updated loan policy to board 31.03.2012 sent to ro & zo

Central Bank of India ________________________________________________________________ Loan Policy

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LOAN POLICY

1.1. Preamble

1.1.1. In the wake of ongoing trends towards globalization and liberalization, the market environment in the country has undergone a major change. The opening of the economy has resulted in entry of multinationals and participation of foreign institutional investors in the Indian Corporate market. The business entities operating in India, to emerge successful, have to perceive and manage risks from a wider perspective of happenings in the world market. Any risk that overtakes the business entity automatically reflects on the lending banks balance sheet. The Indian Banking scenario has witnessed progressive deregulation, introduction of prudential norms and adoption of international best practices. The financial sector reforms and entry of private and foreign banks have changed the face of Indian Banking sector. In the present scenario, when spreads are thinning and competition is acute, managing credit risk has become crucial.

1.1.2. Extending credit is a basic function of banking which involves risks. It is likely that some of the credit decisions may result in loss. The Bank should aim at Managing risk in such a way that a healthy credit portfolio is built and returns are maximized.

1.1.3. The policy at the holistic level is an embodiment of the Banks approach to sanctioning, managing credit risk and aims at making the systems and control effective.

1.1.4. The Loan Policy is reviewed every year to keep sync with the market realities, business priorities, Govt. policies and regulatory requirements. On the threshold of the new financial year 2012-13, the Loan Policy is being reviewed/fine tuned in line with the developments in the financial sector, regulatory and Govt. policies, while keeping intact its basic tenets. This updated version of the credit policy shall make it possible for the Bank to show a steady and healthy growth in its credit portfolio, resulting in overall improved performance. This Policy shall remain valid till next revision.


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1.2. Objective

1.2.1. The basic objectives of the Loan Policy are: -

1.2.1.1. To broadly outline major parameters governing loaning functions;

1.2.1.2. To properly appraise and evaluate advances proposals;

1.2.1.3. To delegate appropriate authority to ensure speedy disposal of proposals and to ensure effective monitoring and follow up.

1.2.1.4. To channelise the flow of funds for productive use.

1.2.1.5. Optimum utilization of Banks resources.

1.2.1.6. The policy seeks to enlarge client base of Corporate and NonCorporate segments through aggressive credit marketing.

1.2.1.7. The policy document addresses the genuine credit needs of the existing clients to ensure quicker and prompt credit decision.

1.2.1.8. The policy establishes a commonality of approach regarding credit basics, appraisal skills and strategies, while leaving enough room for flexibility and innovation.

The policy aims to seize market opportunities by revamping our products and delivery mechanism through product innovation and restructuring with a view to maximizing profit.

1.2.1.9. The policy strives to ensure that the socio economic obligations cast on the bank are fully met.

1.2.1.10. The Banks general approach to Export Credit and Priority Sector Advances are set out in the Policy.

1.2.1.11. The policy seeks to ensure continuous growth of loan assets while endeavoring that they remain secure, performing and standard.

1.2.1.12. The policy endeavors to mitigate and reduce risk associated with the lending by fine tuning the systems and controls.

1.2.1.13. The policy sets out optimum exposure levels to different sectors in order to ensure growth of assets in an orderly manner.

1.2.1.14. The policy lays down norms for take-over of advances from other banks/FIs.

1.2.1.15. Banks stand on granting credit facilities to companies whose Directors are in the defaulters list of RBI is covered in the Policy.


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1.2.1.16. The policy seeks to ensure profitable deployment of resources keeping in view the ALM requirements.

1.2.1.17. The policy document ensures compliance of all the directives/guidelines issued by the Government/RBI and all other regulatory requirements on credit matters. With regard to guidelines issued from time to time by the authorities, the Bank would follow them in all their aspects. However, if these permit varying interpretations, the Bank will adopt a reasonable interpretation, as determined by the Credit Risk Management Committee without deviating from the spirit behind the guidelines.

1.3. Scope 1.3.1. This policy would govern all credit and credit related exposures, Fund Based as

well as Non-Fund based and prescribe acceptance criteria for all forms of credit dispensation. These would include Short term, Medium term and Long term based facilities, as also Letters of Credit, Guarantees, Acceptances etc.

1.3.2. The policy will encompass exposure borrower wise i.e. exposure to all types of customers such as individuals, proprietorship firms, partnerships, association of persons, Companies registered under Indian companies Act, PSUs & others and also industry / activity wise.

1.3.3. Any exception or deviation from these policies and criteria shall be referred to Credit Department, Central Office which shall place such matters to the ED/CMD/ CACB for approval. Normally, deviations from the policies, norms and criteria will be approved by CACB /CMD / ED depending upon their delegated authority concerning lending. However, where Sanctions have been earlier approved by MCB/ CACB, deviations should be placed before MCB/ CACB for their view/approval. In case of need, CACB can approve / modify / sanction subject to reporting to MCB.

It is also made clear that the deviations if any, beyond the permitted level of the sanctioning authority, on reference to Central Office, CACB shall approve such deviations on case to case basis, subject to merit. However, actual sanction of the loan would be done by the concerned sanctioning authority within their delegated lending powers.

1.3.4. The Loan Policy of the Bank deals with various important parameters in order to ensure safety, profitability and liquidity of Banks assets and deals on various matters as under:

i) Credit Deployment a) Directed Credit b) Thrust Areas c) Other Areas

ii) Categorization of Borrowers a) Priority Sector b) Non Priority Sector.


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iii) Credit Sanctions a) Prudential Exposure Limits b) Credit Rating c) Price Mechanism d) Procedures.

iv) Security

a) Approved Securities b) Negative List of Securities c) Norms for obtaining Guarantees as Security.

v) Delegation of Authority

a) General Rules b) Lending Authority c) Lending Powers d) Discretionary Powers e) Ad-hoc facilities f) Prohibitions g) Miscellaneous

vi) Sanctioning Authority

a) Individual Executives / Officials b) Regional/ Zonal Credit Approval Committee RCAC/ ZCAC c) Credit Approval Committee of the Board (CACB) d) Management Committee of the Board e) Board of Directors.

vii) Monitoring and Control

a) Review of Procedures b) Control Returns c) Monitoring d) Quality Control

1.4. Modification and Review / Revision

1.4.1. The Policy shall be modified to give effect to the changes in the extant guidelines/directives/instructions that may be advised by the Reserve Bank of India/Government of India from time to time, subject to reporting and approval of the Board.

1.4.2. The policy shall also be reviewed/ revised from time to time, at least once in a year to adapt to the changing environmental demands to incorporate and implement any changes in the credit strategy of the Bank, with the approval of the Board.


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1.5. Compliance All the field functionaries are expected to comply with the policy guidelines laid down in this document. In case of any doubt about the applicability of any aspect of these policies to any situation, clarification/approval shall first be sought from Credit Department, Central Office prior to committing the bank.

2. Credit Deployment

2.1. Strategy 2.1.1. The following strategies shall be adopted.

i) Wherever the lending is done, it shall be directed with the emphasis on viability, and profitability prospects.

ii) Keeping in view the guidelines of RBI and the profitability of the Bank, the branches shall be advised from time to time about the thrust areas and non-thrust areas of lending.

2.2. Directed Credit 2.2.1. The Banks role in the priority sector lending shall be in tune with the national

objectives. Bank will continue to lend funds to priority sector viz. Agriculture, Small (Mfg.) Enterprises, Housing Finance and other sectors keeping in view the RBI Guidelines from time to time. The Bank will endeavor to surpass the overall share of 40% of Adjusted Net Credit under Priority Sector advances with sub-sector targets.

2.2.2. RBI, vide Circular No.RBI/2006-2007/358 RPCD.No.Plan.BC.84/04.09.01/2006-07 dated 30.04.2007 has issued revised guidelines on Lending to Priority Sector. The targets and sub-targets under priority sector lending would be linked to Adjusted Net Bank Credit (ANBC) (Net Bank Credit plus investments made by banks in non-SLR bonds held in HTM category) or Credit Equivalent amount of Off-Balance Sheet Exposure (OBE), whichever is higher, as on March 31 of the previous year.

In terms of RBIs Master Circular on Priority Sector Lending, RBI/2011-12/107 RPCD. CO. Plan. BC 10 /04.09.01/2011-12 July 1, 2011, the targets and sub-targets set under priority sector lending for domestic banks are furnished below: Total Priority Sector advances

40 per cent of #Adjusted Net Bank Credit (ANBC) or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher. #[ANBC or credit equivalent of Off-Balance Sheet Exposures (as defined by Department of Banking Operations and Development of Reserve Bank of India from time to time) will be computed with reference to the outstanding as on March 31 of the previous year. For this purpose, outstanding FCNR (B) and NRNR deposits balances will no longer be deducted for computation of ANBC for priority sector lending purposes. For the purpose of priority sector lending, ANBC denotes NBC plus investments made by banks in non-SLR bonds held in HTM category. Investments made by banks in the Recapitalization Bonds floated by Government of India will not be taken into account for the purpose of calculation of ANBC. Existing and fresh investments, by banks in non-SLR bonds held in HTM category will be taken into account for the purpose. Deposits placed by banks with NABARD/SIDBI, as the case may be, in lieu of non-achievement of priority sector lending targets/sub-targets, though shown under Schedule 8 'Investments' in the Balance Sheet at item I (vi) 'Others', will not be treated as investment in non-SLR bonds held under HTM category. For the purpose of calculation of credit equivalent of off-balance sheet exposures, banks may use current exposure method. Inter-bank exposures will not be taken into account for the purpose of priority sector lending targets/sub-targets.]


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Total agricultural advances

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

Micro & Small Enterprise advances (MSE)

Advances to micro and small enterprises sector will be reckoned in computing performance under the overall priority sector target of 40 per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher.

Micro enterprises within Micro and Small Enterprises sector

(i) 40% of total advances to micro and small enterprises sector should go to micro (manufacturing) enterprises having investment in plant and machinery up to Rs 5 lakh and micro (service) enterprises having investment in equipment up to Rs. 2 lakh; (ii) 20% of total advances to micro and small enterprises sector should go to micro (manufacturing) enterprises with investment in plant and machinery above Rs. 5 lakh and up to Rs. 25 lakh, and micro (service) enterprises with investment in equipment above Rs. 2 lakh and up to Rs. 10 lakh. (Thus, 60 per cent of micro and small enterprises advances should go to the micro enterprises). (iii) The increase in share of micro enterprises in MSE lending to 60 per cent should be achieved in stages, viz. 50 per cent in the year 2010-11, 55% in the year 2011-12 and 60% in the year 2012-13.

Export Credit Export Credit is not a part of Priority Sector for domestic commercial Banks Advances to weaker sections

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

Differential Rate of Interest Scheme

1 per cent of total advances outstanding as at the end of the previous year. It should be ensured that not less than 40 per cent of the total advances granted under DRI scheme go to scheduled caste/scheduled tribes. At least two third of DRI advances should be granted through rural and semi-urban branches.

Women Entrepreneurs 5% of Net Bank Credit

2.2.2 (I) AGRICULTURE

(A) DIRECT FINANCE

1.1 Finance to individual farmers [including Self Help Groups (SHGs) or Joint Liability Groups (JLGs), i.e. groups of individual farmers, provided banks maintain disaggregated data on such finance] for Agriculture and Allied Activities (dairy, fishery, piggery, poultry, bee-keeping, etc.)

1.1.1 Short-term loans for raising crops, i.e. for crop loans. This will include traditional/non-traditional plantations and horticulture.

1.1.2 Advances up to Rs. 10 lakh against pledge/hypothecation of agricultural produce (including warehouse receipts) for a period not exceeding 12 months, irrespective of whether the farmers were given crop loans for raising the produce or not.

1.1.3 Working capital and term loans for financing production and investment requirements for agriculture and allied activities.

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

1.1.5 Loans to distressed farmers indebted to non-institutional lenders, against appropriate collateral or group security.


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1.1.6 Loans granted for pre-harvest and post-harvest activities such as spraying, weeding, sting, grading, sorting, processing and transporting undertaken by individuals, SHGs co-operatives in rural areas.

1.1.7 Loans granted for agricultural and allied activities, irrespective of whether the borrowing entity is engaged in export or otherwise. The export credit granted by banks for agricultural and allied activities may, however, be reported separately under heading "Export credit to agricultural sector".

1.2 Finance to others [such as corporates, partnership firms and institutions] for Agriculture and Allied Activities (dairy, fishery, piggery, poultry, bee-keeping, etc.)

1.2.1 Loans granted for pre-harvest and post harvest activities such as spraying, weeding, harvesting, grading, sorting and transporting. 1.2.2 Finance up to an aggregate amount of Rs. one crore per borrower for the purposes listed at 1.1.1, 1.1.2, 1.1.3 and 1.2.1 above.

1.2.3 One-third of loans in excess of Rs. one crore in aggregate per borrower for agriculture and allied activities.

(B) INDIRECT FINANCE

1.3 Finance for Agriculture and Allied Activities 1.3.1 Two-third of loans to entities covered under 1.2 above in excess of Rs.

one crore in aggregate per borrower for agriculture and allied activities. 1.3.2 Loans to food and agro-based processing units with investments in plant

and machinery up to Rs. 10 crore, undertaken by those other than 1.1.6 above.

1.3.3 (i) Credit for purchase and distribution of fertilizers, pesticides, seeds, etc.

(ii) Loans up to Rs. 40 lakh granted for purchase and distribution of inputs for the allied activities such as cattle feed, poultry feed, etc.

1.3.4 Finance for setting up of Agri. clinics and Agribusiness Centers. 1.3.5 Finance for hire-purchase schemes for distribution of agricultural

machinery and implements. 1.3.6 Loans to farmers through Primary Agricultural Credit Societies

(PACS), Farmers Service Societies (FSS) and Large-sized Adivasi Multi Purpose Societies (LAMPS).

1.3.7 Loans to cooperative societies of farmers for disposing of the produce of members.

1.3.8 Financing the farmers indirectly through the co-operative system (otherwise than by subscription to bonds and debenture issues).

1.3.9 Loans for construction and running of storage facilities (warehouse, market yards, godowns, and silos), including cold storage units designed to store agriculture produce/products, irrespective of their location.


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If the storage unit is registered as SSI unit/micro or small enterprise, the loans granted to such units may be classified under advances to Micro and Small Enterprises sector.

1.3.10 Advances to Custom Service Units managed by individuals, institutions or organizations who maintain a fleet of tractors, bulldozers, well-boring equipment, threshers, combines, etc., and undertake work for farmers on contract basis.

1.3.11 Finance extended to dealers in drip irrigation/sprinkler irrigation system/agricultural machinery, irrespective of their location, subject to the following conditions:

(a) The dealer should be dealing exclusively in such items or if dealing in other products, should be maintaining separate and distinct records in respect of such items.

(b) A ceiling of up to Rs. 30 lakh per dealer should be observed. 1.3.12 Loans to Arthias (commission agents in rural/semi-urban areas

functioning in markets/mandies) for extending credit to farmers, for supply of inputs as also for buying the output from the individual farmers/ SHGs/ JLGs.

1.3.13 Credit outstanding under loans for general purposes under General Credit Cards (GCC).

1.3.14 Loans to MFIs for on-lending to agriculture as per the conditions specified in paragraph 3.2.

1.3.15 1.3.16 1.3.17

Loans sanctioned to NGOs which are SHG Promoting Institutions, for on-lending to members of SHGs under SHG-Bank Linkage Programme for agricultural purposes. Loans granted to RRBs for on-lending to agriculture and allied activities sector. Overdrafts, up to Rs. 25,000 (per account), granted against 'no-frills' accounts in rural and semi-urban areas.

1.4 1.4.1 1.4.2 1.4.3 1.4.4

Loans not eligible for classification as direct/indirect finance to agriculture Loans sanctioned w.e.f. April 1, 2011 to NBFCs (other than MFIs which adhere to the criteria specified in paragraph 3.2) for on-lending. The bank loans extended prior to April 1, 2011 to NBFCs, and classified under Priority Sector will continue to be reckoned under Priority Sector till maturity of such loans. Loans sanctioned to NBFCs for on-lending to individuals or other entities against gold jewellery, investments made by banks in securitized assets originated by NBFCs, where the underlying assets are loans against gold jewellery, and purchase/ assignment of gold loan portfolio from NBFCs. Loans sanctioned to Central/ State Co-operative Marketing Federations and State Civil Supplies Corporations. Loans sanctioned to corporate/ private companies/ sugar companies for financing of receivables of farmers/vendors/traders against their supplies of agricultural produce to such corporate/ private companies/sugar companies.


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2.2.3. Direct Finance in the micro and small enterprises sector will include credit to: (1) Manufacturing Enterprises.

(a) Micro (Manufacturing) Enterprises Enterprises engaged in the manufacture/production, processing or preservation of goods and whose investment in plant and machinery [original cost excluding land and building and the items specified by the Ministry of Small Scale Industries vide its notification No. S.O. 1722 (E) dated October 5, 2006] does not exceed Rs. 25 lakh, irrespective of the location of the unit.

(b) Small (Manufacturing) Enterprises Enterprises engaged in the manufacture/production, processing or preservation of goods and whose investment in plant and machinery [original cost excluding land and building and such items as in 2.2.3(1)(a)] is more than Rs.25 lakh but does not exceed Rs.5 Crore, irrespective of the location of the unit.

(2) Service Enterprises. (a) Micro (Service) Enterprises

Enterprises engaged in providing/rendering of services and whose investment in equipment (original cost excluding land and building and furniture, fittings and other items not directly related to the service rendered or as may be notified under the MSMED Act, 2006) does not exceed Rs.10 Lakh, irrespective of the location of the unit.

(b) Small (Service) Enterprises Enterprises engaged in providing / rendering of services and whose investment in equipment (original cost excluding land and building and furniture, fittings and such items as in 2.2.3.2(a) above) is more than Rs.10 Lakh but does not exceed Rs.2.00 Crore, irrespective of the location of the unit.

(c) The small and micro (service) enterprises shall include small road & water transport operators, small business, professional & self-employed persons, and all other service enterprises engaged in activities which satisfy the definition of micro and small (service) enterprises in respect of investment in equipment (original cost excluding land and building and furniture, fittings and other items not directly related to the services rendered or as may be notified under the MSMED Act, 2006) (i.e. not exceeding Rs.10 lakh and Rs.2 crore respectively)

(d) Loans granted by commercial banks to Micro and Small Enterprises (MSE) (Manufacturing and Services) are eligible for classification under Priority Sector, provided such enterprises satisfy the definition of MSE sector as contained in MSMED Act, 2006, irrespective of whether the borrowing entity is engaged in export or otherwise. The export credit granted by banks to MSEs may, however, be reported separately under heading Export credit to micro and small enterprises sector.

(3) Khadi and Village Industries Sector (KVI) All advances granted to units in the KVI sector, irrespective of their size of operations, location and amount of original investment in plant and machinery. Such advances will be eligible for consideration under the sub-target (60%) of the small enterprises segment within the priority sector.


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The achievements of these limits would be monitored by the Priority Sector department who would also apprise the Board periodically.

2.3. Thrust Areas 2.3.1. Thrust areas explained. 2.3.1.1. The deployment of credit shall be made by the Bank selectively with the twin

objectives to increase profitability and avoid / restrict or reduce exposure to unnecessary risks. Concentration should be shifted to the upcoming and prospering sectors and would have to be in tune with the changing economic needs / scenario and high-tech scenario emerging in the country.

2.3.1.2. To build sizeable markets share in each of the thrust areas of business through effective strategies in terms of pricing, product packaging and promoting the product in the market, we will endeavour to be market movers in these initiatives.

2.3.1.3. To sustain the mission objective through harnessing technology driven banking and delivery channels.

2.3.1.4. To promote confidence and commitment among the staff members to address the expectations of the customers efficiently and to handle technology banking with ease.

2.3.1.5. Bank will also adopt the following strategy to increase its market share in thrust areas.

2.3.1.5.1.Branches to maintain continuous contact with the top borrowers of their branch to know their business activity/expansion plans. A diary containing profile of such borrowers should be maintained at every branch which will include information not only about their business but also give information about the facilities availed by them from our bank or from other banks. Information regarding facilities/services availed from other banks should be used for bringing them into our fold.

2.3.1.5.2.Branches to obtain references from top borrowers and use them for increasing customer base at every branch. References may be obtained from other customers also.

2.3.1.5.3.The profile of the borrowers as mentioned above may also be used for cross selling our products to them.

2.3.1.5.4.To obtain references from Industrial/Merchants/traders association and establish contact with them.

2.3.1.5.5.Acquisition of new customers/accounts will be an ongoing activity for business development. To this end, a list of top borrowers (who are not our customers) in the center may be prepared and contacted for bringing them in to our fold after making due diligence /enquiries.


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2.3.1.5.6.Technology should be leveraged for acquisition of new business by providing internet banking, Structured Financial Messaging Solution (SFMS), Real Time Gross Settlement (RTGS), Special Electronic Funds Transfer (SEFT), National Electronic Funds Transfer (NEFT), Electronic Funds Transfer (EFT) facilities.

2.3.2. The thrust areas for deployment of credit during the year 2012-13 would be as under :-

2.3.2.1 Priority Sector, with emphasis on High Tech Agriculture and Micro & Small Enterprises under SME (Medium Enterprises will not come under Priority Sector). 2.3.2.2 Export Credit. 2.3.2.3 Retail Banking including Housing loans (up to Rs.30 lakhs) and Educational Loans. However, Housing Loans up to Rs.25 lakhs only shall be considered under Priority Sector. 2.3.2.4 Information Technology ( I. T. Industries) & I.T.Consultancy & allied services. 2.3.2.5 Pharmaceuticals, Life Sciences & Multi Clinical diagnostic Centre 2.3.2.6 Fast Moving Consumer Goods (FMCGs) 2.3.2.7. Trading Advances (Deleted). [Trading Advances forming part of Priority sector

including advances to MSE shall continue to remain under thrust area. All the delegates can consider the proposals of trading advances within their respective delegated lending powers as provided in Annexure-3 of the Loan Policy.]

2.3.2.8 Food Processing Industries. 2.3.2.9 SMEs with thrust on Medium Enterprise. 2.3.2.10 Agri-Export Zone (AEZ) 2.3.2.11. Service Sectors like Travel Tourism & Allied services. 2.3.2.12 Gems & Jewellery (Deleted) 2.3.2.13 Bio-Tech 2.3.2.14 Automobile & Auto Ancillaries. 2.3.2.15 Channel Financing. 2.3.2.16 New & Renewable Energy. 2.3.2.17 Capital Goods.

2.3.3. Priority Sector Lending with emphasis on Agriculture 2.3.3.1.a Priority Sector lending shall continue to be our thrust area and our endeavor shall

be to exceed overall share of 40% of net bank credit with sub sector achievement as shown in para 2.2.2 above. Concerted efforts shall be made to further improve flow of credit to Small (Mfg.) Enterprises.

2.3.3.1.b Agriculture: Within the Priority Sector advances, agriculture shall also continue to be the thrust area and for improving performance under this sector the focus shall be on Kisan Credit Card.

2.3.3.1.1 Advance to Self Help Groups (SHG). 2.3.3.1.2 Gold Loans. 2.3.3.1.3 Farm Mechanisation Programme. 2.3.3.1.4 Advances against Warehouse and Cold Storage receipts. 2.3.3.1.5 Advances to dealers of other inputs like fertilizers, pesticides, insecticides etc. 2.3.3.1.6 Long-term investments like Minor Irrigation, Land Development, Construction of

Rural Godowns, Cold Storages etc. 2.3.3.1.7 Hi- Tech Agricultural Financing. 2.3.3.1.8 Financing to Agri Clinics & Agri Business centers.


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2.3.4 Credit flow to Women Entrepreneurs The process of accelerating credit to women for upliftment and economic development shall be continued.

2.3.5 Export Credit 2.3.5.1 In view of the importance of Export Credit and in tune with the Government

guidelines, the Bank shall lay thrust upon credit to the Export sector especially from the SME sector.

2.3.5.2 In order to ensure prudent decision making in the case of Export credit proposals and also to make sure that no worthwhile credit proposals suffer for want of need based credit, it is stipulated that while the sanctioning authority may within his powers sanction Export Credit Proposals, the authority to decline any such proposal shall be vested with the immediate next higher authority.

2.3.5.3 Our endeavor will be to achieve an export credit target of 12% of net bank credit. 2.3.5.4 In line with RBI guidelines, the Bank has framed a scheme for issue of Gold Card

to exporters with good track record for easy availability of export credit on more liberal terms. The highlights of the scheme are as under:

2.3.5.4.1Gold Card holder exporters, depending on their track record and credit worthiness, will be granted better terms of credit including rates of interest than those extended to other exporters.

2.3.5.4.2 Applications for credit will be processed at simpler and faster processing norms. 2.3.5.4.3 In principle credit limits will be sanctioned for a period of 3 years with a

provision for automatic renewal subject to fulfillment of the terms and conditions of sanction.

2.3.5.4.4 A standby limit of 20% of the sanctioned limit will be additionally provided to facilitate urgent credit needs for executing sudden orders in all the well conducted accounts.

2.3.5.4.5 In case of unanticipated export orders beyond the projections, additional export finance shall be provided as quickly as possible taking in to account the size and nature of order and the conduct of the account.

2.3.5.4.6 The performance of the exporters shall be reviewed on yearly basis. 2.3.5.4.7 Gold Cardholders will be given preference for grant of packing credit in foreign

currency (PCFC) subject to availability of foreign currency resources. 2.3.5.4.8 Collateral security / Buyer wise ECGC cover for post-shipment credit

may not be insisted upon for Gold Card holders where i) Exporter has a satisfactory track record for the past 3 years. ii) Items of export fall within the products normally dealt by the Exporter in its

usual course of business. iii) Minimum credit risk rating should be CBI - 4. iv) Bank is having satisfactory status report of the overseas buyer. v) Overseas buyer is of a country whose country risk rating as per ECGC

categorisation should not be below B1.

Authority to allow such waiver of collateral security / buyer wise ECGC guarantee shall rest with:

a) For accounts falling under the power of AGM/RM/CM and below by Zonal Managers as per non fund based lending powers.


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b) For Accounts falling under the power of Zonal Manager at Central Office as per respective non-fund based lending powers.

Information Technology / Computer Software Industries and BPO / Call Centres. Software developers and service providers have a great potential in the long term. In view of the tremendous scope, the Bank will continue to finance good bankable proposals from entrepreneurs of proven track record. The over all exposure to Software Industry shall be restricted to 0.5% of the total credit as per Industry Exposure Norms for the year 2012-13 However, any credit proposal of Compute Software Industry involving fresh or additional exposure to be assessed with extra care. In view of tremendous scope, the proposals of BPOs / Call Centers may be taken up on merits. Detailed guidelines are given in Annexure 5.

2.3.8.1 Agri -Export Zones (AEZ). 2.3.8.2.AEZs are expected to play a pivotal role in the development of Infrastructure of the

country and hence have been accorded special benefits by the Government of India. 2.3.8.3. There are several AEZs coming up in the near future and the scope for financing as

part of Infrastructure lending exists.

2.3.9. SMEs with thrust on Medium Enterprises.

With the alternative means of financing, for both short term and long term requirements, such as Commercial Paper, External Commercial Borrowing, Foreign Currency Loans, Public Deposits, Private Placement of Debentures and Bonds etc., the top corporate borrowers having good credit rating have reduced their dependence on bank finance and large limits sanctioned to them remain unutilized to a great extent. It is, therefore, necessary for us to improve off-take of credit by focusing on medium sized units with investment in plant and machinery in excess of Small (Mfg.) Enterprises limit and up to Rs. 10 crore. In case of service enterprises, Companys/trading firms/Business Enterprises/ Service units requiring credit facilities above Rs. 5 crores and upto Rs. 25 crores are covered.

2.3.10. Infrastructure Finance

2.3.10.1. In view of the national importance attached to infrastructure development, its criticality to economic development of the country, the potential for large volume business, the Bank attaches utmost importance to financing infrastructure projects. For financing large infrastructure projects, the Bank will rely on appraisal notes/due diligence carried out by FIs/recognized technical consultants/large banks as also carry out its own due diligence of the projects wherever feasible.

2.3.10.2. Financing of infrastructure projects is characterized by large capital costs, long gestation period and high leverage ratios. In order to facilitate free flow of credit to infrastructure projects, Banks can now sanction term loans to infrastructure projects within the overall ceiling of the prudential exposure norms. Further, subject to certain safeguards, banks are also permitted to exceed the single borrower /group exposure norm to the extent of 5% / 10% respectively provided the additional exposure is for the purpose of financing infrastructure projects.


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2.3.10.3. RBI has put in place guidelines to accelerate credit disbursement to infrastructure. These guidelines cover criteria for financing, types of financing, appraisal, regulatory compliance/concerns, asset liability management, administrative arrangements and inter-institutional guarantees.

2.3.10.4. The overall exposure will be up to 35% of the gross credit outstanding as on last Reporting Friday of the quarter ending March, June, September and December (as per Industry Exposure Norms for the year 2012-13). The guidelines on financing of Infrastructure Projects have been given in Annexure-7.

2.3.10.5. Definition of Infrastructure Infrastructure would include sectors as may be notified by CBDT in the Gazette from time to time. As per RBI /2011-12/59 DBOD.No.Dir.BC. 6 /13.03.00/2011-12 July 1, 2011, any credit facility in whatever form extended by lenders to an infrastructure facility as specified below falls within the definition of Infrastructure financing. In other words, a credit facility provided to a borrower company engaged in:

Developing or Operating and maintaining, or Developing, operating & maintaining i. A road, including toll road, a bridge or a rail system. ii. A highway project including other activities being an integral part of the

highway project. iii. Port, airport, inland waterway or inland port. iv. A water supply project, irrigation project, water treatment system, sanitation

and sewerage system or solid waste management system. v. A telecommunication services whether basic or cellular including radio

paging, domestic satellite service (i.e. a satellite owned and operated by an Indian company for providing telecommunication service), Telecom Towers network of trunking, broadband and internet services.

vi. An industrial park or special economic Zone. vii. Generation or generation and distribution of power including power

projects based on all the renewable energy sources such as wind, biomass, small hydro, solar etc.

viii. Transmission or distribution of power by laying a network of new transmission or distribution lines

ix. Construction relating to projects involving agro-processing and supply of inputs to Agriculture.

x. Construction for preservation and storage of processed Agro products, perishable goods such as fruits, vegetables and flowers including test facilities for quality.

xi. Construction of Educational institutions and Hospitals xii. Laying down and/or maintenance of pipelines for gas, crude oil and

petroleum pipelines. xiii. Any other infrastructure facility of similar nature

2.3.10.6. In the Budget of 2006-07, the Government has abolished Section 10 (23G) of the IT Act. Hence, tax breaks/benefits which were available to the Infrastructure companies as also to Banks are no longer available.


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2.3.10.7. On a Selective basis, exposure may be taken in respect of technically feasible, financially viable and bankable projects, undertaken both by Public Sector as well as Private Sector undertakings either directly or through Special Purpose Vehicles (SPVs).

2.3.10.8. The exposure would be taken jointly with leading Term Lending Institutions/Banks in infrastructure projects.

2.3.10.9. Timely and adequate availability of credit is the pre-requisite for successful implementation of infrastructure projects. In view of the delay due to multiplicity of appraisals by every institution involved in financing, the Bank would broadly accept the technical parameters laid down by the Lead Financial Institution.

2.3.10.10. The finance would normally be extended by way of term loan. The Bank would not consider any Term Loan in lieu of or to substitute budgetary allocation. However, Term Loan to supplement the budgetary resources would be considered if such supplementing is contemplated in the project design.

2.3.10.11. Infrastructure financing should conform to prudential norms and Asset/Liability Management guidelines. Wherever possible, the facility of Take-out finance through IDFC/IIFCL or similar organizations would be availed.

2.3.10.12. The Bank may also avail of the refinance facility provided by IDFC/IIFCL as an alternative to Take-out finance whenever deemed fit by ALCO.

2.3.10.13. Hitherto, the promoters of infrastructure projects were required to bring in the Equity component from their own resources and the Banks were not permitted to extend finance for the purpose. However, as per the revised guidelines issued by RBI the Bank would consider extending finance for the acquisition of promoters share in an existing company which is engaged in implementing or operating an infrastructure project in India.

2.3.10.14. Normally in case of Toll based / Annuity based Road Projects or Sea Port Projects or Projects for construction of Airports, SEZs and other infrastructure projects of similar nature, security creation and charge creation usually takes a longer time. However, the lending banks obtain an assignment of all rights or interest in the project and project receivables / annuity etc. by virtue of Concessionaire Agreement and hence, such advance should be treated as Secured Advance.

2.3.11. Gems & Jewellery [Deleted from Thrust Area and shifted to Watch List.]

2.3.12. Food Processing Considering that the Government is giving emphasis on increasing investments in the Agriculture sector to give boost to the economy, the ancillary activity of Food Processing has also been encouraged. The industry is expected to grow in the near future driven by exports. The sector is slowly evolving to compete in the international markets with technology up gradation by several players. The


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Government has given a fillip to the sector in the budget of 2006-07 by giving Food Processing industry, a status of priority sector advance (earlier this was limited to the units with investment in Plant and Machinery up to Rs.1 crore in SSI sector). Considering the potential scope for financing in the said sector, since this industry will form part of our priority sector portfolio, the same has been retained as part of thrust area.

2.3.13. Biotech Biotech is another emerging sunrise industry, which is attracting fresh investments. In view of the scope and potential of the industry, the same has been continued in the thrust area.

2.3.14. Fast Moving Consumer Goods (FMCGs)

The expected rise in the disposable income of consumers is expected to induce consumer durable demand. In view of the expected demand and the change in habits of the Indian consumers, which will drive the said sector, it has been included under thrust area.

2.3.15. Auto Ancillary

2.3.15.1. India is clearly emerging as one of the key auto component centers in Asia and is expected to play a significant role in the global automotive supply chain in the near future. Indias automotive component industry manufactures the entire range of parts required by the domestic automobile industry. To meet international quality requirement and for tapping the global markets, the Indian auto ancillary units have entered into joint ventures with foreign companies.

2.3.15.2. In the budget for 2006-07, the Government has announced peak level duty reduction on components which is likely to result in a moderate pricing pressure on domestic manufacturers for OEM supplies (OEM demand accounts for 65 percent of the industry). Imports in the replacement market (accounts for about 18 percent of the industry) are unlikely to increase due to the levy of 4 per cent CVD. The expected increase in demand for cars, on account of the cut in excise on small cars will have positive impact on auto ancillary demand.

2.3.15.3. As there are opportunities to finance units in the said sector and in view of the industry positives it has been retained under thrust area.

2.3.16. Channel Financing / Vendor Financing / Dealer Financing 2.3.16.1. This is a concept of supply chain with the chain having three perceptibly distinct

links - the pre-production, production and post production. There is a proper continuity and coordination of all related issues like delivery channels of goods, services and finances. The finances required for the organization transfused across the business cycles will have to be healthily circulated and supported, sustaining the supply chain of activities. This process of infusing the financial life blood across the supply chain is normally the gist of channel financing. Thus the focus of channel finance is to extend an integrated financial and commercial solution to the supply and distribution channels of a business unit.


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2.3.16.2. Channel financing is a refinement upon the conventional financial support services for a Business Concern and adds value to the transaction for all the parties concerned.

2.3.16.3. The significant concept of channel financing is that the manufacturing business concern, who is the principal customer for a Bank identifies and suggests the names of his suppliers and dealers to the Bank and Bank makes a due diligence assessment of the suppliers/dealers standing and credit worthiness.

2.3.16.4. For the Bank, the benefits arising out of Channel financing are manifold. The Banks gets tailor made customers. Customer base is enlarged as the relationship banking gets bolstered. The lending activity and the loan origination process are greatly simplified. Working capital assessment would be easier and more of bill finance and less of traditional cash credit facilities would ensure better credit discipline. As the risk gets diversified and credit exposure norms are better observed, Bank will have convenient tool in managing its assets portfolio.

2.3.16.5. The Channel Financing opportunities lie mainly in the Steel belt cluster and the automobile manufacturing cluster. Bank will tap its existing corporate clients for business opportunities under the said segment.

2.3.17. In addition to the above, Bank will also endeavor to expand the credit portfolio through acquisition of assets by way of assignment of debts/Inter-Bank participatory Certificates (IBPCs), Novation, Securitized assets & Buyout of loans from other Banks etc.. This will be more desirable when the Bank is having surplus liquidity.

a) Portfolio Buyout gives the Bank an opportunity to acquire quality assets, if decision is taken after proper due diligence.

b) Some of the Private/ Foreign Banks, due to de-risking certain segments of their credit portfolio, paucity of funds & ALM mismatches/ issues etc., interested to securitize some of their assets as on date of Balance Sheet, for outright sale or by way of Inter Bank Participation Certificates.

c) To deploy any surplus funds profitably and optimize loan books, Bank can undertake exposure by way of IBPC/ Assignment/ Novation of loans etc.

d) The exposure under the IBPC/ Assignment/ Novation is to be undertaken only after due study of their past working results, financials and credit appraisal.

e) In case of outright purchases of any loan asset eligible to be categorized under priority sector, shall be eligible for classification under the respective category of priority sector(direct or indirect), provided the loans purchased are eligible to be categorized under priority sector; the loan assets are purchased (after due diligence and at fair value) from banks and financial institutions, without any recourse to the seller; and the eligible loan assets are not disposed of, other than by way of repayment, within a period of six months from the date of purchase.

f) Authority to approve the buyout is CACB/MCB. g) In the matter of Portfolio Buyouts, the guidelines issued by Retail Lending

Department from time to time, shall be complied with.

2.3.18. Industries under Core Sector: 1.Steel 2. Cement & 3. Coal 2.3.19. Micro Finance Companies (As per Annexure-23)


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2.3.20 Financing Subsidiaries of our Bank:

a. Extending credits to the subsidiaries, engaged in onward lending, shall be at par with our lending to any other corporate. All the lending norms which are normally applicable to any corporate borrower shall also be applicable to lending to subsidiaries.

b. Regarding interest rate, it shall be as per the Credit Risk Rating. However, reduction up to 200 basis points from applicable rate of interest shall be at the discretion of Credit Approval Committee of the Board (CACB).

c. Further, the MCB has authority to decide any rate of interest, not less than Base Rate and permit any other deviations subject to compliance of RBI/ Statutory norms etc.

2.4. Watch List Areas 2.4.1. Considering the present economic scenario, certain industries are presently kept

under watch list. The list of such industries is given hereunder. i. N.B.F.Cs.

ii. Textiles (other than Cotton Textiles, 100% export oriented textile units and units exclusively engaged in Embroidery work)

iii. Commercial Real Estate. iv. Gems, Jewellery & Diamond Regional Managers/ Zonal Managers may sanction proposals falling within their delegated powers without reference to Central Office in case of industries falling under Watch List except N.B.F.C., & Capital Market Exposures up to 31.03.2013 or till next revision of the policy. In case of Gems, Jewellery & Diamond accounts, Regional Managers/ Zonal Manages can renew existing limits; regarding fresh/ additional exposure, the same shall be considered upto their delegated lending powers, subject to availability of ECGC cover only.

In case of Cotton textile units and 100 per cent Export Oriented Textile unit delegatees can exercise their delegated power. In synthetic textiles, Regional Manager, Kota; Regional Manager, Surat; Regional Manager, Coimbatore and Chief Managers of Surat Main, S.D. Textile Market, Coimbatore, Peelamedu, Tirupur and Kovilpatti Branches are also permitted to consider proposals up to their delegated lending powers.

2.4.2.3. In case of Tiny / Village Industries / Small (Mfg.) Enterprises, a limit up to Rs.10 lakhs may be sanctioned by the respective Delegatees even though activity may fall under watch list.

2.4.2.4. In the case of NBFC Accounts the Zonal Managers/Regional Managers in the rank of DGM may review the existing limits falling within their powers including those accounts which fall within the powers of Regional Managers (in scale V) / Branch Managers in Standard accounts only, under intimation to Central Office. Fresh proposals and enhancement of limits in existing accounts can be considered only after obtaining in principle approval from Chairman and Managing Director / Executive Director.


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2.4.2.5. Leasing Companies: Advances to Leasing companies would be considered only on selective basis. The

sanctioning powers in respect of such proposals shall rest with the Central Office. The bank finance for lease rentals could be either by discounting of bills or on the basis of declarations of the receivables (subject to 25% margin) furnished by the borrowing leasing companies. As banks can only support lease rental receivables arising out of lease of equipment / machinery owned by the borrowers, lease rentals receivables arising out of sub-lease of an asset by a Non-Banking Non Financial Company (undertaking nominal leasing activity) or by a Non-Banking Financial Company would be excluded for the purpose of computation of bank finance for such company. Though there is no maximum overall limit for lending, the lending by the Bank to individual Leasing borrower should not exceed 4 times its TNW. It should also be ensured that the total borrowing of the Leasing Company is not more than 10 times of their net owned funds.

2.5. Low Priority Areas

2.5.1 The concentration of the bank finance is to be decided in the Context of domestic, international, industrial, economic and technological development / trends. Keeping these aspects in view, as well as the overall objectives of the Bank, it would be necessary to decide the list of low priority loans. This list is to be revised from time to time. For the present the low priority loans are as under.

i. Manufacturing of Cigarettes ii. New Jute Mills

iii. Plywood, Commercial and decorative Veneers. iv. Block Boards and Flush Doors.

v. All Types of Rubber Based Beltings, PVC conveyer Belts and Fans and V-Belts.

2.5.2 In Principle Approvals from Central Office for enhancement of limits in existing accounts or for considering New Accounts falling under the industries / activities referred to in para 2.5.1 should be obtained from Chairman & Managing Director / Executive Director.

2.5.3 A quarterly review of the progress in different areas viz., Thrust area, retail credit, watch list and low priority category will be made by Zones and the same to be forwarded to Central Office for overall assessment of progress in the desired sector and for taking proactive measures. For this, a reporting statement is devised which should be submitted by all Zonal Offices to Central Office.

3. Restrictions on Lending (General Prohibitions)

3.1. In conformity with the statutory restrictions imposed by RBI, the bank would ensure that the following stipulations with regard to lending activities are adhered to:-

3.1.1. No loans/advances shall be granted against the security of Banks own shares. 3.1.2. No loans/advances shall be granted against gold/silver bullions.


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3.1.3. No loans/advances shall be granted to companies for buy-back of their own securities.

3.1.4. No loans/advances shall be granted against Certificate of Deposits. 3.1.5. No loans/advances shall be granted against the security of partly paid shares. 3.1.6. No loans/advances shall be granted:- 3.1.6.1.To partnership firms/Sole proprietor concerns against the primary security of

shares/debentures. 3.1.6.2.For financing badla transactions. 3.1.6.3.Against FDRs / term deposits of other banks.

3.1.7. The bank shall not hold shares in any company whether as a pledgee / mortgagee or absolute owner, of an amount exceeding 30% of the paid up share capital of the company or 30% Banks paid-up share capital and reserves whichever is less.

3.1.8. The Bank shall not hold shares whether as pledgee, mortgagee or absolute owner, in any company in the management of which any Managing Director or Manager of the Bank in any manner concerned or interested.

3.1.9. No loans/advances shall be granted for setting up new units consuming /producing Ozone Depleting Substances (ODS).

3.1.10. Restrictions imposed by RBI on granting of loans and advances and issue of guarantees on behalf of its Directors or other banks Directors including Scheduled Co-operative Banks or their relatives, any firm/company in which any of other banks directors is interested as partner/director, manager, employee or guarantor shall be strictly adhered to as detailed in Annexure - 2.

3.1.11. Letter of Credit and Purchase/Discount/Negotiation of bills under LCs shall be considered only in respect of genuine commercial trade transactions of the borrower constituents, who have been sanctioned regular credit facilities by the Bank.

3.2. On the basis of past practice financing of certain activities are restricted / regulated.

3.2.1. Lending for liquor trade shall be sanctioned only at Regional/Zonal Office.

3.2.2. Lending to Transport Operators shall be allowed by Regional Offices selectively at branches which have a good track record of recovery after getting the approval of such branches from the Zonal Office.

4. Credit Administration 4.1. Time norms for disposal of credit proposals and Credit refusal: Bank has laid

down a transparent Fair Practices Code approved by the Board as envisaged by RBI. The Bank shall comply with the guidelines relating to issue of acknowledgement for receipt of proposals and time norms for processing and disposals as contained in the Fair Practices Code formulated by the Bank, which is in force.

4.1.1. All Loan Application Forms should contain information about the fees/charges, if any, payable for processing, the amount of such fees refundable in case of non-acceptance of application and pre-payment option, if any.

4.1.2. Reasons for rejection of loan applications for all categories of borrowers, irrespective of any threshold limit to be conveyed.


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4.2. The time frame for disposal of the proposals at each level is given below: 4.2.1. As per RBI instructions all loan applications up to Rs.25,000/- should be disposed

within two weeks of receipt of application complete in all respect. 4.2.2. Similarly, application in respect of loans above Rs.25, 000/- and up to Rs.5 lakhs

should be disposed off within a period of 4 weeks of receipt of application complete in all respects.

4.2.3. All applications in respect of loans above Rs.5 lakhs should be disposed off as per the time frame given hereunder:

i. Branch Office Level: Credit proposals received at branch shall be disposed of/ recommended to the higher authority by the Branch Manager within 15 days maximum from the date of receipt of proposals complete in all respects.

ii. Regional Office Level: Credit proposals received at ROs shall be disposed of/ recommended to next higher authority by the Regional Manager within 15 days from the receipt of proposal at Regional Office.

iii. Zonal Office Level: Credit proposals received at Zonal Office shall be disposed of/recommended to next higher authority by the Zonal Manager within 15 days from the receipt of proposal at Zonal Office.

iv. Central Office Level: Proposals falling within the powers of GM/ED/CMD should be disposed of within 15 days and in case of proposals falling under the powers of Management Committee (MC) should be cleared with in a period of one month (depending upon the schedules of M.C. meetings.)

v. Monitoring of Credit proposals received for approval/ sanction: (a) All Loan proposals which are to be approved at Central office level may be reviewed on a fixed day by the CMD and EDs together in order to ensure that there is no pendency of proposals above the stipulated period. While reviewing, the CMD and EDs may discuss the same with the field functionaries/officers through video conference for instant feedback. (b) All loan proposals which are to be approved at the Zonal office level may be reviewed by the Zonal Managers on a fixed day in a week so that there is no pendency over the stipulated period of days. All loan proposals which are to be approved at the Regional Office or Branch level may be reviewed by the Regional Managers on a fixed day in a week so that there is no pendency of proposals over the stipulated period in the case of Regional Office/Branch as the case may be. (d) The loan applications which are pending for want of response /information from different State Governments, whether to be approved at Central Office level or Zonal Office/Regional Office level, may be followed up by the concerned Zonal/Regional Office with the respective departments of the State Governments for expeditious clearance. Matters relating to applications to be disposed of by Branch Managers, may be taken up by the Branch Managers in District Coordination Committees on a monthly basis. (e) Zonal Office, where there is no Zonal Office Regional Office in a state may take up with State level Bankers Committee to get requested the Chief Secretaries of the respective states for expeditious clearance of the projects coming up in the State where bank has sanctioned the projects but disbursement is pending for want of clearance.`

4.2.4. Export Credit Proposals Normal Gold Card Holder i) Fresh / Enhancement Proposals 45 days 25 days

ii) Renewal Proposals 30 days 15 days iii) Adhoc facility 15 days 7 days


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iv) The export credit proposals shall be disposed of within the time frame as above or within the time norms stated in para 4.2.1 to 4.2.3 which ever is earlier.

4.3. In case of large borrowal accounts, the proposals as far as possible be jointly processed by Branch / Regional Office / Zonal Office so as to reduce response time.

4.4. The Branch/recommending authority may send the proposals directly to sanctioning authority under copy to immediate controlling office for their comments and further recommendation. Every proposal must have a flow chart, clearly indicating the date of receipt of proposal, date of forwarding the proposal to higher authority, date of disposal of the proposal. Proposal received without flow chart should be returned to the forwarding office. Delay in processing and disposal of proposals must be avoided at all levels.

4.5. In case of rejection of proposals relating to Exports, Educational Loans & proposals of SC/ST applicants it shall be referred to the next Higher Authority.

4.6. Proper sanction registers have to be maintained giving clear indications of the movement of proposal till final decision / disposal.

4.7. All sanctions and rejections are to be reported every month to the next Higher Authority. All rejections should be reviewed by the next higher authority with full details.

4.8. In case of rejection, applicants should be intimated reasons for rejection.

5. Credit Sanction Procedures Following shall be the procedure for Processing, Sanctioning, disbursing of a credit

proposal.

5.1.Pre-Sanction:

To obtain an application for credit facilities from the borrower on the prescribed format along with photograph of borrower/guarantor/promoter in terms of KYC norms.

To obtain and satisfy about status report from the present bankers (for new accounts) preferably before sanction or at least before disbursement.

To obtain statements of assets and liabilities, of the firm / company / directors, partners etc. and to verify the same with evidence namely Income Tax Returns, Wealth Tax Returns, Sales Tax Returns etc.

To conduct preliminary investigations as to the borrowers antecedents, standing, integrity, knowledge and experience in the field of activity.

Scrutiny of the financial statement and other information, submitted by the borrower to ascertain the feasibility, technical, financial and economic viability of the proposal.


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To ascertain whether proposal is within the banks lending policy.

To ascertain whether the security offered is on the Banks approved list and its marketability, transferability, storage etc.

Pre-sanction inspection of the project preferably before sanction / recommendation to the sanctioning authority or at least before disbursement wherever required.

To discuss with the party to obtain additional information.

All proposals should contain Turnaround Time Tracker (i.e., Flow Chart).

5.2. Process of Due Diligence

5.2.1. Interview/discussion with the applicant : The Bank shall carry out discussion with the applicant borrower and ascertain the past track record, activities presently undertaken, associate/group concerns, details about the proposed project such as infrastructure arrangements, forward and backward linkages, sources of margin arrangement for financial tie-up, procurement of raw material, selling and marketing arrangement etc. The inputs through the process of discussion should help the Bank in taking a decision whether or not to take up the case for evaluation.

5.2.2. Industry Prospects: The Bank shall ascertain information like present state and future prospects of the particular industrial activity in which the constituent is engaged duly taking into account the market environment demand-supply position/major competitors/market share/position of the constituent in the respective industry.

5.2.3. Financial Statements: The Bank shall analyse the financial statements of the constituent/ income/wealth tax returns/assessment orders of the constituent/guarantors. These statement/documents shall throw light on growth in sales, profitability, cash accruals, tangible net worth position, investment in associates, term liabilities, repayment commitment under term loans in relation to cash accruals etc. The auditors notes to the account shall reveal the accounting practices followed by the business entity, details of contingent liabilities including guarantee obligation, claims relating to income tax/sales tax/excise duty/custom duty pending in the courts/tribunals. The information gathered as above shall enable the Bank to get an idea on the business ethics adopted by the constituent and to take a decision whether or not to have dealings with the constituent. Information on the associates may also be ascertained.

5.2.4. Market Information

5.2.4.1 Opinion about the applicant/associate shall be collected by making market enquiries with people in similar line of business / buyers / suppliers / competitors / employees etc. Where the Bank has fully functional Credit Information Dept., market opinion


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reports should be called from the said department besides making independent market enquiries.

5.2.4.2 Even in the case of existing information on the constituent through market information reports appearing in the local press/newspapers/business magazines/contacts with Government officials / Businessmen / Banker-colleagues / credit rating agencies, the Bank shall keep abreast with the market.

5.2.4.3 In the case of small borrowers, the Bank shall ensure that the individual resides/ undertakes activity within the command area of the branch and his address shall be got confirmed. Further discreet enquiries shall be made with nearby residents/business establishments/employer/colleagues on the standing/credit-worthiness of the borrower.

5.2.4.4 The due diligence certificate which should include the reference from whom discreet enquiries about the company/promoters were made will form part of the appraisal note.

5.2.5. Confidential Opinion from existing Banker

Efforts to be made to obtain Confidential Opinion from the existing banker in all new connections. Efforts shall also be made to gather full information on the credit facilities sanctioned, conduct of account, submission of data/ information etc. The Bank may also examine the account statements of the previous banker to confirm satisfactory past dealings and operations.

5.2.6. Pre-sanction visit to the applicants place

Pre-sanction visit to the applicants place shall be undertaken to confirm the existence of the unit as well as the assets offered as prime/collateral security and their acceptability. The visit shall also be used to understand the trade practices / manufacturing process of the unit / interact with the employees / other relevant persons to collect purposeful information.

5.2.7 It will be the primary responsibility of the recommending authority / authorities to verify the antecedents / credit information of the borrower, acceptability of security and proper analysis of the financial indicators and correctness of information given in the proposal based on which sanctioning authority will take final decision after ensuring / examining policy compliance and conformity with overall Corporate Policy.

5.3. Appraisal (Appraisal Standards)

5.3.1. All credit proposals received from the parties shall be properly appraised at the branch level and also at respective delegatees level taking into consideration the credit worthiness of the borrowers, their business experience and activities, the financial ratios of the borrowers, the purpose and need for the credit and giving justification for the credit.


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5.3.2. While considering fresh / new credit proposals the following Financials shall be kept in view. a. Current Ratio 1.33 b. Debt-Equity Ratio (TL) 3:1 c. Debt Service Coverage Ratio (Average) 1.5 d. Interest Coverage Ratio 2:1 e. Asset Coverage Ratio 1.5:1

- Normally the Current Ratio should be 1.33. However, in case of borrowers having satisfactory track record and other financials, CR up to 1.17 shall be acceptable. However, authority to consider proposals with CR of below 1.33 will be as under:

- Up to 1.25 Zonal Managers / DGM of CFBs / RMs. - Less than 1.25 at Central Office. - In case of accounts where MPBF is ascertained on the basis of Turnover Method or

Ist Method of lending, Current Ratio up to 1.17 and in case of seasonal industries like sugar, Tea, Coffee etc. Current Ratio up to 1.00 may be accepted.

- In case of export finance where Packing Credit is sanctioned at 10% Margin and Bills Discounting (EBD/EBP) facility at Nil Margin, we may accept Current Ratio not below 1.00.

- Minimum D:E Ratio for a company should be 2:1. However, for Infrastructure finance to SPVs the minimum DER shall be 70:30 or such other ratio as may be prescribed by IIFCL in case of refinance availed of from them or as per Govt./RBI advice.

- In case of Consortium or Syndication financing, we may accept DE Ratio as accepted by all other lenders.

- For other projects & non project related capex: DER up to 4:1 can be allowed subject to condition that DER for the company as whole, taking in to account the proposed loan, does not exceed 3:1.

In case of Infrastructure and Capital Intensive projects like Road, Port, Airport, Power sector, SEZ etc. Debt: Equity ratio up to 5:1 may be accepted.

Powers to consider proposals with D:E ratio in excess of 3:1 shall rest with Central Office.

TNW: Bank Credit should be reckoned with all borrowings from the banking system and not only our Banks loan/Financial Assistance.

In case of Housing Finance Companies TNW: Bank Credit ratio will be quite high, looking to the nature of their business and Financial Pattern, such cases may be referred to CACB/MCB for consideration.

Normally Net Worth to Bank Borrowings ratio shall be 1:4. However, deviation up to 1:6 can be allowed by next higher authority not below the rank of Zonal Manager in case of Manufacturing & Trading accounts. In case of NBFCs/Micro Finance Cos, normally acceptable ratio will be 1:6. However, Deviation beyond 1:6 may be allowed by CACB/MCB.


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For arriving at asset coverage ratio, value of all tangible assets i.e. Primary & Collaterals charged to the Bank shall be taken into account.

The ratios mentioned above shall normally be observed. However, in case of Syndication, Consortium or Multiple Banking arrangement, ratios accepted by the consortium or by major banks under syndication / multiple banking shall be accepted by the bank and such cases shall not be construed as deviation from the Loan Policy.

D.S.C.R: Though ideal ratio would be 1.5, a proposal with average DSCR of 1.40 may be accepted if other financials of the project are found to be satisfactory and it stands the test of sensitivity analysis with minimum average DSCR of 1.20. However, proposals with DSCR of below 1.5 shall be considered at Central Office level only.

Asset Coverage Ratio: Normally ACR should be 1.5. However, in exceptional cases, ACR up to 1.20 will be acceptable. Authority to consider proposals with ACR of below 1.5:1 will be:

Up to 1.33:1 Zonal Manager/DGM, CFBs & RMs. Less than 1.33% - at Central Office only

5.3.3 (i) In exceptional cases, the sanctioning authority can deviate from the above norms with proper justification. While reporting to the Controlling authorities, specific mention should be made in the Control Return - Annexure II, Statement of sanctions done by the concerned delegated authority within the lending powers, about such deviation/s. (ii) In respect of sanctions by Credit Approval Committee of the Board (CACB), it can

deviate from the above norms of Appraisal Standards with proper justification.

5.3.4 In the case of New Accounts where no past financials are available, the spirit of the above ratios should be kept in mind and it should be ensured that the Debt-Equity and Asset coverage ratios are complied with. The other ratios projected are also strictly as per the ratios given herein above.

5.3.5 Credit Information Bureau (India) Ltd. - (CIBIL)

5.3.5.1 Credit Information Bureau (I) Ltd. has been set up in January 2001 and is established with the primary purpose of information sharing between Banks and Financial Institutions for curbing the un-desired growth of NPA.

5.3.5.2 Banks are required to provide periodical information on suit filed accounts of Rs.1 crore and above, list of suit filed and willful defaulters of Rs. 25 lacs and above.

5.3.5.3 Banks/FIS/SFCs are also to submit information of non-suit filed accounts also to CIBIL in the prescribed format, so as to make CIBIL fully operational.

5.3.5.4 The necessary information along with the formats has been sent to the branches for furnishing information on ongoing basis. The branches shall take necessary steps to quickly and regularly furnish the information in the prescribed format to DIT, Central Office for onward submission to CIBIL.

5.3.5.5 It is mandatory to obtain consent letter from all the borrowers to submit information to CIBIL as stated in para 5.3.5.2 & 5.3.5.3.


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5.3.5.6 The Bank shall obtain reports from Credit Information Bureau (India) Ltd. (after the latter is fully operationalised) on the credit facilities enjoyed by the constituents as well as the status of the accounts.

5.3.6 RBI Defaulters List: Reference to defaulters list/willful defaulters list/Caution list/Exporters Caution List, Specific Approval List (SAL) of ECGC to be made part of the Process Note at all levels. Defaulters List /willful Defaulters List/Caution List are being made available to the branches by way of Circulars. Exporters Caution List/Specific Approval List is being made available by circulars to controlling offices and Foreign Exchange dealing branches. Branches/Offices are required to ensure that the above lists are referred to while submitting credit proposals. In case the names of Directors appear in the said list, the following policy is to be adopted.

5.3.6.1 Credit facilities to companies whose directors are in the defaulters list of RBI or appearing in CIBIL data as defaulter. The Directors of the Company may be classified as promoters/elected professionals/nominees/honorary directors. RBI has been collecting and circulating information on defaulting companies. Though RBIs defaulters list is given due cognizance in the appraisal process, a general policy on the issues relating to sanction/continuation of credit facilities to such companies whose directors are in the RBIs defaulters list or appearing as defaulter in CIBIL data, needs to be put in place. Accordingly, it has been decided to adopt the following approach. Delegates as per the lending power delegated to them may take appropriate decision on the basis of the guidelines given.

Director of applicant company if Our Approach a. Promoter Director of a defaulting

company b. Director of a defaulting company

having a role in the day-to-day affairs of its management

No adhoc/ enhancement/ additional new credit facilities to be sanctioned to the applicant company till the names are removed from the defaulters list by RBI

In case the performance and conduct of the accounts of the applicant company are otherwise satisfactory, renewal/ continuation of the limit at the existing levels may be considered.

c. Promoter Director of a defaulting company or director of a defaulting company having a role in day to-day affairs of its management, but who has resigned from the Board to circumvent any obstacle in getting credit.

No adhoc / enhancement / additional / new credit facilities to be sanctioned till the names are removed from the defaulters list by RBI.

In case the performance and conduct of the accounts of the applicant company are otherwise satisfactory, renewal/ continuation of the limit at existing levels may be considered.

d. Director in a defaulting company, but not connected in any way with its day-to-day management.

Proposals to be considered on merits. If the defaulting company is an associate/ subsidiary of the applicant company or a


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group company, approach mentioned in a & b above may be followed.

Nominee / professional / honorary director of a defaulting company, including associate/group/ subsidiary company.

Proposal to be considered on usual parameters as these directors are in their professional/honorary capacity

Promoter / nominee / professional honorary director as in a to d above but whose names are yet to be included in RBIs defaulters list (as the list is published by RBI only once in three months).

The above approach may be followed in such cases also, if information is available.

5.3.6.2 Management Committee of the Board may consider the proposals in cases where the names of proprietors / partners /etc are appearing on RBI defaulters list taking an overall view of the case.

5.3.6.3 As regards credit facilities to companies, whose directors are in the willful defaulters list of RBI, Bank would follow guidelines issued by RBI from time to time.

5.3.6.4 The above policy on defaulters will be broad framework for sanction/continuation of credit facilities to companies whose directors are in the RBIs list of defaulting borrowers /FIs with dues of Rs.1.00 crore and above. CIBIL is presently displaying the updated list of Willful defaulters (suit filed) on its website, which is updated from time to time. RBI circulates to banks list of Willful Defaulters (non- suit filed) on a quarterly basis.

5.3.6.5 Willful default & action there against: - Bank would endeavour to fully comply with RBI guidelines on willful defaulters and action there against in terms of RBIs definitions of willful default, diversion & siphoning of funds and end use of funds. The penal measures would be made applicable to all borrowers identified as willful defaulters or the promoters involved in diversion/siphoning of funds with outstanding balance of Rs.25.00 lacs or more without any exception. Similarly, the limit of Rs.25.00 lacs will also be applied for the purpose of taking cognizance of instances of siphoning and diversion of funds.

5.3.6.6 Where a letter of Comfort or guarantee furnished by the companies within a Group in favour of a willful defaulting unit is not paid when invoked by the Bank, such Group companies also may be reckoned as willful defaulters.

5.3.6.7 In cases of project financing, Bank would endeavour to ensure end use of funds by, inter-alia, obtaining certification from Chartered Accountants. In case of short term corporate/clean loans, such an approach would be supplemented by due diligence on the part of the Bank. It shall be endeavour of the Bank to ensure that such loans are limited to borrowers whose integrity and reliability are above board. The Bank shall also endeavour to comply with the measures advised by RBI for monitoring and ensuring end use of funds. Bank will also retain the right to get investigative audit conducted whenever it is prima facie satisfied that there is a case for such investigative audit to detect siphoning /diversion of funds or other malfeasance.


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5.3.6.8 No additional facilities shall be granted by the bank to the listed willful defaulters. Further, entrepreneurs/promoters of companies where the Bank has identified siphoning/diversion of funds, misrepresentation, falsification of accounts and fraudulent transactions shall be debarred from Bank finance for floating new ventures for a period of 5 years from the date the name of the willful defaulter is published by RBI/CIBIL.

5.3.6.9 The legal process, wherever warranted, against the borrowers/guarantors and foreclosure of recovery of dues should be initiated expeditiously. The Bank may also initiate criminal action against willful defaulters, wherever deemed necessary.

5.3.6.10 Where FIs have significant stake and where the FIs take effective steps for removal from the Board of a borrowing unit, a person identified as willful defaulter, the Bank shall also proactively support such steps.

5.4. Proposal should clearly indicate the need-based requirement of the borrower for Bank finance and the rationale for recommendations.

6. Credit Rating 6.1 As the Risk Management Department has since developed Credit Rating Tool to

facilitate credit rating of all types of accounts, all eligible borrowal accounts are to be rated on the rating tool developed for that purpose. Details of rating tools applicable for each type of account has been furnished under para 17.3.

6.2 The credit facilities meant for export would also be subjected to credit rating. However, the rate of interest for export account would be governed by the RBI / ID guidelines from time to time. CACB/CMD and ED shall have discretion to consider ROI lower than relevant rate as per RBI / ID guidelines on case to case basis. The Rating, however, shall be used for charging interest on overdue Pre & Post shipment finance.

6.3 The periodicity of Credit Ratings covered under para 6.1 would be on yearly basis. However, the accounts may be re-rated on the basis of latest financial statements / data or developments in other material facts.

6.4 The accounts falling under the powers of Central Office authorities would be subjected to independent re-rating by Credit Risk Management Department (CRMD) at Central Office.

6.5 The Rating as arrived at by the CRMD would be final. However in case of any dispute about rating given by CRMD, the issue would be resolved by Credit Committee which will be headed by Executive Director and GM Credit & GM CRMD would be the other members of the committee.

6.6 The Risk grades allocated to various ratings are as under: CREDIT RATING RISK RATIONALE

CBI 1 Highest safety CBI 2 Very High Safety CBI 3 High safety CBI 4 Adequate Safety CBI 5 Moderate Safety CBI 6 Sub-Moderate Safety CBI 7 Inadequate Safety CBI 8 High Risk Prone CBI 9 Vulnerable to Default

CBI 10 Default /Grade


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6.7 The Risk hurdle rate is as under:

6.7.1 In case of new accounts the financial and overall rating should be minimum CBI-6. (in respect of Take over, it should be minimum CBI-5)

6.7.2 In case of enhancement in limits in existing accounts, the Financial rating should be Minimum CBI-6 and overall rating should be minimum CBI-7

6.7.3 In case of any deviation the proposal can be approved by a delegatee not below the rank of Zonal Manager/Regional Manager in Scale VI up to one notch below the stipulated hurdle rate for the proposals falling within the powers of Regional Manager (Scale V) and below. In case of proposals falling within the delegated lending powers of Zonal Managers/ Regional Manager in Scale VI, they can approve such deviation. However, while giving clearance/approval it should be ensured that the proposal carries intrinsic strength to indicate that it will be able to attain the hurdle rate within a reasonable time.

6.8 All SME accounts to b