NPA in Doubtful category & loss category i.e.
IRAC 7 & 8 would be normally eligible for write- off.
(vi) Only those accounts should be considered eligible for write-off against which
100% provision have been made at H.O. level.
(vii) Fraud and forgery, robbery cases may be written-off anytime provided 100%
provision have been made.
2. Conditions for write- off:
Write-off exercise in respect of eligible loan accounts would be done subject
to the following conditions: -
(i) The sanctioning authority of the particular loan account himself may not
recommend write-off proposal thereof.
(ii) A certificate as per standard format should be furnished in duplicate with each
write-off proposal.
(iii) Writing-off eligible loan accounts would be carried out for Bank’s internal
purpose. Its benefit would not pass on to the respective borrowers in any case.
(iv) All sorts of recovery efforts would continue in respect of written- off accounts as
usual.
(v) Initiation of legal proceedings against the borrowers and guarantors in deserving
cases (Outstanding above Rs.10000/-as per existing practice) would continue as
usual.
JRGB Loan & NPA Management Policy Page 37 of 48
3. Processing:
Write-off proposals shall be prepared by the Branches in duplicate and submitted to
their Regional Offices with proper recommendations. RO shall scrutinize the proposal
and if it is found eligible as per norms of the Bank, shall sanction the proposal within
power delegated to ROCC, otherwise submit to H.O. with due recommendation at H.O.,
the proposal shall be properly checked and disposed-off. Eligible cases shall be
sanctioned by the HOCC/NWCC as per structured Authority according to the power
delegated.
4. Structure of the committee: -
(i) HOCC:
Chairman of the committee-Chairman General Manager-Member
CM/Sr. Manager (NPA) or CM/Sr. Manager (Advance) -Member secretary Two
Departmental Heads-Members
Quorum: - the quorum of the committee will be four comprising of Chairman,
General Manager, CM/Sr. Manager (NPA), or CM/Sr. Manager (Advance) and
any one Departmental Head.
(ii) NWCC: - General Manager will be the chairman of Head office level Network
Credit Committee. Three Departmental Heads will be members of the committee.
In the absence of CM/Sr. Manager NPA, CM/Sr. Manager Advance will be the
Member Secretary of the committee.
Quorum: - The quorum of the committee would be four comprising of General
Manager, CM/Sr. Manager NPA or CM/Sr. Manager Advance and any two of
the Deptt. Heads.
(iii) ROCC:-This Committee will be headed by Regional Manager. Desk Officer NPA
& three other Desk officers will be members of the Committee. In the absence of
Desk Officer NPA, Desk Officer Advance and will be the Member Secretary of
the committee.
Quorum:-The quorum of the committee would be four comprising of RM, Desk
Officer NPA or Desk Officer Advance and any two Desk Officers.
5. Delegation of Power: -
(i) RO level Regional Office Credit Committee (ROCC) headed by Regional
Manager- Total loss to the bank per borrower - Rs.1.00 lakhs.
(ii) H.O. level Network Credit Committee (NWCC) - Headed by the General Manager
- Total loss to the bank per borrower - Rs.10.00 lakhs.
(iii) Head Office Credit Committee (HOCC) Headed by the Chairman –Total loss of
the Bank per borrower - Rs.25.00 lakhs.
(iv) Where the loss per borrower is above 25 lakhs, prior approval/Post facto
confirmation would be obtained from the Board.
JRGB Loan & NPA Management Policy Page 38 of 48
6. Control system: -
Proposals sanctioned by ROCC would be controlled by General Manager, sanctioned
by NWCC would be controlled by the Chairman of the Bank whereas sanctioned by the
HOCC would be placed before the Board for information and confirmation.
7. Post write-off step: -
(i) Balances of individual loan accounts of sanctioned proposals and summary of
the sheet should be verified before passing write-off entries. In case there is any
change in the balance of any loan account due to recovery in the sanctioned
write-off proposal, the reduced balance after recovery will be written-off and entry
should be passed accordingly under advice to controlling offices.
(ii) Head Office will be debited through Branch clearing account at the Branch with
sum total of the sanctioned write-off proposals by credit to individual Protested
Bill’s account to its closure.
(iii) Relative advice on account of write-off should be sent to H.O. through respective
R.O.
(iv) Individual details of write-off loan accounts would be maintained in the write-off
register at the Branches manually also.
(v) Any recovery in write-off loan accounts should be credited to charges account
(recovery in write-off account).
(vi) In order to have proper control and monitoring all the written-off loan accounts
would be parked under the AUCA contra CLAUCA in GL as usual by making
suitable entries simultaneously.
(vii) Advance Under Collection Account (AUCA) Shall be reviewed by NWCC during
last quarter of every financial year.
8. Other important issues: -
(i) Regional Office(s) should maintain year wise, Branch wise and proposal wise
proper record of written-off cases relating to their region.
(ii) Staff accountability sheet as per format enclosed duly signed by respective
Branch Manager and counter- signed by respective Regional Manager should be
accompanied with each written-off proposal where total loss of the bank is
Rs.50000/- and above.
JRGB Loan & NPA Management Policy Page 39 of 48
EARLY WARNING SIGNALS (EWS) FORMING THE PART OF CREDIT POLICY
INTRODUCTION OF EARLY WARNING SIGNALS (EWS) &
RED FLAGGED ACCOUNTS (RFA) FRAMEWORK
The early detection of Fraud and the necessary corrective action are important to reduce
the quantum of loss. Any Early Warning Signals (EWS) in a loan account should
immediately put the bank on alert regarding a weakness or wrong doing which may
ultimately turn out to be fraudulent.
A Red Flagged Account (RFA) is one where a suspicion of fraudulent activity is thrown
up by the presence of one or more Early Warning Signals (EWS).
As per NABARD Guidelines, the threshold for EWS& RFA is set at Rs.20 lacs or more
at bank level (irrespective of solo lending, multiple or consortium lending arrangement).
All loan accounts where the Bank’s exposure is Rs.20 lacs and above, will be covered
for RFA Review.
Benefits of EWS:
i. EWS solution will help RRBs make improved and informed decisions about
their loan portfolio and assist them in establishing a comprehensive framework
around stressed assets.
ii. EWS solutions can help in early detection of potential frauds or the slippage
of an account into delinquency.
iii. EWS can also help bankers perform real-time monitoring of loan accounts and
identify them as Red-Flagged Accounts (RFAs) based on insights from
historical fraud instances and current industry scenario.
iv. An effective EWS solution can help banks establish a more stringent credit
monitoring program and stronger risk management controls.
v. EWS can help banks lower their loan-loss ratios by 10-20 percent.
Characteristics of EWS:
i. EWS solution should have built-in features that will prompt signals or triggers
whenever there is a possibility of an account becoming delinquent or declared
as fraud.
ii. EWS solution must be centralized in such a way that whenever there is an
occurrence or indication of fraud it will generate alerts that the credit
monitoring teams can act on in a timely manner and initiate remedial actions.
iii. The focus would be to diagnose and detect vulnerability proactively, identify
stress in all category/sector of borrowers and take corrective measures, as
required.
JRGB Loan & NPA Management Policy Page 40 of 48
Key results achieved by a robust EWS framework will include:
i. Increased governance by banks due to the increased visibility around
borrower state of affairs
ii. Minimized likelihood of loan defaults through taking preventive measures
iii. Minimize exposure of default
iv. Increased profitability due to lower provisioning required, and
v. Higher return on capital
EWS Solution:
EWS solution consists of three phases –
i. Data Integration
ii. EWS Trigger Modeling and Risk Grading
iii. Risk Mitigation Planning
(i) Data Integration:
The first step in deploying the EWS solution is integrating multiple data
sources, i.e. internal data sources; external data sources pertaining to the
borrowers and Data obtained through market intelligence.
Internal Data sources include Conduct of Account, Compliance Status, and
Financials of the unit.
External data sources include data from market intelligence, borrower data
submitted by the borrower, credit bureaus, rating agencies and
macroeconomic factors like commodity pricing, weather, etc. Qualitative data
like market intelligence may come in the form of verbal input from sources
within the company or from the market. Further, most of the borrower related
data like stock statements, quarterly financial statements, etc. may be
available on paper through submissions by the borrower.
(ii) EWS Trigger Modelling & Risk Grading:
Triggers from Conduct of Account, Compliance status, Financial Ratios,
External Sources may be identified. A single dimension trigger analysis based
on a simple payment default could be erroneous. The picture may be very
different if the trigger analysis is multi-dimensional. If the business has a
healthy inventory turnover ratio and EBITDA, has a good track record of
collecting receivable and has a good reputation amongst the customers and
vendors, a single payment default may not result in the borrower being
classified as potentially delinquent.
Risk Grade (Green/Amber/Red) for each Trigger Point will be based on the
past trend of probability of Default. Bank may set their own Benchmark for
allocation of Risk Grade against each Trigger Point.
Risk Grade to be allotted by Branch Manager for each Trigger point. Risk
Grade may be as per Benchmark set by the Bank or otherwise. Due to any
factor, if Branch Manager prefer to allot Risk Grade other than the Benchmark
set by the Bank, a proper Justification has to be given for such deviation.
JRGB Loan & NPA Management Policy Page 41 of 48
(iii) Risk Mitigation Planning:
The primary reason for designing an EWS system is to minimize the Exposure
at Default (EAD). This can only be achieved by way of a strong credit
monitoring unit (Branch / AMH) that is responsible for monitoring the account
flagged by the EWS.
Depending on the risk grade of each underlying Trigger in the account, EWS
profiles the account into various monitoring lists depending on the intensity of
supervision efforts required. These monitoring lists are determined by the
degree of risk of an account and the intensity of risk mitigation action required.
Risk Grade Green–Triggers which are temporary and short-term by nature.
The business fundamentals of the Unit are strong and the business has the
potential of bouncing back. The bank needs to simply monitor these
parameters carefully and not take any drastic actions.
Risk Grade Amber– Triggers due to which Accounts are showing sub-optimal
performance, though the credit-worthiness is not impaired. The business may
be facing alarming working capital stress, management disputes or other
temporary issues which threaten the performance but not serious enough to
cause a long-term impairment of the borrower’s debt obligation. Due to this
Risk Grade, accounts may need to go through a restructuring process, change
in covenants or additional support by the Bank.
Risk Grade Red–Trigger which falls under Red Risk Grade may impact on
Accounts adversely i.e. may be highest probability of default due to
fundamental weaknesses or challenges in the business model due to internal
or external factors. These factors could be regulatory, economic or caused by
management / promoter wrongdoings. In such accounts, where Red Risk
Grade observed, banks need to take immediate action such as further
investigation, spot inspection of the unit, discussion with the Top Management
of unit to rectify the position on priority basis. In case of no improvement,
drastic steps like stop all funding, initiate recovery, enforce collateral, etc. may
be initiated to minimize the EAD.
The tracking of EWS in loan accounts must be integrated with the credit monitoring
process in the bank so that it becomes a continuous activity and also acts as a trigger
for any possible credit impairment in the loan accounts, given the interplay between
credit risks and fraud risks. The officer responsible for the maintenance of the account
should be sensitized to observe and report any manifestation of the EWS promptly to the
Regional Office. To ensure that the exercise remains meaningful, such officers may be
held responsible for non-reporting or delays in reporting.
JRGB Loan & NPA Management Policy Page 42 of 48
The exercise of identification of Red Flagged Account (RFA) through Early
Warning Signals (EWS) / Triggers to be carried out on Monthly basis by
Branch / AMH Officials and submitted to RO.
Operating unit may also identify RFA through EWS in between in case of any serious
incidence / observation.
The EWS would form the basis for classifying an account as RFA. A Red Flagged
Account (RFA) is one where a suspicion of fraudulent activity is thrown up by the
presence of one or more Early Warning Signals (EWS). The initial decision to classify
any Standard including SMA Account as RFA or Fraud, where a suspicion of fraudulent
activity is thrown up by the presence of one or more Warning Signals will be at the
individual Account level. Branch Manager / Maintenance Officer (AMH) or officials
responsible for supervision, operation & maintenance of the accounts should observe
and act on the EWS. Based on the frequency, severity and trend of the EWS, they have
to report it to their Regional Manager. The Regional office should report the details of
loan accounts of Rs.20 lacs and above together with the decision to classify them as
RFAs or otherwise in a listing format to the Chairman of the bank every month. A copy
of Individual account report to be preserved at RO and approved copy to be resend to
Branch/AMH for their record. A report on the RFA accounts may be put up to the Board
for monitoring and follow-up of Frauds, along-with a synopsis of the remedial action taken
with their current status.
RFIA auditor should verify all monthly reports at the time of audit. Early warning signals
identified in earlier monthly reports should be incorporated in appraisal at the time of
Renewal / Enhancement of the account.
Source of Data for identification of Triggers:
Based on the various guidelines issued by RBI / NABARD, we have identified 50 Trigger
points / Early Warning Signals for identification of RFA. Format enclosed herewith.
Branch / AMH to carry out the exercise for all the Loan accounts of Rs.20 lacs and above
on Monthly basis and submit it to RO for approval.
There are four Parts / variables, i.e. Internal Data Sources – Conduct of Account,
Compliance, Financial Statements and External Data Sources. Branch / AMH Officials
has to allot Risk Grade – Green / Amber / Red – against each Trigger point either as per
Benchmark set by the Bank or otherwise. Due to any factor/reason, if Branch Manager
prefer to allot Risk Grade other than the Benchmark set by the Bank, a proper
Justification has to be given for such deviation.
JRGB Loan & NPA Management Policy Page 43 of 48
Branch/AMH may get the account-wise data/information from the following sources:
Sr.No Variables Point
Nos.
Periodicity Source
I Internal Data
Sources
A Conduct of
Account
1 to 7 Monthly CBS Account Enquiry
8 to 12 Monthly /
Quarterly
Stock Statement
13 M / Q / HY / Y Unit Inspection
14 to 18 Monthly CBS Account Enquiry
B Compliance 19 to 26 Monthly Monitoring / Scrutiny of Account
C Financial
Statements
27 to 36 Yearly At the time of Renewal of A/c –
Based on Financial Statements
II External Data
Sources
37 to 50 Monthly Market enquiry / Media
In case of any non-applicable item, Branch may write as “NA” against the Trigger point.
For Item No. 1 to 7, data/information to be gathered from CBS system individually by the
Branch/AMH.
For Item No. 8 to 12, information needs to be gathered from Stock Statement. Depending
on the periodicity of SS for the particular account, this information may furnish in Format
on receipt of SS. Once it captured, till receipt of next SS the same Risk Grade may be
continued in monthly report.
Information about Item No. 13 to be gathered from Unit Inspection. Periodicity of Unit
Inspection may vary unit by unit. Hence, once Risk Grade is allotted based on Unit
Inspection observation, same Risk Grade may repeat till next Inspection.
Risk Grade for Item No. 14 to 18, 19 to 26 and 37 to 50 needs to be allotted on monthly
basis. Data needs to be gathered from CBS, Monitoring/Scrutiny of Account and Market
enquiry respectively.
Item No. 27 to 36 are related to Financial Statements/Ratios which has to be obtained on
annual basis after submission of Financial Statements by the borrower.
Encl: Format for identification of Red Flagged Account.
JRGB Loan & NPA Management Policy Page 44 of 48
Format for identification of Red Flagged Account
As on __________________
Branch, Code No. & Region :
Name of the Borrower :
Activity :
Banking Facility (ies) :
Facility Account No. LIMIT (Rs in lacs)
FB NFB TOTAL
IRAC Status (00/01/02/03/04) :
If SMA, Date of SMA :
SMA Status of Account & Reason :
Risk Grades as per Attached Sheet :
Sr.
No.
Variable Number of Risk Grade Allotted
Green Amber Red
1 Conduct of Account
2 Compliance
3 Financial Ratios
4 External Data Sources
We recommend that,
i) The conduct of Account is satisfactory and it may not be categorized as
Red Flagged Account or Fraud Account.
OR
ii) The account is observed as critical and therefore may be categorized as
Red Flagged Account or Fraud Account.
(Tick on appropriate item)
Submitted for approval.
Maintenance Officer (AMH) / Branch Manager
Date:
Approved as Recommended
Regional Manager (R - )
JRGB Loan & NPA Management Policy Page 45 of 48
Early Warning Signals (EWS):
Key Data Sources and Variables –
(I) Internal Data Sources:
A. Conduct of Account
Sr. Trigger Name /
Description
Risk Grade
Benchmark
Risk Grade
Allotted
Remarks /
Justification
1 Number of days the account
has been irregular during
last 6 months
Green- <30 days
Amber- 30-60 days
Red- >60 days
2 Number of days interest not
serviced from last debit
Green- 2 day
Amber- 3 to 9 day
Red- 10 or more
days
3 Return of Inward / Outward
cheques –
No. of instances in last 30
days
Green- 1 cheque
Amber- 2 cheques
Red- 3 or more
chqs.
4 Heavy Cash Withdrawal on
a daily basis i.e. single cash
transaction of Rs.10 lac &
above
Green- No
Amber-
Red- Yes
5 Number of consecutive
months of decline in credit-
debit summation during last
three months
Green- 1 month
Amber- 2 months
Red- 3 months
6 Number of times account
turns SMA-2 /IRAC-3
during last 6 months
Green- 0 time
Amber- 1 time
Red- 2 times
7 No credit transactions in the
account
Green- <10 days
Amber- 10-30 days
Red- >30 days
8 Increase in the value of
Stock in Process (SIP) over
previous month
Green- <20 %
Amber- 20-30 %
Red- >30 %
9 Increase in holding level of
Debtors as per SS against
estimates
Green- <10 %
Amber- 10-20 %
Red - >20%
10 Increase in holding level of
stock
Green- <15 %
Amber – 15-25 %
Red - >25%
11 Credit summations vis-a-vis
projected/reported sales
(In case of MBA/CBA, credit
summations of all the
lenders to be considered)
Green- >75 %
Amber-
Red- <75 %
JRGB Loan & NPA Management Policy Page 46 of 48
12 DP falls compare to last
month / quarter
Green- 0 %
Amber- <20 %
Red- >20 %
13 Reduction in Capacity
Utilization
Green- 0 %
Amber- <25 %
Red- >25 %
14 Funds coming from other
banks account to service
Interest amount
Green- No
Amber-
Red- Yes
15 High Value RTGS payment
to unrelated parties
Green- No
Amber-
Red- Yes
16 Excess drawals other than
Interest application in a
month
Green- 0 times
Amber- <2 times
Red- >2 times
17 BG invocation in last 30
days
Green- 0 instance
Amber- 1 instance
Red- >1 instance
18 LC Devolvement in last 30
days (combination of due to
irregularity and
devolvement)
Green- 0 instance
Amber- 1 instance
Red- >1 instance
B. Compliance
Sr. Trigger Name /
Description
Risk Grade
Benchmark
Risk Grade
Allotted
Remarks /
Justification
19 Number of days delay in
submission of stock
statement from due date
(20 days grace period)
Green- <7 days
Amber- 7 to 14 days
Red- >14 days
20 Number of days delay in
submission of Financial
Statements beyond due
date
Green- 0 days
Amber- Up to 30 days
Red- Beyond 30 days
21 Number of days delay in
renewal of credit limits /
facilities
Green- <30 days
Amber- 30-60 days
Red- >60 days
22 Primary Security under
insured / over insured
Green- No
Amber-
Red- Yes
23 Pending perfection of
securities / charges
Green- up to 10 days
Amber- 10-30 days
Red- Beyond 30 days
24 Compliance Status of
sanction terms
Green- Fully
Amber-
Red- No compliance /
partially compliance
JRGB Loan & NPA Management Policy Page 47 of 48
25 Delay in project
implementation
Green- <90 days
Amber- 90-180 days
Red- >180 days
26 Utilization of Funds
other than purpose
sanctioned for
(Diversion of Funds)
Green- No
Amber-
Red- Yes
C. Financial Statements
Sr. Trigger Name / Description Risk Grade
Benchmark
Risk
Grade
Allotted
Remarks /
Justification
27 Current Ratio Green / Amber / Red
(As per Industry
Benchmark /
Sanction terms)
28 DSCR Green / Amber / Red
(As per Industry
Benchmark /
Sanction terms)
29 Debt to Equity –
Deviation (Decrease in %)
from Estimates
Green- <5 %
Amber- 5 to 20 %
Red- >20 %
30 EBITDA Margin –
Deviation (Decrease in %)
from Estimates
Green- <5 %
Amber- 5 to 10 %
Red- >10 %
31 % of shortfall in Net Sales –
compared to estimates
Green- <10 %
Amber- 10-25 %
Red- >25 %
32 Change in Internal Credit
Rating – Number of notches
downgrade
Green- No change
/ upgrade
Amber- 1 notch
Red- 2 or more
33 Disproportionate increase in
other current assets
Green- No
Amber-
Red- Yes
34 Increase in borrowings,
despite huge cash and cash
equivalents in the borrower’s
balance sheet
Green- No
Amber-
Red- Yes
35 Large number of
transactions with inter-
connected companies and
large outstanding from such
companies
Green- No
Amber-
Red- Yes
JRGB Loan & NPA Management Policy Page 48 of 48
36 Borrower reporting stress in
business or financials
Green- No
Amber-
Red- Yes
(II) External Data Sources:
Sr. Trigger Name / Description Risk Grade
Allotted
(Green- No
Red- Yes)
Remarks /
Justification
37 Request received from the borrower to postpone
the inspection of the godown/unit on flimsy
reasons
38 Disputes among management / promoters /
partners
39 Delay in payment or Non-payment of Statutory
Dues
40 Business expansion to areas outside core
business without availing any finance for the
same
41 Negative news about Borrower in Market / Media
42 Borrower reported as Defaulter by other Bank(s)
43 Regulatory changes affecting the industry
adversely
44 Danger of product / technology obsolescence or
introduction of cheaper substitutes
45 Raid by Government Agencies / Regulatory
Agencies like ED, IT etc.
46 Instance of loss of a major customer of the
borrower
47 Strikes, labour unrest, agitation, lock out related
news in the unit
48 Frequent utility disruption (e.g. power / water etc.)
at borrower end
49 Current Account opened with other Bank without
our NOC
50 Any other weakness / threat perceived