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LOAN POLICY - 2012
CHAPTER-1
1. LOAN POLICY – AN INTRODUCTION
1.1 State Bank of Patiala’s (SBP) Loan Policy is aimed at accomplishing its mission of retaining the
Bank’s position as a Premier Financial Services Institution, with World class standards,
committed to excellence in customer, shareholder and employee satisfaction and to play a
leading role in the expanding and diversifying financial services sector, while continuing
emphasis on its Development Banking role.
1.2 The Loan Policy of the Bank has successfully withstood the test of time and with in-built
flexibilities, has been able to meet the challenges in the market place. The policy exists and
operates at both formal and informal levels and is well documented in the form of circular
instructions, periodic guidelines and codified instructions, apart from the Book of Instructions,
where procedural aspects are covered in detail.
1.3 The policy, at the holistic level, is an embodiment of the Bank’s approach to sanctioning,
managing and monitoring credit risk and aims at making the systems and controls effective. It
is guided by the best practices of commercial prudence, the highest standards of ethical
priorities.
1.4 At the same time, the Loan Policy also aims at striking a balance between underwriting assets
of high quality and customer oriented selling.
1.5
i)
ii)
iii)
iv)
v)
vi)
vii)
The basic tenets of SBP’s Loan Policy are as follows :The policy applies to all lendings.
It aims at spotting and seizing opportunities and revamping our products and delivery
mechanism as well as innovating new products ahead of competition.
The Policy establishes a commonality of approach regarding credit basics, appraisal skills,
documentation standards and awareness of institutional concerns and strategies, while
leaving enough room for flexibility and innovation.
It envisages an effective training system in all areas of ‘Credit Management’ which reflects
SBP’s commitment to upgrade skills of all members of staff on a continuous basis.
Computerization, management information system based on a reliable database and
development of faster communication as tools for better overall credit risk management are
accorded due priority in the Policy.
Optimum/maximum exposure levels are set out in the Policy to different sectors in order to
ensure growth of assets in an orderly manner.
The Policy sets out minimum scores/hurdle rates (in terms of Credit Risk Management
Parameters) for new/additional exposures.
viii) The Bank’s general approach to Export Credit and Priority Sector Advances and to specific
group of advances covering emerging opportunities such as Mid Corporates etc. is set out in
the Policy.
ix) The Policy lays down norms for take over of advances from other banks/FIs.
x)
The Bank’s stand on granting credit facilities to companies whose directors are in the
defaulter’s list of RBI/CIBIL is covered in the Policy.
xi) The Policy aims at sustained growth of assets in quantitative terms and at ensuring that
there is no undue deterioration of individual assets within the portfolio. It simultaneously also
aims at continued improvement of the overall asset quality of assets portfolio level.
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xii) Loan Policy would be reviewed annually. However, the changes made during the intervening
period would be considered to be part of the Loan Policy.
1.6 The Board of the Bank is the apex authority in formulating all matters of policy in the Bank. The
Board has permitted setting up of Central Management Committee (CMC) and Credit Risk
Management Committee (CRMC) at the Head Office level of the Bank of which the Top
Management are members, to deal with issues relating to credit policy and procedures on a bankwise basis. These Committees set broad policies for managing credit risk including industrial
rehabilitation, sets parameters for credit portfolio in terms of exposure limits, reviews credit appraisal
systems, approves policies for compromises, write offs, etc. and general management of NPAs
besides dealing with the issues relating to Delegation of Powers.
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CHAPTER-2
2.
EXPOSURE LEVELS
2.1. The Loan Policy recognizes the need for measures aimed at better risk management and
avoidance of concentration of credit risks. With this in view, limits have been prescribed for the
Bank’s exposure to single borrower, group of borrowers, specific industry/sector etc.
2.2 The primary guiding factors for fixing ceiling on exposures are the prudential norms prescribed
by RBI, which currently stand at 15% of capital funds (Tier-I and Tier-II capital) for single borrower
and 40% of capital funds for a group (and up to 20% for single borrower and 50% for a group
provided the additional exposure is on account of infrastructure projects in specified sectors).
However, in respect of Oil Companies who have been issued Oil Bond (which do not have SLR
status) exposure ceiling of 25% of the capital funds has been prescribed by RBI, the ceiling of 25%
will be complied with by the Bank.
In order to adopt a guarded approach, the Bank has prescribed following exposure levels for single
borrower and group exposure:
Single borrower
- 15% of the Bank’s capital funds
Group exposure - 40% of the Bank’s capital funds
The Bank may also in exceptional circumstances with the approval of the Board consider
enhancement of the exposure to a borrower up to a further 5% of capital funds subject to the
borrower consenting to the Bank making appropriate disclosure in the Bank's Annual Report and
Group exposure ceiling does not exceed 50% of the Bank’s Capital Funds.
In this regard, the Board of Directors has approved to exceed the prudential exposure ceiling of
15% of the Bank’s capital funds to a single borrower up to 20% of the Bank’s capital funds in
certain cases. The Executive Committee of the Board has been authorized to exceed the prudential
norms in other select and deserving cases, if warranted from 15% to 20% of the Bank’s capital
funds.
The ceilings on single /group exposure limit will however not be applicable:
-- where principal and interest are fully guaranteed by the Government of India.
-- On exposure by the Bank on NABARD.
2.3 .As per revised instructions of RBI, “Exposure’ shall include Credit (Funded and Non funded;
investment (including Underwriting and similar commitments) and off-balance Sheet exposures
viz., Foreign Exchange Forward Contract and other derivative products i.e. Interest Rate Contracts
and Gold Contracts etc..
Measurement of Credit Exposure of Derivative Products: For the purpose of exposure norms, the
Bank shall compute the credit exposures, arising on account of the interest rate & foreign
exchange derivative transactions and gold, using the 'Current Exposure Method’, While computing
the credit exposure banks may exclude 'sold options', provided the entire premium/fee or any
other form of income is received/ realized.
2.4. The sanctioned limits or outstanding, whichever are higher shall be considered for arriving at
the credit exposure limit. Non-fund based exposures should also be considered at 100% of limit or
outstanding except off-balance sheet items where exposures should be considered on the basis of
credit conversion factors advised by RBI from time to time. In respect of fully disbursed term
loans(TLs) only outstanding are considered without any reference to the limit. In the case of term
loans and EMI based facilities, where full draw down is still to take place it will be the amount of
sanction. Where there is no scope of further drawing of any portion of the sanctioned limits the
outstanding shall be considered as exposure.
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2.5. The ceilings on single/group exposure limits would not be applicable to existing/additional
credit facilities (including funding of interest and irregularities) granted to weak/sick industrial units
under rehabilitation packages with the approval of the Executive Committee.
2.6.
Loans and advances granted against the security of the Bank’s own term deposits will be
excluded from the purview of exposure ceiling.
2.6.1 Borrowers to whom food credit limits are allocated directly by RBI will be exempt from the
ceiling to the extent of such allocation.
2.6.2 Bills purchased/discounted/negotiated under LC (where the payment to the beneficiary is not
made `under reserve’) will be treated as an exposure on the LC issuing bank and not on the
borrower. In the case of negotiations ‘under reserve’ the exposure should be treated ``on the
borrower.
2.7.
Forward contracts in foreign exchange and other derivative products like currency Swaps,
options etc. would need to be included at their replacement cost value following the Credit
Exposure Method prescribed by RBI.
2.8.
The group to which a particular borrowing unit belongs to will be decided on the basis of
relevant information available to the Bank, the guiding principle being commonality of
management and effective control. In the case of a split in the group, if the split is formalized,
the splinter groups will be regarded as separate group. If the Bank has any doubt about the
bonafide of the split, a reference will be made to RBI for a final view in the matter to preclude
the possibility of a split being engineered in order to prevent coverage under the group
approach.
2.9.
Inter-Bank exposures which are outside the prudential exposure norms would be
determined, bank-wise as per the Bank Exposure Risk Index model. The review as per the
Model would be undertaken at yearly intervals.
2.10.Exposures on Primary Dealers would be subject to single borrower exposure limits set within
the prudential exposure norms as per Institutional Risk Assessment model.
2.11.While prudential guidelines for avoiding concentration serve as a broad indicator, continuous
evaluation of other elements like market conditions, government policies, legal framework,
economic indicators, stock market movement etc. is made to assess the transaction risk intrinsic in
a group of borrowers/segment of industry, as well as in sectoral exposures in order to formulate
short term exposure restrictions where considered. The constitution of entity is also a determining
factor owing to varying levels of compliance requirements of legal/statutory/accounting standards
etc. for arriving at exposure limits. Based on current perceptions covering all these matters the
following exposure levels are prescribed.
2.12. Term Loans (net of repayments) with residual maturity of over 3 years, should not in the
aggregate exceed 35% of the total advances of the Bank and Disbursed and undisbursed
exposure should not exceed 40% of total advances. The Bank’s term loan exposure to a single
project would be guided by Prudential/ internal substantial exposure norms, asset liability
management policy and the ceiling of 35% of total advances for aggregate term loans. IRMD would
review the term loan portfolio at regular intervals.
2.13 The Bank shall at any point of time restrict its funded exposures by way of term loans to
infrastructure projects to 15% of the Bank’s total domestic advances. Elsewhere unless specified
otherwise the Bank shall endeavour to restrict fund based exposure to a particular industry to 15%
of the Bank’s total fund based exposure. Within this ceiling of maximum 15% of the Bank’s total fund
based exposure, the specific exposure level fixed for any specific industry is based on the near term
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outlook for the industry. These industry specific caps will be reviewed periodically to the Risk
Management Committee of the Board.
2.14 The Bank’s exposure to real estate including residential mortgages, commercial real estate etc.
will not exceed 25% of the Bank’s total advances. However the actual exposure to commercial real
estate will be governed by the exposure limits laid down by the IRMD and approved by the Board.
2.14.1 The exposure to sensitive commodities listed by RBI will be restricted to 5% of the Bank’s
networth as at the end of previous year.
2.15 The Bank’s aggregate exposure to the capital markets shall not exceed 40% of Net Worth (as
defined by RBI) of the Bank as on March 31 of the previous year. This ceiling of 40% would apply to
both fund based and non-fund based exposure to capital market in all forms as indicated by RBI
guidelines in this regard. Integrated Risk Management Deptt. at quarterly intervals or more
frequently as directed
by RBI/Audit Committee of the Board will undertake review of exposure ceiling of 40%
2.16. Within the overall ceiling of 40%, the Bank’s investment in shares, convertible
bonds/debentures and units of equity oriented mutual funds and all exposures to venture capital
funds (both registered and unregistered) shall not exceed 20% of the Bank’s Net Worth as on
march 31 of previous year.
2.16.1 Within overall ceiling of 40%, advances against shares to stockbrokers (both fund based &
non fund based) shall not exceed 10% of net worth as on March 31 of previous year
2.16.2 Loans to individuals against the equity-oriented securities shall not exceed Rs.10 Lac, if
securities are held in physical form and Rs.20 Lac, if held in demat form.
2.17. The Bank’s Board would from time to time formulate the lending policy for :-Grant of advances to individuals against shares, debentures and bonds.
-Grant of advances to individuals for subscription to rights/new shares, debentures and bonds.
-Advances against shares to stockbrokers, market makers
-Loans for financing promoters’ contribution and
-Bank finance to employees to buy shares of their own companies
-Bridge loans and
-Financing acquisition of equity under GOI’s disinvestment programme.
2.18. The exposure norms for investments in shares, bonds and debentures of corporate,
subordinated debt instruments, venture capital, underwriting of corporate shares and debentures,
underwriting of bonds of PSUs etc. would be guided by the Bank’s investment policy from time to
time.
2.19. The Bank’s Board will from time to time formulate a policy on unsecured exposures and
interalia fix a quantitative ceiling for such exposures. RBI has defined unsecured exposure as an
exposure where the realizable value of security (primary plus collateral), as assessed by the
Bank/approved valuers/Reserve Bank’s inspecting officers, ab-initio, is not more than 10 percent of
the outstanding exposure. Exposure shall include all funded and non funded exposures (including
underwriting and similar commitments). ‘Security’ will mean tangible security properly charged to the
Bank and will not include intangible securities like guarantees, comfort letters etc. The unsecured
exposure has been restricted to 35% of the Bank’s outstanding total exposure. The Integrated Risk
management Deptt will submit Qtly reviews to the Risk Management Committee of the Board in this
regard.
2.20. Advances to Companies in which the members of the Bank’s Board are directors, will be
subject to the relevant provisions in Banking Regulations Act (BRA), 1949 and State Bank of India
Act 1955.
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2.21. The Bank can also extend finance to Indian companies for acquisition of equity in Indian Joint
Ventures /Wholly owned Subsidiaries abroad or in other Overseas companies, new or existing
under separate policy which will be got approved from the Bank’s Board.
The Bank’s exposure to this activity will not exceed 10% of the Bank’s net worth. Further, such
advances will form part of the capital market exposure and will be reckoned for the overall ceiling of
40% of the Bank’s net worth prescribed for capital market exposure.
2.21.1 While extending credit/non credit facilities (letters of credit and bank guarantees) to Indian
joint ventures/wholly owned subsidiaries abroad or extending buyers’ credit/acceptance finance to
overseas parties for facilitating export of goods and services from India, the Bank shall always
endeavor to ensure that such exposure is restricted to 20% of the Bank’s unimpaired capital funds
(Tier-I and Tier-II capital). For higher limits, the Bank would approach RBI on a case basis. The
Bank would also, interalia, comply with section 25 of the BRA 1949 (i.e. the aggregate such assets
outside India not to exceed 25% of the Bank’s demand and time liabilities in India).
2.22. At the whole-Bank level, the total non-fund based exposures will not exceed twice the level of
the total fund-based exposure. The position will be reviewed at Qtly intervals by the IRMD to RMC
of the Bank’s Board.
2.23. An annual review of implementation of exposure ceilings listed herein above will be
undertaken by Risk Management Deptt. and placed before the Board.
2.24. Exposures that are fully guaranteed by Govt. of India would be exempt from the purview of
exposure norms.
2.25. Aggregate exposure to connected companies of the Bank, would be restricted to 40% of the
Bank’s capital funds ( Tier-I & Tier-II capital)
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CHAPTER-3
3 SUBSTANTIAL EXPOSURES
3.1 While prudential norms would be the guiding factor for monitoring credit concentrations in terms
of exposure as defined by RBI, the following levels of exposures will be deemed to be substantial
exposures for triggering internal monitoring mechanism:Single borrower – in excess of 7.50% of the Bank’s capital funds – Tier-I plus Tier-II.
Group – in excess of 15% of the Bank’s capital funds – Tier-I plus Tier-II.
The guidelines issued by SBI Corporate Centre to Associate Banks from time to time on substantial
exposures will be complied with.
A quarterly review of substantial exposures will be submitted to the Board.
3.2. Aggregate substantial exposures exposure to individual borrowers should not exceed 300% of
the Bank’s Capital Funds (Tier-I plus Tier –II).
3.3. Aggregate substantial to group of borrowers and to single borrowers not included in exposure
to groups of borrowers should not exceed 600% of the Bank’s capital funds (Tier-I plus Tier-II).
3.4. Substantial exposures norms are in-house norms set within the prudential norms and are
intended to help in monitoring credit concentrations. These norms should not be deemed as a cap
on further exposures and should not come in the way in booking bankable business.
3.5. Reports on all substantial exposures are to be collated by the Integrated Risk Management
Deptt. and submitted to the Board for information at half-yearly intervals. The periodical review as
prescribed is intended as a useful, internal control mechanism to prevent excessive concentration
of high value assets. Further, the benchmarks should serve as a trigger for closer scrutiny
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CHAPTER- 4
4.
CREDIT RISK MANAGEMENT
Background
4.1. Credit Risk Management: Revised Credit Risk Management Policy approved by the Board is in
place. Our policy and procedures have been aligned to the RBI guidelines on “Standardized
Approach’ under Basel II and the Bank is gearing itself to adopt ‘Advanced Internal Rating based
approach”.
4.2
Credit risk management encompasses identification, assessment, measurement, monitoring
and control of the credit exposures. The procedure adopted by the Bank in this regard is detailed
under:
Risk Identification and Assessment
4.3
The Bank undertakes the following functions in the process of identifying and assessing the
credit risk underlying a proposal:
Developing and refining the credit risk assessment models used for taking ‘Commercial Banking’
and ‘Retail Banking’ Exposures.
Conducting industry research, which is integral to assessing the risk associated with any corporate
proposal.
Credit Risk Assessment Process – Commercial advances.
4.4 Amended
Before a credit facility is sanctioned to a client/obligor, the risk level is measured, as per a credit risk
assessment (CRA) framework developed by the Integrated Risk Management Department (IRMD).
The Bank has put in place undernoted CRA models for :i) Trading sector (applicable for Services & Trading Activities
ii) Non-trading sectors (applicable for manufacturing activities)
iii) NBFCs/HFCs
iv) Rating model for Infrastructure projects(RAMIP) v) Scoring model for Retail Loans
These models would facilitate the Bank’s transition from Standardized to Internal rating Based
(IRB) approach. Periodical review of CRA Models, based on developments in Risk assessment,
Capital calculation methods etc. will be undertaken by the Integrated Risk Management
Department.
4.5 For each credit proposal, a credit rating is assigned using the internal credit rating system. The
Bank as of now has a unified Credit Risk Assessment (CRA) system, which is used for assessing
the credit risk of borrowers as well as facilities viz, working capital, term loan and non-fund based
exposures to the commercial and institutional borrowers, SSI, SBF and agriculture segments for
exposure of Rs.25 lacks and above. The rating process reflects the risk involved in the
facility/borrower and would be an evaluation of the borrower’s intrinsic strength. The rating requires
be reviewing periodically and updating, at least annually. However, for the borrowal accounts rated
SB-10 and below would be rated at half – yearly intervals considering the risk severity of the loan.
In case it is necessary to exempt any category of borrowers from credit rating exercise the same
would be approved separately by Risk Management Committee of the Board from time
4.5.1 Where credit facility is sanctioned/ on the basis of projections and also where rating
has slipped back by 2 notches, sanctioning authority may prescribe lower periodicity for
review of credit rating based on available financial data.
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4.6 The credit risk rating will be worked out by the respective branch or the Credit Processing Cell,
as applicable, as soon as the audited balance sheet of the company is received. The internal credit
risk rating thus arrived at will be commented upon by the credit auditors while undertaking credit
audit of the account. The internal credit risk rating thus arrived at will be independently validated
and approved by a separate committee to be set up for this purpose. This process of validation and
approval will be made prior to sanction/renewal/enhancement of the credit facilities and will be
separated from the loan sanction process. This facilitates an independent and objective risk rating
mechanism that is not influenced by operational/budgetary considerations.
Credit Risk Assessment (CRA) – Minimum scores/hurdle rates
4.7 The CRA models adopted by the Bank take into account the various risks categorized broadly
into financial, business, industrial and management risks. These risks are rated separately. The
minimum score under various parameters and hurdle rate below which increasing or taking on fresh
exposures are normally not permitted are specified. Currently, enhancements in credit limits or new
connections are not normally to be considered in respect of accounts rated below SB-10, subject to
exceptions like availability of Central Govt. guarantees and / or availability of a Corporate guarantee
of parent/group company with a CRA rating of SB-9 and above. The actual models used, the
minimum scores under each head, the hurdle rates, etc. are reviewed and revised at regular
intervals, from time to time. {Words (old rating SB-4 and SB-3) have been deleted}
Latest industry outlook issued by IRMD also to be taken in view while considering new
proposal/enhancement
In cases where Rehabilitation/Re-structuring scheme has been approved by the Bank/CDR/BIFR or
any other recognized/statutory agency, additional exposure could be assumed only as a part of
approved Rehabilitation Scheme irrespective of the Hurdle Rate. However, suitable record of the
same be made in the proposal.
4.7.1. Under Facility rating the reasons for low score are to be discussed in the proposal in case the
score goes below the hurdle rate of FR-10
4.7.2. Applicant unit will be required to score minimum 2 marks under the integrity parameter under
Management Risk. In case of the existing accounts and if the Company scores less than this
stipulated minimum marks (2) the Bank would explore possibilities for the exercise of an exit option.
4.7.3 Exposure ceiling for SB 1-7 rated accounts not to be below 50% of our total advances and
exposures below SB-10 not to exceed 30% of our total advances
Credit Risk Assessment Process – Inter Bank Exposures
4.8
As per RBI guidelines, the Bank uses a separate rating model to assess the credit risk
associated with lending to Banks. Such a rating model, called ‘Bank Exposure Risk Index’ (BERI)
model has been developed and is operational in the Bank. The Bank has set Permissible Global
Exposure Limits (PGEL) for Banks. Credit Risk on other Associate Banks is also assessed as per
this model to maintain arm’s length relationship with them.
Credit Risk Assessment Process – Primary dealers
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4.9
The Bank is in the process of introducing a separate rating model to assess the credit risk
associated with lending to Primary Dealers.
Industry Exposure settings:
4.10 CRMD undertakes reviews of Industry/ Sector Exposure Settings exercises for select
industries at periodical intervals, which give specific policy prescriptions and contain Quantitative
parameters for handling portfolio in large/important industries. CRMD issues advisories on the
general outlook for the industry from time to time.
Credit Risk Measurement – Risk Components
4.11 Credit Risk measurement involves estimation of risk components such as Probability of
Default (PD), Exposure at Default (EAD), Loss Given Default (LGD), Expected Loss (EL) and
Unexpected Loss (UL) as described in the Basel II document.
4.12 As the Bank moves towards advanced approaches under the Basel II document for credit
risk, it would be necessary for the Bank to estimate the above risk components based on historical
records of the Bank, construction of transition matrix, application of appropriate conversion factors
for unutilized portion of the fund based exposures and non fund based exposures for providing
capital etc. The Credit Risk Models are currently being redesigned so as to prepare the Bank to
meet these requirements over a period of time.
Credit Risk Measurement – Portfolio Exposure
4.13 The objective of credit portfolio risk management including setting up prudential exposure
limits is to achieve a well diversified portfolio across dimensions such as companies, group
companies, industries, collateral type, geography, etc.
4.14 Loan Policy recognizes the need for measures aimed at better risk management and
avoidance of concentration of credit risks. Hence, the Bank’s exposures are to be within the
framework of the RBI’s guidelines as well as guidelines on prudential exposure norms in respect of
individual companies, group companies, Banks, individual borrowers, non-corporate entities,
sensitive sectors such as capital market, real estate, sensitive commodities etc. Guidelines in this
regard are detailed in the chapter on ‘Exposure Levels’.
Credit Risk Controls and reporting
4.15 The objective of setting risk-based exposure limits in the portfolio is to optimize the credit
portfolio composition, after taking into account return estimates and risk appetite defined by the
Board.
Credit Risk in Off-balance sheet Exposures:
4.16 Credit Risk in non fund based business of banks need to be assessed in a manner similar to
the assessment of fund based business since it has the potential to become a funded liability in
case the customer does not meet his commitments. Financial guarantees are generally long term
in nature, and assessment of these requirements should be similar to the evaluation of requests
for term loans. As contracts are generally for a term of 2-3 years, banks need to obtain cash flows
over this time horizon, arising from the specific contract they intend to support, and determine the
viability of financing the contract.
Off-Balance Sheet exposures now include Derivative Exposures viz. Foreign Exchange, Interest
Rate & Gold Contracts and Credit Risk on such exposures is assessed as per RBI instructions in
this regard.
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4.17 The strategy to sanction NFB facilities to increase earnings will be properly balanced vis-àvis the risk involved and extended only after a through assessment of credit risk.
Monitoring of country exposure
4.18 The Bank is required to make provisions for country risk exposures as per RBI guidelines.
The data on country exposures are collected and monitored with respect to the country exposure
limits on a periodical interval by the Treasury Deptt.. Fixing of the country exposure limits and
adherence to the same are reviewed and reported to the Board at quarterly intervals.
4.19 Treasury Deptt. while reviewing the country risk management policy and practices annually,
assesses the status of compliance with the regulatory and internal limits, results of stress tests
and the exit options available to the Bank in respect of countries belonging to the ‘high risk’ and
‘very high risk’ categories.
Credit Risk Mitigant
4.20 CRMD has framed a credit risk mitigation and collateral management policy based on the
RBI guidelines which addresses (i) classification of credit risk mitigant, (ii) acceptable credit risk
mitigant (iii) documentation and legal process requirements for credit risk mitigant, (iv) custody of
collateral, (v) insurance, etc.
Miscellaneous
4.21 Other aspects of Credit Risk Management such as Pricing of loans, credit approval
authority, documentation, credit monitoring, verification of end use of funds, review and renewal
of credit facilities, managing of problem loans, credit monitoring etc., have been discussed in
greater detail elsewhere in the Loan Policy document.
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CHAPTER- 5
5. Credit Appraisal
5.1 The Bank has in place a well established process of credit appraisal that has developed and
evolved over a period of time. The fundamental purpose of credit appraisal in the Bank has been
two fold. First, to be able to take an informed decision as to the credit worthiness of any
proposal; that is, whether it is at all prudent. And thereafter, where a positive decision is arrived at
in this regard, to be able to assess the extent and nature of such credit exposure, the conditions
on which such exposures is acceptable and the pricing at which it is considered prudent to
operationalise such as credit relationship.
5.2 A decision as to the credit worthiness of a proposal is arrived at after considering a
combination of several factors including:
an assessment of the promoters, covering their background and relevant experience in the
area of the proposed entity.
the previous experience of the Bank with these promoters or their group.
the perceived prospects of the industry or activity proposed.
the already existing extent and quality of the exposure of the Bank to this industry or activity
on the one hand and to the promoters / group on the other.
policy relating to exposure levels and norms prescribed by the regulators and by the Bank
for the proposed activity / industry.
the perceived financial strength and the risk rating of the promotes, the borrowing entity and
/ of the group.
the extent and nature of credit risk mitigants proposed, etc.
- Complete information on Take over /new management including regulatory compliance and
impact of Change in Management Control.
5.3 Having decided that the proposal, as a reasonable and acceptable business risk, is a
`bankable’ proposition, the next step involves assessing the nature and extent of the proposed
exposure. The Bank provides a range of a debt instrument including all types of term and working
capital facilities, each of which can be structured either as fund based products or non fund
based products or a combination of both. It is our effort to combine these with a range of
payment and a collection platform which is off the shelf or tailor made to meet individual
requirements and seeks to provide our customers with a complete solution to all their financial
requirements.
5.4 While the Bank plays a key role in providing working capital finance, the share of term loans
in the advances portfolio is also on the increase, forming a significant base, as the Bank
continues to exhibit appetite for project and retail lendings.
ASSESSMENT:
5.5 The assessment of working capital is done through the projected Balance Sheet Method
(PBS), Cash Budget Method or Turnover Method.
5.6 Under the PBS method, the fund requirement is computed on the basis of borrower’s
projected balance sheet, the funds flow planned for the current / following year and examination
of the profitability, financial parameters etc. The key determinants for the limit can, interalia, are
the extent of financing support required by the borrower and the acceptability of the borrower’s
overall financial position including the projected level of liquidity. The projected Bank borrowing
thus arrived at is termed as Assessed Bank Finance (ABF). This method is applicable for
borrowers who are engaged in manufacturing, services and trading activities and who require
fund based WC finance of above Rs.5 crores.
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5.7 Cash budget method is used for assessing WC finance for seasonal industries like sugar,
tea and construction activity. This method is used for sanction of ad hoc WC limits. In these
cases, the required finance is quantified from the projected cash flows and not from the projected
values of current assets and current liabilities. Other aspects of assessment like examination of
funds flow, profitability, financial parameters, etc. are also carried out.
5.8 Under the turnover method, working capital requirement is computed at a minimum 25% of
output value, of which, at least four fifths is provided by the Bank and balance one fifth represents
the borrower’s contribution towards margin for working capital. This method is applicable for
sanction of fund based working capital limit of up to Rs.5 crores.
5.9 In respect of term loans, the computation of cost estimates is scrutinized very carefully to
ensure that the total project cost arrived at is accurate, comprehensive, reasonable and realistic.
Then the proportion of debt and equity components i.e. the project debt / equity gearing,
envisaged in the tie up of the means of financing of the project is examined to ascertain whether
it is reasonable and acceptable. There is no standard project debt / equity (D/E) ratio that can be
prescribed for any project. The stipulation of this ratio for a particular project will be based on a
number of factors such as the nature and size of the project, location, capital intensity, gestation
period, promoters’ capacity, state of the capital markets, importance to the national economy,
government policies, etc. Though there are no rigid norms for the project debt/equity ratios,
however, one of the deciding factors of the D/E ratio will be the debt servicing ability of the
project. After taking into consideration the above-mentioned factors and the suitability of the
various sources of finance with due regard to the financial leverage envisaged for the project, the
term finance arrived at is validated and accepted.
5.9.1 Generally new Term Loan proposals above Rs. 5.00 crores will be sanctioned after
Techno Economic Viability study (TEV). Such TEV study may be conducted by the Bank’s
Project Finance Cell/Bank’s Approved Consultants/ Consultants on the panel of SBI/ other
banks/ Project Finance SBU of SBI/ any other consultant/s approved by the Bank, by an
authority not below the rank of CGM.
5.10 After due appraisal assessment, the appropriate authority, a laid down in the scheme of
delegation of financial powers for advances, sanctions the credit facilities. Such sanctions, if not
availed within a period of three months in respect of working capital facilities and within six months
in the case of term loans, from the date of sanction, would lapse and require revalidation. This
provision has been introduced in order to ensure against changes in market conditions and / or
industry prospects adversely impacting on terms of sanction such as quantum of exposure, security
covenants, pricing, etc. especially pricing.
Use of provisional / un-audited data
5.11 Further, provisional / un-audited data is made use of for taking credit decisions, in respect of
existing borrowal accounts, where there is likely to be a delay in obtention of audited financial
statements from them and the reasons adduced therefore are acceptable to the Bank. In respect
of such cases, a review of the accounts is undertaken on the basis of audited financial
statements within a period of six months from the date of renewal / enhancement. In cases
where deviations on the negative side are observed as compared to un-audited data submitted
earlier, to whom the review is submitted, issue appropriate directions where considered
necessary. Such directions normally include specifying additional covenants, placing restrictions
on the drawings etc.
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Collateral security
5.12 Collateral security is normally obtained as a risk mitigating measure and to sustain the
promoters’ interest in the venture. For loans upto Rs. 10 lacs under Micro and small
enterprises(MSE) no collateral security is to be obtained.
5.12.1 The Bank promotes collateral free loans to eligible borrowers under CGTSME
scheme.
In case applicant/ borrower is eligible for collateral free loan under CGTSME scheme , The
Bank’s Ist preference should be to cover the loan under CGTSME instead of obtaining
collateral security, in case borrower is not agreeable to bear the CGTSME fee , only than
financing be done against collateral security.
No collateral security is to be obtained for loans upto Rs. 1.00 lac in Agri Segment except in
case of debt swap scheme.
In other cases, with exception of specified categories like trade advances where obtention of
collateral security is prescribed as a part of the scheme, obtention/waiver of collateral security is
discretion to be exercised by the sanctioning authority. While this decision needs to be taken on a
case to case basis, efforts will generally be made to obtain the collateral security. While doing so,
the following points will be kept in view :-
-
- Viability of the project per se will be the paramount requirement and available collateral may be
taken.
- Distinction may be made between new and existing connections while deciding/insisting on
collateral/additional collateral security.
In other cases the value of collateral security to be obtained as well as complete waiver of
collateral security may be considered on merits by the sanctioning authority/higher authority in
exceptional circumstances.
Scheme specific guidelines and discretionary powers for obtention and waiver of collateral security
for all categories of advances are already in place.
Quantitative Standards:
5.13.
The basic parameters underpinning the Bank’s credit appraisal and the levels that are
desired are as under:
Sector /Parameters
Mfg
Others
Current Ratio
1.33
1.20 (For FBWC limits above Rs.5.00 crores)
1.00 (for FBWC limits up to Rs.5.00 crores)
TOL/ TNW (Max.)
3.00
5.00
DSCR:Net (Min): Gross
Debt/Equity
Promoters’
Contribution*
2
1.75
2:1
30% of
equity
2
1.75
2:1
20% of equity
*Unsecured loans brought in by the promoters and their close friends & relatives may be treated as
Quasi-equity in case of non corporates. However, in case of Ltd. Companies (closely held), these
unsecured loans can be considered as quasi equity highly selectively subject to fulfillment of certain
conditions :
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a. Unsecured loans should be non intt bearing.
b. Unsecured loans should continue in the company during the currency of the loan. Company
to furnish an undertaking in this regard.
5.14
While these are indicative levels, there can not be definite benchmarks, as acceptable
levels are case specific guided by the nature, size and scope of the project. The sanctioning
authority will have the necessary discretion to permit relaxations in this regard, based on the
justifications placed before it.
Letters of Credit, Guarantees and bills discounting
5.15 Letters of credit are essentially instrument that provides comfort to the seller in a
commercial transaction and facilitate availment of sundry credit from the market. Letters of credit
give borrowers the option of availing credit directly from the market, when the cost and conditions
of credit from the market are more advantageous and hence preferable to fund based bank
finance. It is, therefore, necessary, while sanctioning a borrower the facility of letters of credit that
aggregates of FB working capital finance and the LC facility is commensurate with the projected
build up of chargeable current assets. While assessing LC limits, the Bank would consider
the factors like stocking period, usance period and lead time including transit time.
The Cash budgets are to be obtained and vetted before issuance of the LCs where
independent assessment of requirements for LCs have not been made.
5.16 It needs to be ensured that the Bank would open LC, issue guarantees/ acceptances and
discount bills under LCs only in respect of genuine commercial and trade transactions of
borrower constituents who have been sanctioned regular credit facilities by the Bank. The
prescription would not however, prohibit the Bank, from accepting such bankable business from
non-borrower constituents such as Govt. / Research/ Defence/Educational Organizations and
other statutory organizations who have no borrowing arrangements with any FI/Bank.
5.17 It is also not the intention of the Bank to turn down acceptable bills discounting business
against LCs of other first class banks from borrowers who may not be dealing with us for their
other banking requirements. However, in the interest of fostering better lending discipline as also
in the overall interest of our Bank, it will be ensured that :
(i) The extent of requirement of additional working capital against such bills discounting is
separately assessed and appropriate bills discounting limits against LCs sanctioned to such
borrower.
(ii) The borrower’s existing bankers are separately and duly advised of our Bank having
sanctioned this facility to the borrower;
(iii) All due formalities under the KYC guidelines are meticulously and fully complied with.
When the safeguards/ requirements given above are complied with, these borrowers will be
borrower constituents of our Bank, who have been sanctioned regular credit facility by the Bank
5.18 The Bank would not open LCs and purchase/ discount/negotiate bills bearing the “without
recourse” clause. However, we may discount bills under LCs with or without recourse in respect of
LCs opened by First Class Banks only. The Bank would not ordinarily discount bills drawn by front
finance companies set up by large industrial groups on other group companies. While discounting
bills of services sector, The Bank would ensure that actual services are rendered and
accommodation bills are not discounted.
Issuance of Letter of Comfort(LOC)/ Letter of Undertaking(LOU)/ letter of Guarantee(LOG)
for Buyers Credit(BC)/Trade Credit(TC) :
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The Bank may issue LOC/LOU/LOG against Foreign Letters of Credit(FLC) opened by the Bank,
to enable the applicant of the FLC to avail BC/TC at competitive rates abroad on a selective basis
in compliance with RBI guidelines from time to time.
Bank Guarantees:
5.19 The Bank as a general rule, will limit itself to the provision of financial guarantees and
exercise due caution with regard to Performance guarantees business. BGs will generally be
issued/ renewed valid for a period not exceeding 18 months at any one instance. Bank
Guarantees originally issued for less than 18 months and that have been subsequently
extended crossing in aggregate 18 months will also attract administrative clearance. Where
Bank Guarantees are issued in Indian rupees against 100% cash margin and are required to
be extended beyond 18 months but upto 10 years prior administrative clearance is not
required
When BGs are to be issued for a longer period, an authority structure for according administrative
clearance for this is in place. No BG should normally have a maturity of more than 10 years. The
Bank may consider issuing Bank Guarantees beyond maturity of 10 years only against 100%
cash margin and with prior approval of the competent authority specified at clause 24.1 of
the Loan policy.
The Bank may also consider issuing Bank Guarantees on behalf of JVs/ SPVs/ Associates/third
party/ principal contractor etc. with the approval of the sanctioning authority not below the level of
HOCC-II.
5.20 While sanctioning limits for BGs, factors such as the need for and the nature of BG,
whether the requirement is one time or on a regular basis, constituent’s financial strength, past
record, margin etc. will be looked into.
In view of BASEL II Guidelines, operating offices will ensure proper classification of Guarantees
into Financial or Performance to reap the benefit of lower capital charge on Performance
Guarantees issued by the Bank.
5.21 The Bank will issue BGs with an automatic renewal clause only to select beneficiaries such
as customs authority, courts and overseas project owners in respect of project exports.
5.22 Normally all BGs will be secured by a charge on the assets (current and/or fixed) of the
applicant. Unsecured BGs where considered exceptionally, will individually be for a shorter period
and for relatively small amounts.
5.23 The Bank’s liability under BG is absolute, and independent and exclusive of any other
contract entered into with the constituent. Thus, the Bank is obliged to pay to the beneficiary
without delay and demur the amount of BG on its invocation in accordance with the terms &
conditions of the guarantee deeds. Only when the Bank has received an order of restraint/
injunction from a competent/ appropriate court, can the bank withhold payment under the BG. In
such cases, the liability of the bank under the BG will continue, till the court case is decided, not
withstanding a shorter period of validity as may have been stipulated in the guarantee itself.
5.24 The Bank will not execute guarantees covering inter-company deposits/ loans. BGs will also
not be issued for the purpose of indirectly enabling the placement of deposits with the nonbanking institutions.
5.25 The Bank’s performance in NFB business will be reviewed at quarterly intervals and
submitted to the Board by IRMD.
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Guarantees and co-acceptances favoring FIs/banks/other lending agencies :
5.26 As guaranteeing Bank : As per RBI guidelines, banks may issue guarantees favoring
FIs/other banks/other lending agencies for loans extended by them. However, given the funding
capabilities of our Bank, such guarantees are not proposed to be issued for domestic operations.
The Bank will also not undertake the business of co-acceptance of bills of its constituents. The
approach would be reviewed from time to time.
5.27 As Lending Bank : The Bank may extend fund based and non-fund based credit facilities
against guarantees issued by other banks/FIs. The exposure assumed against such guarantees
will be deemed as an exposure on the guaranteeing bank/FIs and would be subject to the
Permissible Global Exposure Limit (PGEL) on other banks and FIs in place in the Bank. A sublimit for such exposures may be fixed within the PGEL as part of the yearly review exercise being
undertaken by Integrated Risk Management Department.
Lending to Non-Banking Financial Companies (NBFCs)
5.28. The Bank’s approach to finance NBFCs is as under:The Bank will extend finance to Asset Finance Cos. which are either Deposit Taking NBFCs
or systemically important Non-Deposit Taking NBFCs (NBFC-ND-SI). In addition the Bank
will extend finance to Housing Finance Companies and NBFCs engaged in Micro Finance
activities as per RBI prescriptions.
Further to increase its reach to a large number of low income group people, the Bank is
also financing MFIs/NGOs including NBFCs engaged in micro finance activities, for
onlending to SHGs/JLGs and individuals.
The Bank may extend finance to Residuary Non Banking Company (RNBC’s) also as per RBI
guidelines.
The Company should have been in operation for at least three years on the Date of application.
Exception may be considered in this regard for those NBFCs that are sponsored by existing
reputed customers of the Bank. The sponsoring company must have been rated at least SB-5
under the Bank’s CRA system.
ii) The extent of finance to a NBFC will not exceed 3 times the NOF of the company in the case of
SB-1 to SB-5 rated companies and two times the NOF for others or 10% of the Bank’s capital
funds, whichever is lower.
The ceiling on overall limit of bank credit mentioned above would be within the overall ceiling of
borrowings (including public deposits and all other borrowings) of up to:
- 10 times the NOF of such companies in the case of SB-1 to SB-5 rated companies
- and 8 times the NOF in the case of others.
The Company should follow ICAI guidelines on standard accounting Procedure.
The company should comply With the regulations prescribed by RBI.
Current ratio should not be less than 1.33.
The exposure (both lending and investment, including off balance sheet exposure) of the Bank to
a single NBFC /NBFC-AFC (assets finance companies) should not exceed 10%/15% respectively
of the Bank’s capital funds as per its last audited balance sheet. The Bank may however assume
exposure on a single NBFC/NBFC-AFC up to 15%/20% respectively of its capital funds provided
the exposure in excess of 10%/15% is on account of funds on-lent by the NBFC/NBFC-AFC to
the infrastructure sector
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The leasing/hire-purchase/ loan receivables over dues must not be more than 5%.
In the case of an existing company, non-performing assets must not be more than 5% of its
L&HP/ loan assets.
The Company must have been prompt in repaying maturing deposits, Where applicable.
Only on lending made for creation of physical assets supporting productive/ economic activity
will be reckoned for computation of ABF, without adjusting the projected NWC, for supporting
other activities of the NBFC.
Credit facilities may be granted by way of cash credit or term loan.
In respect of existing borrowers, not complying with the above guidelines, enhancement in credit
facilities will not be considered in general. The possibility of exiting such accounts will be
explored, where felt necessary and found feasible.
As Govt. owned NBFCs are also being brought under the ambit of RBI regulations, the Bank’s
guidelines on NBFC will be made applicable to such entities also.
The Bank will extend finance to NBFCs against the second hand assets financed by them
subject to the stipulations laid down in this regard.
Relaxations in the above guidelines, within the RBI prescriptions, may be considered for credit
proposals requiring sanctions by HOCC-II and above. Such relaxations will be permitted by
HOCC-I for sanctions by HOCC-II and HOCC-I/EC in respect of sanctions by them.
The Bank’s aggregate exposure on NBFCs will not exceed 6% of the total advance.
Given the special features of NBFCs as different from manufacturing units, a separate Credit
risk assessment (CRA) model has been put in place for assessment of NBFCs.
This ceiling will be reviewed by IRMD from time to time.
Financing of infrastructure projects:
5.29. In view of the national importance attached to infrastructure development, its criticality to
economic development of the country, the potential for large volume business and the special
skills required for credit appraisal/assessment, the Bank is utilizing services of Project Finance
SBU of SBI, Central Office which has been set up as part of the Corporate Banking Group of SBI
for financing infrastructure projects. All infrastructure projects with a minimum cost of project of
Rs.100 crore and commercial projects with minimum project cost of Rs.250 crore will be referred
to Project Finance - Strategic Business Unit (PF-SBU) set up as a part of CBG under the
Corporate Centre, SBI before taking up any exposure.
5.30. Infrastructure would include sectors such as power, roads, highways, bridges, ports, airports,
rail system, water supply, irrigation, sanitation and sewerage system, telecommunication, housing,
industrial park or any other public facility of a similar nature, construction relating to project involving
agro processing, supply of agricultural inputs, preservation and storage of processed agro products,
educational institutions and hospitals as may be notified by RBI from time to time.
5.31. Financing of infrastructure project 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
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% provided the additional exposure is for the
purpose of financing infrastructure projects.
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5.32. 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. The
Bank while lending to this sector will comply with these guidelines.
Lease Finance:
5.33. The exposure under lease finance are generally subject to compliance with the following
standards:
i. Normally exposure will be for full payment financial leases to be granted on the basis of recovery
of cost of asset during a single lease term.
ii. Aggregate outstanding lease exposure to a single unit not to exceed 50% of the lessee’s net
worth or Rs.200 crores in case of a Public Sector Undertaking (Rs.100 crores in case of Private
Sector company), whichever is less.
iii. The Bank will limit its exposure to no more than 25% of the outlay proposed in a single project on
plant, machinery and other equipments.
iv. Greenfield projects will not ordinarily be accepted by the Bank for its exposure.
v. The Bank will endeavour to diversify its lease portfolio over a range of industries and a variety of
equipment to avoid concentration of exposures.
vi. The Bank will selectively participate in leasing syndications with certain reputed organizations
like IDBI, ILFS etc., particularly in high value leases.
vii. Aggregate outstanding leases by SBP will not exceed 10% of the Bank’s total advances.
The Bank is not undertaking any fresh lease finance. A decision has been taken not to undertake
any lease finance due to :taxation issues viz. {(i) Assets under lease were not treated as fixed
assets and therefore, depreciation benefit was not available, (ii) Lease rentals were treated as sales
and thus were subject to sale tax)}.
5.34 The Bank may formulate a Scheme for sale of Gold on consignment basis for domestic
jewellery manufacturers called Gold Metal Loan. Detailed operative guidelines regarding security,
risk mitigation measures, end use of funds, accounting etc. will be laid down within the framework of
RBI guidelines.
Policy for financing Carbon Credits:
5.35
The Kyoto protocol which came into force on February 16, 2005 established a mechanism
for companies and governments in developed countries to contribute towards their fight against
global warming by purchasing Certified emission reductions (CERs), more commonly called as
carbon credits, from developing countries. The Bank has sensed a business opportunity in this
development and will approve a policy for financing carbon credits.
5.36 Finance to Clean Development Mechanism (CDM) projects, advisory services for
implementing CDM projects, loan against carbon credit receivables, carbon delivery guarantee,
escrowing of carbon credits, aggregating and/or Bundling the smaller projects to make the process
of generating CERs viable through economies of scale, etc are the carbon credit related services
being considered by the Bank.
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5.37 The policy will provide for empanelment of CDM consultants to offer the entire range of
CERs. A Carbon Finance Committee with MD as the Chairperson and CGM, GM (CB) as members
will be constituted to empanel outside consultants/finalize agreements with outside agencies and
oversee the Bank’s growth in this segment.
Syndication of loans:
5.38 In order to garner miscellaneous income and syndication fee the Bank may set up
syndication cum appraisal cell separately in any of the metro centers.
Acquisition through assignment of debts:
5.39. The market for assignment of debts is expected to grow rapidly given the current trend for
churning loan assets. This gives the Bank an added opportunity for acquiring good quality loan
assets and optimizing the loan portfolio. To facilitate identification of retail and corporate assets for
the purpose, the Bank would from time to time, lay down guidelines on required credit rating, loan
tenor, loan size, acceptable yield, sanction process etc.
Dealing in securitized assets :
5.40 The market for securitized assets/ portfolio buyouts/ participation in contributory
arrangements/ financing of acquisitions & takeovers/ advances to market-makers/ money market
mutual funds/ acquisition of loans through down-sale/ syndication/ down-selling of assets / pool
financing etc, is expected to grow as various players in the Indian financial market look for higher
liquidity and returns. This gives our Bank also an opportunity to identify homogenous pool of
income producing assets in the loan book and to repackage them into marketable securities. The
approach to identification of retail and corporate assets for the purpose of purchase and sale and
various other operational aspects would be laid down by the Bank from time to time.
5.40 (a) Corporate loans will be sanctioned to the existing as well as new customers within
the guidelines of the Bank, which will be reviewed from time to time. Requests from noncustomers can be considered on a selective basis subject to their compliance with take over norms
(Opinion Reports must be obtained from their existing bankers before disbursal and they must be
suitably advised of the disbursal).Loans can be considered only for the following specific activities:
- Shoring up the net working capital (NWC)*
- On-going capital expenditure such as replacement of parts of machineries, up gradation,
renovation etc.
- Repayment of high cost debt.
- Research and Development expenditure.
- Acquisition of tools and jigs etc.
- Implementing Voluntary Retirement Scheme in the company.
-For meeting any other genuine business requirements of the borrower/ pending tie up of
funds/inflow of cash accruals.
*Where loan is for shoring up NWC, then loan amount should come down commensurate with the
building up of NWC, within the permitted period.
(As the purpose of the loan covers large number of activities, stricter monitoring of end use of funds
will have to be ensured to guard against diversion of funds for unauthorized purposes)
5.40 (b) FCNR (B) Loans:
The Bank has a policy in place.
5.40 (c) Short Term Demand Loan
Borrowers are eligible to avail Short Term Demand Loan with a minimum of Rs. 5.00 crores
for a period from 15 days to one year for undernoted purposes:
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i) To meet working capital needs. Can be within/outside Assessed Bank Finance (ABF).
ii) Meeting ongoing capital expenditure/any other genuine requirement/pending tie up of long
term funds/inflow of cash accruals.
iii)
The facility may be extended even for payment of bonus, advance payment, purchase
of machinery/equipments/ vehicles etc.
iv)
To meet temporary mismatch.
(As the purpose of the loan covers large number of activities, strict monitoring of end use of
funds will have to be ensured to guard against diversion of funds for unauthorized
purposes)
5.41 Hedging of forex risk:
The following policy for hedging forex loans will be adopted:
i) All forex loans up to USD 10 Million including those extended to Small and Medium Enterprises
SMEs(other than those extended for meeting forex expenditure) should be covered by procured
hedge unless such customers have uncovered forex receivables to cover the loan amount.
In respect of forex loans above USD 10 million and those extended for meeting forex
expenditure, the approach would be as under:
Purpose of forex loan
Size of exposure
Approach
Forex loans
extended to Exposure
above Determine
Adopt appropriate hedge
finance exports
USD 10 Million
coverage under technique(s)
for
the
natural
hedge portion of loan in excess
component first
of natural hedge cover.
Forex loans extended for Exposure of all Indian corporates should have well defined
meeting forex expenditure.
sizes
corporate hedging policy or the corporate
should have been included in the Bank’s
direct exposure list for foreign offices.
Forex loans extended for
Loans up to
Determine
Ensure procured hedge
meeting rupee expenditure ceiling
under coverage under for the portion of loan in
under automatic route
Automatic Route
natural
hedge excess of natural hedge
component first.
cover, before draw down.
Forex loans extended for all
other purposes.
Exposure above
USD 10 Million
Adopt proper hedging techniques.
iii). In respect of public sector corporates which are predominantly importers, there would be no cap
on unhedged exposure but it should be ensured that the said corporates have well laid down
corporate policy for hedging.
iv). In respect of blue chip private corporates that have well defined hedging policy, as prudent
measures, it should be ensured that at least 50% of their total forex borrowings from the banking
system are hedged through techniques of natural hedge pass through status and procured hedge.
However, the unhedged exposure of their total forex borrowings from the banking system should
not exceed USD 200 million.
v) There should be monitoring and review on monthly basis, through a suitable reporting system,
the unhedged portion of the foreign currency exposure of those clients, whose total foreign currency
exposure is relatively large (say, USD 25 million or its equivalent). The review of unhedged
exposure for SMEs should also be done on monthly basis. In all the other cases, the position should
be monitored and reviewed on a quarterly basis.
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5.42. Any waivers within the hedging policy either in respect of existing exposures or future
exposures would be subject to approval by the credit sanctioning authority not below HOCC-II. The
policy is subject to review in the event of any changes proposed by RBI from time to time or on
annual basis.
Fair Practices Code (FPC) for lenders:
5.43. The Bank would continuously attempt to introduce transparent and fair practices, as
envisaged by RBI, in respect of acknowledging loan applications, their quick processing, appraisal
and sanction, stipulation of terms and conditions, post disbursement supervision, changes in terms
& conditions, recovery efforts etc. The Bank has also put in place a mechanism for redressal of
grievances of borrowers. An Annual Review of the compliance with FLPC and the functioning of the
grievance redressal mechanism will be put up to the Board by Systems & Procedures Deptt.
5.44. Sub limits for payment of dues of SSI units
In borrowal accounts with WC limits above Rs.10 crores, sub limits will be fixed in consultation with
the borrower within overall limits, specifically for meeting payment obligations in respect of
purchases from SSIs.
5.45 Branches/ Processsing cells should access data base of undernoted to trace the Credit
history of the borrower/ promoters.
1. Credit Information companies approved by the Bank like CIBIL, Highmark Credit
Information Services Limited, Experian Credit Information Company of India Ltd., Equifax
Credit Information Services Pvt. Ltd etc.
2. RBI Defaulter’s List (suit Filed and non suit filed accounts)
3. ECGC Caution list etc.
4. MCA website should be checked to know the relevant details of the company.
5.46
A. Unless sanctioned by EC, bank should not grant loans and advances aggregating Rs.
25.00 lacs and above to:
a) directors (including the chairman/Managing Director) of other banks*
b) any firm in which any of the directors of other banks * is interested as a partner or
guarantor; and
c) any company in which any of the directors of other banks* holds substantial interest or is
interested as a director or as a guarantor.
B. Unless approved by EC, bank should also not grant loans and advances aggregating Rs.
25.00 lacs and above to:
a) any relatives# of their Chairman/ Managing Director(s) or other directors
b) any relatives of the Chairman/ Managing Director or other directors of other banks*
c) any firm in which any of the relatives as mentioned in (a) and (b) above is interested as a
partner or guarantor; and
d) Any company in which any of the relatives as mentioned in (a) and (b) above hold
substantial interest or interested as a director or Guarantor
* including directors of scheduled Co-operative banks, directors of subsidiaries/trustees of
mutual funds/ venture capital funds
# Relatives as per latest guidelines of RBI i.e “Spouse and minor/dependent children”.
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CHAPTER- 6
6.
DOCUMENTATION STANDARDS
6.1. The Bank has well established systems and procedures for documentation in respect of all
credit facilities. These have been laid down keeping in view the ultimate objective of documentation
which is to serve as primary evidence in any dispute between the Bank and the borrower and for
enforcing the bank’s right to recover the loan amount together with interest thereon (through a court
of law as a final resort), in the event of all other recourses proving to be of no avail. In order that
this objective is achieved, the documentation process attempts to ensure that :
- The owing of the debt to the Bank by the borrower is clearly established by the documents.
- The charge created on the borrower’s assets as security for the debt is maintained and
enforceable and
- The Bank’s right to enforce the recovery of the debt through court of law is not allowed to become
time barred under the Law of Limitation.
6.2.
Documentation is not confined to mere obtention of security documents at the outset. It is a
continuous and ongoing process covering the entire duration of an advance comprising the
following steps :6.2.i)Pre-execution formalities : These cover mainly searches at the Office of Registrar of
Companies and search of the Register of Charges (applicable to corporate borrowers), also
capacity of borrowers to borrow and the formalities to be completed by the borrowers, searches at
the office of the sub-Registrar of Assurances or Land Registry to check the existence or otherwise
of prior charge over the immovable property offered as security, besides taking other precautions
before creating equitable/registered mortgage. Including obtention of lawyer’s opinion as to clear,
absolute and marketable title to the property based upon the genuineness, completeness and
adequacy of the title deeds provided.
6.2ii) Execution of Documents : This covers obtention of proper documents, appropriate stamping
and correct execution thereof as per terms of the sanction of the advance and the internal directives
of a corporate borrower such as Memorandum and Articles of Association, relevant resolution of
Board etc.
A copy of the loan agreement along with its enclosures will be delivered to the borrower(s) at the
time of sanction/disbursal of loans and acknowledgement of receipt there of will be obtained.
6.2iii) Post-execution formalities : This phase covers the completion of formalities in respect of
mortgages, if any, registration with the Registrar of Assurances, wherever applicable, and the
registration of charges with the Registrar of Companies within the stipulated period etc.
6.2 iv) Protection from Limitation/Safeguarding Securities : These measures aim at preventing the
documents from getting time-barred by limitation and protecting the securities charged to the Bank
from being diluted by any subsequent charge that might be created by the borrower to secure his
other debts, if any. These objectives are sought to be achieved by :
a) Obtention of revival letter within the stipulated period.
b) Obtention of Balance Confirmation from the borrower at least at annual intervals.
c) Making periodical searches at the Office of Registrar of Companies/Registrar of Assurances.
d) Insurance of assets charged – (unless specifically waived) to insure the Bank against the risk of
fire, other hazards etc.
e) Periodical valuation of securities charged to the Bank.
6.3 Keeping the above broad objectives and the documentation process in view, the Bank has
devised standard documents in most cases for various types of loans given to the borrowers.
Wherever standard specimens have not been evolved, these are suitably drafted on a case-by-case
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basis with the help of in-house Law department and on occasions, with the help of reputed outside
solicitors. Furthermore, changes in the documentation procedures and the implications involved are
circularized from time to time to all the branches/offices so that those who are responsible for
obtaining and safeguarding the documents are made fully conversant with them. This is further
strengthened through on-the-job training at the branches as well as at the Bank’s training
colleges/centers, where the officials are briefed on the documentation procedures so that the Bank’s
interest is protected in this crucial area.
6.4. In respect of consortium advances, the documents are generally executed in consultation with
the other member banks in accordance with the guidelines laid down by RBI/IBA in the matter.
Similarly, where advances are extended jointly with the financial institutions, documents are
specially drafted in consultation with the solicitors/in-house legal experts to ensure pari-passu
charge and/or second charge, whichever is applicable, on the movable/immovable assets of the
borrower to protect the Bank’s interests.
6.5
While it is the Bank’s endeavor to standardize documents for all types of facilities, in cases
documents have to be specifically drafted for special schemes, such specially drafted documents
are cleared by the Head Office.
6.6 Unconditional cancellation clause which gives the Bank the right to cancel the
sanctioned limits without reference to the borrower at any time needs to be built into the
documents to give effect to the New Capital adequacy framework guidelines of the RBI.
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CHAPTER- 7
7.
DELEGATION OF POWERS
7.1. A comprehensive scheme of Delegation of Financial Powers clearly defining the guiding
principles of delegation as also the aspects of administrative delegation impinging on the loan
sanctioning activity is in place. In exercising the powers, the authorities concerned are required to
ensure compliance also with the relevant provisions of Subsidiary Banks General Regulations and
any rules, regulations, instructions or orders issued from time to time by appropriate controlling
authorities.
7.2. The two significant principles around which the scheme of delegation of financial powers
revolve are:a) powers are exercisable only in relation to the duties and responsibilities specially entrusted to a
functionary;
b) all sanctions are subject to report to the next higher authority,
7.3. The Executive Committee of the Board has full powers for sanctioning all credit facilities.
7.4. The Scheme of Delegation of Financial Powers for advances and allied matters in the Bank has
a graded authority structure. The sanctioning powers have been delegated down the line to
Committees of officials of various administrative offices and individual line functionaries.
The power for sanctioning credit facilities by various authorities have been vested with them in
terms of total indebtedness of the borrower. Computation of indebtedness will include Off Balance
Sheet exposures arising from Derivatives and Forward Exchange contracts in addition to Fundbased exposures and Non Fund-based exposures (i.e. LCs, Guarantees, etc) as were included
hitherto.
7.5 Higher discretionary powers have been made available in the case of top rated borrowers
(usually SB1 to SB5 (as per new CRA system) and functionaries across the hierarchy are vested
with such dual powers depending upon the rating of the borrower.
7.6.The scheme is also constantly updated and reviewed to factor in the demands made on account
of organizational restructuring, emerging challenges and the forces of competition.
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CHAPTER-8
8.
MATURITY OF THE BANK’S ADVANCES
8.1 The maturity pattern of the Bank’s deposits and other liabilities ideally determine the preferred
maturity profile of the assets portfolio of which advances are significant part. Traditionally, our
resources have a pre-determined weight of time deposits maturing in 3 to 5 years period. In
addition, we have CASA fund and also float funds through
drafts and similar transit funds.
Correspondingly, our asset maturity profile ranges from working capital finance, short term loans to
loans of longer maturity. Matching of varying maturity buckets in the Bank’s asset portfolios is done
on ongoing basis by the Bank’s ALCO.
8.2 Accordingly, the maturity of any term loan, including moratorium, should not normally exceed 8
years except cases under CDR mechanism/ rehabilitation packages approved by the Bank, Housing
Term Loans (HTLs) to individuals, Education Loans and agricultural term loans, loans under
Technology Upgradation Fund (TUF) Scheme for textile units and other schemes approved by
Govt./RBI/ any other statutory body.
The tenor is to be reckoned from the day of first drawdown. Accordingly, all related aspects like
moratorium and repayment schedule will also be reckoned from the date of first drawdown.
In a consortium or Multiple Banking Arrangement tie up of project, Ist draw down will be taken as
the first disbursement from any member of the Consortium /MBA.
8.2.1 In cases where maturity exceeds 8 years (except in case of exempted categories), the loans
should be administratively cleared by authorities as prescribed in para-16.2 of the Loan Policy.
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CHAPTER – 9
9.
PRICING
(FACTORS DECIDING INTEREST RATES AND OTHER CHARGES)
9.1 The Bank’s existing arrangement of BPLR(including the existing authority structure), will
continue to be revised from time to time for those customers who have not switched to Base rate
mechanism till a sunset clause is introduced by RBI.
9.2 Pricing of loans/ services in the Bank cover interest income and fee income. In line with RBI
guidelines, the Bank has a single Base Rate (BR), w.e.f. 01.07.2010, which is reference/indicative
rates below which the Bank would not lend to customers except exempted categories.
9.3 The pricing of the loan products is now linked to the Base Rate Mechanism w.e.f. 01.07.2010
Suitable guidelines in this regard are already in place). Interest rate without reference to Base Rate
could be charged in respect of certain categories of loan/credit like discounting of bills, lending to
intermediary agencies etc. Intt rates below Base Rate may be offered to exporters/ staff
loans/agriculture/restructured accounts and other categories of borrowers as identified from
time to time by the Reserve Bank of India.
9.4 All other loans are to be priced relative to the Bank’s Base Rate with actual spread being linked
to perceived risk level of the exposure, tenor of loan etc. The Bank has introduced fixed interest
rates in respect of categories of loans in personal segment e.g. housing term loans to individuals.
Fixed interest rates are also extended for commercial loans, albeit highly selectively. The pricing of
the loan products has been linked to the Base rate which came into force w.e.f 01/07/2010 and
suitable instructions in this regard have already been issued
9.5 The maximum spread over the Base Rate that can be charged will be decided by the Bank from
time to time.
9.6 The Bank has put in place a policy for reset of interest rates of term loans extended both on
floating and fixed interest rate basis, to factor in changes in the interest rate scenario. The
periodicity of reset currently is two years and negotiation of interest rate will be based on well
defined triggers.
9.7 The Bank has also adopted an appropriate authority structure to facilitate competitive pricing of
loan products. The authority concerned while exercising discretion take into consideration the risk
rating of the loan assets, the trends in movement of interest rates, market competition and overall
business considerations. Though ROI is to be charged as per the applicable credit rating, but
considering business relationship/ competition, concessional ROI may be approved by the
sanctioning authority, as a part of the regular proposal (except where the sanctioning authority is up
to HOCC-III/ZOCC).
Where concessional ROI cannot be approved at the time of regular sanction, reduction in ROI may
be allowed by the authorities as under (other than cases where discretions are already delegated to
lower authorities and in case of schematic lendings):
Sr No.
1
For advances falling within the powers of
EC and HOCC-I
2
2(i)
2(ii)
HOCC-II
Intt. Rate of 12% and above
Intt. Rate of less than 12%
Initial Sanction
Sanctioning
Authority
Subsequent Variation
Pricing Committee-I
HOCC-II
Pricing
Committee-I
Pricing Committee-II
Pricing Committee-I
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3
3(i)
Below HOCC-II
Intt. Rate of 12% and above
3(ii)
Intt. Rate of less than 12%
Pricing
Committee-II
Pricing
Committee-I
Pricing Committee-II
Pricing Committee-I
Pricing Committee-I will consist of MD, CGM and GM of concurrent verticals
Pricing Committee-II will consist of CGM and GM of concurrent verticals
No loan will be priced below Base Rate (unless otherwise specified).
Pricing will remain valid for one month from date of approval in case of working capital and 2
months in case of term loan. Fresh approval from the competent authority will be required if credit
facilities are not availed within the prescribed period.
9.8 Market related charges and a discretionary structure that enables branches to effectively face
competition are in place. These would be reviewed periodically based on feedback from operating
units and the market.
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CHAPTER-10
10. REVIEW / RENEWAL OF ADVANCES
10.1 Working capital facilities are granted by the Bank for a period of one year from the date of
sanction. Thereafter they are required to be renewed each year i.e. fresh sanction is accorded for
the limits. Where, however, renewal is not possible for some reason, sanction for the continuance
of the limits is obtained in each case by reviewing the facilities.
As a rule regular and adhoc limits need to be reviewed/ regularized not later than three
months from the due date/ date of adhoc sanction.
The maximum period for which the credit facilities extended to a unit may be continued, based on
reviews, will generally not to exceed 9 months. Such a continuation will be resorted to normally for
a maximum period of 6 months at any one instance.
Detailed operative guidelines in this regard are in place. Extension beyond 9 months will require
approval of ZOCC/HOCC-III or sanctioning authority whichever is higher.
As regards granting of adhoc limits or other short term loans, it is to be considered and for genuine
short term credit requirements. Detailed operative guidelines in this regard are in place.
Term loans shall be required to be reviewed once in a year. In case of borrowers enjoying term
loan and working capital facilities, the review of term loan will be undertaken simultaneously with
the renewal/review of WC limits.
10.2 Term loans which are irregular will be reviewed once in six months through the periodical SMA
review mechanism, as per authority structure laid down below :
A separate authority structure as given below, has also been prescribed for above noted half yearly
review of term loans :
Accounts
with Reviewing authority
outstandings
Up to Rs.25.00 lacs.
AGM
(controller/Branch)
Above Rs. 25.00 Lac ZOCC/HOCC-III
to Rs.1.00 crores
Above Rs.1.00 crores HOCC-II
to Rs. 5.00 crores
Above
crores
Rs.
5.00 HOCC-I
10.2.1 Authority structure for annual review of term loans(regular) will be as under:
Sanctioning authority
Reviewing authority
Branch Heads(RNW)
Controlling Authority
ZOCC/HOCC-III
ZOCC/HOCC-III
HOCC-II
HOCC-II
HOCC-I/EC
HOCC-I
10.3 In the case of all listed companies with credit rating of SB8 and below, a brief review is to be
put up on the basis of half-yearly working results published by them duly incorporating comments
such as extent of exposure, conduct Of the account etc. Such review is to be submitted to the
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HOCC-I in respect of EC/HOCC-I sanctions and to HOCC-II in respect of HOCC-II sanctions and to
GM(O)/CB in respect of other cases.
10.4 Amended
In respect of new term loans and existing term loans, if and when they are rescheduled, the
following set of financial covenants may be stipulated:
i. Current ratio
ii. TOL/TNW
iii Debt Service Coverage Ratio
iv Default in payment of interest / installment
Default of these(above) covenants would attract penal interest of 1% as under:Any adverse deviation by more than 20% from the stipulated levels in respect of any two of the
items (i) to (iii) above – penal interest to be levied for the period of non-adherence subject to a
minimum period of 1 year.
Default in payment of interest/ installments to the Bank, penal interest to be levied for the period of
such defaults.
10.5 The sanction of term loan and working capital limits conveyed to the branches shall be valid
for 6 months in case of term loans and 3 months for working capital, beyond which the same are
required to be revalidated by the competent authority, provided the next balance sheet where it has
fallen due and yearly/half yearly results subsequent to the original sanction do not show any
decline, as under:Sanction falling under the powers of
Up to HOCC-II
HOCC-I
Authority permitting re-validation
Sanctioning authority
HOCC-II
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CHAPTER- 11
11. TAKE OVER OF ADVANCES
In the liberalized financial environment, it has become important for the Bank to aggressively market
for good quality advances. One of the strategies for increasing good quality assets in the Bank’s
loan portfolio would be to take over advances from other banks/FIs. Keeping this in view and with
the prime objective of adding only good quality assets, set of norms / guidelines for high cost term
loans, C&I, SSI, Trade & Service Sector and AGL segments have been laid down for take over of
advances, summarized as under:11.1 NORMS FOR TAKE-OVER OF ADVANCES UNDER SME / C&I SEGMENTS INCLUDING
TRADE & SERVICES SECTOR:
i) The advance to be taken over should be rated not below SB-6 on the basis of audited Balance
Sheet not older than 12 months with a stipulation that the financial score shall not be less
than 40 out of possible 65 and external credit rating, wherever applicable, shall have to be
BBB or above and both CRA and ECR norms to be complied with wherever applicable.
ii) The unit should score the minimum scores as prescribed for other parameters, under the
various risk segments, in the revised model for Credit Risk Assessment and Unit’s CRA rating
must be in consonance with the latest industry outlook by CRMD, wherever applicable.
iii) The account should have been a standard asset in the books of the other bank/FI during the
preceding 3 years.
iv) However,if a unit is not having a track record for 3 years, as it has been in existence for a shorter
duration, takeover can be considered based on the track record for the available period, which
should be at least two years. Where a minimum history of at least 2 year is not available and where
for specific reasons it is still considered appropriate to take over, the authority structure provided for
deviations will be used
v) The unit should have earned net profits (post tax) in each of the immediately preceding 3 years. If
it does not have a track record for 3 years, it should have earned profits for at least two
years. In other words, units for takeover should have at least two years of full fledged
commercial operations backing their track record.
vi) The Term Loan proposed to be taken-over should not have been rephased, by the existing
FI/Bank after commencement of commercial production. However, if a rephasement was
necessitated due to external factors and viability of the unit is not in doubt, such proposals may also
be considered for sanction on a case to case basis.
vii) The remaining period of scheduled repayment of the term loan should be at least 2 years, when
only TLs are taken over.
viii) For takeover of existing TLs, while the original time frame for repayment will be generally
adhered to, flexibility may be allowed in the quantum of periodical repayments. If sanction of fresh
term loan is proposed along with the takeover, the schedule of repayment for the existing term
loans, if necessary, may be permitted to extend up to 8 years.
ix) However, in take-over cases, the viability of aggregate outstanding of takeover plus fresh term
loan should be established. Further takeover of term loans solely for the purpose of accommodating
cost over-run should not be encouraged.
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Note
a. In the case of take-over proposals involving advances up to Rs.25 lacs, the rating should be
carried out, as per the scoring model prescribed under SME Smart Score. Other factors that may be
kept in view are :- Continued viability
- Track record
- Standing in the market of the unit/promoter.
b. Take over from Associates Banks and SBI is not permitted. Term Loans from State Financial
Corporations may be taken over selectively.
c. In the case of working capital finance through consortium or multiple banking, increasing our
share, and joining a consortium (or when a member bank exits consortium and we join the
consortium in its place), are not reckoned as take-over of advances from other banks. . In all such
cases, operating units should ascertain IRAC status of the borrower from the existing
bankers on the IBA specified format. However, when we join a Multiple Banking Arrangement in
order to replace an existing member of such an arrangement either in whole or in part, all norms
relating to take over of advances as detailed will apply.
11.2. Other guidelines:
i) In all cases of take-over of advances from other banks, the credit information report in the format
prescribed by IBA should be obtained. The experience of the present banker should show
satisfactory dealings with the unit.
Where, from the point of competition, it is necessary not to alert the bank concerned, the report may
be obtained after the sanction of facilities but before release of the facilities.
ii) In all cases of take-over, branches should ensure proper documentation and other formalities to
protect interests of our Bank before disbursement However, in exceptional cases, more time is
required to complete the documentation formalities, specific approval should be obtained
from the sanctioning authority.
iii) In all cases of take-over, branches should assess the requirements of the borrower
independently and obtain sanction for the proposed limits before actually taking over the
outstanding liability of the borrower.
iv) The following aspects should invariably be examined in each case of take-over.
a. Reasons for take-over;
b. Market perception including the existing banks/FI’s perception regarding the unit and its
management. (For this, the appraising officials may record briefly on their enquiries with market
sources/other bank/FI);
c. Potential ancillary business accruing to the Bank;
d. Terms and conditions stipulated by the existing bank and those proposed by our Bank,
particularly to ensure against dilution of security cover.
e) Audited Financials should not be older than 12 months. But in cases where Audited Financials
are older than 6 months, provisional financials not older than 3 months are to be obtained
and analysed to satisfy that the activity level and profitability, liquidity and solvency ratios
are broadly in alignment with the estimates / projections. Important parameters such as
Gross/Net Sales, Inventory, Receivables, Sundry Creditors, Unsecured Loans, Conversion of
Share Application Money into PUC, Additions to Gross Block may be certified by a Chartered
Accountant.
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v) Generally, takeover of loans below Rs. 25.00 lacs is to be discouraged. However, in case of
exceptional circumstances, operating units may consider takeovers on case to case basis where
product specific minimum scores shall be threshold for considering such takeover. As and when
new scoring models for loans upto Rs. 25.00 lacs are rolled out, these norms will apply.
11.3. Administrative Clearance (AC) Take over proposals satisfying the criterion at serial
No.11.1 ( i to iii) will require no administrative clearance and no deviation will normally be
permitted by the sanctioning authority.
However, deviations, if warranted, may be
considered in select cases on the basis of following considerations only:
a) In respect of MSEs covered under CGTMSE scheme, CRA up to SB 8 may be considered
b) Units with Credit enhancement by way of urban tangible immovable (Non- Agricultural)
collateral with a minimum of 40%, besides meeting credit appraisal criterion and in no case
have credit rating of less than SB 8
c) Units with Corporate Guarantee of Group Company with acceptable ECR of BBB & above,
and CRA of SB 6 & above.
11.3.1 : The authority structure for approving deviations in such cases, as detailed above, is
furnished as below
Sanctions falling under the powers Administrative Clearance to be
of [after take-over]
given by
Authority below HOCC-II
CGM
HOCC-II and above
Sanctioning authority
No administrative
Clearance required. Deviation will be
got approved as part of regular
proposal
After getting approval from the authority, as above, the proposal will be considered for
sanction by the authority as per scheme of delegation of financial powers.
11.2 Take-over of ‘P’ segment advances is permitted for good home loan proposals. Take-over of
housing loans is considered selectively after due diligence and precautions, in cases where
possession of the house / flat has been taken, repayment of existing loan has already commenced
and installments have been paid as per terms of sanction. Houses/flats under construction can also
be considered for takeover after ensuring that there is no undue delay in construction/completion of
the project. Takeover of home loans of Government employees from concerned state/centre Govt.
is also permitted after due diligence. preclosure penalty for takeover from other banks has also been
permitted. Takeover of car loans is also considered selectively.
11.3 Take Over of agricultural Advances
In respect of Agri segment, all agricultural term loan and agricultural cash credits with other Banks
and Agricultural Credit societies, Co-operatives are eligible for takeover, subject to fulfillment of the
following terms & conditions for takeover:
i) The minimum amount eligible for takeover would be as under:
.ACC: Rs. 1 Lac
b. ATL- for allied activities: Rs.10 lacks
c. ATL for other than allied activities: Rs.2 lacks
ii) Only Standard Assets and regular accounts are eligible for take over. The account should have
been a standard account in the books of other banks/Financial Institution (FI) during the preceding 2
years.
iii) The term loans of incomplete nature are not eligible for take over.
iv) ATLs with a minimum 2 years repayment programme left are only eligible.
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v) Advances of the borrowers falling outside the service area of the branch are also permitted for
take over, subject to observance of the other instructions.
vi) Crop loan converted to term loans and term loans, which are rephased, are not eligible for take
over irrespective of the quantum.
vii) Take over from Associates Banks and SBI is not permitted.
viii) No dilution in the security in takeover proposal is permitted.
ix) Wherever prescribed norms for takeover are met, no administrative clearance is needed for take
over. Otherwise administrative clearance would be obtained from the competent authority as under:
Sanctions falling under the powers of [after take-over]
Sanction/Clearance to be given by
Authority below HOCC-II
HOCC-II
HOCC-II and above
No administrative
Clearance required. Relaxation will be got
approved as part of regular proposal.
x) Additional norms for takeover of loans above Rs. 25 lac are:
-The advance to be taken over should be rated SB-7 or above.
-The unit should score at least 60% in the financial parameters
-The unit should have earned net profit (post tax) in each preceding 2 years.
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CHAPTER NO-12
12.
CREDIT FACILITIES TO COMPANIES WHOSE NAMES / DIRECTORS ARE IN THE
DEFAULTERS’ LIST OF RBI
12.1 The Directors of any company may be classified as promoter / elected / professional /nominee
/ honorary directors. RBI has been collecting and circulating information on defaulting companies
amongst banks/FIs including names of directors of such companies. Though RBI’s 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 RBI’s defaulters’ list
needs to be put in place. Accordingly, it has been decided to adopt the following approach:
Sr.
(I)
II
III
Default Particulars
Approach
Where the name of the unit/Company who has approached us for credit
facilities, appears in defaulters’ list of Reserve Bank of India
Name of the unit/Company appears in the a) No exposure to be taken
defaulters’ lists circulated by Reserve Bank of .
b) (i) Look for exit route
India
(ii) No increase in
exposure
a) New connection.
(iii) In case unit/company is under
b) Unit/Company already on the books of the
rehabilitation/proposed
to
be
Bank.
rehabilitated, fresh exposure to the
extent of the Bank’s share in the
approved package may be considered.
Name of the unit/Company appeared in the Normally no exposure to be taken,
defaulters’ lists, circulated by Reserve Bank however, The Bank may take a positive
of India but the default has since been settled view after :with concerned Banks/Financial Institutions.
a) Complete satisfaction regarding
settlement of default.
b) Satisfactory opinion/credit reports
from existing banks/financial institutions.
c) Taking due cognizance of default
particularly in track record and integrity
while arriving at the CRA rating/credit
rating.
Name(s) of director(S) if appearing in the Approach
Defaulters’ list
a) Promoter director of a defaulting company.
No ad hoc/enhancement / additional /
new credit facilities to be sanctioned to
b) Director of a defaulting company having a role in the applicant company till the names
the day to day affairs of its management.
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 No ad hoc/enhancement / additional /
director of a defaulting company having a role in new credit facilities to be sanctioned till
day-to-day affairs of its management, but who the names are removed from the
resigned from the Board of defaulting company to defaulter’s list by RBI. In case the
performance and conduct of accounts
circumvent any obstacle in getting credit.
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d) Director in a defaulting company, but not
connected in any way with its day-to-day
management.
e) Nominee / professional / honorary director of a
defaulting company (including associate / group /
subsidiary company).
f) Promoter / nominee / professional / honorary
director as in `a’ to `d’ above, but whose names are
yet to be included in RBI’s defaulter’s list (as the list
is published by RBI only once in six months).
of the applicant company are
otherwise satisfactory, renewal /
continuation of the limit at the exiting
levels may be considered.
Proposals to be considered on merits.
If the defaulting company is an
associate/subsidiary of the applicant
company or a group
company, approach mentioned in `a’
and `b’ above may be followed.
Proposal relating to the applicant
company to be considered on usual
parameters as these directors are in
their professional / honorary capacity.
The above approach as applicable may
be followed in such cases also, if
information is available.
The above policy on defaulters will be a broad framework for sanction / continuation of credit
facilities to companies whose directors are in the RBI’s list of defaulting borrowers of banks / FIs
with dues of Rs.1 crores and above. When the list of such defaulters is circulated by CIBIL (instead
of RBI), the same policy would continue to apply.
Authority structure for permitting relaxation from the above framework in cases where the name(s)
of the Company and/or its director(s) appear in the defaulters’ list of RBI will be as under:Sanctions by
Relaxations to be approved by
Up to HOCC-II
HOCC-II
HOCC-I and E.C.
Sanctioning Authority
After getting approval from the authority, as above, the proposal will be considered for
sanction by the authority as per scheme of delegation of financial powers.
12.2 Willful default & action there against – The Bank will fully comply with RBI guidelines on
willful defaulters and action there against in terms of RBI’s definitions of ‘willful default’, ‘diversion &
siphoning of funds’ and ‘end use of funds’. These instructions apply without any exception to all
loan accounts where the out standings are Rs.25 lac or more. The identification of wilful default in
the Bank will be done by a committee designated for the purpose. The identified borrower will be
given an opportunity to make presentation before the committee. At the end of this process, the
name of the borrower will be included in the list of willful defaulters to be advised to the RBI, where
a decision has been taken to that effect. The committee will also approve deletion of the names of
the borrower from the list through mechanism in place.
12.3 Where a Letter of Comfort or guarantee furnished by the companies within a Group in favor of
a willfully defaulting unit is not paid when invoked by the Bank, such Group companies also may be
reckoned as willful defaulters.
12.4 Where possible, The Bank shall adopt a proactive approach for a change of management of
the willfully defaulting borrowing unit.
12.5 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.
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12.6 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, mis-representation, falsification of accounts and fraudulent transactions shall be debarred
from the 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.
12.7 The legal process, wherever warranted including in cases where the borrowers have wrongly
certified end use of funds, against the borrowers / guarantors and foreclosure of recovery of dues
should be initiated expeditiously.
The Bank may also initiate criminal action against willful
defaulters, based on the facts and circumstances of each case after careful consideration and due
caution.
12.8 The approach envisages that the penal provisions are used in a transparent manner and are
not mis-used. A solitary instance will not be made the basis for imposing penal action.
12.9 In cases of project financing, the Bank would endeavor 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 the Endeavour of the Bank to ensure that such loans are limited to borrowers whose integrity and
reliability are above board. The Bank shall also endeavor to comply with the illustrative measures
advised by RBI for monitoring and ensuring end use of funds. The 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. In addition to it a
certificate from borrowers certifying that the funds will be utilized for the purpose these are raised,
will be obtained.
12.10 A covenant will be stipulated at the time of sanction that borrowing company will not induct a
person who is a director on the board of a company which has been identified as a willful defaulter
and that in case, such a person is found to be on the board of the borrower company, it would take
expeditious and effective steps for removal of the person from its board.
12.11 As regards credit facilities to companies, whose name(s) / director(s) are in the willful
defaulters’ list of RBI, The Bank would follow RBI guidelines which envisage as under:a) Financing of Willful defaulter unit as applicant:
i) No fresh limit/enhancement may be sanctioned to any applicant unit appearing in the list of willful
defaulters circulated by RBI.
ii) Renewal of limits sanctioned to any applicant unit appearing in the list of willful defaulters
circulated by RBI be approved as per authority structure given as under after due scrutiny of the
attendant circumstances:Sanctioning authority as per scheme of delegation of powers
Below HOCC-I
HOCC-I and Executive Committee
Authority structure
HOCC-I
Sanctioning Authority
b)
Financing of applicant units whose directors’ names appear in willful defaulters’ list:
Fresh limits and renewal / enhancement of limits to such units will be sanctioned by the authorities
prescribed below after due scrutiny of the attendant circumstances
Sanctioning authority as per scheme of delegation of powers
Below HOCC-I
HOCC-I and Executive Committee
Authority structure
HOCC-I
Sanctioning Authority
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CHAPTER- 13
13. CREDIT MONITORING & SUPERVISION
13.1 The Bank has put in place an effective post-sanction process to facilitate efficient and effective
credit management and to maintain high level of standard assets. Broadly, the objectives of postsanction follow up, supervision and monitoring are as under:a) Follow up function
- To ensure the end-use of funds.
-To relate the out standing to the assets level on a continuous basis
- To correlate the activity level to the projections made at the time of the sanction / renewal of the
credit facilities.
- To detect deviation from terms of sanction.
- To make periodic assessment of the health of the advances by noting some of the key indicators
of performance like profitability, activity level and management of the unit and ensure that the assets
created are effectively utilized for productive purposes and are well maintained.
- To ensure recovery of the installments of the principal in case of term loans as per the scheduled
repayment programme and all interest.
- To identify early warning signals, if any, and initiate remedial measures thereby averting the
incidence of incipient sickness.
- To ensure compliance with all internal and external reporting requirements covering the credit
area.
b)Supervision function
- To ensure that effective follow up of advances is in place and asset quality of good order is
maintained.
- To look for early warning signals, identify ‘incipient sickness’ and initiate proactive remedial
measures
- If irregularity in an account persists for more than six months the limit should be re-assessed.
c) Monitoring function
- To ensure that effective supervision is maintained on loans / advances and appropriate responses
are initiated wherever early warning signals are seen.
- To monitor on an ongoing basis the asset portfolio by tracking changes from time to time.
- Chalking out and arranging for carrying out specific actions to ensure high percentage of
‘Standard Assets’.
In case of Consortium/ Multiple Banking Arrangements, Banks have to exchange information with
the consortium members /lenders at quarterly intervals, certified by a professional, preferably a
Company Secretary.
13.2. Detailed operative guidelines on the following aspects of effective credit monitoring are in
place:
- Post-sanction responsibilities of different functionaries.
- Reporting for control
- Security documents, statement of stocks and book debts.
- Computation of drawing power (DP) on eligible current assets and maintaining of DP register.
- Verification of assets.
- Inspection by branch functionaries – frequency, reporting, register etc.
- Stock audit
- Follow up based on information systems
- Follow up during project implementation stage
- Follow up post-commercial production
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- Monitoring and control
- Detection and prevention of diversion of working capital finance.
- Monitoring of large withdrawals
- Allocation of limit
- Handling of NPA accounts etc.
- Conduct of special audit in case of default/ diversion of funds.
- Review and Management of stressed assets.
-Submission of irregularity reports.
13.2.1 Reporting for control
extension of creation of charge upto 6 months
-release of credit facilities pending creation of charge on security provided it does not
become a clean advance.
-Modifications in repayment schedule before disbursement, whose maturity is not extended.
-Relaxations in terms and conditions which will not affect maturity of loan
-Reduction in margin upto 25%
-Change of manufacturer without affecting the cost /scope of machinery.
-Change of suppliers/EPC contractors
-Ceding first paripasu charge on current/ fixed assets as first charge holders on reciprocal
basis without dilution in security.
-Issuing of NOC for raising capital, becoming banker to the issue/ company’s, sharing
paripassu charge with other lenders, ceding 2nd paripasu charge on fixed assets in favour of
other lenders on reciprocal basis.
- Relaxation in takeover norms approved by HOCC-I in respect of sanctions falling in the
powers of ZOCC./HOCC-III.
If elsewhere lower authority has been authorized to approve post sanction modifications in
the terms and conditions of the advance approved by a higher authority, the same shall
continue to be reported to the sanctioning authority.
in favour of other lenders on reciprocal basis.
- Relaxation in takeover norms approved by HOCC-I in respect of sanctions falling in the
powers of ZOCC./HOCC-III.
If elsewhere lower authority has been authorized to approve post sanction modifications in
the terms and conditions of the advance approved by a higher authority, the same shall
continue to be reported to the sanctioning authority.
13.3 Effective monitoring of the end use of funds lent is of critical importance in
safeguarding the Bank’s interest. Further, this would also act as a deterrent for borrowers to
misuse the credit facilities sanctioned, and in the process, help build a healthy credit culture.
Bank would endeavour to ensure end use of funds by, inter alia, obtaining certification from
chartered accountants. In case of short term corporate loans/ clean loans, such an approach will be
supplemented by due diligence on the part of the Bank. It shall be the 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 illustrative measures advised by RBI for monitoring
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.
The Bank would obtain certificates from the borrowers that the funds have been utilised for
the purposes approved and in case of incorrect certification, initiation of prompt action as
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may be warranted, which may include withdrawal of the facilities sanctioned and legal
recourse as well will be resorted to. In case a specific certification regarding the end use of
funds to check possibility of diversion/ siphoning off of funds is desired from the auditors of
the borrowers, a separate mandate may be awarded to them and appropriate covenants
incorporated in the loan agreements.
13.4 A system of loan review styled ‘Credit Audit’ which covers audit of credit sanction decisions at
various levels has been implemented. Presently all accounts with total indebtedness of Rs.5 crores
and above in Commercial and Mid corporate branches and Rs. 2.00 crores and above in
other branches are subjected to Credit audit.
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CHAPTER - 14
14. Advances to large Corporates
14.1 Commercial Network was formed to ring-fence the very lucrative business of the Bank’s top
corporate customers, from severe competitive pressures. It has served the purpose, over a period of
time.
14.2 The financial environment has changed rapidly with liberalization in the areas of trade,
industry, services and exchange control, deregulation of interest rates, removal of entry barriers for
new banks, widening and deepening of financial markets, entry of mutual funds, FIs, FIIs and
insurance companies.
Further, significant changes have come about in the way corporates
conceptualized business models and operating procedures, to realize improved efficiency of their
inventory / receivables management resulting in reduced dependence on the Bank Borrowings.
14.3 With the interest margins on funded exposures on top corporates coming under pressure,
the fee-based transactions provide the much needed alternative. Hence, concerted efforts and
continuous exploration of emerging opportunities are made to increase income in fee-based
business covering the areas of trade finance, forex, etc. To capture the fee based business, it is
also considered essential to continue the credit exposures – especially the short term exposures –
at very competitive rates, to retain the relationship and leverage it to capture the funds flow of the
corporates and the related business opportunities which feed the various business groups.
14.4 The technology advancement is utilized to address the needs of the entire value chain such
as handling payments and collections, vendor and dealer finance, Multi-City Cheques, Dividend &
Interest Warrants business.
14.5 Discretionary Power Structure for permitting competitive pricing of products and services has
been laid down to enable the operating functionaries to quickly respond to the Corporates needs
after taking into consideration the credit risk rating of the borrower as well as the market
competition.
14.6. As the term and conditions governing the advance may differ from customer to customer
depending upon its requirements, The Bank’s policy permits customer specific documentation
specially drafted by the legal experts and duly vetted by the legal cell / by the Bank’s approved
lawyer.
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CHAPTER-15
15. NPA MANAGEMENT
15.1 The Bank has a separate NPA Management Policy which seeks to lay down the policy on
management and recovery of NPAs and proactive initiatives to contain NPAs in conformity with the
international standards.
15.2 The policy lays stress on a system of early identification and reporting of all existing and
potential loans as a first step towards management of NPAs. Such an ‘Early Alert System’ which
captures early warning signals is an integral part of the Bank’s Risk Management process and
would be followed by time bound corrective actions comprising rehabilitation / restructuring or an
early exit.
15.3 In line with the RBI guidelines on preventing slippage of NPA accounts, the Bank has
introduced a new asset category between `standard’ and ‘sub-standard’, i.e. Special Mention
Accounts (SMAs) for internal monitoring and follow-up in line with international practice.
15.4 The first focus in management of SMAs will be possible up gradation of the loan asset through
rehabilitation of borrower’s business. If the branch level review indicates that the problems of the
unit are not temporary, viability studies need to be undertaken on a case to case basis. Viability of
the unit and the promoters’ interest (and stake) is the basic prerequisites for the Bank to undertake
restructuring / rehabilitation. However, right to recompense will be incorporated in every
rehabilitation proposal. Given the pressures of globalization, industry outlook need to be given more
attention
15.5 Rephasement of term loans, including as part of rehabilitation/ restructuring exercise, where
considered on more than two occasions during the currency of term loan, will be sanctioned by
authority as under :Existing sanctioning Authority
To be sanctioned by
Below ZOCC/HOCC-III
ZOCC/HOCC-III
ZOCC/HOCC-III/ HOCC-II
HOCC-I/EC
HOCC-II
HOCC-I/EC
However, restructuring done under Corporate debt restructuring mechanism, Debt restructuring
mechanism for SMEs, Borrowers affected by natural calamities which are already covered by
separate set of guidelines issued by RBI, would be excluded from the purview of the above
requirement.
The authority structure for sanctioning Debt restructuring is as under;
Advances sanctioned by
Competent authority for restructure of
advances
Branches/RACPC/RASECC/Agr..CPC
upto Concerned AGM(Controller)
Scale-IV
AGM Controller/AGM branches/AGM RACPC
ZOCC/HOCC-III
/AGM RASECC/AGM Agr.CPC/ZOCC/HOCC-III
HOCC-II
HOCC-I
EC
HOCC-II
HOCC-I
In principle approval will be given by HOCC-I
and proposal will be sanctioned by EC
(Report for control will be put up to next higher authority as per laid down structure).
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15.5.1 Policy for purchase of Non-performing Assets (NPAs) from other banks under
consortium/multiple banking will be put in place to facilitate timely restructuring/ rehabilitation in
high value and potentially viable accounts if such transactions are considered necessary.
15.6 .Viable units, where promoters show genuine interest in reviving the unit should continue to be
supported. In other cases, especially where promoters are not cooperating, options to exit or
reducing exposure will be actively explored, where feasible. Where despite our best efforts in this
regard, it is not possible to exit an account or at least to reduce our exposure, a reassessment of the
situation will be done and if necessary the Bank will consider either an acceptable OTS or in its
absence, even consider recalling the account. The Bank will examine the various options and
initiate measures as appropriate in a time bound manner, as delays in such situations far from
helping matters are likely to lead to erosion of security and increase in the ultimate quantum of the
NPA.
15.7.Settlements through compromises (i.e. one time settlement of dues) will be a negotiated
settlement under which the Bank will endeavour to recover its dues to the maximum extent possible.
Detailed guidelines for compromise settlements are part of the NPA Management Policy.
Compromise settlements are permitted where cases are pending before courts/DRTs/BIFR subject
to consent decree obtained from the concerned Court/DRT/BIFR.
15.8 If settlement of dues through compromise is being negotiated with one unit of group banking
with us, it shall be the endeavour to minimize the sacrifices by seeking support from the parent
company / other group companies.
The approach of the group towards maximizing the
compromise amount shall be a major factor in deciding further exposures on the Group or individual
units in the Group.
15.9 In a compromise (i.e. one time settlement of dues), as the Bank agrees to accept an amount
less than the total amount due to the Bank under the relative loan contract in full and final
settlement of dues as a general policy, it will be tantamount to cessation of lender-borrower
relationship with the borrowing unit, its promoters and guarantors. Ordinarily, no fresh finance will
be granted to the existing unit or any new unit being promoted by the same promoters / guarantors.
However, exceptions may be made in respect of settlements under various One Time Settlement
Schemes of RBI and similar schemes of the Bank for which separate guidelines are in place. The
Bank may also extend fresh finance/ enhancements/ renewal of credit limits to a unit where the
Bank has entered into a compromise with the unit/ another unit of the same promoter/guarantor may
be considered subject to complying with certain guidelines after obtaining administrative approval
thereof.
The authority structure laid down in this regard will be as under:
Sanctioning
Authority
Below HOCC-II
HOCC-II
Above
Authority according
Administrative approval
HOCC-II
& No
approval
administrative
Pursuant to the directives of GOI, the provision for re-lending to farmers who have settled their dues
under compromise/OTS/RBI OTS/write off is also in place.
Fresh finance can be considered for a unit who has settled their dues under OTS with other Banks
selectively on case to case basis.
However, where a unit is financed by a multiple banking or consortium arrangement of which we are
a part and where such unit has settled their dues to one of the other banks in such arrangement
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through an OTS, such units may be treated as our existing customers and guidelines that are
applicable to the units where our Bank has entered into compromise, will be applicable.
15.10 The Bank has laid down a policy on approach to sacrifices in case of transfer or financial
assets to SCs/RCs as each asset will be unique in the context of circumstances necessitating
consideration of transfer to SC/RC as a recovery option. The Bank has also laid down a policy in
accordance with the RBI guidelines, for sale of NPAs to Banks/FIs/NBFCs other than SCs/RCs.
15.11 The Bank recognizes that transfer of financial assets to third party entities such as SCs/RCs
would, in most cases, be at a substantial discount to the book value of the assets/ ledger balance.
The Bank’s endeavour would be to optimize recovery while taking into account not only the ledger
balance but also other aspects such as costs associated with continuing the account in our books
including cost of maintaining assets, loss on account of deterioration in the quality of securities
charged, opportunity loss due to non redeployment of locked funds more profitably etc. The
quantum of sacrifice per se, in terms of high percentage of loan being written off in case of transfer/
sale to such third party entities, would not hinder consideration of the offer.
15.12. The Bank would follow a policy of expeditious write off, including partial write offs, subject to
review from time to time on the basis of experience gained. Detailed operative guidelines are in
place. The policy of expeditious write off would not in any way dilute the follow-up of recovery
process. Written off accounts would need to be parked in AUCA in accordance with laid down
instructions. The structured mechanism prescribed for follow-up of accounts parked in AUCA
should be meticulously followed. Further, accounts in AUCA would be considered as part of NPAs
for internal monitoring at all levels.
15.13 (a). The Bank has also put in place a mechanism for outsourcing of recovery agents, to
supplement the efforts of the Bank’s staff.
15.13 (b). Scheme of outsourcing of recovery through Recovery Agents/ Agencies (RAs) is
reviewed by SAMG Department aligned to RBI Guidelines for outsourcing of Financial Services.
The detailed guidelines for appointment of Recovery Agent/Agencies and monitoring their conduct
include:
i) Model Code of conduct to be adopted by RAs.
ii)Declaration –cum- undertaking to be obtained from RAs.
iii) Model Policy & Operating Guidelines for repossession of Security.
iv) Application Form for appointment of RAs.
v) Grievances Redressal Mechanism.
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CHAPTER - 16
16. MAJOR & MINOR RELAXATIONS
16.1. Relaxations from the Bank’s Loan Policy have been classified as ‘major’ and ‘minor’ based on
Criticality of the norms from asset quality angle, general compliance levels, Need for flexibility
16.2 Proposals with major relaxations from the Bank’s laid down policies would be required to be
sanctioned by the authority structure as given below: (Relaxations not specifically mentioned below
would be considered as minor and may continue to be permitted by the sanctioning authority(not
below the level of ZOCC/HOCC-III).
Norms
Exposure in excess of the prudential limits
stipulated in the Bank’s Policy Document.
Non fund based exposures at the whole bank
level not to exceed 2 times the fund based
exposure
Maturity of term loans including moratorium
{except for loans covered under specific schemes
as mentioned in Para 8.2(i)}, generally not to
exceed 8 years
CRA Linked minimum scores Viz. Financial/
Business/ Industry/ Management parameters.
Relaxations to be approved by
Executive Committee
Executive Committee
If maturity exceeds 8 years except for loans
covered under specific schemes as mentioned
in Para 8.2 (i)
of the Loan Policy, the
relaxation may be approved by HOCC-I.
Any such relaxations for accounts within and
beyond hurdle rates shall be approved by the
concerned sanctioning authority as part of the
proposal.
Hurdle rates : New connections and Enhancements
Sanctions falling under powers of
Authority for permitting relaxation & sanction
HOCC-III and below
HOCC-II for relaxation only (sanction will be made by
the sanctioning authority.)
HOCC-I ( for relaxation & sanction)
Sanctioning authority ( for relaxation & sanction)
HOCC-II
HOCC-I & EC
As per new rating model SB-10 is the hurdle rate for new connections and enhancement. Any
relaxations in this regard may be permitted and may be approved by an authority prescribed above.
Norms
Relaxations to be approved by
Credit facilities to units whose names/ directors’ Authority as given at para 12.1
names are in the defaulters’ list of RBI.
Credit facilities to units whose names/ directors’ Authority as given at para 12.2
names are in the willful defaulters’ list of RBI.
After getting approval from the authority, as above, the proposal will be considered for
sanction by the authority as per scheme of delegation of financial powers.
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16.3. MINOR RELAXATIONS
16.3.i) Relaxations not specifically categorized as major, would be considered as minor. Such minor
relaxations may continue to be permitted by the sanctioning authority (not below the level of
ZOCC/HOCC-III) except where a separate structure has been laid down involving approval by some
other authority.
16.3.ii) In respect of specific products/ schemes, relaxations, other than major relaxations, in
general norms such as eligibility criteria, quantum of finance, tenor of the loan, etc. albeit within the
provisions of the loan policy guidelines are required to be permitted at times for business or
strategic consideration. In the absence of an inbuilt authority structure for permitting such
relaxationss, for sanctions by ZOCC/HOCC-III and below, approval of the concerned GM is
necessary and for sanctions by HOCC-II and above, approval by sanctioning authority is necessary.
16.3.iii) In case minor relaxation is sought post sanction on stand alone basis, the necessary
approval will be given by the sanctioning authority in respect of sanction upto HOCC-I. In respect of
sanctions by EC, the approval will be given by HOCC-I.
16.3 iv) After getting approval from the authority, as above, the proposal will be considered
for sanction by the authority as per scheme of delegation of financial powers.
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CHAPTER- 17
17.
ADVANCES TO PERSONAL SEGMENT
17.1. Increasing urbanization, increase in disposable incomes along with growing aspiration levels
and consumerism provides significant business potential to market housing and other P-segment
loans. Our brand name, fully computerized branch net work and large customer base also enable us
to leverage these strengths to garner a higher share of the tremendous growth potential in this
sector.
17.1.1 The personal segment advance policy aims at providing affordable loan products for meeting
credit needs of the Indian nationals and Persons of Indian Origin. This is provided irrespective of
the economic strata of the borrowers across the country to fulfill their lawful aspirations subject to
the Bank’s judgment regarding the loan repayment capacity of the borrowers.
17.1.2 Personal segment assets products encompass product lines like (i) Home Loans (ii) Auto
Loan (iii) Education Loan (iv) Personal loan. The first three product lines are for acquisition/
financing of a specific product. The fourth product line is general purpose or non-specific, including
loans like flood loans, loan against pension etc. address the credit needs of the different age groups
of the population. However, the Bank does not give loans for speculative purposes.
17.2
The Bank is aiming at increasing the market share by adopting following strategies:
Launching innovative and customer friendly products for value added features to improve our
product profile and to suit the specific requirements of various clienteles.
Ongoing review and modification of existing schemes.
Periodic updating of instructions, scheme wise, to improve awareness about the product at
branches.
Periodic training of operating staff on an ongoing basis to hone their product awareness as also
marketing skills.
Thrust on marketing High Value and Big ticket loans.
Special focus to establish tie-ups with Central/State Government departments, reputed corporations
and other important institutions for granting P-segment loans to their employees.
Entering into tie ups with various reputed builders, auto manufacturers, auto dealers etc.
Special delivery platforms like personal Banking Branches, Specialized Housing Finance cells at
branches including Outbound Sale Force/Multi Products Sale Force.
Centralized Processing Centers (RACPCs/RASECs) have been set up at important centers for
quick processing and sanction of loan.
Adequate discretionary powers with various functionaries for sanction as also for improvement to
reduce Turn Around Time.
Effective media strategy to give wide publicity about various products.
17.3 The loans and advances under personal segment have several distinct features as
compared to loans to other segments. Some of the distinct features of lending to this segment are
given below:i)Eligibility criteria : The eligibility criteria applicable to borrowers under various P-segment
schemes vary from each other depending upon the nature of the loans and their purpose
ii)Purpose of loan: This varies from scheme to scheme e.g. housing and car loans etc. are meant
for acquisition of assets whereas personal loans are generally availed for consumption.
Educational loans are extended for pursuing studies in India and abroad. The education loan
scheme has been formulated as per IBA/RBI guidelines.
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Housing loans schemes would aim at facilitating achievement of objectives spelt out in the NHB and
Habitat policy of GOI.
iii)Appraisal / assessment :
The assessment is done primarily on the basis of repayment
capacity of the borrower computed, based on the current verifiable income of the borrower (except
in case of education loans) and availability of required margin (except in case of personal loans) etc.
Income of the spouse and other family members is also generally reckoned to arrive at the
repayment capacity of the borrower, provided the spouse and other family members join as a coborrower or a guarantor. LTV norms including other instructions of RBI for housing loans are
to be complied with.
iv)Delegation of financial powers:
different schemes.
Financial powers are vested with various authorities for
v) Nature of facility: The loans are made available by way of overdraft, demand loan or term loan
(medium or long term). These could be clean or secured, depending upon the scheme.
vi)Pricing: The loans are made available either on floating rate or fixed interest rate based on the
customer’s option in this regard. In respect of floating rate loans, the pricing will be linked to bank’s
Base Rate/BPLR.
The spread may vary depending on the scheme, tenor, amount & also the
market conditions. Further, the rates would be higher in the case of clean loans and loans which
carry higher risks due to relative illiquidity of security. Some flexibility in pricing is provided for bulk
loaning under tie-ups with corporates / institutions, on a case to case basis. Discretionary powers
are vested with various functionaries to quote improvement in pricing on a selective basis having
regard to tie-ups with corporates/ builders, high value/ big ticket loans, market compulsions, etc.
Such discretionary powers for pricing improvements are reviewed from time to time. Discretionary
powers have also been vested with functionaries to permit relaxations in margin and processing fee
on Home Loans.
vii)Fixed interest rates: Fixed interest rates are a special feature of P-segment loans. Loans are
granted on fixed interest rate basis up to certain ceilings only i.e. Housing Loans up to Rs. 1 crore.
Further, Housing Loans on fixed interest rate basis are granted subject to a ‘force-majeure’ clause
authorizing the Bank to change the rates suitably and prospectively in case of any major volatility in
interest rates. Housing Loans on fixed interest rates are also subject to interest rate reset clause in
terms of which fixed interest rates may be reset at the end of every two years on the basis of the
then prevailing interest rate scenario.
viii) While the maturity of term loans is not to normally exceed 10 years, in respect of housing
finance to individuals, the repayment period is now permitted upto 25 years. In respect of
educational loans, the loan is normally repayable in 5 to 8 years after commencement of repayment.
As the repayment would commence after a moratorium, covering course period plus 1 year or 6
months after getting employment, whichever is earlier, the total tenor of educational loans may
extend beyond 8 years in most of the cases. Further extension of tenure can be permitted upto a
maximum 5 years if ROI of the existing loan go up and EMI are left unaltered
In case of Housing Loans at floating rates, the tenor of loan may be increased up to 30 years.
ix) Repayment: Unlike in other segments, the repayments in term loans may be on the basis of
equated monthly installments (EMI), covering repayment of both the loan and interest.
The Bank may use repayment option through stepped-up/stepped-down monthly instalments,
ballooned repayments etc.. synchronizing with the anticipated income of the borrower during the
loan tenor.
x) Pre-payment: Prepayment is freely permitted in all schemes without penalty except in Housing
and Car loans. Prepayment penalty @ 2% of the outstanding loan amount will be levied in respect
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of Housing Loans and Car loans if these loans are pre-closed within 3 years from start of
repayment. Even within this specified period of 3 years, if the account is closed from out of the
borrower’s own sources, for which proof is made available to the Bank, pre-closure penalty is
waived.
In car loans pre-payment fee of 2% of the amount of loan is levied if before expiry of half the agreed
repayment period or Partial payment is made in the first year. However no pre-payment fee is to be
levied if the loan is foreclosed for availing a fresh loan from the Bank.
xi)Security: This differs from scheme to scheme depending upon the purpose of the loan.
xii)Take-overs : Take-over of P-segment loans is permitted in respect of Housing Loans and Car
Loans. Detailed guidelines for take-over of Housing Loans from other banks/ FIs have been
prescribed. Take over of Home loans of Govt. employees from the concerned State/ Central Govt.
through, assignment route, is also encouraged in order to facilitate bulk booking of such secure
business. Such loans are treated as individual Home loans although the dealing branch of the Bank
maintains only one composite account covering the entire portfolio so taken over.
xiii) In view of the bank’s thrust on lending to ‘P’ segment and the expected high rate of growth, the
Bank would periodically undertake assessment of risk concentration in ‘P’ segment advances. The
risk management parameters i.e. credit risk/ market risk/ operational risk in respect of lending to Psegment borrowers will also be examined and reviewed annually by P&SB deptt. at Head Office in
consultation with Integrated Risk Management Department.
xiv)Assets Quality: The Bank will take appropriate initiatives within the scope of regulatory
guidelines for keeping asset quality at acceptable levels.
xv) Outsourcing: Some of the processes viz. New Channels for loan collection and recovery and
Processes like income verification etc. may be outsourced KYC compliance would not be
outsourced as it is a core banking function).
17.4
In case of retail advances it is mandatory to obtain CIBIL report on the individual prior to
processing of the loan application.
17.5. Education and Housing loan (as prescribed by RBI from time to time) will form part of priority
sector lending. Priority Sector Classification: As per RBI instructions from time to time.
17.6 Asset Valuation/Revaluation: As per extant instructions.
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CHAPTER-18
18.
EXPORT CREDIT
18.1 Export sector has been recognized as a thrust area considering its importance and contribution
to the economy. Therefore, the sector is being presently extended finance at concessional rates,
with flexibility in financing norms.
18.2 Export finance is by and large regulated through the directives / guidelines issued by the RBI,
Director General of Foreign Trade (DGFT) and the Foreign Exchange Dealers’ Association of India
(FEDAI). Export finance is broadly classified into two categories
I) Pre-shipment finance and
II) Post-shipment finance.
18.3 Pre-shipment finance, often referred to as ‘Export Packing Credit (EPC)’ is extended as
working capital for purchase of raw materials, processing, packing, transportation and warehousing
of goods meant for export. Both manufacturers as well as merchant exporters are eligible to avail
Rupee Packing Credit at concessional rate of interest. Pre-shipment credit is available in foreign
currency also. It has two essential features, viz., existence of an export order and /or letter of credit
and liquidation of the credit by submission of export documents within a stipulated period. In case of
exporters of proven standing, the facility can also be extended on a running account basis provided
the conduct of account is satisfactory and orders are lodged subsequently within reasonable time.
Substitutions of contracts/ export orders are also permitted in a case of running accounts.
EPC can also be provided to units established in SEZ/ EPZ/ AEPZ/EOUs for supply to units in the
same or another SEZ/EPZ/AEPZ/EOU although no movement of merchandise takes place across
the borders of the country.
18.4 There is no fixed formula for determining the quantum of finance to be granted to an exporter
against specific orders / LCs. The guiding principle to be applied in all such cases is a concept of
need based finance.
The period for which the Bank gives packing credit depends upon the
manufacturing / trade cycle or specific requirements of the individual export, normally not exceeding
180 days. The %age of margin is determined depending on the nature of order, commodity,
capability of exporter etc. keeping in view the spirit behind RBI guidelines for liberal finance to
export sector.
18.5 Since packing credit loans are concessional and purpose oriented, it will be necessary to
ensure proper end use of amounts disbursed to the exporters. RBI has laid down guidelines for
disbursal of loan amounts, maintenance of accounts, follow up and monitoring and liquidation of
packing credit, which form the basis of our policies and procedures. As the advance is granted on
concessionary rates and on relaxed terms and conditions, it is obligatory on the part of the exporter
to comply with the terms and conditions of the advance. In case of any default, the advance will
attract commercial rate of interest ab initio.
18.6 Post-shipment finance can be extended up to 100% of the invoice value of goods. It can be
short term or long term finance depending upon the payment terms offered by Indian exporters to
overseas buyers. The maximum period usually allowed for realization of export proceeds is 180
days from the date of shipment / finance etc. Post shipment finance is also available both in rupees
and specified foreign currencies.
Very often export business takes place without support of
documentary letters of credit and the Bank normally extend finance to the exporters by purchasing
the bills drawn by them on foreign buyers or granting advance against bills sent on collection basis.
While purchasing the bill, the Bank takes into consideration the track record of the exporter, country
risk, nature of merchandise, terms of payment, payment record of the drawee, opinion reports on
the overseas buyers from recognized agencies such as Dunn & Bradstreet etc. Advances against
Duty Drawback receivable are also granted under Post-shipment finance.
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18.7. The Bank has been traditionally pursuing a policy to make available export credit at
reasonably low interest rate with a view to helping the exporters to be competitive vis-à-vis their
competitors.
18.8 Till 30.06.2003, the Bank’s, pre-shipment export credit was being covered under the Whole
Turnover Packing Credit Guarantee (WTPCG) of ECGC. Based on a cost-benefit analysis of the
WTPCG and given the current competitive business environment in export credit, the Bank has
withdrawn its participation in the WTPCG Scheme of ECGC w.e.f. 01.07.2003. Branches will,
however, obtain individual Packing Credit Guarantee (IPCG) cover from ECGC for pre-shipment
credits on a case to case basis. Obtention of such, IPCGs may also be waived in select cases by
sanctioning authority. As regards post-shipment credit, individual Post-shipment Guarantee (IPSG)
be obtained on merits of each case with the approval of sanctioning authority depending on the
credit rating, track record and risk perception.
18.9 As far as deferred exports are concerned, RBI has allowed banks to charge their normal term
lending rate based on the credit rating of the borrower. In this connection, deferred exports are
those where realization period exceeds 180 days with certain exemptions. All deferred exports are
subject to regulatory guidelines contained in Project Export Manual (PEM) published by RBI.
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CHAPTER-19
19. ADVANCES TO MID-CORPORATES
19.1 Financing mid-corporates would be a thrust area for the Bank.
Mid-corporates for this
purpose would comprise all business enterprises (both corporate and non-corporate) with annual
turnover between Rs.50 crores and Rs.200 crores or enjoying aggregate working capital limits (FB
and NFB) of Rs.5 crores or more or Term Loan of Rs.5 crores or more and will straddle primarily
the SIB and C&I market segments. The last rate of growth that these businesses exhibit both in
size and in numbers at specific centers / clusters across the country and the involvement of our
Bank with such borrower entities through branches across the country have been seen as an
available and desirable potential for increasing growth that needs to be fostered and developed at a
focused manner.
19.2 Banks policy for mid corporate group is in place and the broad objectives before specialized
Mid-Corporate Branches are:
- Exclusive focus on all banking requirements of Mid Corporate customers and Promoters.
- Speedy delivery of credit and related services.
- Improve Turn Around Time (TAT)
- Maximize Ancillary business/Non interest Income.
- In-house Foreign Exchange services.
- Immediate issue of Bank Guarantees and Letters of Credit.
- Maximize Ancillary business/Non interest income
- In-house Investment and Insurance services.
- Improve supervision and control over high value accounts.
- Create an outfit of critical mass to achieve the above-stated goals through the Relationship
Management Model and Improve operating efficiency vis-à-vis the credit portfolio of the Bank.
The Bank’s policy for Mid-Corporate group is in place.
19.3 Given the competition for Mid-Corporate business in metro and urban centers, the Bank will
put in place from time to time suitable business models which addresses their special features,
which will be periodically reviewed based on changing market conditions. Such model will strives
to increase credit off-take by cementing relationships and by focusing more on sales through the
marketing teams and the Relationship Managers. It will also be endeavored to prevent any fall in
credit quality through quality processing and meaningful monitoring by utilizing the expertise built up
internally and available externally.
19.4 As a strategic initiative, the Mid-Corporate branches will identify select emerging industries
that are likely to grow further in the near term. Such industries will be given a sharper focus to
enable it to scale up its exposure and garner a greater share of the bankable business. Depending
up on the market size, opportunities and potential available in various geographical areas, the
desired direction in lending to these identified industries at the several Sales Hub level will also be
spelt out.
19.5 The Mid-Corporate branches will use the organizational synergy for developing relationship
with Mid-Corporates so that all their bankable business accrues to the Bank by drawing on the
resources like Relationship Managers and sales force.
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CHAPTER- 20
20. Advances to Micro, Small & Medium Enterprises (MSME)
MSME stands for Micro, Small & medium enterprises. This sector is globally accepted as an
engine for economic growth. MSME sector is focused for industrial production, trade and
services, exports, economic acceleration, employment generation and poverty alleviation.
Further, RBI has stipulated Banks to achieve at least 20% annual growth in MSE advances on
year to year basis.
20.1. The Govt. of India has enacted the Micro, Small and Medium Enterprises Development
(MSMED) Act, 2006 on June 16, 2006. With the enactment of MSMED Act 2006, the paradigm shift
that has taken place is the inclusion of the services sector in the definition of Micro, Small &
Medium enterprises, apart from extending the scope to medium enterprises. The MSMED Act, 2006
has modified the definition of micro, small and medium enterprises engaged in manufacturing or
production and providing or rendering of services.
Definition of Micro, Small and Medium Enterprises
(a). Enterprises engaged in the manufacture or production, processing or preservation of goods as
specified below:
(i) A micro enterprise is an enterprise where investment in plant and machinery does not exceed
Rs. 25 lacs;
(ii). A small enterprise is an enterprise where the investment in plant and machinery is more than
Rs. 25 lacs but does not exceed Rs. 5 crore;
and
(iii). A medium enterprise is an enterprise where the investment in plant and machinery is more than
Rs.5 crore but does not exceed Rs.10 crore.
In case of the above enterprises, investment in plant and machinery is the 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.
(b). Enterprises engaged in providing or 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) are specified below.
(i). A micro enterprise is an enterprise where the investment in equipment does not exceed Rs.10
lacs;
(ii). A small enterprise is an enterprise where the investment in equipment is more than Rs.10 lacs
but does not exceed Rs.2 crore; and
(iii). A medium enterprise is an enterprise where the investment in equipment is more than Rs. 2
crore but does not exceed Rs. 5 crore.
These will include small road & water transport operators, small business, retail trade, professional
& self-employed persons and all other service enterprises.
Lending by banks to medium enterprises will not be included for the purpose of reckoning of
advances under the priority sector.
SMEs include SSIs, SBFs for the SIB market segment and Corporates and non-corporates from the
C&I market segment. SMEs are a very attractive segment for the Bank given their large size,
loyalty and potential for profitability.
The primary needs of SMEs are physical proximity, timely
credit availability, service and reliability, although different sub-segments have different priority
needs leading to differences in profitability drivers.
20.2. With a view to increase our market share in the SME segment, by improving our sales and
marketing strategies and to meet the demand of our customers for more sophisticated services at
competitive prices and increase our customer base, more particularly in the higher end segment,
more focus is being given to SME Segment, to drive SME banking services across the Bank.
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20.3. Accordingly, the various initiatives that have been taken up by the Bank towards realization of
its objective are:
Creation of value propositions for each sub-segment based on product needs such as supply chain
financing for dealers / vendors, cluster financing, cash management for liability intensive SMEs,
specific offerings for the services etc.
Designing of bundled products and aggressively cross selling of P segment products.
Creation of relationship managers for medium enterprises (ME) as well as for institutions and Multi
Product Sales Force for Small Enterprises (SEs). SEs are typically those with a turnover of up to
Rs.5 crores and MEs are those with an annual turnover of above Rs.5 crores and less than Rs.50
crores.
Building of strong credit systems and processes.
Minimizing of servicing cost through improved operations, tie up at national level with industry
majors, leveraging of technology etc.
Development of business specific risk matrix for analyzing the risk inherent in a particular industry /
trade.
Continuous product rationalization and simplification of appraisal, documentation process.
20.4. Under these initiatives, the Bank will continue to give additional thrust to financing Small
Enterprise (manufacturing) sector having recognized long back that the sector is crucial to the
growth and development of the Indian economy. The industrial policy initiatives taken by the Govt.
and RBI over a period of time have had a favorable impact on the process of growth of SE sector in
terms of production, employment and exports.
However, the process of liberalization, while
providing tremendous opportunities, has also thrown open numerous challenges for the Indian
Small Scale Sector. For some SE units, the process opens up opportunities to expand and grow,
while for others, the process in a threat from abroad. The challenges to SE sector from dereservation, WTO obligations, removal of QR restrictions etc. are a matter of concern to commercial
banks as well, as the banks too have substantial stake in the growth and prospects of the sector.
Our Bank will endeavour to continue to support the SE sector in these uncertain times and achieve
the benchmarks set by RBI in regard to priority sector lending’s.
20.5. Direct as well as Indirect finance for Small Enterprises and finance for retail trade as per
definitions spelt out by RBI from time to time will form part of priority sector lending.
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CHAPTER- 21
21. ADVANCES TO SERVICES SECTOR
21.1 As the Indian economy gets integrated with the global economic order, the share of the
services sector the GDP and its contribution to future growth is likely to outpace that of the industrial
and primary sectors. Already, the services sector accounts for a little more than 50% of the GDP.
The pattern of development of this sector has been in line with that of other developed countries of
the world and it is possible that by the end of this decade, this sector may constitute the most
significant sub segment of the country’s economy.
21.2 As per the World Trade Organization (WTO), services can be divided into 12 different
sectors :
Communications
Business Services, including Professional and computer
Educational
Environmental
Health
Financial services like insurance and banking
Tourism and travel
Recreational and cultural
Transport
Constructional and engineering
Personal, community and social
Miscellaneous and others
The inclusion of last item is recognition on the part of WTO indicating that the list cannot be
exhaustive and new categories of services would emerge with the pace of economic growth and
modernization.
21.3 All the above services segments offer significant potential for Bank finance. The Bank has
been innovating new marketing and product strategies so as to realize the potential offered by this
sector. Recognizing the special nature of the asset and liability profile, output etc. of such units,
guidelines on lending to various activities of services sector are in place. Liberalized norms in
respect of credit appraisal standards, collateral security, rigour of assessment are permitted. The
generally indicative norms, subject to suitable modifications for specific sub segments within the
services sector, are :
The current ratio and TOL/TNW ratio (as per audited balance sheet not older than 12 months)
should be as per the indicative levels as given under:Current ratio not below 1 is acceptable for units with FBWC limit of up to Rs.5 crore.
Depending upon the activity for units with FBWC limits of above Rs.5 crores a current ratio lower
than 1.33 and up to 1.20 maybe considered acceptable.
TOL/TNW ratio higher than the generally accepted ceiling of 3 and up to 5 would be permissible
depending on the type of activity.
The unit should have earned profits (post tax) in each of the immediate preceding 3 years.
However, if the unit has been in existence for a lesser period, it should have earned net profit (posttax) in the preceding year of operation in which it has been in existence.
21.4 Detailed administrative instructions regarding lending to services sector are in place and are
reviewed from time to time. Sanctioning authority will have the necessary discretion to permit
relaxations from indicative levels based on the justifications placed before it.
21.5 Direct as well as Indirect finance for Small (Service) Enterprises and finance for retail trade
as per definitions spelt out by RBI from time to time will form part of priority sector lending.
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CHAPTER- 22
22. ADVANCES TO RURAL SECTOR
22.1 The Bank has been a pioneer in agricultural banking in the northern region particularly in
Punjab, Haryana & Himachal Pradesh with high concentration of branches in rural & semi urban
centers.
The Agricultural Development Branches (ADBs) and Agricultural Banking Divisions
(ABDs) specialize in agricultural finance.
22.2 However, with changing demographies and lifestyles in rural India, a strong need for
providing comprehensive financial services encompassing savings, credit, remittance, insurance
and pension products to the rural populace, has been felt by the Bank.
22.3 The credit policy and procedures for agricultural segment are by and large determined by
RBI and NABARD and the State Level bankers Committee (SLBC). The policies and procedures
substantially differ from those of other segments. Lending to this sector is characterized by the twin
features of Service Area Approach (SAA) and scale of finance.
22.4 SAA is now applicable only to Govt. sponsored schemes. The Bank will leverage on this
relaxation and go for takeover of quality assets from other banks.
22.5 District Level Technical Committee (DLTC) works out scale of finance (SoF) for various
crops grown locally. Such scale of finance is adopted by all Com. Banks. However, in order to
extend the need based finance and to fix realistic scales of finance for different areas, depending
upon the level of technology adopted by the farmers, DGM (Agriculture) at Head Office is
empowered to approve Scale of Finance up to double the limit fixed by District Level Technical
Committee.
22.6 The Bank’s branches support agriculturists involved in a wide range of agricultural activities
such as crop production, horticulture, plantation crops, floriculture, farm mechanization, land
development and reclamation, digging of wells, tube wells and irrigation projects, forestry,
construction of cold storages, storage godowns and processing of
agricultural products. The Bank also supports activities such as dairy, fisheries, livestock, rearing
of silk worms, poultry, piggery etc.
22.7 Bank’s Agriculture department gives comprehensive thrust to agriculture with the following
objectives:
Providing focused attention to the banking requirements of the agriculture segment.
Achieving the 18% lending target set by RBI.
Leveraging on micro finance institutions and SHG opportunities.
Focusing on key corporate and institutional relationships in emerging opportunities and special
initiatives in agri related areas.
Focusing on product development and marketing
Reduction of NPA levels.
Making agri finance a commercial proposition.
22.8 The Bank has recognized that setting of high value/ high tech agriculture project has been
engaging the attention of the entrepreneurs and project covering agro/food processing. Bio
technology etc. are now being set up in the country. With a view to respond eminently to these
emerging opportunities, the Bank extends support in a planned way to these unfolding avenues.
Further the Bank has also identified the following thrust areas for short term business opportunities
with low incidence of NPAs:
- Financing under contract farming tie-up
- Financing agri value chain
- High value advances
- Agri Export Zones
- Management and collection Agents Scheme
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- Partnership with corporates and Govt. for enhancing the agri business,
- Kissan Credit Card (KCCs.)
- Seed Growers & Processors
- Warehouse Receipts.
- Gold Loans
- Pulses, oilseeds and spices
22.9 Marketing and Recovery teams are placed across important centers of the country to assist
the branches in development of business and in recovery of bad loans.
Bank’s role under Lead Bank Scheme
22.10 The annual credit plans for the districts where we are lead bank are prepared and launched
at the beginning of a financial year. The progress of various State sponsored poverty alleviation /
employment generation schemes is reviewed in DCC / DLRC meetings.
Employment Generation Programmers of GOI
22.11 Swarnajayanti Gram Swarozgar (SGSY), Swarna Jayanti Sahari Rozgar Yojana (SJSRY),
Scheme for Liberation & Rehabilitation of Scavengers (SLRS) and Prime Minister’s Employment
Generation Programme (PMEGP) are the four important poverty alleviations and employment
generation programmes launched by GOI. Of these Schemes, as the names suggest, while SGSY
is operative exclusively in the rural areas for the rural poor, SJSRY is for the urban poor operative in
urban centers, SLRS and PMEGP schemes cover both urban and rural centers. All the schemes
are being enthusiastically implemented by the Bank.
Micro Credit
22.12 Of late, micro credit has evolved as an economic development approach for the benefit of
low income men and women in the society. The term refers to extension of financial services to the
low income groups including those who are self-employed. These services include savings, credit,
skill up gradation, etc.
In these endeavors the Bank has been supporting many NGOs who are
active in this field, especially in the formation and development of volunteer group s known as Self
Help Groups (SHGs).
The Bank is committed to timely and adequate credit to SHGs engaged in
the upliftment of low income groups.
Further to increase its outreach to a large number of low income people, the Bank is also financing
MFIs/NGOs, including NBFCs engaged in Micro finance activities for on lending to SHGs/JLGs and
individuals.
Financial Inclusion
22.13 Despite commendable expansion of branch network by commercial banks in rural areas and
their concerted efforts to reach out to the rural populace, large sections of the rural population still
remain outside the coverage of the formal banking system. Bank, therefore, recognizing the need
for and the emerging opportunities in financial inclusion has been channelising its focus and efforts
towards provision of affordable financial services to those who tend to be excluded and are
remaining excluded from the formal financial system.
22.14 Direct as well as Indirect finance to agriculture (as prescribed by RBI from time to time) will
form part of priority sector lending.
22.15. All outsourcing activities including appointment of Business Facilitators and Business
Correspondents; Management & Collection Agents to be done in strict compliance with RBI’s
instructions and policy of the Bank approved by its Board.
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CHAPTER- 23
23.
INTERCHANGEABILITY
23.1 Sanctioning authority may permit interchangeability as under:Interchange-ability
Proposed (%)
upto
Upto SB-10
SB5
SB-9 and
below
Between two FBWC 100
100
50
limits
From stocks to Book 100
50
Nil
Debts
From BG to LC
100
100
50
From LC to BG
100
100
25
Interchangeability between LC (raw materials) and Capex LCs may be permitted on case to case
basis based on cash accruals/ capacity to raise long term sources. The authority structure for
allowing such interchangeability will be as under :
Interchangeability Authority
Limits Sanctioned By
-Up to HOCC-II
HOCC-II
-HOCC-I & EC
HOCC-I
23.2 While structure for permitting interchangeability between various limits is retained, authority
structure for permitting such interchangeability, irrespective of the sanctioning authority shall be as
under:Particulars
Within
FBLs
within NFBLs.
Approving Authority
& GM(O)/(CB)
23.3 Further, authority structure for allowing interchangeability from FB to NFB facilities shall be
as under:Interchangeability Authority
FB to NFB (against DP)
Limits Sanctioned By
-Upto HOCC-II
DGM
-HOCC-I & EC
GM
Interchangeability from Non Fund Based limits to fund based limits may be permitted on case to
case basis, if acceptable under the overall assessment/ need based funds requirement of the
borrower by sanctioning authority not below the level of ZOCC/HOCC-III.
While permitting interchangeability, it shall be ensured that the resultant interchanged limits do not
exceed the discretionary powers of original sanctioning authority.
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CHAPTER- 24
24. LETTER OF CREDIT/ BANK GUARANTEE (TENOR)
24.1 Increase in Tenor of LC/BG: Power for increase in tenor of LC/BG have been delegated as
under:
Sanctioning
authority
Approving
Authority
Up to HOCC-II
HOCC-I/EC
GM(O)/GM(CB)
CGM
These powers are only in respect of regular sanctioned limits and not in the Adhoc facilities.
CHAPTER- 25
25. Expression of Interest/In-principle approval :
A system for seeking approval for expression of interest / in-principle approval in respect of (i)
consortium advances for conveying in-principle approval to the lead bank; (ii) new credit proposals
with relaxation from the Loan Policy guidelines, has been put in place. Authority structure for
according such approvals is as under:Proposal falling in the powers of
Approving Authority
Up to HOCC-III / ZOCC
HOCC-II
HOCC-I and EC
GM(O)/GM(CB)
CGM
MD
CHAPTER- 26
26.1. Granting of loans and advances to officers and relatives of senior officers of the
Bank :
The officer shall be granted loans as per the specified schemes duly approved by the Bank from
time to time. Procedure for taking Administrative Clearance for standing as guarantor / raising loan
from outside sources, from the controlling authority shall continue.
For granting loans to relatives of senior officers of the Bank , following approach shall be adopted:The fact shall be recorded as apart of proposal. The concerned officer shall not involve
himself/herself with the appraising/sanctioning process.
The concerned officer, if he/she is a member of the committee empowered to sanction/note
sanctioning of such proposal, shall take leave of absence when such proposal comes up for
deliberation/discussion.
26.2 Advances to bank's Directors to be directed as per RBI instructions issued from time to time.
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CHAPTER- 27
27. Post Sanction Approvals-Modifications in terms and conditions.
27.1 A. Authority structure for the following post sanction modifications in terms and conditions :
- waiver of hedging requirements for foreign currency loans,
- extension of time for creation of charge up to 6 months
- release of credit facilities pending creation of charge on security;
Will be as under:
Sanctioning
authority
Authority vested with the
powers to approve post
sanction modifications
EC/HOCC-I
HOCC-I
HOCC-II & Sanctioning Authority
below
B. Authority structure for the following post sanction modifications in terms and conditions:
- change of manufacturer and cost of machinery,
- change of buyer/supplier/EPC contractor
- modifications in repayment period of TLs, before disbursement, whose weighted average maturity
is not extended,
- waiver/reduction in margin up to 25% of the stipulated margin,
- disbursement of loan by way of reimbursement of expenditure,
- revalidation of the loan already sanctioned provided the next balance sheet / half yearly results do
not show any decline.
- Relaxations in Terms and conditions which will not affect maturity of the loan and will not dilute the
financials parameters already given in the loan proposal or accepted in the proposal, will be as
under :
Sanctioning
authority
Authority vested with the powers
to
approve
post
sanction
modifications
HOCC-I
Executive
committee
HOCC-I
HOCC-II
HOCC-II & Sanctioning Authority
below
Conversion of term loan into FCNR(B)TL upto 50% of term loan will be in the powers of the
concerned GM and beyond this within the power of CGM, subject to availability of funds.
27.2 . Authority structure for issuing of NOCs for;
- raising capital/ QIPs/GDR/IPO/FCCBs.
- becoming Banker to the issue/company,
-sharing 1st pari pasu charge on reciprocal basis with other lenders where there is no dilution of
security coverage.
-sharing 2nd pari pasu charge with other lenders
- ceding 2nd pari passu charge on fixed assets in favour of other lenders (where we are Ist charge
holders):
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Sanctioning Authority
HOCC-II and below
HOCC-I and EC
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Permitting Authority
GM
CGM
For ceding first pari-passu charge on current/ fixed assets as first charge holders the authority
structure will be as under:
Sanctioning Authority
HOCC-I and below
EC
Permitting Authority
Sanctioning authority
HOCC-I
Conclusion
In the absence of specific guidelines of the Bank, detailed Industry / Activity/ Product Specific
operative guidelines have been issued separately. Whenever felt necessary the operative
instructions/ guidelines will be framed separately from time to time and circulated.
Meanwhile in the absence of any specific guidelines issued by the Bank, the operating
functionaries/ branches will be guided by the instructions/ guidelines issued by RBI / SBI Corporate
Office from time to time.