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HEAD OFFICE CREDIT MONITORING DEPARTMENT Branch Circular No. Subject: Date Ref:HO:CrMD:RSA:05-06 99/66 Advances/CrMD/2005-06/3 21.07.2005
THE ZONLA MANAGERS, ALL ZONES. THE DEPUTY GENERAL MANAGER, THE ASSISTANT GENERAL MANAGER, THE CHIEF MANAGER / SENIOR BRANCH MANAGER, BRANCH MANAGER / MANAGER, ALL INDIAN BRANCHES. (FOREIGN BRANCHES FOR INFORMATION ONLY) Revised guidelines for examining Staff Accountability Aspect ~~~~~~~~~~~~~~~~~~~~~ As per extant guidelines Staff Accountability aspect is required to be examined when a Standard Asset slips to Sub-Standard, Doubtful or Loss Asset Category. Various guidelines/instructions have been issued in the past as regards examination of Staff Accountability Aspect. In the light of the experience gathered so far, it has been decided to revise the existing guidelines. The fresh guidelines being issued now shall supersede all previous guidelines/instructions. Point of Reference :- The Branches should submit Staff Accountability Report immediately, and in no case later than 90 days, after an account slips from Standard to Sub-Standard/Doubtful or Loss category. Format for submission of SAR :- The format for submitting Staff Accountability Report shall be the same as conveyed vide Branch Circular NO.98/70 dated 14.7.2004. The revised copy of the same is enclosed by way of Annexure-I for ready reference. However, please note importantly that additional information to be furnished in part III of the format in case of Quick Mortality Accounts shall be submitted in respect of those accounts only which become NPA within one year of original sanction. Staff accountability report in respect of accounts with outstanding amount up to Rs.1 lac or in respect of accounts covered under Govt. sponsored schemes may be submitted in the statement form to the competent authority on quarterly basis as per annexure II which should cover all accounts up to Rs.1.00 lac which slipped during the quarter. However, cases of malafide/malfeasance should be looked into separately by the competent authority.
Authority to examine Staff Accountability Aspect :-Staff Accountability Aspect shall be examined at Zonal Office level as under:(Rs.in lacs) Authority Amount O/S(FB+NFB) General Managers posted as Zonal Managers in Zones Up to 500.00 A) Deputy General Managers posted as Zonal Managers B) Deputy General Managers posted as second line officers in Zones headed by General Managers A) Assistant General Managers posted as Zonal Managers B) Assistant General Managers posted as second line officers i) in Zones headed by Deputy General Managers ii) in Zones headed by General Managers where no Deputy General Manager is posted Chief Managers posted as second line officers i) in Zones headed by Assistant General Managers ii) in Zones headed by Deputy General Managers where no Assistant General Manager is posted Up to 200.00
Up to 100.00
10.00
General Managers posted at Head Office shall have the authority to examine staff Accountability upto aggregate fund-based and non fund-based limits of Rs.1000.00 lacs. Instructions regarding examination of Staff Accountability by an authority who is one level above the delegated authority for sanction of advance in question shall continue. However, review of observations under Post Sanction Review System by any delegatee shall not be construed as review of the proposal. Examination of SAR in all such cases shall be done by the delegatees within the monetary limits mentioned hereinabove. In respect of all sanctions above the level of General Manager, the Staff Accountability aspect shall be examined by the M.Com. Notwithstanding the above cut off limits, Staff Accountability in an NPA account should be examined by an authority who is one level above the authority who sanctioned the last proposal. However, such higher authority should not have earlier been a party to sanction or recommendation of the account in question. Further, such higher authority should not have confirmed/ratified actions of the lower authority for grant of ad-hoc/over-limit or purchase of cheques etc. in respect of the account in question. In such cases the SAR shall be examined by the next higher authority. Thus, for example, if an account has earlier been sanctioned by the Chief Manager of a Branch and if in such account ad-hoc/over-limit has been allowed/confirmed/ratified by the AGM/DGM/GM posted in administrative/controlling/zonal office, the SAR shall be examined by an authority next to such AGM/DGM/GM. General Guidelines for examination of SAR Head Office Vigilance Department has recently issued a Circular Letter No 2004-05/141 dated 9.10.2004 which deals at length with various aspects of examination of Staff Accountability. Some excerpts of the Circular Letter are given from point i) to vi) herebelow:i) The Bank is a commercial organization and not a regulatory body, where decisions are taken on the basis of available data and each decision contains some element of fair banking risks. In the process, there is possibility for genuine errors of judgment/decisions taken on purely
commercial considerations and in good faith after following the procedures. Such errors and decisions need to be examined with an absolute professional approach. ii) The aim of the Bank in conducting the exercise of staff accountability is to safeguard the larger interests of the Bank. To that end, the first step that ought to be taken should be to identify the areas where the rules and procedures designed to protect the interests of the Bank were not being followed. It should be borne in mind that negligence arises when there is a duty and duty is defined in terms of the laid down rules and procedures. Thus the negligence/omission/ commission should be examined with reference to the laid down rules and procedure. More importantly it should be critically examined if the loss would have been avoided had the specific omission / commission not occurred. This step is crucial in linking the omission/commission to the cause for the loss. If this step is not carried out, the exercise would end up only as a list of all deviations from the rules and procedures without indicating their relevance to the loss. Once the specific omission and commission of the staff, which have a direct causative relationship to the loss suffered by the Bank are identified, the stage then comes for examining whether there is any vigilance angle. The vigilance angle examination entails examination whether there is a possibility that the officials omission and commission could be due to his lack of integrity or motivated / reckless performance of duties. The grounds on which the possibility of lack of integrity, motivated or reckless performance of duties is ruled out are to be justified. If these grounds are acceptable, then it becomes a nonvigilance case and such cases are to be dealt with due application of prescribed Rules/Regulations for such action under relevant provision of employees conduct Regulations/Settlement. The final step in the examination of staff accountability would be taking a decision on the nature of action that should be taken against the errant staff. The nature of omission / commission, the circumstances under which it occurred, the track record of the person involved, the extent of relationship of the omission/commission to the causes of the loss, and the kind of message that is sought to be conveyed to others in respect of such lapse(s) are the relevant factors that should be weighed before taking a decision on the future course of action. Punishing employees/officers should be a secondary step. The aim of punishment should be to instill a sense of guilt and resultant repentance on the part of the staff / official who committed the lapses, so that in future, he will conduct himself in a more responsible fashion.
iii)
iv)
v)
vi)
Further, while examining the staff accountability aspect, the competent authority should take into consideration the job role/area of responsibility of different officials which are broadly brought out as under :a) Appraising authority:- Appraisal is carried out at the grass root level at Branch/CBB/LBD. At times techno-economic appraisal is also carried out by technical officer. It should be the responsibility of the appraising authority for proper scrutiny of financial statements, projections, status and credentials of the proponents available from the market or other sources and all other basic aspects of the proposal such as whether the business is within the framework of the credit policy of the Bank/norms prescribed by Reserve Bank of India, Government and other regulatory bodies. All material facts and figures should be clearly brought in the proposal. Further, the appraising authority should ensure
that the name of the borrower does not appear in the wilful defaulters list circulated by RBI or in special approval/caution list of ECGC. b) Recommending Authority: - The recommending authority shall be responsible for cross checking important aspects of the proposal stated as above and specifically giving views on acceptability of the proponents and the proposal being within the framework of policy guidelines of the Bank/RBI/Government of India etc., and adhering to the norms prescribed in that regard. It should ensure that deviations, if any, in prescribed norms/procedures are clearly brought out. c) Sanctioning Authority:- Sanctioning authority at branch level shall be responsible for adhering to the norms prescribed under Delegation of Powers/Credit Policy of the Bank, acceptability of the credit risk/proponents and the norms prescribed by RBI, Government and other regulatory bodies. Sanctioning authority at controlling office level shall be responsible for adhering to the norms prescribed under Delegation of Powers. However, as regards, adhering to the norms prescribed in the Credit Policy of the Bank, prudential norms, acceptability of the credit risk/proponents and the norms prescribed by RBI, Government and other regulatory bodies the sanctioning authority shall be responsible from macro level point of view as the sanctioning authority has to rely on the certification/data/details provided by the branches for which they are fully responsible. Wherever there are deviations from the prescribed norms the sanctioning authority should give his specific comments/views on acceptability of the same or otherwise. In respect of d) Compliance of terms/disbursement/documentation:accounts with sanctioned limit below Rs.50 lacs, the Manager and the dealing officer shall be jointly and severally responsible for any lapse as regards compliance of terms of sanction, documentation and creation of securities etc. In respect of accounts with sanctioned limits of Rs.50 lacs and above, the dealing officer, incharge of credit department and the Credit Processing Officer shall be jointly and severally responsible for any lapse as regards compliance of terms of sanction, documentation and creation of securities etc. Other relevant aspects :a) In respect of an account which had run satisfactorily as standard asset for a period of 3 years and above (i.e. from the date of first sanction) and no grave and serious irregularities/deficiencies like CPA not done and documents not vetted as also those mentioned in Section A of the Internal Audit Report (as per Annexure-III) were noticed during the periodical reviews/audits etc., the examination of Staff Accountability Aspect may be restricted to the last internal audit prior to the account slipping into NPA category. The examination of accountability aspect for the earlier period may be waived in such cases. However, this aspect of waiver of earlier period and the justification therefor should be clearly brought out in the Staff Accountability Report. b) Once the staff accountability aspect has been examined and concluded by the competent authority as stated above, this fact should be clearly brought out in the legal memorandum/write-off/compromise proposals as the case may be, along with the conclusions of the examining authority. If there is a long time gap, say more than two years, between the examination of staff accountability and the subsequent submission of legal memorandum/compromise or write-off proposal in the account, there
c)
should be specific comments on the staff accountability aspect covering the intervening period, particularly in relation to increase in outstandings, dilution of securities, lack of follow up and reporting along with the conclusion of the examining authority. d) Staff Accountability should be basically viewed from the point of view that account has turned sticky or bad, not because of staff involvement but due to business failures or due to the deliberate attempt on the part of the borrower in diversion of funds and suppression of the information. In other words, when the Bank wants to look into the Staff Accountability aspect, it is not with a view to find out which staff is responsible for the account turning sticky or bad/irregular but basically to find out that this has resulted due to the external environment, business failures or deliberate attempt on the part of the borrowers and not due to staff involvement. Timely addressing of the accountability is of immense importance and can give a correct picture of the staff accountability aspect for the loan turning sticky or bad/irregular. It is, therefore, essential in the interest of all that a time schedule as mentioned in the earlier part of the circular is meticulously followed.
e)
Submission of closed SAR to CVO :- In terms of Circular Letter Ref. No. VIG:MISC:895 dated 24.05.2003, a copy of staff accountability report as and when finalised/closed in respect of NPA account wherein the sanctioned limit/outstanding is Rs.100 lacs & above shall continue to be submitted to Chief Vigilance Officer for scrutiny from vigilance angle. The above mentioned guidelines come into force with immediate effect and all fresh referrals made to the Zonal Office after 01.07.2005 for looking into Staff Accountability Aspect in respect of accounts with outstandings above the aforementioned limits should be sent to Head Office for consideration.
ANNEXURE I Staff Accountability Report Ref.No. : Date: Branch : Account : Part I - Profile : 1 a b c d e f 2 a b 3 a b c d 4 a b Name Constitution Established in Principal person Group affiliation, if any If consortium, names of other banks with status of the account Nature of business, goods manufactured, dealt with, etc. activity ceased/continuing Advance since Last credit rating and date of evaluation NPA since Documents valid upto Original sanction : Original limits : : : : : : : : : : : : Authority: Fund Based Authority : Facility a) b) c) d) e) Total Provision held : Uncharged interest : Exposure to other : Rs. group borrowers Security (in brief) with : Principal : Collateral : value Guarantors : Name Basis of worth :
e f g 5 a b
Asset Code:
Worth
Part II - Staff Accountability details : 6 a Whether assets and liability statements were obtained from borrowers/guarantors and their credentials verified through independent sources : b Whether credit report/appraisal report submitted is complete in all respects. Whether latest financial statements submitted in case of advances to firms and companies : c Whether valuation/title search report was obtained from Bank's approved valuer/lawyer :
7 Sanction : a Name and designation of the last sanctioning authority : b Whether sanction was made within the powers delegated to the sanctioning authority, if not so, whether it was confirmed by the competent authority : c If it is an account taken over from another Bank, whether it was a standard account (asset) at the time of takeover and whether status report obtained from the previous bank :
d Whether it was clean advance or secured advance; if it was a clean advance, any guarantee or collateral security obtained : e Whether margin on securities were stipulated as per Head Office guidelines : f While sanctioning the advance, whether due care was taken to ensure that all important financial ratios such as Current Ratio, Debt Equity Ratio, Debt Service Coverage Ratio and Interest Service Coverage Ratio etc., were as per Banks norms.
8 Documentation : a i) Whether documents have been taken as per sanction terms and they were properly vetted as per Bank's guidelines; if not, who is responsible for this lapse : ii) Whether CPA was carried out (wherever applicable) and the same was properly closed. Also mention if the documents were vetted as per Bank's guidelines : b In case of limited company advances, whether charges have been registered with ROC within the time frame, whether certificate from ROC obtained, if not so; who is responsible for this lapse : c i) Whether the stipulated securities obtained and all the terms of sanction have been complied with before actual disbursements of the credit limits and deviations if any have been authorised by the sanctioning authority. If not so, what are the terms of sanction which are not complied with and who is responsible for this lapse : ii) Whether extension of mortgage, if stipulated, was done for enhancement/other limits 9 Monitoring and follow up : a i) Whether there is any lapse in the monitoring of the account like inspection of the movable and immovable assets, stocks etc. (also mention dates of last three inspections) : ii) In the event of any adversities noticed during inspection, whether timely action to rectify the irregularities was initiated iii) Whether timely renewal of documents obtained? iv) Dates of last two inspections (if conducted), before the account slipped to NPA category, by any of the auditors i.e. Internal/statutory/Stock or Concurrent Auditors. v) Observations of the above said auditors (Observations made by any one of the abovementioned auditors during the aforesaid two inspections should be given) vi) Action taken to rectify the irregularities pointed out by auditors. b Whether any overlimits/excesses allowed over the sanctioned limit were duly reported and it was within delegated authority. If delegated authority exceeded, whether confirmation was sought and details of such confirmation. If not so, the details with reasons. Who has allowed such excesses with date of last overlimit allowed? : c Whether DICGC/ECGC claim preferred. If not so, why? If rejected, why? :
e Any other reason that is attributable to the Staff for the unit becoming sick/account becoming bad :
Part III : 10 a b Additional information in case of Quick Mortality of accounts i.e. the accounts becoming NPA within 1 year of original sanction : Name and : designation of first sanctioning authority How the borrower's : antecedents and his experience/expertise /capability to run the business financed by the Bank was verified ? How the technical/ economic viability of the business activity was assessed ? Whether status : report obtained from the borrower's existing Bank Date of pre-sanction : inspection If the account is : taken over from other bank, whether status report from that Bank was obtained prior to sanction of the limit. If the borrower is/ : was enjoying credit facilities from other bank whether prior NOC was obtained. Whether valuation/ search report for immovable property (if stipulated as security) was obtained before disbursement What was the basis : of assessment of quantum of credit limit granted to the borrower ?
e f
In case of third party guarantor/mortgagor involved whether the proposal was discussed with them. k Did post-sanction disbursal conform to stipulated terms of conditions ? l Was monitoring of the account including inspection after disbursement regular/adequate m Was the borrower regular in submitting stock/book debts statement and other returns as per stipulation.
11. Branch comments : [Comments to include, inter alia, (a) brief background; (b) reasons for the account going bad - extraneous/internal; (c) early warning signals and steps taken to counter them by the branch; (d) action taken by the borrower to overcome the problems encountered; (e) latest developments including chances of recovery and action proposed by the branch. Further, Branch should certify that all the norms/guidelines stipulated in Banks Credit Policy have been adhered to while sanctioning the advance.]
Manager/ Chief Manager/ Assistant General Manager 12. Zonal Office comments : [Comments to include, inter alia, identification of staff lapse, if any, at the level of branch, corporate branch {for Monitored accounts} and Zonal Office/ Controlling Office with concluding remarks. Further, Zone should certify that all the norms/guidelines stipulated in Banks Credit Policy have been adhered to while sanctioning the advance.]
Annexure - II Staff Accountability reporting statement in respect of accounts with Total Outstandings (Fund Based plus Non-Fund Based) upto Rs.1.00 lakh/Accounts covered under Govt. sponsored schemes Sr. Name of a/c No. names of borrowers with worth/facili ty Names of guarantor s with worth Limit/da te of sanction / authority Purpose ASH & name Cod of e scheme if any NPA sinc e Activit y contin uing/d ate stoppe d Na tur e of sec uri ty & rea lisa ble val ue the reo f/ col lat era l sec uri ty 9
10
11
12
13
Remarks outlining reasons for default and efforts made for recovery 17
15
Annexure -III
3 a) b) 4 5
a) b)
a) b)
7 8 9 a) b) a) b) c) d)
10
a) b) c)
11 12 13 14 15 a) b) a) b) 16 a) b) a) b)
17
18 19 20 21
a) b)
22 23 24 25 26
De-mat of shares held in physical form as security not done. Commitment under invoked guarantee not honoured/not reported to Competent Authority/approval not obtained for not honouring. Any other major irregularities (specify) including accounts causing concern. CPA not done Documents not vetted