loan policy n mims
TRANSCRIPT
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Loan Policy In Banks
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Loan Policy - Objectives8. To provide for Loan Review Mechanism and
9. To set up a risk based Loan Pricing Policy
10. To provide for dissemination of information to enable informedcredit decision making at all levels and to facilitate propertraining of field staff on credit appraisal and monitoring
11. To provide for adequate delegation of discretionary authority atall levels consistent with the cannons of this Policy Documentand
12 To improve market share in identified areas of business through1. Maintaining continuous contacts with the existing clients to meet their
credit requirements for their business and expansion plans etc
2. Obtaining reference from existing clients for increasing the customerbase and cross selling of various banking products
3. Such references may also be obtained from various associations ofmerchants/industries/traders etc
4. Acquiring new clients, by identifying potential non customers,establishing contacts for bringing them to our fold, adhering to take overcodes and policy guidelines
5. By leveraging the technological advantages of the Bank
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REGULATORY COMPLIANCE
Fair Practices Code (FPC)
In compliance to Reserve Bank of Indias directives the Bank hasformulated its Fair Practice Code for Lenders. The basic tenets of theCode are as under:
To be fair and honest in disclosures, dissemination of informationand presentation while releasing information to public and marketingof Loan Products.
If sought, to render necessary assistance to customers applying forloans.
Not to discriminate on the basis of religion, caste, sex, descent etc.
To provide professional, efficient, courteous, diligent and speedyservices in the matter of retail lending.
To provide customers with accurate and timely disclosure of terms,costs, rights and liabilities as regards loan transactions.
To attempt with good faith to resolve any disputes or differenceswith customers by setting up complaint redressal cells within theorganizations.
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REGULATORY COMPLIANCE
Fair Practices Code (FPC)To comply with all regulatory requirements in good faith.
To spread general awareness about potential risks in contracting loans andencourage customers to take independent financial advice and not to actonly on the representation from the Bank.
Loan application forms shall be comprehensive and include informationabout the fees/charges, if any, payable for processing, amount of such feesrefundable in case of non-acceptance of application, pre-payment options
and any other matter that affect the interest of the borrower so thatmeaningful comparison with that of other Banks can be made and informeddecision can be taken by the borrower. Such information shall be furnishedby the Branches separately also till revision in application forms arefurnished.
Wherever the loan applications are rejected by the Bank, it shall, convey inwriting, within stipulated time, the main reason/reasons for which, in theopinion of the Bank have led to rejection of the applications.
Bank shall furnish a copy of the loan agreement along with a copy each ofall enclosures quoted in the loan agreement to all the borrowers at the timeof sanction / disbursement of loans.
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Regulatory Compliance - KYC Norms
As part ofKnow Your Customer (KYC) principle, RBI hasissued several guidelines on proper customer
identification and advised the banks to put in placesystems & procedures to help control financial frauds,identify money laundering and suspicious activities and forscrutiny / monitoring of large value cash transactions.
The objectives of the KYC framework are twofold.
To ensure appropriate customer identification
To monitor transactions of suspicious nature.
Branches shall strictly adhere to KYC guidelines, obtain allinformation necessary to establish the identity, legal
existence of each new customer and to be vigilant whileopening a/cs for new customers to prevent misuse ofbanking system for perpetration of frauds.
KYC procedures are to be applied as per the extant policyguidelines for all existing accounts as well as new accounts.
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CIBIL (Credit Information Bureau (India) Ltd
E xponential credit growth resulted in increased competition and credit delinquencies,wherein risk assessment is of critical importance. In this direction, comprehensivecredit information on the credits availed by the borrower along with payment track
record is of utmost importance before assuming exposures.
The establishment of CIBIL is an effort made by the Government of India and theReserve Bank of India to improve the functionality and stability of the Indian financialsystem by containing NPAs while improving credit grantors portfolio quality.
CIBIL, established in 2000 under aegis of RBI is a repository of information, which
contains credit history of commercial and consumer borrowers. Under reciprocal basis,CIBIL provides vital information to its members in the form of credit informationreports, which allows its Members to make informed, objective and faster creditdecisions. As our Bank is one of its members, the functionaries may use the services ofCIBIL in their credit decision process.
To facilitate the Bank in submission of details of all borrowal accounts to CIBIL for
compilation of credit information database (performing & non-performing), it isrequired that
Consent of the Borrower should be obtained
Periodic updated information to CIBIL is provided
Integrated Risk Management Department provides ID and Password to functionaries to facilitateonline accessing CIBIL data base.
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Loan Delivery System for Working Capital Limits
The system was introduced in April 1995. It cover large borrowers
enjoying working capital credit limits of Rs.10.00 crores and
above from the banking system.
The Loan Delivery system is applicable to borrowal accounts
classified as Standard or Sub-Standard
The fund based working capital limits are bifurcated into demand
loan and cash credit component, which shall be decided upon the
merits of each case by the loan approving authority.Certain business activities, which are cyclical and seasonal in
nature or have inherent volatility, the strict application of loan
system may create difficulties for the borrowers. For this reason,
activities like Tea, Sugar, `Contractor etc are exempted from the
loans system of delivery.
Export credits sanctioned to borrowers should be excluded before
bifurcation of the working capital limit into loan and cash credit
components.
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Restrictions as per Section 20 of the Banking Regulation Act, 1949
No Banking Company shall:
Grant any loans or advances on the security of its own
shares, orEnter into any commitments for granting any loan oradvance to or on behalf of
any of its Directors
any firm in which any of its Directors is interested as Partner,
Manager, Employee or Guarantorany company (not being a subsidiary of the bankingcompany or a company registered under Section 25 of theCompanies Act, 1956 (1 of 1956) or a Government company,of which (or the subsidiary or the holding company of which)
any of the Directors of the banking company is a Director,Managing Agent, Employee or Guarantor or in which he holdssubstantial interest, or
any individual in respect of whom any of its Directors is apartner or guarantor.
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Restrictions in terms of Section 77A (1) of the Companies Act, 1956 on Credit to
Companies for Buy-back of their securities
In terms of Section 77A (1) of the Companies Act,1956, the companies are permitted to purchasetheir own shares or other specified securities outof their
a) free reserves, or
b) Securities premium account, orc) proceeds of any shares, or
d) other specified securities subject tocompliance of various conditions specified in
the Companies (Amendment) Act, 1999.Therefore, the Bank shall not extend loans to
companies for buy-back of its own shares /securities.
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Regulatory Guidelines on credit restrictions
The Bank shall not grant loans against primary security of Certificateof Deposits
The Bank shall not grant loans against primary security of depositsof other Banks.The Bank shall not undertake financing of Badla transactions
The Bank shall not extend loans to partnership / proprietorshipconcerns against the primary security of shares and debentures
The Bank shall not extend finance for setting up new units
consuming /producing Ozone Depleting Substance (ODS)The Bank shall not extend advances for speculative purposes orextend advances against company shares to promoters of suchcompanies during lock-in-period
Bank shall not grant temporary credit facilities for adjustingoverdues in other accounts.
Purchase of cheques drawn in favour of borrowers by their associateconcerns, friends or close relatives without trade transactions /
considerations.
The discretionary powers to sanction loans to relatives of staffmembers are given seperately
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Regulatory Guidelines on credit restrictions
Unless sanctioned by the Management Committee of Board of Directors, banks should notgrant loans and advances aggregating Rs.25.00 lakh and above to:
Directors (including the Chairman / Managing Director) of other Banks
Any firm in which any of the directors of other banks is interested as a partneror guarantor and
Any company in which any of the directors of other banks holds substantialinterest or is interested as a director or as a guarantor.
Unless sanctioned by the Management Committee of Board of Directors, banks should not
also grant loans and advances aggregating Rs.25.00 lakh and above to:
Any relatives of their own Chairmen / Managing Directors or other directors
Any relatives of the CMD or other Directors of other Banks
Any firm in which any of the relative as mentioned at a) and b) above holdssubstantial interest or is interested as a Director or as a Guarantor
Any company in which any of the relatives as mentioned in a and b above holdsubstantial interest or is interested as a director or as a guarantor
Includes directors of Schedules Co-operative Banks, directors ofsubsidiaries/trustees of mutual funds / venture capital funds.
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Restriction on Advances against Sensitive Commodities under Selective Credit Control (SCC)
With a view to preventing speculative holding of essential commodities with the helpof bank credit and the resultant rise in their prices, in exercise of powers conferred bySection 21 & 35A of the Banking Regulation Act, 1949, the Reserve Bank of India,being satisfied that it is necessary and expedient in the public interest to do so, issues,from time to time, directives to all commercial banks, stipulating specific restrictionson bank advances against specified sensitive commodities.
Presently the following commodities are covered under stipulations of Selective CreditControl:
Buffer stock of sugar with Sugar MillsUnreleased stock of sugar with Sugar Mills representing levy sugar, and free sale sugar
Margin Stipulations: Minimum Margin With effect from
Margin on Sugar
Buffer Stock of Sugar 0% 1.4.1987
Unreleased stock of sugar with sugar mills representing
Levy Sugar 10% 22.10.1997
Free Sale Sugar 10% 10.10.2000
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Negative List
Plantation firms in the nature of NBFCs
Unregistered NBFCsPartnership firm, where HUF is one of the
partners
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Discretionary List
Registered NBFCs
Chits/Chit Funds & Credit/Thrift Cooperative Societies
Marriage HallFilm Industry
Cinema Hall
T V Serials
Entertainment & Amusement Parks
Solvent Oil Extraction / Soya Industry
Vegetable Oil and Vanaspati SectorShip Breaking
Manufacturing & Trading of Liquor
Chemical Industries
Fertilizer Industries
Casting of Iron & Steel, Sponge Iron & Ferro Alloys
Telecom Cables & Equipments
Textile Jute, Denim
Real Estate (other than housing/infrastructure) development including
construction of shopping malls /multiplex
Sugar Mills/Factories
Gem & Jewellery
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CREDIT RISK MANAGEMENT POLICYBank has last approved the Credit Risk Management Policy. The Credit Risk ManagementPolicy would be guiding principle for the Loan Policy. While Loan Policy would not only addressthe business development facet, the guidelines under Credit Risk Management Policy will also
be integrated to build quality asset portfolio and to minimize risks.
Guidelines under Credit Risk Management Policy shall be strictly adhered to, with specificreference to Credit Risk Rating, Credit Monitoring, Risk Mitigation, Pricing and Operationalprocedures.
Credit Risk IdentificationThe Bank recognizes that every credit decision, in respect of both FBL and NFBL, involves Credit Risk. Therefore, theBank has put in place the Credit Risk Rating System towards effective measurement, monitoring and mitigation of suchrisks in its credit portfolio.
Credit Risk MeasurementThe measurement of credit risk in respect of borrowal accounts with credit limits (FB & NFB) of Rs 10 lakhs and abovethrough a system of Credit Rating as approved by the Board of Directors and as amended from time to time.
Credit Risk Rating SystemThe Bank will follow Risk Rating system applicable to all borrowers with total exposure limit of above Rs.10.00 lakhs(Fund Based & Non Fund Based).
The credit rating model will vary in the level of sophistication and complexity, depending upon whether the loans arefor new units /projects or for existing units.
As per extant policy guidelines risk rating system is applicable to all borrowers with total fund based & non fundbased exposure of above Rs.10.00 lakh.
In case of borrowers availing aggregate credit limits of Rs.5 Crore and above, external ratingshall be obtained for which Bank had entered into MOU with CRISIL, CARE, ICRA & FITCH.
C dit Ri k Miti ti M th d l
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Credit Risk Mitigation Methodology
Guidelines for Operational Units:With a view to enable operational units to build up a credit portfolio of good quality, theBank will adopt pro-active credit risk management policies like bringing out periodicallyindustry monitors/updates, studies on mortality rate of assets etc.
The Bank will also provide and periodically update its documents setting out creditorigination and maintenance procedures (i.e. Manual of Instructions on Credit), guidelineson pro-active portfolio management and remedial management (rehabilitation/ re-structuring/re-schedulement of credit etc).
The control mechanism will have two dimensions, first, ensuring compliance of necessarymonitoring terms, maintaining continuous follow up and supervision measures, secondly,adoption of suitable risk mitigation measures.
In the later stage, the available options include:Avoidance by staying away from risky borrowers.
Reducing exposure i.e. adherence to lower limit.
Fixing higher level of margin
Insurance cover of assets against loss, damage, calamity etc.
Obtaining guarantees and counter guarantees/ collaterals.Institutional guarantee cover against default risk from Credit GuaranteeFund Scheme for small industries/ECGC etc.
Credit derivatives may be resorted to as and when available/required.
Portfolio Risk Diversification MethodsBank shall strictly comply with the RBI guidelines on Prudential Exposure Norms.
P d i l E Li i
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Prudential Exposure Limits
INDIVIDUAL BORROWER EXPOSURE LIMITS
(15% of capital funds of the Bank)
INDIVIDUALNBFC (10% of capital funds of Bank)INDIVIDUAL NBFC-AFC (15% of capital funds of Bank)
For Infrastructure Projects (Individual Borrower only)
(20% of Capital Funds of the Bank)
Where exposure in excess of 10%/15% of capital funds to NBFC/ NBFC-AFC is on account of funds on-lent to infrastructure sector,then, exposure limits are:
For NBFC (upto 15% of capital funds of the Bank)
For NBFC AFC (upto 20% of capital funds of the Bank)
GROUP BORROWER EXPOSURE LIMITS
(40%of Capital Funds of the Bank)
For Infrastructure Projects (Group Borrower only)
(50%of Capital Funds of the Bank)
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E ti
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Exemptions
Rehabilitation of Sick/Weak Industrial Units Theceilings on single /group exposure limits would not be
applicable to existing/additional credit facilities (includingfunding of interest and irregularities) granted to weak/sickindustrial units under rehabilitation packages.
Food Credit Borrowers to whom limits are allocated
directly by the Reserve Bank, for food credit, will beexempt from the ceiling.
Guarantee by the Government of India The ceilings onsingle/group exposure limits would not be applicablewhere principal and interest are fully guaranteed by the
Government of IndiaLoans against own Term Deposits Loans and advancesgranted against the security of banks own term depositsmay be excluded from the purview of the exposure ceiling.
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Items excluded from Capital Market Exposures are listed below:
Banks investments in own subsidiaries, joint ventures, sponsored Regional
Rural Banks (RRBs) and investments in shares and convertible debentures,
convertible bonds issued by institutions forming crucial financial infrastructure
such as NSDL, CDSL, NSCCL, NSE, CCIL, CIBIL, MCX, NCDEX, NMCEIL, NCMSL
After listing, the exposures in excess of the original investment (i.e. prior to
listing) would form part of the Capital Market Exposure.
Tier I and Tier II debt instruments issued by other banks;
Investment in Certificate of Deposits (CDs) of other banks;Preference Shares;
Non-convertible debentures and non-convertible bonds;
Units of Mutual Funds under schemes where the corpus is invested
exclusively in debt instruments;
Shares acquired by banks as a result of conversion of debt/overdue interestinto equity under Corporate Debt Restructuring (CDR) mechanism;
Term loans sanctioned to Indian promoters for acquisition of equity in
overseas joint ventures / wholly owned subsidiaries under the refinance
scheme of Export Import Bank of India (EXIM Bank);
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Sub-ceilings on exposure to Capital Market :
The maximum ceiling prescribed by RBI for Loansagainst the security of shares, debentures and PSUbonds to individuals, if held in physical form shouldnot exceed the limit of Rs.10.00 lakh per individualborrower (Rs.20.00 lakh per individual borrower, if
the securities are held in demat form).The above ceiling is now applicable for the Loansto individual from the entire banking system.
Therefore, before according sanction of credit
limits to individuals, declaration shall be obtainedfrom the applicant on the details of credit limitsavailed by him/her from other Banks, so as to ensureCompliance to above prescription
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Advances against shares to Stock Brokers and Market Makers :
The Banks are free to provide credit facilities to
stockbrokers and market makers on the basis oftheir commercial judgment, within the policy
framework approved by their Boards. However,
in order to avoid any nexus emerging between
inter-connected stock broking entities and banks,the banks should fix, within the overall ceiling of
40% of Net Worth, a sub-ceiling for total
advances to
All the stock brokers and market makers (both fund
based and non-fund based i.e. guarantees) and
To any single stock broking entity, including its associates
/ inter-connected companies.
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Advances to borrowers appearing in Defaulters List/ Caution List
In respect of borrowers appearing in Willfuldefaulters list, credit approval authorities will beas under:
Fresh / Enhancement MC/Board
Renewal CMD and in his absence ED,
within their discretionary powers
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In respect of borrowers whose name appear inDefaulters List/SAL-ECGC
Fresh/
Enhancement MC/Board
Renewal GM and above, within
their discretionary powers.
Advances to borrowers appearing in Defaulters List/ Caution List
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Credit Risk Management for Takeover of Advances
In case of taking over of an account from other Bank (fund based & non
fund based facilities), the Bank should obtain satisfactory credit report
of the borrower from their bankers. OR Alternatively The Branch
Manager should obtain the Banks statement of accounts for the last
one year (atleast one year) and certify that the operations in theaccount including servicing of interest/installments are satisfactory,
which also should be confirmed by way of a certificate from the
borrowers chartered accountants. However, Bankers Credit Report
should necessarily be obtained, before release of the limits being taken
over.
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Definition of Infrastructure lending
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Definition of Infrastructure lending Any credit facility in whatever form extended by lenders (i.e. banks, FIs or
NBFCs) to an infrastructure facility as specified below falls within thedefinition of Infrastructure lending. In other words, a credit facility providedto a borrower company engaged in: developing or operating and maintaining
or developing, operating and maintaining any infrastructure facility that is a project in any of the following sectors, or any
infrastructure facility of a similar nature :
a road, including toll road, a bridge or a rail system--------- 1
a highway project including otheractivities being an integralpart of the highway project
a port, airport, inlandwaterway or inlandport
a water supply project, irrigation project, water treatment system, sanitation and seweragesystem or solid management system
telecommunication services whether basic or cellular, including radio paging, domesticsatellite service (i.e. a satellite owned and operated by an Indian company for providingtelecommunication service), network of trunking, broadband network and internet services
an industrial park or special economic zone
generation or generation and distribution ofpower
transmission or distribution of power by laying a network of new transmission or distributionlines
construction relating to projects involving agro-processing and supply of inputs toagriculture
construction for preservation and storage of processed agro-products, perishable goodssuch as fruits, vegetables and flowers including testing facilities for quality
construction ofeducational institutions and hospitals any other infrastructure facility of similar nature
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Exit Policy
In the case of borrower where the score obtained as
per Credit risk rating system is less than 55, no
enhancement is to be considered by any authoritybelow ED/CMD and borrower should be advised to
make alternative arrangement at the earliest so as to
provide exit route to the Bank.
CREDIT MONITORING POLICY
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CREDIT MONITORING POLICY
Credit Portfolio Monitoring: The Bank will monitor its credit portfolio regularly with particular reference to exposures,
industry wise and to sensitive sectors. Such monitoring will also focus on exposure by way ofunsecured advances.
All such reviews conducted on quarterly basis shall be placed before the Committee of Directorson Integrated Risk Management / Board of Directors by Credit Risk Management Department,HO.
Borrower wise Monitoring:
The Bank will strengthen its extant systems and procedures on monitoring of its advances,borrower wise. Specific attention will be paid to monitoring, at monthly intervals, of troubledexposures / weak credit i.e. Standard B category assets of Rs.5 lakh and above which exhibitsigns of weaknesses.
Large Accounts causing concern shall also be subjected to Special Audit by experienced firms ofChartered Accountants to identify areas of weaknesses in such accounts in order to takenecessary corrective action.
Wherever found necessary, Regional Managers & above are authorized to permit and appointCAs for undertaking such special audits.
Further, the extant system of monitoring all irregularities in borrowal accounts with creditapprovals or exposure levels of Rs 25 Lakhs and above by Head Office will be adhered to. In caseof borrowal accounts with credit limits of Rs.5 Lakh to Rs.25 lakhs, the same will be monitoredby respective Regional Offices.
Based on early warning signals (EWS), the Standard assets are grouped in to 7 categories viz. P1,P2, P3 (for performing assets), R (Restructured with regular operations), S1 & S2 (Standard B Stressed & Highly Stressed0 and M (Mega Projects). (Detailed guidelines issued vide CircularNo.328/16/2006 dated 19.12.06).
CREDIT MONITORING POLICY
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CREDIT MONITORING POLICY
Loan Review Mechanism
The Bank views Loan Review Mechanism (LRM)as an important tool of credit risk control. The
Bank will adopt the following approach to LRM:
Credit Audit of borrowal accounts above Rs.5 crore(reduced from the existing level of Rs.10 Crore) shall be
taken up every year with comprehensive scrutiny on quality
of management, financial position, risk perception, project
viability, and operations etc. Such Credit Audit Reports shall
be placed before Audit Committee of the Board along with
views / suggestions of concerned General Manager by the
Internal Audit & Inspection Department, HO. Inspection &
Internal Audit Department shall frame operational
guidelines and undertake Credit Audits.
CREDIT MONITORING POLICY
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CREDIT MONITORING POLICY Monitoring through MMR
In the light of restructuring and/or up-grading of non-performingAssets, it is essential that review of large borrowal account/s is/are
undertaken constantly and vigilantly to ensure that any warning signalregarding weakness of the borrowal accounts are identified and anyirregularity/ies found in the operations of the account are arrested atthe initial stage itself.
The remedial measures will be taken by the operational units at the sight of firstsignal in the change of health of the borrowal account, which would be easilyidentified either through the conduct of the account at the operational level or non
compliance of certain critical terms of sanction. The Monthly Monitoring Report(MMR) would be a tool to identify such signals for taking corrective measures at theappropriate time. The yearly review / renewal would enable the branch to have aclose look at the financial position of the borrowal account.
Based on the MMR of borrower, any deficiency, noted in the conduct of the accountsuch as frequent exceeding, non payment of quarterly interest/installments etc. andnon co-operation / compliance, non-submission of stock statements, inadequateinsurance etc., besides status of documentation/ charge registration etc. could beeasily identified and corrective steps / compliance etc could be taken up promptly.
The Bank will ensure a continuous control over the large borrowal accounts to seethat they remain standard and do not slip into NPAs. It will also be ensured that allthe columns in the MMR are filled with accurate information at Branch level toenable the controlling offices to render scientific analysis of the data received on theborrowers transactions.
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Time NormsNo Category / Sector Maximum time limit for sanction
A Proposals under Anti PovertyProgrammes / Government sponsoredSchemes
30 days
B Proposals from SSI & Other prioritysectors with limits of less than Rs 10
lakhs30 days
C Proposals under Retail BankingSchemes 30 days
D Proposals for Export Finance(i) Proposals for sanction of fresh/ enhancement of
credit limits. 45 days(ii) Proposals for renewal of existing limits 30 days(iii) Proposals for sanction of ad-hoc credit facilities 15 days
E In all other cases:(i) Proposals for sanction of fresh/ enhancement of
credit limits. 60 days(ii) Proposals for renewal of existing limits 45 days
( iii) Proposals for sanction of ad-hoc credit facilities 30 days
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Methods of Assesment
For NBFCs NOF Method
For Credit limits upto Rs.2 crore (Rs.5 crore in case of SSIs) Turnover Method
In case working capital cycle is higher, the borrower will have the choice to be assessed under Turnover method or Modified
MPBF method.
For Credit limits beyond Rs.2 crore (Rs.5 crore in case of SSIs)
For operating cycle is reasonably uniform and working capital
remains more or less stable Modified MPBF Method
For industries, where operations are seasonal or project
based in nature like, Tea, Sugar, Software, Contractors,
Builders & Developers etc.Cash Budget Method
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Bench Mark Ratios - Total Debt Equity
RatioSr. No. Category of the
BorrowerIndicativeTotal D/E Ratio
In Case of 100%or more Collateral
SecurityIndicative Total
D/E Ratio
a)b)c)d)e)
f)
Total Debt Equity
Ratio
Industries
(Medium & Large)Industries (SSI)Traders
Ship BreakingService IndustryInfrastructure
Sector
3.5:14:15:16:15:1
5:1
4.5:15:16:17:16:1
6:1
Current Ratio:
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Current Ratio:
Sr.No. Assessment Method Ratio (Indicative)1 Turnover Over Method 1.10:12 Modified MPBF Method :-
i)Working capital limit upto
Rs.10.00 Croreii)Working capital limit above
Rs.10.00 Crore
1.17:1 #1.25:1 #
# Wile working out MPBF, minimum margin to be taken @ 15% or 20% of total current
assets so that minimum current ratios are maintained at 1.17 and 1.25 respectively.
In case of item no 2 (i) & (ii), where the adequate future cash accruals are envisaged and
the present current ratio is lower than the minimum, the Bank may consider Working
Capital Term Loan (WCTL), repayable over a period of of 3 to 5 years and comply with thecurrent ratio.In case of assessment under turnover method
a) Margin requirements are to be maintained upfront.b) Where upfront NWC is higher than the minimum margin requirements, the MPBF may
be computed by excluding the minimum margin requirement from 25% of the
accepted turnover.
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Interest Coverage Ratio:
Interest Coverage is an indicator as to the
number of times the profit covers the interest
liability of the company. This is a risk
parameter and an indicator to the extent towhich the interest liability will be serviced on
time. Profit for this purpose would mean the
gross profit before interest. The ratio shouldbe minimum 1.5:1.
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Debt Service Coverage Ratio (DSCR):
The Bank normally considers
projects having average DSCR
between 1.50 to 2 as adopted by the
FIs. The Bank proposes to continue
with the same policy.
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Current Assets Turnover Ratio: {Gross
Sales/(Debtors+ Inventory)}:
This ratio will indicate the
turnover of the current
assets in a year. Generally
this will be above 1.75.
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Bench Mark - Term loans
Internal Rate of Return on discounted cash inflow: In case of term
loans of Rs.5.00 crores and above, this needs to be worked out andthe same should not be lower than the cost of funds.
Sensitivity Analysis: In case of term loans of Rs.5.00 crores and
above, sensitivity analysis should be worked out. It is clarified thatSensitivity Analysis is required to be carried out for Term Loans forfunding projects and the same is not required for Short TermLoans, Unsecured Loans approved by the Banks. In case of
advances to Public Sector Undertakings including State ElectricityBoards/ Corporations, the sanctioning authority may waiveconducting sensitivity analysis on case to case basis.
Deviations:
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Deviations: The sanctioning authorities shall look for sound financial parameters in
terms of prescribed benchmarks. The stipulated parameter benchmarksfor five ratios (TDER, Current Ratio, ICR, DSCR and CATO) as mentionedabove will serve as suggestive and indicative tool for the sanctioningauthorities to ensure a holistic credit decision. In case of existingborrowers whose dealings are satisfactory and limits are fully secured,sanctioning authorities at branch levels may renew the limits even if twoparameters are not as per policy guidelines.
In case of deviations in respect of more than two parameters whererenewal or enhancement is involved, Regional authority shall consider all
the proposals falling within the powers of branches.
In all other cases, where proposals fall within the powers of RegionalManagers/AGMs and above, the respective sanctioning authority maypermit deviations with due justification, on the merits of each case andhaving due regard to the business expediency, within their respectivediscretionary powers
Though the deviations are allowed by the respective sanctioning
authorities as prescribed above, there should be endeavour to ensurethat the borrower attains the benchmark level of ratio/financialparameters with in a specified time frame.
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Primary Securities Margin Norms:
Bank has prescribed detailed guidelines for
margins to be stipulated for various credit
facilities/securities. The respective sanctioning
authority at the level of the RM and abovemay deviate from prescribed margin with due
justification
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Ri k B d P i i I t t R t P li
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Risk Based Pricing: Interest Rate Policy:
The Bank will follow a policy of Risk based pricing. All creditexposures should be priced appropriately. The Bank has adopted
the Cost Plus pricing approach with Sub BPLR lending decisionviewed in terms of pricing by market competitors. Basically, thepricing will be done taking into account the following:
Cost of Funds;
Administrative Cost;
Cost of Capital required to be maintained for that credit exposure;
Reasonable Return on Capital; and
Risk Premium
With increased competition amongst banks for garnering newbusiness, interest rates have become a major tool to determine
competitiveness of a bank for attracting new business and toretain the existing clients. Keeping in view business interest,under-mentioned authorities are empowered to considerrelaxation in rate of interest as under, provided such concession issupported with proper justification in business interest of the bankand/or overall yield for deployment of resources :
Risk Based Pricing: Interest Rate Policy:
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Risk Based Pricing: Interest Rate Policy:
CONCESSION IN INTEREST RATES:
Designated Authorities for extending concessional interest rate
1% below the applicable rate as per Credit Rating and not less than BPLRwithin his discretionary powers
DGM
2% below the applicable rate as per Credit Rating and not less than BPLR
1% within his discretionary powers GM
2% below BPLR irrespective of Credit rating and discretionary powers
ED
4% below BPLR, irrespective of Credit rating and discretionary powers
CMD