GCP 2019
GCP 2019
SECTION II
24 Advances Against Shares, Debentures & Bonds/ Units Of Mutual Funds ....................... 170
24.8 Margin Trading ............................................................................................................... 172
24.15 Bank Finance For Market Makers................................................................................... 173
27 Guidelines On Granting Rupee Loans To Nris/ Persons Of Indian Origin ..................... 193
SECTION III
38 Revival And Rehabilitation Of Micro, Small And Medium Enterprises (MSMEs) ........ 238
38.1 Eligibility: ....................................................................................................................... 238
38.2 Identification Of Incipient Stress: ................................................................................... 238
38.3 Committees For Stressed Micro, Small And Medium Enterprises: ................................ 239
SECTION – I
1. POLICY OVERVIEW
1.1 Preamble
1.1.1 Considering the ongoing trends in the National Credit Market and having regard to
sectorial behavior of Indian economy, which has undergone a major change, has resulted
a slow growth in Bank Credit. The shifting of focus from Corporate Lending to Retail
Lending, Big ticket Loans to Small ticket Loans has triggers major changes in Bank’s
policies across the Nation. The business entities operating in India, to emerge successful,
have to perceive and manage risks from a wider perspective of happenings in the world
market. Any risk that overtakes the business entity automatically reflects on the lending
Banks’ balance sheet. The Indian Banking scenario has witnessed progressive
deregulation, introduction of prudential norms and adoption of international best
practices. The financial sector reforms and entry of private and foreign Banks have
changed the face of Indian Banking sector. In the present scenario, when spreads are
thinning and competition is acute, managing credit risk has become crucial.
1.1.2 Extending credit is a basic function of banking which involves risks. It is likely that
some of the credit decisions may result in loss. The Bank shall aim at managing risks in
such a way that a healthy credit portfolio is built and returns are maximized.
1.1.3 The Reserve Bank of India has come out with guidance note on management of credit
risk to enable Banks to enhance and fine tune their existing risk management systems,
to face the emerging challenges in the fast changing environment and undertake robust
credit risk management functions in a more responsive and proactive manner.
1.1.4 In the above backdrop, the Bank is regularly upgrading its credit risk policy covering all
activities where credit risk is assumed. The Bank has already adopted Credit Risk
Management Principles, based on which this Credit policy document has been
developed. This upgraded version of the credit policy shall enhance the risk management
capabilities of the Bank, making it possible for the Bank to show a steady and healthy
growth in its credit portfolio, resulting in overall improved performance.
1.2 Objectives
The Policy seeks to achieve the following broad objectives:
1.2.1 To establish Bank wide credit strategy in line with corporate business goals.
1.2.2 To encourage functionaries at different levels in the Bank to assume reasonable credit
risk so that returns can be maximized.
1.2.3 To achieve unity of direction in accomplishment of corporate goals at all levels in the
area of overall credit management.
1.2.4 To adopt segmented approach in credit management through designated branches
for catering to different categories of constituents so as to develop specialization and
efficient credit operations.
1.2.5 To enlarge clientele base through aggressive marketing and achieve credit growth
spread across the entire network of branches in tune with corporate business goals and
credit strategy and to attain Credit: Deposit ratio of around 70%.
1.2.6 To have diversified and balanced growth of assets to ensure that no single category of
assets adversely affects the overall performance of the Bank.
1.3 Scope
1.3.1 This document covers strategies and policies that govern credit risk under all activities
of the Bank viz., Lending, Investment and Treasury and Collection & Payments (CAPS).
The document defines target markets and prescribes acceptance criteria for all forms of
credit dispensation. Further, the document covers policies for credit management under
all stages of credit cycle. Any exception or deviation from these policies and criteria
shall be referred to Credit Division, who shall put up such matters to the competent
authority for prior approval/ sanction.
1.4 Ownership
1.4.1 Ownership of Functional Division: The functional Division shall provide IRMD with
relevant feedback on changes to be brought in GCP.
1.4.2 Ownership of IRMD: Integrated Risk Management Division shall frame/ review/
improve all policies, procedures/ systems in relation to management of credit risk in the
Bank with the approval of Credit Risk Management Committee (CRMC) which has to
be placed before the Risk Management Committee of the Board / Board of Directors
for their final approval and thereafter the same shall be operationalized.
1.4.3 Ownership of The General Managers in charge: The GMs in charge of different
business units/ functional division shall ensure the implementation of the policies,
procedures under delegated lending powers as approved by the Board / Risk
Management Committee of the Board / Credit Risk Management Committee (CRMC).
1.6 Compliance
1.6.1 All the functional divisions/ branches are expected to comply with the policy guidelines
laid down in this document.
1.6.2 References/ clarifications if any, on the interpretation of any provisions of this
policy may be made to Integrated Risk Management Division(IRMD) at Head Office,
to clarify the provision and wherever required, the Division shall seek necessary
approval from the Managing Director & Chief Executive Officer [MD & CEO] or from
Executive Director in the absence of MD & CEO.
1.6.3 In line with the Ministry Guidelines, sanction of credit proposals/ approval
compromise/write off proposal at Zonal /Circle and Head Office shall be through
Credit Approval Committees at the respective offices. Accordingly, Bank has set up
the following credit approval committees at various levels. The scope, composition,
powers etc of these committees shall be as delegated to them by the Board from time
to time.
Level Committee
Zonal Zonal Office Level Credit Committee (ZLCC)
Circle Circle Office Level Credit Committee (CLCC)
Head Office Head Office level Credit Committee (HLCC)
Credit Approval Committee of the Board (CACB)
Management Committee of the Board (MC)
Further, these committees shall be vested with powers for approval of various
deviations/ changes etc. as envisaged in the later part of the credit policy.
Any deviations/relaxations in the policy guidelines permitted by a delegate/committee
shall be reported to the next higher authority/ committee.
1.6.4 The composition and quorum in respect of various Credit Approval Committees is
enumerated here under:
Quorum: The quorum for the committee shall be three [3]. The Meeting shall be attended by
the Managing Director and Chief Executive Officer and at least one of the Executive Directors
and the General Manager concerned dealing with the Credit/Compromise/ write off proposals.
2. CREDIT STRATEGIES
2.1 Introduction
2.1.1 The credit strategies articulate the Bank’s approach towards the entire gamut of credit
management including Investment and Cash Management services. The credit strategy
of the Bank shall be in tune with the business goals, macro- economic changes taking
place in the economy and shall be viable in the long run through various economic
cycles.
2.1.2 The strategy shall spell out the priorities in deployment of the funds mobilized,
portfolio-wise exposure levels and the overall management of the portfolios. The
strategy shall clearly indicate the thrust areas for deployment of credit based on type
(for example commercial, consumer, and real estate), economic sector, geographical
location, currency, maturity, products and anticipated profitability.
2.1.3 The strategy shall indicate preferred category of borrowers / assets from the point
of view of building a healthy credit portfolio bringing in desired growth in earnings and
shareholders value.
2.2.15 Credit shall be priced duly reckoning cost of funds, cost of services/ operating costs,
risk premium, capital charge and margin of profit. The pricing shall further be subject
to RBI guidelines / Bank’s internal guidelines. All applicable credit exposures under
Credit Rating Framework [CRF] shall be covered in a phased manner, which shall be
used for determining the risk pricing. Quantitative targets under various risk gradations
shall also be fixed keeping in view the anticipated profitability from the credit
operations.
2.2.16 Credit management being specialized area requiring expertise, bulk lending shall as far
as possible be concentrated at select/ identified branches having required expertise and
infrastructure. However, all branches shall endeavour to achieve positive growth in
credit in tune with the business plan finalized each year.
2.2.17 Marketing of credit – wholesale/ bulk/Small and Medium Enterprises/ retail shall be
given due importance. The services of the Marketing Division, Head Office and the
services of marketing officers stationed at various centers shall also be used to fuller
extent for credit marketing/ cross selling of credit products.
2.2.18 The Bank’s advertisement and publicity programme shall be used for advertising
various lending schemes of the Bank. The details of schemes shall also be displayed in
Bank’s website for the benefit of general public.
2.2.19 It shall be ensured that the funds deployed earn reasonable returns. Towards this end,
continuous efforts shall be made to earn a reasonable yield on advances by proper
pricing of credit vis-à-vis the risk assumed, increasing the share of lending at relatively
higher rates of interest to borrowers in retail/ personal segment and small & medium
sized borrowers. Better credit administration, continuous monitoring and follow up,
prudent management of problem accounts, containing delinquency and recovery of
Non-Performing Assets (NPAs) by compromise settlement or recovery actions, etc. are
some of the areas to be given due attention to maintain / improve the average yield on
advances and also overall credit management.
2.2.20 Prudential risk management practices in credit shall receive greater attention by timely
identification, quantification, management and mitigation of various risks associated
with credit, on a continuous basis.
2.2.21 The Bank shall aim at “Quality Credit Growth” resulting in higher earnings, shareholders
value and growth of the Bank.
2.2.22 Compliance with all the Statutory and Regulatory stipulations/ requirements shall be
strictly ensured in credit operations of the Bank.
2.2.23 Every year, a credit plan shall be formulated articulating desired levels of exposure
under each sector / sub sector/ categories for the Bank as a whole. The credit plan shall
also take into account the targets to be achieved under priority sector. The credit plan
shall be formulated based on annual targets fixed under the business plan and the
strategies / guidelines framed in this document. The exercise shall be first carried out
at the branch unit level which has to be aggregated to form Zonal Plan. All the Zonal
Plans shall be aggregated to formulate Circle Plans and these Circle plans shall be then
aggregated to arrive at the Bank’s Plan. The actual performance of the branch units,
each of the zones as also of the Bank, shall be evaluated against such plan projections
at regular intervals. Quarterly review of the actual performance vis-à-vis the
plan projections shall be submitted to the Board of Directors.
2.2.24 Quantitative targets prescribed by the RBI in respect of lending under Priority
Sectors, Agriculture, Small & Medium Enterprises, Weaker Sections, preferred sectors
such as export credit, sensitive sectors like capital market exposure shall be kept in
view while finalizing such targets at all levels. Further, based on the strategies discussed
above and as a prudent risk management measure, internal exposure ceilings for lending
to various sectors, industries, products, geographical regions, currency, maturity, rating
categories, etc. shall be prescribed. These exposure ceilings shall be kept in view while
fixing targets under overall credit deployment plan.
2.2.25 Based on the credit expansion plans, the Bank shall assess, induct and develop
through training and work experience, adequate skills sets to officers apart from
having a vertical of specialized Credit Officers for assessing, approving and managing
credit risks.
2.5 The strategies stated above are broad guidelines for credit operations at various units/
offices of the Bank. Specific action plans for achievement of the plan projections shall
be drawn by each business unit having regard to the market environment in which it is
operating.
2.6 The performance of the Bank under credit shall be reviewed once in a quarter. The
Zonal level/ Circle level progress in credit deployment/ management shall be reviewed
quarterly with the Zonal Heads/ Circle Heads. The strategies finalized in the Annual
Business Plan shall be adopted/ pursued for accomplishing credit goals.
A credit facility extended by the bank to a borrower for exposure in the following
infrastructure sub-sectors will qualify as ‘infrastructure lending’ as per RBI/2015-16 /95
DBR.No.Dir.BC.10/13.03.00/2015-16 July 1, 2015 Master Circular – Loans and Advances –
Statutory and Other Restrictions and further notification from Government of India.
S.no Category Infrastructure sub-sectors
1. Transport i. Roads & Bridges
ii. Ports1
iii. Shipyards2
iv. Inland Waterways
v. Airport
vi. Railway Track, Tunnels, viaducts, bridges terminals
infrastructure including stations and adjoining commercial
infrastructure
vii. Urban Public Transport (except rolling stock in case of
urban road transport)
viii. Logistics infrastructure3
APPENDIX – A
* Loans sanctioned under Corp Schemes and other structured schemes meant for MSMEs shall
be excluded from Selective Approach. (Please also refer para 2.2.9)
^ Fresh Loans to TV Channels Industry, Educational Institutions and Information Technology
Industry shall be accorded at Head Office only.
********
3. EXPOSURE NORMS
3.1 Introduction
3.1.1 The deployment of credit shall be made in thrust areas/ sectors identified for the
purpose. However, while taking credit exposures, as a prudential measure aimed at
better risk management and avoidance of concentration of credit risks, the exposures
shall be limited within the ceilings prescribed in terms of different categories,
economic sectors, industries, geographical location, currency, maturity, products and
anticipated profitability, besides complying with RBI guidelines on prudential ceilings
for individual / group borrowers as well as the Large Exposure Framework guidelines,
whenever the same is made applicable.
3.3 Group
3.3.1 For the purpose of identification of Group Accounts, the relevant information shall be
ascertained from the application/ data furnished by the borrower to the Bank. The
Group may be determined on the basis of commonality of Management and effective
control on the Management, which may be in the form of any/ more of the following:
3.3.2 Two concerns which have one or more common partner/ proprietor or their spouses;
3.3.3 Any of the directors of the Private/ Public Limited Company is director of another
Private Limited Company/ Promoter Director in a Public Limited Company or their
spouses;
It shall not be interpreted to extend concessions sanctioned / permitted to other group
companies. Entities, including Public Sector Undertakings with common Directors but
without effective control on the Management shall not be treated as Group.
3.3.4 A limited company which is subsidiary of another limited company is or closely held
company with substantial interest [i.e., major shareholders of the equity share capital
of the company is owned by another company],
3.3.5 The proprietor/ partner of a firm, is a director in a Pvt. Ltd. Company or promoter
director in a Public Limited Company or their spouses.
3.3.6 In case the Managing Member of an Association/ Society or Trustee of a Trust or
Managing person of a Club is a proprietor/ Partner/ Director/ Karta of HUF/ Managing
Member or Managing Person in any other constituent body of similar nature in the
Firm/ Company/ Society/ Trust etc.
3.3.7 Special Purpose Vehicles [SPVs]/ Special Purpose Entities [SPEs] wherein the
applicant company is having more than 51% share.
3.3.8 For the purpose of Group exposure in case of SPVs/ SPEs, any of the participating
constituents which is having a financial stake of more than 51% in the SPV/SPE
will be considered as a Group constituent, except in the case of Commercial Real
Estate, where all the participating entities will be considered as Group
constituents. However, this is subject to the condition that any of the participating
entity will not include the financials of the SPV in their consolidated financial
results.
3.3.9 In case of a split in a group, if the split is formalised, the splinter groups shall be
regarded as separate groups.
3.4.2.6 The Management Committee may approve the credit limits exceeding the above-
prescribed limits on merits and with justifiable reasons.
NOTE:
i. Exposure shall include credit (funded and non-funded) including those granted
under Corp Instant facility and investment (including underwriting and similar
commitments)
ii. The sanctioned limits or outstanding, whichever are higher, shall be reckoned
for arriving at exposure limit in respect of both fund based & non-fund based
limits. However, in case of fully drawn term loans and where there is no scope for
re-drawal of any portion, the outstanding balance shall be reckoned as exposure.
iii. Credit exposure under forward contract in foreign exchange and other
derivative products shall be calculated by multiplying the notional principal
amount with a conversion factor (as prescribed by RBI) under Original Exposure
Method for the purpose of determining individual / group borrower exposure.
Endeavour shall be made to move over to Current Exposure method for measuring
credit exposure in a derivative product in course of time.
iv. Capital funds for the purpose of computation of exposure ceilings shall be as
defined under capital adequacy standards. Further, the exposure ceilings shall be
calculated with reference to capital funds as published in the audited Balance
Sheet as at the end of 31st March every year. The infusion of capital either
through domestic issue or overseas float after the published audited Balance
sheet date shall also be taken in to account for determining exposure ceilings.
3.4.4.5 Review
The implementation of the above prudential exposure management measures shall be
reviewed annually and placed before the Board of Directors before the end of June and a
copy of such review shall be furnished to RBI for information.
3.4.4.6 Exemptions
The following categories of exposures shall be excluded from the purview of the prudential
exposure ceiling:
a) Existing / additional credit facilities (including funding of interest and irregularities)
granted to weak/sick industrial units under rehabilitation packages.
b) Borrowers, to whom, limits are allocated directly by the Reserve Bank, like food credit.
c) Loans and advances granted against the security of Bank’s own term deposits
3.5.3 `Security’ shall mean tangible security properly charged to the Bank and will not
include intangible securities like guarantees, comfort letters etc.”.
3.5.4 The Unsecured exposure of the Bank shall not exceed 40% of aggregate exposure as
under:
Norms Ceiling
[A] Aggregate Unsecured Exposure as percentage to total Exposure (Credit 40%
+Non SLR)
[B] Of the [A] above, Sub-ceiling for Unsecured Credit as percentage to 30%
Aggregate Credit Exposure
[B.1] Unsecured Credit Exposure to PSUs as percentage to NBC 25%
[B.2] Unsecured Credit Exposure to Pvt. and Co-operative Sector as 15%
percentage to NBC
[B.3] Out of [B.2] above, Sub-ceiling for Unsecured Credit to Co-operative 5%
Sector as percentage to NBC
The ceiling stipulated under (B.1), (B.2) & (B.3) can go up to a maximum of 25%, 15% &
5% respectively. However, cumulatively, the aggregate exposure to unsecured credit as
percentage to aggregate credit shall not exceed 30% as stipulated in [B] above.
3.5.5 “Secured Advances” in respect of Fund Based and Non-Fund based for the purpose of
delegation of lending powers shall mean as under:-
A “fund based” credit limit is considered fully secured if,
It is fully backed by primary tangible securities charged in favour of the Bank
and/or;
Central Government Guarantee is available.
A “Non-Fund based” credit limit [LC and BG] is to be considered as fully secured, if they
are fully covered by cash margin and/or primary/other collateral securities. If not, same
shall constitute unsecured/ partly secured facility.
The following securities shall not be considered as tangible securities: -
Personal Guarantees, Corporate Guarantees, State Government Guarantee, Letters
of Comfort.
Second charge on movable securities.
Subservient charge on movable securities.
Negative lien on assets
However, for the purpose of income recognition, asset classification and provisioning of
advances, all securities including collaterals, ECGC / DICGC Coverage, Central Government
Guarantee, etc shall be reckoned as securities as per the RBI guidelines.
3.6 Substantial Exposure Limits
In respect of credit exposure to parties / corporates / PSUs individually above 10% of the
Bank’s capital funds, the Bank shall, as a prudent measure, endeavour to restrict its aggregate
credit at a level of four times of capital funds of the Bank as defined under capital adequacy
standards.
3.7.2 Wherever the security offered by the clients to the extent of 100% by way of cash
margin/ financial assets, the entry level ceiling may be exceeded by that amount.
3 . 7 . 3 The initial exposure taken in respect of individuals, non-corporate and corporate
constituents shall not, generally, be increased at least up to a period of one year from
the date of first sanction. However, in deserving cases and for justifiable reasons,
revision in credit limits may be considered.
3.8.2 Credit Exposure to Medium & Large Scale Industry (including non- SLR
investment & CAPS exposure)
3.8.2.1 The Medium & Large Industrial segment shall receive due attention in credit
deployment from the point of building-up volumes with quality and also from
the point of contributing for the development of key sectors of the national economy.
3.8.2.2 The overall exposure of the Bank to medium and large industrial sector shall
be within 45% of the aggregate exposure under lending including CAPS and non-SLR
investment.
3.8.4.3.2 Exposure Norms per Borrower / Group: The Maximum Exposure per MFI
borrower shall be restricted to Rs.25.00 crore and Rs.50.00 crore per group.
However, the Management Committee shall have the power to exceed the
above ceilings in justifiable cases. Wherever the total borrowing from the
banking system exceeds Rs.150 crore, endeavours shall be made to switch
over to consortium banking arrangement.
II. All Non-corporate Borrowers irrespective of their rating and those Corporate
Borrowers falling under rating CB5 to CB6
Fund based Rs.10.00 Crore
Non-fund based Rs.20.00 Crore
Total Rs.20.00 Crore ##
## On obtaining in-principal clearance from HO, the ZLCC shall sanction credit
limits falling within their delegated lending power. Branch Heads do not have
such powers. The proposals beyond the delegated lending powers of the ZLCC
shall be considered by CLCC.
In the case of share brokers, the facility up to ceiling levels may be
extended either by way of FB or NFB or a combination of both.
GROUP CREDIT POLICY 32
EXPOSURE NORMS
3.8.6.3 Loans against sensitive commodities: (RBI/2015-16 /95 DBR.No. Dir. BC. 10/13.
03.00/ 2015-16 July 1, 2015 Master Circular - Loans and Advances – Statutory and
Other Restrictions)
A cautious approach shall be adopted in exposure to sensitive commodities such as cereals
and pulses, Gur, Sugar, Khandasari, raw cotton and kapas, Oil Seeds, Vegetable Oils, etc.,
to avoid over exposure against such commodities. The overall credit exposure against
sensitive commodities shall not exceed 5% of the NBC.
05. Bank’s aggregate assets in India shall not be less than 75% of its demand and
time liabilities in India and subject to compliance of all the guidelines of the
RBI in this regard.
06. All other Prudential Norms shall be complied with.
07. The CAC is empowered to sanction such credit facilities.
08. The aggregate Credit/ non-credit facilities to Indian joint ventures/ wholly
owned subsidiaries abroad shall not exceed 20% of Bank's unimpaired capital
funds.
3.8.7.2 The credit proposals of Indian companies for acquisition of equities in overseas
companies shall be considered, subject to following:
I. Compliance with the SEBI/ RBI/ Government guidelines, such as [1] the
aggregate Credit/ non-credit facilities to Indian joint ventures/ wholly owned
subsidiaries abroad, shall not exceed 20% of Bank's unimpaired capital funds.
[2] Loan shall be granted to joint ventures where the holding of Indian
company is more than 51%.
II. The aggregate exposure shall not exceed Rs.250 Crore in this segment subject
to the overall exposure to capital market shall be within 30% 40% of the Bank's
networth as on last day of the previous financial year and the exposure to
individual borrower shall not exceed norms as per Section 19(2) of the Banking
Regulation Act, 1949.
III. Indian company shall be making profit for immediately preceding three years
and rated minimum A [Bank's CB1 to CB3 Graded borrower in the absence of
external gradation].
IV. The company name shall not be appearing in RBI's Willful Defaulters' List/
Caution List, ECGC Defaulters' list.
V. The tenor of Term loans shall be maximum 10 years.
VI. Security shall be the pledge of shares of overseas company to be acquired by
Indian company. In the case of existing borrower, extension of the existing
securities may be stipulated.
VII. Margin shall be as per RBI guidelines from time to time.
VIII. All other Prudential Norms shall be complied with.
IX. The CAC and above is empowered to sanction such credit facilities.
X. The Company name shall be searched in CRILC/RFA data base to ensure that
there is no adverse remark/comment.
3.9.3 The exposure in any particular rating category may exceed the above ceiling due to
the extent of migration of borrowers from one rating scale to another in a particular
quarter. However, necessary steps shall be taken to limit the exposure within the
prescribed ceilings.
3.9.4 In the case of industries/ sectors that are not performing well or in which the outlook
in the near future is not likely to be better, the exposure shall be taken only in respect
of better-rated clients as determined/ communicated by corporate office.
3.9.5 A proper MIS for capturing and monitoring rating wise exposure shall be put in place
3.12.2 Treasury Branch, Mumbai shall endeavour to deploy the gold mobilised Gold
Monetization Scheme by way of Gold (Metal) Loans to domestic jewellery
manufacturers and jewellery exporters on the policy / terms and conditions approved
by the Board so as to profitably deploy the Gold mobilised under Gold Monetization
Scheme and earn reasonable spreads. The policy guidelines shall be reviewed
periodically by Treasury Branch, Mumbai and fine-tuned so as to make the scheme
competitive in the market with reasonable earnings to the Bank.
3.12.3 Even in respect of lending of Gold under Gold (Metal) Loan Scheme, all the exposure
ceilings discussed in the earlier paragraphs shall be adhered to.
3.15 Enhancing Credit Supply for Large Borrowers through Market Mechanism
3.15.1 While lending to ‘specified borrowers’, the bank shall take into account the
‘Aggregate Sanctioned Credit Limit (ASCL)’ of the borrower on the ‘reference
date’ in the Financial year and any incremental funding requirement of the
borrower from banking system shall be restricted within the “Normally
permitted Lending Limits’ (NPLL).
3.15.2 Normally permitted lending limit (NPLL), means 50 percent of the incremental
funds raised by the specified borrower over and above its ASCL as on the
reference date, in the financial years (FYs) succeeding the FY in which the
reference date falls. Under the framework, where a specified borrower has
already raised funds by way of market instruments and the amount outstanding
in respect of such instruments as on the reference date is 15 percent or more of
ASCL on that date, the NPLL will mean 60 per cent of the incremental funds
raised by the specified borrower over and above its ASCL as on the reference
date, in the financial years succeeding the FY in which the reference date falls.
3.15.3 Balance of the incremental funds shall be raised by way of ‘market instruments’.
3.15.4 For this purpose, any funds raised by way of equity shall be deemed to be part of
incremental funds raised by the specified borrower (from outside the banking
system) in the given year;
3.15.5 ‘Aggregate Sanctioned Credit Limit (ASCL)’ means the aggregate of the fund
based credit limits sanctioned or outstanding, whichever is higher, to a borrower
by the banking system. ASCL also includes unlisted privately placed debt with
the banking system.
3.15.6 ‘Banking System’ means all banks in India including RRBs and co-operative
banks and branches of Indian banks abroad.
3.15.7 ‘Specified borrower’ means a borrower having an ‘Aggregate Sanctioned Credit
Limit (ASCL)’ of more than,
1) Rs.25,000 Crore at any time during FY 2017-18;
2) Rs.15,000 Crore at any time during FY 2018-19;
3) Rs.10,000 Crore at any time from April 1, 2019 onwards;
3.15.8 ‘Reference date’ means the date on which a borrower becomes a ‘specified
borrower’.
3.15.9 ‘Market instruments’ shall include bonds, debentures, redeemable preference
shares and any other non-credit liability, other than equity.
3.15.10 However, increase in Equity base by way of ploughing back of profit will not
qualify for this purpose.
3.15.11 The incremental exposure of the banking system to a specified borrower beyond
NPLL shall be deemed to carry higher risk which shall be recognised by way of
additional provisioning and higher risk weights as specified by RBI from time to
time.
***************
4.1 Identification/ acceptance or otherwise of the eligible new accounts is carried out through
New Business Group (NBG) Committee thereby creating a barrier for entry of new
account with potential for credit default. Any new proposal for in-principle clearance of
credit limits beyond the power of ZLCC shall be discussed and the decisions of the
committee shall be communicated to the respective Branches/ Zonal Offices/ Circle Offices
for booking the proposals by obtaining the necessary papers as required in confirmation
with the guidelines issued from time to time.
4.2 The group consists of MD &CEO, Executive Directors and General Managers from Credit
Division, Retail lending Division, Risk Management Division, Financial Management
Division and Recovery Division at HO. The group shall look into all new credit proposals
excluding loans against deposits (other than existing borrowers), covering both fund based
and non-fund based aggregate exposure beyond the power of ZLCC from the Bank and
convey their In-Principle clearance of the proposal.
4.3 Quorum for undertaking NBG meetings shall be Four, consisting of Managing Director
and Chief Executive Officer, One of the Executive Directors, General Manager Finance
and General Manager Risk Management. .
4.4 As a tool for effective monitoring, the Bank shall identify and accept the eligible new
account through New Business Group (NBG) and create a barrier for entry of new account
with potential for credit default.
4.5 All Branches shall submit the Preliminary Information Memorandum containing the
highlights of the credit proposal in brief, in the prescribed format, in respect of all new
credit proposals with aggregate credit limit/s beyond the power of ZLCC, to their respective
ZOs/COs for their recommendation and onward submission to credit sanctioning division
at HO for placing it before NBG. While submitting the Preliminary Information
Memorandum the branches shall mandatorily carry out the due diligence/ market enquiry,
verify the Credit Information Company records (e.g.- CIBIL records), verify whether
borrower’s/ director’s name appears in the RBI’s/ ECGC’s defaulters list /CRILC/ Central
Fraud Registry and the information is to be provided in all cases.
In case of aggregate fresh exposure to a group of borrowers with common guarantor is
beyond the power of ZLCC, approval from the New Business Group shall be obtained.
4.6 The NBG shall discuss and give indicative Clearance/ Expression of Interest for all new
credit proposals on the basis of the Preliminary Information Memorandum placed before it
by the branches. In case of need, the Zonal Head shall be called to appear on Video
Conference to make presentation on the proposal to NBG.
4.7 The decision/ directions of the NBG shall be communicated to the concerned Branch,
ZO & CO. The concerned branches shall arrange for necessary papers as per the
guidelines based on the requirement of the nature of proposals and submit the same to the
respective sanctioning division for sanction. A detailed Appraisal Note shall be placed
before the competent sanctioning authority thereafter, for taking final credit decision on
the proposal in line with the procedure as mentioned hitherto by the respective
sanctioning divisions at ZO/CO/HO.
*****
5. CREDIT INVESTIGATION
5.1 Introduction
Whenever credit requests are to be considered, it is necessary to conduct a credit investigation
before taking up such cases for evaluation. This process of preliminary study needs to be
undertaken invariably before detailed evaluation and shall be a pre-sanction process.
5.3.11 Verification of RBI Defaulters’ list, Willful Defaulters List, ECGC defaulters List:
The RBI Defaulters’ list, Willful Defaulters list and ECGC defaulters List to be verified to know
the status of the borrower.
5.3.13 Verification of Legal Entity Identifier [LEI] from Legal Entity Identifier India Ltd
[LEIL].
Bank shall verify the Legal Entity Identifier (LEI) Number obtained by the applicant/
borrower constituents availing sanctioned limits above the threshold limits specified by RBI
from time to time. The renewal of the LEI shall also be confirmed at the time of each review/
renewal of limits.
5.5 No additional facilities shall be granted by the bank to the willful defaulters. In addition,
the entrepreneurs/ promoters of companies where the bank has identified siphoning/ diversion
of funds, misrepresentation, falsification of accounts and fraudulent transactions shall be
debarred from institutional finance for floating new ventures for a period of 5 years from the
date of removal of the name of the willful defaulter from the list of willful defaulters as
published/ disseminated by RBI/CICs.
********
6. APPRAISAL / EVALUATION
6.1 Introduction:
6.1.1 The appraisal / evaluation stage begins after a thorough credit investigation on the
constituent has been undertaken and achieving satisfaction about his integrity,
reputation and creditworthiness. The credit investigation process shall give comfort /
confidence to go ahead with the Appraisal/ evaluation process.
6.3 Constitution:
6.3.1 The Bank shall be clear about the constitution of the entity and shall ensure that the
constituent has legal capacity to undertake business, powers to borrow/ offer securities
and assume liability. The purpose of the loan shall not contravene the objectives stated
in the base document through which the entity has come in to being.
6.7.3 The trend in sales and net profit by comparing the actual performance vis-à-vis the
estimates shall be studied. In case of under/ negative performance, reasons therefor and
steps taken for improvement shall be ascertained. Further, if the situation warrants,
fresh assessment of credit limits shall be carried out and options whether to continue or
exit the relationship shall be weighed.
6.7.4 The trend in tangible net worth of the firm / company shall be analysed. If the trend
indicates a decline, the reasons therefor must be ascertained. Quasi-equity, if any, shall
invariably be subordinated to the Bank credit. Similarly, the position of net owned funds
in business shall be ascertained by reducing the funds locked in Associates /
Subsidiaries / Group concerns and investments not related to business.
6.7.5 In order to evaluate the liquidity position, adequacy of net working capital (NWC) shall
be studied. The detailed guidelines issued in this regard by Credit Division shall be
followed. In case of negative NWC or decline in NWC, the reasons therefor and steps
taken to improve the same shall be ascertained.
6.7.6 In respect of new borrowers under commercial segment, the Bank has prescribed
benchmarks on Current Ratio, Debt-Equity Ratio, Debt Service Coverage Ratio, Ratio
of Total Outside Liability to Tangible Net worth, etc., which are indicated in the chapter
on ‘Commercial Credit’ [Para 21.2.2.3 and 21.2.2.4]. It shall be ensured that the
borrower conforms to these standards. The deviations / relaxations in the above norms
may be permitted in exceptional cases which shall be dealt with as stated in the chapter
on ‘Commercial Credit’ [Para 21.2.2.8].
6.7.7 Full details of other borrowings (including term loans) of the constituent shall be
ascertained and it shall be ensured that the same are regular. In the case of term
borrowings, it shall be ensured that the cash accruals are adequate to service the yearly
repayment commitments.
6.7.8 Whether the borrowing entity is regular in payment of statutory dues and adequacy
of provisions in case of any arrears etc. is to be ascertained.
6.7.9 The level of inventory and its requirement in relation to the production / sales to assess
whether the constituent is carrying any excessive/obsolete stocks and whether there is
regular movement of stocks in the production cycle etc. is to be evaluated.
6.7.10 The position of creditors, average payment period and creditors outstanding beyond
normal trade period shall be studied. Similarly, debtor’s collection period/ debts
outstanding for more than six months/ adequacy of collection machinery shall also be
evaluated.
6.7.11 Auditors’ notes to the accounts as regards contingent liabilities including claims not
acknowledged as debt, guarantees executed on behalf of associate/ group companies,
accounting practices followed and adverse comments if any shall be taken note of for
proper evaluation.
6.7.12 Wherever credit appraisal has been carried out on the basis of provisional
financial statements, follow up shall be made and audited statements shall be obtained
immediately on its finalization. Variations, if any, of the audited figures as against the
provisional shall be reviewed and wherever warranted corrective action shall be
initiated.
6.9.4.3 The periodicity for valuation of assets obtained as security shall be as under:-
Land and Building Once in three years
Financial Assets [Viz., LIC policies/ NSCs/ etc] Once in a year
Bank Deposits Once in a Quarter
Capital Market Instruments Once in a week
6.9.4.4 In cases where collateral securities standing in the name of third parties are offered
for a credit facility, every endeavour shall be made to obtain the guarantee of such
third parties for easy enforcement of the securities in case of need.
6.9.4.5 The evaluation of the security shall take into account the market value of the assets
in the event of enforcement of security.
6.9.4.6 Collateral security shall not be insisted upon in the cases where the RBI guidelines
specifically prohibit the Banks from doing so. For instance,
i. In the case of credit limits up to and inclusive of Rs.25,000/- to the
borrowers under priority sector, other than agricultural loans,
ii. Up to Rs.1,60,000/- to borrowers under agricultural loans,
iii. Up to Rs.10 lakhs in case of Micro and Small Enterprises (MSE) advances
which are necessarily covered under CGTMSE scheme,
iv. Credit facilities under Government sponsored schemes [except loans to
SHGs] which are covered under CGTMSE and
v. Up to Rs.7.50 lakhs under Educational Loan [Corp Vidya] Scheme.
6.9.4.7 Further, in the case of Micro and Small Enterprises (MSE) with sound financials
and good track record, collateral security may be dispensed with for loans up to
Rs.200.00 lakhs, subject to, guarantee cover under CGTMSE with the approval of
the sanctioning authority.
For Example: In case of loan against Stocks sanctioned by ZLCC, wherein the
prescribed margin is 25%, CLCC can extend a maximum concession of 10% and
hence the relaxed minimum margin can be 15% and below that, the matter has to be
taken up with HLCC and above.
In case of Housing loan, the minimum margin prescribed by the Bank and RBI is 10% and
hence no further concession in margin requirements can be permitted by any authority.
6.11.8 After putting in place necessary credit risk management tools / techniques, stress
testing in the form of scenario analysis and sensitivity analysis shall be
undertaken. To begin with this shall be carried out in respect of borrowers
seeking / extended with credit limits of Rs.10 Crore and above and thereafter it may be
extended in other cases as well.
6.15.4 Exchange of information with other member Banks, obtention of necessary certificates
and compliance as per the guidelines shall be adhered to scrupulously.
6.19.3 Pricing of credit exposure shall be based on the risk ratings in terms of the guidelines
framed by the Bank. Any variance in actual pricing vis-à-vis the prescribed price in
relation to the rating assigned shall be documented with due justification and approval
from competent authority obtained.
6.19.4 The entire portfolio under rating framework to adopt RAROC methodology for pricing
shall be covered gradually and capital for each credit exposure shall be allocated.
6.19.5 Share of finance under Consortium lending may be priced in consonance with the rate
of interest offered by the leader of the Consortium, however such rate of interest shall
not be below the MCLR of the Bank.
6.19.6 Share of finance under Multiple Banking Arrangement may be priced in
consonance with the rate of interest offered by the Bank having majority share in such
lending, however such rate of interest shall not be below the MCLR of the Bank.
6.21 Recommendations:
6.21.1 The appraisal memorandum shall contain specific recommendations as to
whether or not to approve the credit facilities. The recommendations for approval shall
include the nature and extent of credit facilities proposed, purpose, security, margin,
rate of interest, commission, repayment, tenor of bills, guarantors etc. Further, all
necessary covenants shall be stipulated to ensure that:
i. The Bank funds are utilized for the purpose it is lent
ii. There is no diversion of funds
iii. The business entity maintains financial stability
iv. Securities stipulated are charged properly
v. The Bank is able to have proper monitoring and control over the exposure
vi. The borrower complies with laid down guidelines of the Bank / regulatory
requirements.
Annexure-1
Schedule of Minimum Margin Requirements
Note:
As and when the above referred sensitive commodities are brought under the purview of
Selective Credit Control by the RBI, minimum margin stipulation shall be in accordance with
the Selective Credit Control directives of the RBI and subject to such restrictions as may be
stipulated by the RBI from time to time. The margins to be maintained in respect of such
commodities shall be advised to the branches/ other offices separately based on the directives
issued by the RBI from time to time.
********
7.2.6 The facilities shall be extended to borrowers with gradation CB1 to CB5 only;
7.2.7 The issue of such guarantees shall be fully secured by collateral securities with a
minimum Asset Coverage Ratio of 125%;
7.2.8 The powers to grant such guarantees shall be vested with HLCC/ CAC;
7.2.9 The sanctions of such guarantees shall be reported to the next higher authority on
monthly basis;
7.2.10 The review of borrowal accounts shall be carried on an annual basis;
7.2.11 Risk and Risk Mitigation is as applicable to the project loan and same shall be assessed
in a manner similar to the assessment of fund-based facilities; and
7.2.12 Any deviation in above guideline shall be with the approval of Management Committee
of Board.
7.4.1.3 The proposal for guarantee shall be appraised with the same diligence as in the case
of fund based limits and obtain necessary cover by way of margin etc. so as to
prevent constituent developing a tendency of defaulting in payment when invoked
guarantees are honoured by the Bank.
7.4.1.4 Assessment of Bank Guarantee limit required by the party shall be in line with the
operating guidelines issued by the Bank from time to time.
7.4.1.5 The BGs shall normally be extended for period up to 10 years. However, in
exceptional cases, BGs for periods above 10 years may be extended, duly
considering the impact on the Bank's Asset Liability Management aspects. BGs for
above 10 years shall be issued, only to reputed corporates/ PSUs/ Trusts/Co-
operative Societies, satisfying the need of the applicant for such BGs. Further, for
extending such facilities to corporates/ PSUs having satisfactory track record of
operations, their ratings shall be not below Satisfactory. The HLCC/ CAC shall be
the competent authority to accord sanction for such BGs.
7.4.1.6 Bank Guarantees with tenor above 10 years shall be issued to other constituents
[other than reputed corporates / PSUs/ Trusts/ Cooperative Societies] with 100%
cash margin only.
7.4.1.7 BGs/ equivalent commitments shall not be extended on behalf of corporate entities
in respect of non-convertible debentures, corporate bonds or any debt instrument
issued by it.
**********
8.1 Introduction:
Takeover of the existing credit limits/ liabilities of a unit from another Bank/ Financial
Institution may be considered. Before taking over the accounts from other Banks, the
standing of the individual / group / associates, their credit worthiness, the risk factors,
securities available, safety of the advances etc. shall be assessed. Such proposals shall be
subjected to Bank’s usual scrutiny and credit appraisal.
8.2.2 The proposed facilities which are being taken over should have been classified as
standard, regular (also refer 8.3.5). Further, accounts which have been restructured and
conducted satisfactorily for a minimum period of 3 years at the other Bank may be
taken over on select & justifiable grounds.
8.2.3 However in deserving cases, HLCC/CAC may relax such minimum period up to 1
year of date of commencement of principle / interest whichever is earlier as per revised
repayment schedule, on proper and justifiable grounds.
8.2.4 There shall not be any irregularities of whatsoever nature relating to repayment of
principal, interest and other terms with the existing lenders and account is conducted
satisfactorily.
8.3.6 Takeover of loans pertaining to commercial real estate shall be with the
prior permission from HLCC/ CAC only.
8.3.7 Takeover of loans pertaining to activities falling under Selective list shall be
considered only with the prior approval next higher sanctioning authority in case
of sanctions up to CLCC.
GROUP CREDIT POLICY 65
TAKEOVER NORMS
8.5 Monitoring:
8.5.1 The Mid-Term review of all take-over of borrowal accounts shall be
conducted immediately after completion of six months from the date of
disbursement to ensure satisfactory conduct of the borrowal account. Thereafter
these borrowal accounts shall be subjected to review on annual basis.
8.5.2 CRMD at HO shall review the credit portfolio under take over accounts on yearly
basis and such review note shall be placed before the Board for information / direction.
8.5.3 The In case of takeover of accounts Pre-disbursement/ Post disbursement Credit
Audit shall be conducted for accounts with limits of Rs.50.00 lakhs and above or as
per the guidelines issued from time to time.
8.6 Others:
8.6.1 The Credit proposals taken over by the Bank from any of the Bank where the EDs or
MD & CEO have worked earlier shall be placed before the Board with specific reasons
justifying the need for taking over the accounts.
8.6.2 The takeover Policy detailed in this chapter shall be applicable to all Credit
proposals other than housing loan.
8.7.3 Before taking over the loan, discreet enquiries shall be made to ascertain the reason
for such takeover of loan. It shall be ensured that the applicant is opting for switch
over only for genuine reasons such as to get interest rate benefit etc., and not that he
has been marked for exit by the transferor bank.
8.7.4 Confidential opinion of the applicant shall be obtained from the transferor bank in the
prescribed format
8.7.5 Housing Loan to be taken over should be regular/ a standard asset. Loan account
statement, copy of terms & conditions of sanction shall be obtained and analyzed
in this regard.
8.7.6 The existing Housing loan shall have run satisfactorily with transferor bank/Institution.
There shall not be any irregularity of whatsoever nature relating to sanction terms and
conditions stipulated by the transferor bank.
8.7.7 Minimum lock- in period at transferor bank/institution is not required.
8.7.8 It shall be ensured from the transferor bank that they are holding the original title
deeds and other related documents pertaining to the property and they will release the
title deeds soon after the loan is closed.
8.7.9 Where the takeover proposal is conforming to our Scheme guidelines as well as
takeover policy, before booking the proposal, in principle clearance from the next
higher authority shall be obtained. In case of Branch/Hub sanctions, in-principle
clearance shall be obtained from ZLCC. In case of ZLCC sanctions it shall be obtained
from CLCC. In case of CLCC sanctions, clearance shall be obtained from HLCC/CAC.
8.7.10 Housing loans where construction has been completed and the cases where construction
is not completed or under progress are eligible for take over.
8.7.11 Where the construction of property is not completed or under progress, the following
additional precautions also shall be taken before taking over of loan:
a) The loan amount to be sanctioned shall not exceed the limit originally
sanctioned by the transferor bank.
b) The amount released by the transferor bank is in line with construction
schedule/ progress. In other words it is to be ensured that loan amount released
and margin brought in by the borrower has been fully utilized for the
construction.
c) Where entire loan amount has already been released and the construction is
yet to be completed or not in line with construction schedule/progress, such
cases should not be considered.
d) In case of flat under construction, it shall be ensured that the housing project is
not time overrun due to Statutory/Judicial restrictions or for any other such
reasons.
e) In case of flat under construction, Tripartite Agreement executed by the builder
with transferor bank shall be substituted by new Tripartite Agreement as per
our Bank’s format.
8.7.12 Where the applicant is also enjoying a top-up loan along with housing loan, against
the same property, in such cases, it shall be ensured that the top-up loan sanctioned by
transferor bank is not to evergreen or to keep the housing loan regular so as to
facilitate take over.
8.7.13 Wherever the applicant is enjoying top-up loans in addition to housing loan availed on
genuine /valid purposes, top-up loan may be considered in appropriate Schemes of our
Bank. [eg. If the top-up loan was availed for repair/renovation of property, the same
shall be considered under Corp Ghar Shobha Scheme and not under Corp Home
Scheme]
8.7.14 Fresh valuation of the property including the cases where construction is not
completed and loan has been partially disbursed by transferor bank shall be obtained
from the empanelled valuer of the Bank to ensure that the required margin on the value
of the security is available.
8.7.15 The Maximum age of the building is fixed at 30 years. However Residual balance life
of the building shall be at least 5 years or more than the repayment period.
8.7.16 Repayment period to be fixed shall not exceed balance/ left over repayment period of
transferor Bank subject to compliance with the scheme guidelines of our Bank.
8.7.17 The proceeds of the loan sanctioned by our Bank along with the amount of margin
money, if any, collected from the borrower shall be remitted directly to the transferor
bank for closure of existing housing loan at their end and original title deeds along with
other related security documents shall be obtained directly from the transferor bank.
8.7.18 In exceptional cases where the original title deeds are held at centralized location by
transferor bank, it shall be ensured that the original title deeds are obtained at the
earliest. An undertaking letter from the transferor bank to the effect that they are holding
the original title deeds and they will release/handover the original title deeds directly to
our bank at the earliest shall be obtained.
8.7.19 The above policy guidelines are equally applicable for housing loans extended under
various Corp Schemes. [ i.e Corp Home including variants, Corp Home –Premium NRI,
Corp Ghar Shobha etc.,]
8.7.20 ZLCC /HLCC/ CLCC is empowered to permit deviations from above guidelines on a
case to case basis, based on the merits of each case.
8.7.21 These Policy guidelines will supersede all the existing guidelines pertaining to
take over of housing loans.
8.7.22 The above Policy guidelines are applicable only for takeover of housing loans.
In respect of takeover of loans under various other Corp Schemes, the guidelines
prescribed for takeover of loans under the Group Credit Policy of the Bank are
applicable
Procedural Guidelines:
8.7.23 When the prospective borrower approaches for takeover of loan from other bank, the
Branch, in the initial interview with the borrower, shall gather maximum information
about his credit standing, list of title deeds/documents deposited with the other bank
etc., and to ascertain the reason for takeover.
8.7.24 Copy of the loan sanction letter of the transferor bank shall be obtained and perused,
to ascertain that the proposal prima-facie conforms to our Policy/ Scheme guidelines.
8.7.25 A letter from the applicant, addressed to the transferor bank informing his intention
to shift the loan account to our Bank and authorizing our Bank to seek information
related to the loan/borrower shall be obtained as per the prescribed format.
8.7.26 Forwarding letter seeking Confidential Opinion as per the prescribed format, along
with a copy of the authorization letter given by the applicant shall be sent to the
transferor bank.
8.7.27 On getting the required information from the transferor bank, the Branch shall seek
in-principle clearance from the Competent Authority as per prescribed format.
8.7.28 On getting in –principle clearance, the Branch shall proceed in, formally booking
the proposal as per extant guidelines of respective Housing Loan Schemes.
8.7.29 Initial repayment holiday is applicable only in cases where property is under
construction/construction not completed. In all other cases, repayment should
commence from the month subsequent to the date of transfer of loan account.
8.7.30 Regarding release of loan, obtention of original title deeds from transferor bank etc.,
guidelines stipulated in the Policy shall be strictly complied with.
***********
9. CREDIT APPROVAL
9.1 The Bank, as per a well laid down scheme of delegation of credit approval powers for
credit lending/ non-SLR investment and CAPS, has delegated powers to approve
credit / non-SLR investment/CAPS proposals to various functionaries/ committees.
9.2 The scheme of delegation of approval powers shall stipulate, inter-alia, the ceilings for
aggregate credit limits to a single entity that could be approved by a functionary
including those already extended – both fund based and non-fund based and the maximum
extent up to which unsecured limits could be considered within the overall ceilings. The
Scheme may also specify credit approval powers based on the ratings of the constituent and
the grade of the functionary / categorization of the Branch / Office. It may also prescribe
the aggregate exposure to the group / associate concerns, approval of temporary and
ad-hoc credit facilities etc.
9.3 The structure, composition, functioning and the powers of the approval grid has been
prescribed with the approval of the Board. The cut off limit beyond which the credit
proposals shall be subjected to clearance by the Approval Grid has been clearly indicated.
The Approval Grid shall comprise of at least 3 members, out of which one should represent
the Risk Management Division or a Division other than Credit Sanctioning Division. It
shall be ensured that the composition of grid and the sanctioning committee shall be
mutually exclusive and that there is no conflict of interest.
9.4 The Scheme of delegation of credit approval shall also spell out the categories of
exposure exempted from the ceilings stipulated for individual and aggregate exposures, the
powers for permitting relaxations from the extant norms on security, minimum margin
requirements, pricing, inter-changing of facilities etc., norms/ authority for delegation of
additional/ higher powers, actions/ approvals that amount to exceeding/ abuse of authority,
restriction/ suspension of delegated powers as well as its restoration, etc.
9.5 The Scheme of delegation of credit approval powers shall prescribe, in a phased manner,
higher approval powers for sanctioning of limits to better rated / quality customers, the
level of authority to approve credit when amounts increase and transaction risks increase
/ risk ratings worsen.
9.6 The detailed operative guidelines for exercising the delegated powers by various
functionaries have been clearly spelt out in the Scheme of delegation of credit approval
powers.
9.7 Credit approval process involves various personnel from the business origination, credit
analysis and the credit approval function. The credit granting process shall enable
coordination of efforts of all the individuals involved so as to ensure that sound credit
decisions are taken by the approving authority. At least two officials – one to appraise and
recommend and the other empowered to independently approve the credit shall normally
be involved in any credit decision.
9.8 The extant policies and procedures laid down by the Bank and as amended from time to
time, as on the date of credit approval shall be kept in view while according credit approval
by a functionary in respect of new credit, renewal of existing credit and/ or modifications
in the terms and conditions of previously approved credits. Exceptions to the policy shall
be considered only with the prior permission from the competent authority.
9.9 The scheme of delegation of credit approval powers shall be reviewed / revised
periodically depending on business exigencies, RBI guidelines and feedback / suggestions
received from the operational units/ functional divisions.
********
10.1 Introduction:
Proper documentation helps in identification of the borrower / guarantor, security,
serves as a documentary evidence for the transaction, creation of charge over the
security and enables the Bank to enforce its right/ security in a Court of Law or
Administrative Authority for recovery of the dues.
10.2 It shall be ensured that the contractual arrangements between the Bank and the borrower
are properly documented and executed. The detailed terms and conditions of credit
approval to the customer shall be communicated in writing in the prescribed format in
duplicate and obtain latter’s concurrence for the same, in the copy of such
communication and hold the same along with the documents.
10.3 The documents prepared/ obtained shall be legally enforceable. The documents
obtained shall bind the borrower/s, co-obligant/s, guarantor/s, third parties mortgaging
their land & building as security or pledging/ hypothecating their securities for the
credit facility as well as create an effective and enforceable charge over the
securities given/ obtained for the facility.
10.4 Before obtaining any document or entering into any agreement, it shall be ensured that
the constituent executing the documents is competent to enter into a legally valid and
enforceable contract. Further, the authority of the person/s executing the documents
shall be confirmed by verifying supporting documents such as copies of relevant deeds/
resolutions of the Board/ Power of Attorney, etc.
10.5 It shall be ensured that the following requirements are met/ taken care while obtaining
the documents from the borrower/s:
10.5.1 Specific documents for enforcement of security as required under specific State/
Central laws or stipulations by the trustees for such securities shall also be obtained, in
addition to the document forms stipulated by the Bank.
10.5.2 Wherever the charge over securities are required to be registered with appropriate
authorities such as Registrar of Companies, CERSAI, Revenue authorities, Regional
Transport Officer, Issuer/ Registrars of/ for financial securities, etc., the same shall be
complied with in the prescribed manner and within the stipulated period, if any.
10.5.3 All the documents shall be got executed in the presence of the Branch Manager or an
officer of the Bank.
10.5.4 The documents shall be got completely filled up in all respects including the
schedules and the execution shall be completed duly authenticating the corrections, if
any, with full signature/s of the borrower / guarantor.
10.5.5 Documents shall be adequately stamped as required under the central/ respective States’
Stamp Act/s, as the case may be, duly canceling the same in the required manner.
10.5.6 The documents so executed shall be examined/ verified for correctness and
completion in all respects vis-à-vis facilities extended, securities stipulated and the
terms & conditions on which such credit has been approved. This shall be confirmed
by two officials by signing in the prescribed covering sheet for loan documents. All the
documents shall be kept safely under joint custody.
10.5.7 It shall be ensured that the documents obtained are kept in force during the currency of
the credit limit/s by obtaining periodic Acknowledgment of Debts. The supplementary
documents shall also be obtained, wherever required, such as search reports,
Encumbrance Certificates, tax & duty paid receipts/ challans, etc. to ensure that the
securities obtained continue to be exclusively charged to the Bank and are enforceable.
**********
11.9 The fresh credit proposals from borrowers whose loan account has been closed
under compromise arrangements for one time settlement in our Bank or with any other
bank with or without sacrifice may be considered provided:
i. the borrower was not a willful defaulter;
ii. the proceeds of fresh credit is to be utilized only for the purpose mentioned in
the application, other than for closure of existing liability with our Bank/any
others.
11.9.1 Bank may consider fresh credit proposals from corporate borrowers for closure of their
loan accounts through OTS with our Bank or any other banks if the new
management/promoters/directors of the company are no way connected as promoters/
directors of the earlier Company.
11.9.2 Such proposals shall be sanctioned by the HLCC/ CAC. However, proposals
pertaining to agriculture and allied activities shall be considered by the respective
sanctioning authority within their delegated lending powers.
********
12.1 Introduction:
Inter-Bank exposures may be assumed during the course of business arising from trade
transactions, money placements for liquidity management purposes, trading and
transactional Banking services such as clearing and custody, etc. Such transactions involve
credit risk. While exposing to such inter Bank credit risks, following shall be adhered to:
12.1.1 The Inter Bank Liability [IBL] should not exceed 300% of Bank's networth as on 31st
March of the previous financial year.
12.1.2 The limit prescribed above will include only fund based IBL within India [including
IBLs in foreign currency to Banks operating within India]. In other words, the IBL
outside India are excluded.
12.1.3 The above limits shall not include collateralized borrowings under CBLO and
refinance from NABARD, SIDBI etc.
12.1.4 The existing limit on the call money borrowings prescribed by RBI shall operate as a
sub-limit within the above limits.
12.1.5 Counter party exposure limits for money market and foreign exchange operations
including non-fund based exposure (like issuance of Bank Guarantees against the
counter guarantees of the counter-party Banks, issuance of standby Letters of Credit
against the undertakings / Letter of Credit issued by the counter-party Banks and adding
confirmation to Letters of Credit issued by our correspondent Banks etc.) shall be
governed the “Combined Counter Party Exposure Limits” policy document of the
Bank.
********
********
14.1 Introduction:
Credit-risk Rating Framework (CRF) is being utilized as a tool for individual credit
selection (sanction and rejection), pricing, limiting exposure, maturity, portfolio
analysis, tracking migration of exposures, monitoring and assessing the aggregate risk
profile of Bank.
14.2 All applicable credit exposures shall be covered in a phased manner under the purview
of risk rating including exposures under investments and Collection and Payments
Services (CAPS).
14.3 Different CRF for different segments of the constituents have been introduced
under commercial and retail portfolio. Different CRF for different segments like
industry, trade, Banking, finance companies, real-estate developers etc. is introduced
under commercial segment depending on the exposures under such activities. In
respect of borrowers engaged in industry and trade, one CRF for large corporates and
the other for small and medium enterprises is introduced.
14.4 The CRF is used as one of the inputs in decision-making on the proposal for
sanction or rejection. Minimum standards have been prescribed on critical parameters
and rating for sanction of credit proposals. Under CRF, there shall be a methodology
to reject proposals, in case rating generated is below the acceptance grade.
14.5 The CRF is comprehensive covering financial risk, industry risk, business risk,
management risk, project risk, transaction risk, product risk etc.
14.6 The Bank is having appropriate number of grades in the CRF, ranging from CB1 to
CB8 grades for performing loans, taking into account maximum spread over/below
MCLR, exposures under each grade, anticipated profitability and grade for capturing
special mention accounts. Number of grades for non-performing loans shall be as per
the requirement of the RBI on asset classification.
14.7 The appraisal notes put up for sanction/rejection shall accompany scoring/ rating
generated from the CRF wherever applicable.
14.7.1 Maximum spread shall be maintained over MCLR for different categories of borrowers.
The rate of interest applicable to borrowers under different grades shall be determined.
14.7.2 All categories of fresh rupee loans, except (a) DRI advances (b) loan to Bank’s own
employees (c) loan to Bank’s depositors against their own deposits (d) any other
exemptions as per the RBI guidelines issued from time to time, shall be priced only
with reference to the MCLR(Marginal cost of funds based lending Rate).
14.8 The gradation/ rating assigned to a borrowal account shall be reviewed at half yearly
intervals for accounts with limits of Rs.10 Crore & above and on annual basis in
respect of accounts with limits between Rs.1 Crore & Rs.10 Crore and pricing should
be confirmed / revised in case of shift in the gradation / rating on such review. In the
intervening period, in case there is a happening of an event, leading to deterioration or
improvement in the rating of the constituent, the risk rating / pricing shall be
immediately reviewed / revised.
14.9 The authority for approval of Prime gradation shall be vested with ZLCC and
above, in respect of borrowal accounts whose credit limits are within their respective
delegated lending powers and within the delegated lending powers of Branch.
14.10 In respect of consortium advances, the rate of interest/ commission prescribed by the
lead Bank shall normally be stipulated. However, the Bank shall, based on its own risk
ratings / pricing norms, decide on a lower/higher rate of interest, wherever necessary.
14.11 Maximum exposure ceilings for any credit proposals that could be sanctioned to
constituents shall be prescribed depending on the risk ratings. Such exposure ceilings
shall be Bank wide.
14.12 The tenure of the credit shall be decided depending on the risk rating of the
constituent.
14.13 In respect of proposals of new borrowal accounts, falling within the Borrower
Gradation norms of the Bank, the sanction shall be restricted only to those borrower
clients falling within the Borrower Gradation categories of CB1 to CB5. In respect
of takeover proposals, the minimum hurdle rate shall be CB4 (Sanction shall be
restricted to borrower gradation categories from CB1 to CB4).
14.14 Proposals wherein the borrower has incurred net loss in the previous financial year
[except in case of green field projects where the losses are relating to the period prior
to COD(Commercial operation Date) and is on account of preliminary and
preoperative expenses] shall not be taken up for consideration.
However, such proposals and/or accounts with CB6 to CB8 grade [CB5 to CB6 in case
of take over*] shall be sanctioned by the next higher authority in case of sanctions up
to the level of CLCC.
*As per chapter on Takeover of Credit limits
14.15 In case a proposal envisages enhancement / additional / fresh sanction/ dilution in
securities and should there be rating at CB6 and below, or down gradation of the
borrower to CB6 and below, such proposals shall be sanctioned by next higher
authority for sanctions up to CLCC. (i.e The next higher authority for branch,
ZLCC, CLCC sanctions shall be ZLCC, CLCC and HLCC respectively). Where
there is no enhancement / additional / fresh exposure, the same can be reviewed /
renewed by the respective sanctioning authority within their delegated lending
Power.
14.16 All commercial credit proposals (excluding schematic lending under corp schemes,
unless specified under scheme guidelines) of above Rs.25 lakh shall be internally rated
by processing in the Risk Assessment Module (RAM). All commercial credit
proposals with party wise total exposure (both fund based and non-fund based) of Rs.1
Crore and above have to be sent for rating validation to Risk Managers at IRMD, HO.
14.17 In respect of fresh loans granted/ loans renewed after 01.04.2016, the actual lending
rate is being determined with reference to appropriate tenor MCLR and by
including spread as considered appropriate. However, staff loans, DRI loans and
loans against Bank’s own deposits or any other type of loans exempted by RBI shall
be priced without reference to MCLR. All loans linked to MCLR shall be reset as
per the terms of sanction.
14.18 The MCLR of the respective tenor shall also serve as reference benchmark rate for
floating rate loan products, apart from external market benchmark rate.
14.19 Mapping of Internal Rating with External Rating
All borrowal accounts of more than Rs.5 Crore, except loans fully secured by Bank
Deposits, Loans Guaranteed by Central/State Govt., shall be rated by RBI accredited
external rating agencies. The RBI accredited external credit rating agencies are CRISIL,
CARE, ICRA, India Ratings, SMERA, Brickworks and Informeics. Any other agency
approved by RBI from time to time. Further, such rating shall be mapped with internal
gradation as under:
External Rating Corresponding Internal Rating
Short Term Long Term
A1+ AAA CB1
A1 AA CB2
A2 A CB3
A3 BBB CB4/CB5
A4 BB CB6
A4 B CB6
A4 C CB7
A4 D CB8
Wherever there is a difference of two or more notches between the Internal Rating being
assigned to the borrower and the prevailing External Rating of the borrower (based on
mapping listed above), the processing officers have to compulsorily provide justification
for the same in the Appraisal report (In the comment Section under “Rating Summary
Information”) at the time of carrying out the rating/appraisal of the proposal. The
validating authority at Risk Management Division at HO may permit the deviation with
respect to above mapping guidelines on a case-to-case basis based on the merits of each
case.
********
15.6.3 The Bank shall depending on its comfort requirement or as prescribed by regulatory
authorities, multiply the unexpected losses arrived as above by the sigma number
for a desired confidence level as mentioned below, to arrive at the economic capital
requirement for credit risk of the Bank.
1.00 sigma - 68% confidence
1.65 sigma - 95% confidence
2.33 sigma - 99% confidence
3.00 sigma - 99.87% confidence
The Bank shall arrive at the unexpected losses based on 3 sigma factor for
allocation of economic capital
17.2.4 General:
17.2.4.1 The Bank shall refrain from interference in the affairs of the borrowers except for
what is provided in the terms and conditions of the loan sanction documents (unless
new information, not earlier disclosed by the borrower, has come to the notice of
the Bank).
17.2.4.2 The Bank shall not discriminate on grounds of sex, caste and religion in the matter
of lending. However, this does not preclude the Bank from participating in credit
linked schemes framed for weaker sections of the society.
17.2.4.3 In the matter of recovery of loans, the Bank shall not resort to undue harassment
that is, persistently bothering the borrowers at odd hours, use of muscle power for
recovery of loans, etc.
17.2.4.4 In case of receipt of request for transfer of borrowal account, either from
the borrower or from a Bank/financial institution which proposes to take over the
account, the consent or otherwise, i.e., objection of the Bank, if any, shall
be conveyed within 21 days from the date of receipt of such request.
17.2.4.5 The documents/securities charged to the Bank shall be returned within 15 working
days of the closure of the relative borrowal account. If the security has been
charged to multiple loan accounts as a continuing security, the same shall be
returned to the borrower within 15 working days of the closure of all the accounts.
If any delay occurred on the part of the Bank in returning the security as above, the
borrower shall be entitled for compensation to the tune of Rs. 10 per day subject
to a maximum of Rs.5000.
[NRLC]
2. National Urban Livelihood Mission Loans upto Rs. 25,000 - within a fortnight.
[NULM] Loans above Rs.25,000- within 4 weeks.
3. Prime Minister’s Employment Loans upto Rs. 25,000 - within a fortnight.
Generation Programme [PMEGP] Loans above Rs.25,000- within 4 weeks.
4. Scheme for Liberation and Loans upto Rs. 25,000 - within a fortnight.
Rehabilitation of Scavengers [SLRS] Loans above Rs.25,000- within 4 weeks.
Note: The time norms stipulated above is from the date of receipt of the required data in Full
Credit Proposals falling under the sanctioning powers of Delegatees upto the rank of
credit Approval Committee of the Board[CACB].:
Sl.No. Particulars Time norms
1. Non Consortium Advances, other than exports :
a. Sanction of fresh/enhanced credit limits Within 45 days
b. Renewal of existing credit limits Within 30 days
2. Consortium advances, * other than exports
a. Sanction of fresh/enhanced limit Within 60 days
b. Renewal of existing credit limit Within 45 days
*In respect of consortium accounts, the time limit stipulated shall be from the date of
receipt of the appraisal note from the leader Bank. Where our Bank is the leader of a
consortium, the time indicated above shall be exclusive of the time taken to finalise the
appraisal note at the consortium.
3. Export Accounts:
a. Sanction of Fresh/enhanced credit limits Within 45 days
b. Renewal of existing credit limits Within 30 days
19.1 Floating Provision may be created with the approval of the Board, which can be used
only for contingency under extra ordinary circumstances, for making specific
provisions in impaired accounts, with the approval of Board and prior permission of
RBI.
19.2 The extra ordinary circumstances refer to losses which do not arise in the normal
course of Business and are exceptional and non-recurring in nature.
19.3 These extra-ordinary circumstances are of three categories, viz., General, Market and
Credit.
Under General category, there can be situations where the Bank is put to loss,
unexpectedly, due to events such as civil unrest or collapse of currency in a country,
natural calamities and pandemics.
Market category would include events such as general melt down in the market,
which affects the entire financial system.
Among the Credit category, only exceptional credit losses would be considered.
19.4 Floating provision shall be held for advances and investments separately.
19.5 The Floating Provision shall not be used for making specific provisions as per the
extant prudential guidelines in respect of non-performing assets or for making
regulatory provisions for standard assets.
19.6 Floating provision shall not be reversed by credit to profit and loss account. These
provisions shall be utilized for making specific provisions in extra-ordinary
circumstances as mentioned above.
19.7 However, these provisions shall be netted off from gross NPAs to arrive at disclosure
of Net NPAs. The aggregate quantum of such floating provisions shall not exceed
1.25% of the total risk weighted assets.
19.8 A comprehensive disclosure on floating provisions shall be made in the Notes on
Accounts to the Balance Sheet.
**************
Note: For obtaining the prior approval of the Reserve Bank as stipulated in clauses (d)
and (e) on pre-page, the bank should make an application to the Department of Banking
Operations and Development, Central Office, Mumbai.
19.13.6 Purchase of or discount of bills from directors and their concerns, which is in the
nature of clean accommodation, is reckoned as ‘loans and advances’ for the purpose
of Section 20 of the Banking Regulation Act, 1949.
19.13.7 As regards giving guarantees and opening of L/Cs on behalf of the bank’s directors,
it is pertinent to note that in the event of the principal debtor committing default in
discharging his liability and the bank being called upon to honour its obligations
under the guarantee or L/C, the relationship between the bank and the director could
become one of the creditor and debtor. Further, it is possible for the directors to
evade the provisions of Section 20 by borrowing from a third party against the
guarantee given by the bank. Such transactions may defeat the very purpose of
restrictions imposed under Section 20, if the bank does not take appropriate steps to
ensure that the liabilities there under do not devolve on them.
19.13.8 In view of the above, while extending non-fund based facilities such as guarantees,
L/Cs, acceptance on behalf of directors and the companies/firms in which the
directors are interested; it should be ensured that:
a. adequate and effective arrangements have been made to the satisfaction of the
bank that the commitments would be met by the openers of L/Cs, or
acceptors, or guarantors out of their own resources,
b. the bank will not be called upon to grant any loan or advance to meet the
liability consequent upon the invocation of guarantee, and
c. No liability would devolve on the bank on account of LCs/ acceptances.
19.13.9 In case, such contingencies arise as at (b) & (c) above, the bank will be deemed to
be a party to the violation of the provisions of Section 20 of the Banking Regulation
Act, 1949.
19.14.5 The proposals for credit facilities of an amount less than Rupees twenty five lakh to
these borrowers may be sanctioned by the appropriate authority in the financing bank
under powers vested in such authority, but the matter should be reported to the Board.
19.14.6 The Managing Director & CEO or other director who is directly or indirectly
concerned or interested in any proposal should disclose the nature of his/her interest
to the Board when any such proposal is discussed. He/she should not be present in
the meeting unless his/her presence is required by the other directors for the purpose
of eliciting information and the director so required to be present shall not vote on
any such proposal.
19.14.7 The above norms relating to grant of loans and advances will equally apply
to awarding of contracts.
19.14.8 The scope of the term ‘relative’ will be as under:
• Spouse
• Father
• Mother (including step-mother)
• Son (including step-son)
• Son's Wife
• Daughter (including step-daughter)
• Daughter's Husband
• Brother (including step-brother)
• Brother’s wife
• Sister (including step-sister)
• Sister’s husband
• Brother (including step-brother) of the spouse
• Sister (including step-sister) of the spouse
19.14.9 The term ‘loans and advances’ will not include loans or advances against –
• Government securities
• Life insurance policies
• Fixed or other deposits
• Stocks and shares
• Temporary overdrafts for small amounts, i.e. upto Rupees twenty five thousand –
• Casual purchase of cheques up to Rupees five thousand at a time
• Housing loans, car advances, etc. granted to an employee of the bank under any
scheme applicable generally to employees.
19.14.10 The term ‘substantial interest’ shall have the same meaning as assigned to it in
Section 5(ne) of the Banking Regulation Act, 1949.
19.14.11 Banks should evolve, inter alia, the following procedure for ascertaining the
interest of a director of a financing bank or of another bank, or his relatives, in credit
proposals/award of contracts placed before the Board/Committee or other
appropriate authority of the financing banks:
19.14.11.1 Every borrower should furnish a declaration to the bank to the effect that –
a. (where the borrower is an individual) he is not a director or specified
near relation of a director of a banking company;
b. (where the borrower is a partnership firm) none of the partners is a director
or specified near relation of a director of a banking company; and
c. (where the borrower is a joint stock company) none of its directors,
is a director or specified near relation of a director of a banking company.
19.14.11.2 The declaration should also give details of the relationship of the borrower to the
director of the bank.
19.14.12 The above guidelines shall also be followed while granting loans/ advances or
awarding contracts to directors of scheduled co-operative banks or their relatives.
19.14.13 These guidelines shall also be followed by the bank when granting loans and
advances and awarding of contracts to directors of subsidiaries/trustees of mutual
funds/venture capital funds set up by them as also other banks.
19.14.14 These guidelines shall be duly brought to the notice of all directors and also placed
before the bank's Board of Directors.
19.15 Restrictions on Grant of Loans & Advances to Officers and Relatives of Senior
Officers of the Bank:
19.15.1 The statutory regulations and/or the rules and conditions of service applicable to
officers or employees of public sector banks indicate, to a certain extent, the
precautions to be observed while sanctioning credit facilities to such officers and
employees and their relatives. In addition, the following guidelines should be
followed by all the banks with reference to the extension of credit facilities
to officers and the relatives of senior officers:
19.15.1.1 Loans & advances to officers of the bank:
No officer or any Committee comprising, inter alia, an officer as member, shall, while
exercising powers of sanction of any credit facility, sanction any credit facility to
his/her relative. Such a facility shall ordinarily be sanctioned only by the next higher
sanctioning authority. Credit facilities sanctioned to senior officers of the financing
bank should be reported to the Board.
19.15.1.2 Loans and advances and award of contracts to relatives of senior officers of
the bank
Proposals for credit facilities to the relatives of senior officers of the bank
sanctioned by the appropriate authority should be reported to the Board. Further, when
a credit facility is sanctioned by an authority, other than the Board to -
a. any firm in which any of the relatives of any senior officer of the financing
bank holds substantial interest, or is interested as a partner or guarantor; or
b. any company in which any of the relatives of any senior officer of the financing
bank holds substantial interest, or is interested as a director or as a guarantor,
such transaction should also be reported to the Board.
19.15.1.3 The above norms relating to grant of credit facility will equally apply to the
awarding of contracts.
19.15.1.4 Application of the Guidelines in case of Consortium Arrangements
In the case of consortium arrangements, the above norms relating to grant of credit
facilities to relatives of senior officers of the bank will apply to the relatives of senior
officers of all the participating banks.
19.16 RBI guidelines on full/ part remission by the Bank debt due by [1] any of its
directors/ [2] firm/company in which directors are interested, [3] any individual, whose
debt is guaranteed by any directors, shall be strictly adhered to.
19.17 Rediscounting of bills should be restricted only to usance bills held by other banks.
19.18 Letter of Credit and Purchase / Discount / negotiate bills under LCs shall be
considered only in respect genuine commercial trade transactions of the borrower
constituents, who have been sanctioned regular credit facilities by the Bank.
19.19 RBI guidelines on setting up of Money Market Mutual Fund shall be strictly
adhered to.
19.20 The bank shall not raise resources through agents/ intermediaries to meet the credit
needs of the existing / prospective borrowers or grant loans to the intermediaries based
on the consideration of deposit mobilization.
19.21 Any other statutory/ other restrictions of RBI on loans and advances shall be
strictly complied with.
19.22 BGs/ equivalent commitments on behalf of corporate entities shall not be extended in
respect of non-convertible debentures, corporate bonds or any debt instrument issued
by it.
19.23 RBI guidelines on Bank's finance to NBFC shall be strictly adhered to:
As per RBI guidelines, the following activities undertaken by NBFCs are not
eligible for bank credit:
19.23.1 Bills discounted/rediscounted by NBFCs, except for rediscounting of bills
discounted by NBFCs arising from the sale of –
(a) commercial vehicles (including light commercial vehicles), and
(b) two-wheeler and three-wheeler vehicles, subject to the following
conditions:
the bills should have been drawn by the manufacturers on dealers only
the bills should represent genuine sale transactions as may be ascertained
from the chassis/ engine numbers and
Before rediscounting the bills, banks should satisfy themselves about the
bona fides and track record of NBFCs which have discounted the bills.
19.23.2 Investments of NBFCs both the current and long term nature, in any company/
entity by way of shares, debentures, etc. However, Stock Broking Companies may
be provided need-based credit against shares and debentures held by them as stock-
in- trade.
19.23.3 Unsecured loans/ inter-corporate deposits by NBFCs to/ in any company.
19.23.4 All types of loans / advances by NBFCs to their subsidiaries, group companies/
entities.
GROUP CREDIT POLICY 102
RESTRICTION ON LENDING ACTIVITY
19.23.5 Finance to NBFCs for further lending to individuals for subscribing to Initial Public
Offerings [IPOs].
19.24 Finance for construction of buildings meant purely for Government/Semi Government
Offices, including Municipal and Panchayat Offices shall not be granted. However,
loans for activities, which will be refinanced by institutions like NABARD may be
granted. However, loans for activities, which will be refinanced by institutions like
NABARD may be granted. In respect of projects undertaken by corporate bodies, Bank
shall satisfy them that the project is run on commercial lines and that bank finance is
not in lieu of or to substitute budgetary resources envisaged for the project. The loan
could, however, supplement budgetary resources if such supplementing was
contemplated in the project design.
**************
SECTION – II
Small Enterprises More than Rs. 10 lakh but shall not exceed Rs. 2 Crore
Medium Enterprises More than Rs.2 crore but shall not exceed Rs.5 crore
Bank loans to Micro, Small and Medium Enterprises, for both manufacturing and
service sectors are eligible to be classified under the priority sector as per the following
norms:
metropolitan centre and at other centres should not exceed Rs. 35 lakh and Rs. 25 lakh
respectively. The housing loans to banks’ own employees will be excluded. As housing
loans which are backed by long term bonds are exempted from ANBC, bank should
either include such housing loans to individuals up to Rs. 28 lakh in metropolitan centres
and Rs. 20 lakh in other centres under priority sector or take benefit of exemption from
ANBC, but not both.
(ii) Loans for repairs to damaged dwelling units of families up to Rs. 5 lakh in metropolitan
centres and up to Rs. 2 lakh in other centres.
(iii) Bank loans to any governmental agency for construction of dwelling units or for slum
clearance and rehabilitation of slum dwellers subject to a ceiling of Rs. 10 lakh per
dwelling unit.
(iv) The loans sanctioned by banks for housing projects exclusively for the purpose of
construction of houses for economically weaker sections and low income groups, the
total cost of which does not exceed Rs. 10 lakh per dwelling unit. For the purpose of
identifying the economically weaker sections and low income groups, the family income
limit of Rs.2 lakh per annum, irrespective of the location, is prescribed.
(v) Bank loans to Housing Finance Companies (HFCs), approved by NHB for their
refinance, for on-lending for the purpose of purchase/construction/reconstruction of
individual dwelling units or for slum clearance and rehabilitation of slum dwellers,
subject to an aggregate loan limit of Rs. 10 lakh per borrower.
(vi) The eligibility under priority sector loans to HFCs is restricted to five percent of the
individual bank’s total priority sector lending, on an ongoing basis. The maturity of bank
loans should be co-terminus with average maturity of loans extended by HFCs. Banks
should maintain necessary borrower-wise details of the underlying portfolio.
(vii) Outstanding deposits with NHB on account of priority sector shortfall.
20.3.8 Others:
i. Loans not exceeding Rs. 50,000/- per borrower provided directly by banks to
individuals and their SHG/JLG, provided the individual borrower’s household annual
income in rural areas does not exceed Rs.100,000/- and for non-rural areas it does not
exceed Rs.1,60,000/-.
ii. Loans to distressed persons [other than farmers already included under paragraph
20.3.1.1.1 (v) not exceeding Rs.100,000/- per borrower to prepay their debt to non-
institutional lenders.
iii. Overdrafts extended by banks upto Rs.5,000/- under Pradhan Mantri Jan-Dhan
Yojana (PMJDY) accounts provided the borrowers household annual income
does not exceed Rs.100,000/- for rural areas and Rs.1,60,000/- for non-rural areas.
iv. Loans sanctioned to State Sponsored Organisations for Scheduled Castes/ Scheduled
Tribes for the specific purpose of purchase and supply of inputs and/or the marketing
of the outputs of the beneficiaries of these organisations.
Amount eligible for issue: Normally PSLCs will be issued against the underlying assets.
However, with the objective of developing a strong and vibrant market for PSLCs, a bank is
permitted to issue PSLCs up to 50 % of previous year’s PSL achievement without having the
underlying in its books. However, as on the reporting date, the bank must have met the priority
sector target by way of the sum of outstanding priority sector lending portfolio and net of
PSLCs issued and purchased. To the extent of shortfall in the achievement of target, banks
may be required to invest in RIDF/other funds as hitherto.
Credit Risk : There will be no transfer of credit risk on the underlying as there is no transfer
of tangible assets or cash flow.
Expiry date : All PSLCs will expire by March 31st and will not be valid beyond the reporting
date (March 31st), irrespective of the date it was first sold.
Settlement : The settlement of funds will be done through the platform as explained in the e-
Kuber portal.
Value and fee: The normal value of PSLC would represent the equivalent of the PSL that
would get deducted from the PSL portfolio of the seller and added to the PSL portfolio of the
buyer. The buyer would pay a fee to the seller which will be market determined.
Lot Size : The PSLCs would have a standard lot size of ₹25 lakh and multiples thereof.
Accounting : The fee paid for purchase of the PSLC would be treated as an ‘Expense’ and fee
received for the sale of PSLCs would be treated as ‘Miscellaneous Income’.
Disclosures: Both Seller and Buyer shall report the amount of PSLCs (Category – wise) sold
and purchased during the year in the ‘Disclosures to the Balance Sheet’.
20.3.14.3 Further, the banks have to ensure that MFIs comply with the following caps on
margin and interest rate as also other ‘pricing guidelines’, to be eligible to classify
these loans as priority sector loans.
i. Margin cap: The margin cap should not exceed 10 percent for MFIs having loan
portfolio exceeding Rs. 100 crore and 12 percent for others. The interest cost is
to be calculated on average fortnightly balances of outstanding borrowings and
interest income is to be calculated on average fortnightly balances of
outstanding loan portfolio of qualifying assets.
ii. Interest cap on individual loans: With effect from April 1, 2014, interest rate on
individual loans will be the average Base Rate of five largest commercial banks
by assets multiplied by 2.75 per annum or cost of funds plus margin cap,
whichever is less. The average of the Base Rate shall be advised by Reserve
Bank of India.
iii. Only three components are to be included in pricing of loans viz., (a) a
processing fee not exceeding 1 percent of the gross loan amount, (b) the interest
charge and (c) the insurance premium.
iv. The processing fee is not to be included in the margin cap or the interest cap.
v. Only the actual cost of insurance i.e. actual cost of group insurance for life,
health and livestock for borrower and spouse can be recovered; administrative
charges may be recovered as per IRDA guidelines.
vi. There should not be any penalty for delayed payment.
vii. No Security Deposit/ Margin are to be taken.
20.3.14.4 The banks should obtain from MFI, at the end of each quarter, a Chartered
Accountant’s Certificate stating, inter-alia, that the criteria on (i) qualifying assets,
(ii) the aggregate amount of loan, extended for income generation activity, and (iii)
pricing guidelines are followed.
to open savings bank accounts. These SHGs need not necessarily have already
availed credit facilities before opening savings bank accounts. KYC verification
of all the office bearers of SHG should be done to open SB accounts of SHG.KYC
verification of all the other members of SHG is not required. Further, it is clarified
that since KYC would have already been verified while opening the savings bank
account and the account continues to be in operation and is being used for credit
linkage, no separate KYC verification of the members or office bearers is
necessary at the time of credit linking of SHGs.
The branch shall make a formal assessment of the strength of the Group keeping in mind the
characteristics of the SHGs as outlined in Para 20.5.1.3 above. The branch shall disburse the
credit in bulk directly to the Group. The group in turn would undertake on-lending to the
members. The quantum of the credit given to the group shall be in proportion to the savings
mobilised by the group. The proportion of savings / corpus fund # to the loan may range from
1:1 to 1:4 depending on the assessment of SHG subject to a maximum ceiling of Rs.50,000/-
per member.
# The Savings / Corpus Fund of a SHG will comprise of :
Balance in their Savings Bank Account.
Amount held as cash with the authorised persons.
Amount internally lent amongst the group members.
Amount received as interest on loans to members.
Any other contributions received by the Group like grants / donations etc.
13 Savings amount More than Rs. 5000/- Rs.3000/- to Rs. Less than Rs.3000/-
collected & 5000/-
deposited in the
group
14 Awareness of rules & Good awareness of Good awareness to Most of the members are
regulations of the rules & regulations to most of the members not properly aware of the
group amongst the all members & some awareness to rules & regulations
members others
15 Literacy status of the More than 30% of the 20% to 30% of the Less than 20% of the
members of the group members can read & members can read & members can read & write
write write
16 Awareness about Good awareness Awareness about No awareness about
programmes & about programmes & programmes & programmes & schemes
schemes of the schemes of the schemes of the of the Government to
Government Government to all the Government to most most members
members members
Evaluation
1 Group scores “Excellent” in 12 to 16 Group will be immediately considered eligible
indicators for Bank loan.
2 Group scores “Excellent” in 10 to 11 Group must be allowed a time of 3-4 months
indicators for necessary improvement. After this 3 – 4
months, Group has to be evaluated and
considered as eligible for loan if the Group
scores “Excellent” in 12 & more indicators.
3 Group scores “Excellent” in less than 10 Group will not be considered good for
indicators providing loan until it improves to secure
“Excellent” in more than 12 indicators.
ii. SHGs scoring “Excellent” in 13 to 16 indicators while assessing for second phase of
credit linkage.
iii. SHG groups qualifying the above criterion will be eligible for loan up to 1:10 times
savings / corpus fund subject to a maximum of Rs. 50000/- per member.
C) Eligibility for third & subsequent phases of credit linkage:
i. SHGs which have taken second phase of loan from the Bank, utilised the same properly
and conducted the account satisfactorily for a minimum period of twelve months of
availing the second loan.
ii. SHGs scoring “Excellent” in 14 to 16 indicators while assessing for third or subsequent
phase of credit linkage.
iii. SHG groups qualifying the above criterion will be eligible for loan up to 1:10 times
savings / corpus fund subject to a maximum of Rs. Ten lakh per Group.
D) Eligibility in respect of loan under Kisan Credit Card Scheme:
In case of loans under Kisan Credit Card Scheme [CKSHG] for SHGs, the maximumloan limit
stipulated is Rs.20.00 lakhs per group subject to adherence of Scheme guidelines.
E) Bank exposure to SHGs hitherto and henceforth would be in the form of Cash Credit Limit
alone subject to changes if any as advised by the GOI / RBI / NABARD from time to time.
However, Term Loans can be sanctioned to SHGs in case the loan is under Govt. sponsored
schemes with back-ended subsidies or under interest subvention, where release of subsidy is
contingent on repayment of term loan.
It should be ensured that the loans to SHGs (Term Loan / Cash Credit / Over Draft) shall run for
the entire tenure of the loan without pre-mature closure for the purpose of availing higher loan /
limit.
F) In view of availability of mutual guarantee of SHG members and peer pressure, collateral
security need not be insisted. Rate of interest will be as per the rates notified from time to time.
G) Cash Credit / Over Draft for SHGs:
i. There are instances of non-sanction of repeat loans to SHGs, as also cases of limiting need
based credit. Sanction of cash credit / overdraft system of lending for SHGs for a longer
operational tenure (i.e., prompt renewal and enhancements as per eligibility on due dates)
to be adopted to permit SHGs to have larger loans in tune with increased pooled savings.
ii. This approach will provide considerable flexibility to SHGs in meeting their frequent
needs as well as help them in reducing their cost of borrowings.
iii. The loan limit may be sanctioned for a period of three to five years based on the projected
savings of the SHGs up to the end of 3 to 5 years, thus avoiding repeated documentation.
Drawal limits for each year can however, be fixed within this aggregate ceiling as a multiple
of actual pooled savings reached and the grading scores secured at that time as detailed
under the credit assessment above. At the time of each annual renewal, grading as per the
checklist should be done.
iv. Repeat loans shall be considered, after taking into consideration factors such as quality of
SHG as reflected in its rating score, credit absorption capacity, managerial ability to handle
income generating projects entailing higher outlay, risk taking ability etc. These approvals
may be done based on the performance review of existing operations, actual growth in
SHG's own corpus and the debt servicing history and capacity of SHG.
v. Review/ Renewal of the cash credit limits of SHGs to be carried out once in a year as
applicable in other types of loans. As the proposed SHG lending will be under Cash Credit
(Clean), these loans may be exempted from submission of stock statements and financials.
vi. In case, some members of SHGs require large loan than that to be covered under the savings
related loaning, the SHG may appraise the requirement and recommend the proposal for
direct lending to the concerned member. In such cases, loan will be assessed and sanctioned
to individual member as per our usual norms. Documents will be taken from individual
members. Further Guarantee Agreement is required to be taken from all the remaining
members of the SHG.
vii. There are apprehensions that granting of direct loans to members could drive to financial
indiscipline at the SHG level and lead to over borrowing and potential defaults. This can
be overcome by ensuring that sanction of any credit directly to individual members will
have to be as per conditions acceptable to all Group members who will be guaranteeing the
loan.
viii. In order to ensure financial discipline, servicing of interest at monthly rests should be
insisted.
ix. Besides servicing interest, it should also be ensured that the SHGs route the transactions
through the Cash Credit account.
e) It is desirable that such SHG members are encouraged to open individual bank accounts /
revive their existing "no frill accounts" by depositing the surplus so as to facilitate them to
steadily graduate from community banking to individual banking.
f) However, until the members of SHGs graduate to the level of opening and maintaining
individual bank accounts, there is a need to create a suitable alternate framework within the
group. SHG members with greater savings potential may be allowed to park their surplus
fund within the group in the form of voluntary savings over and above the compulsory
savings mandated in the group and a suitable accounting system may be started in the SHG
for this purpose.
g) Voluntary savings can be reckoned in two ways: (1) not forming a part of the group corpus
(2) as a part of group corpus and utilized for intra group lending. In case of (2), it will also
be reckoned for assessing the quantum of loan to the group. However, it is desirable that
the additional savings by group members does not entitle the concerned members to seek
proportionately higher dosage of credit for themselves. The SHGs should have freedom to
decide as to whether the voluntary savings by members of the group are eligible for
proportionate share in the interest income or dividend from the group.
20.5.1.14 Purpose of bank loan
Loan granted to the SHG is purpose neutral as the group decides the purpose for which loan can
be given to its members. While financing the SHGs, the entire credit requirements of SHG
members for (a) income generation activities, (b) social needs like housing, education, marriage,
etc., and (c) debt swapping, etc. are to be met.
20.5.1.15 Classification of loans granted to SHGs:
a) Advances to SHGs may be classified under different categories (Direct Agriculture / MSE) of
Priority Sector credit on the basis of predominant activity undertaken by the Group members out
of the Bank loan.
b) Loans not exceeding Rs.50,000/- per borrower provided through SHG will also be classified
under Micro Credit with in the Priority Sector.
20.5.1.16 Improving Risk Mitigation Systems:
In order to further strengthen the Bank’s comfort and confidence in financing of SHGs, a few risk
mitigation mechanisms, viz; self-rating tools by SHGs, conduct of audits at SHG level, etc are
recommended.
a) The self-rating mechanism by SHGs is intended to educate SHG members of their strengths and
weakness in SHG’s functioning for initiating corrective action.
b) Audit of SHGs by a third party covering aspects such as regularity in meetings, savings,
internal lending process, correctness of interest application, accounting for all receipts and
payments, drawing out final accounts of SHGs, etc. can be introduced.
c) Services of SHG-level Business Facilitators (Auditors) from amongst active SHG members or
NGOs or other agencies, which promote SHGs, or existing BCs of the bank can be utilised for
audit process in SHGs as detailed in Para 1.16 (b) above.
ii. The members should be residing in the same village/ area/ neighborhood and should know
and trust each other well enough to take up joint liability for group/ Individual loans.
iii. Person who has defaulted to any other formal financial Institution, in the past, is debarred
from the Group Membership except those who have defaulted on account of genuine
reasons like natural calamities, repeated crop loss, crop failure, continuous declining price
trend in the local market, unforeseen set back in the family etc.
iv. More than one person from the same family should not be included in the same JLG.
v. The groups must be organized by the likeminded persons and not imposed by the bank.
20.5.2.12 Norms for Assessing Joint Liability Groups (JLGs) by Banks for financing
as a group:
Norms for Assessing Joint Liability Groups (JLGs) by Banks
Maximum
Sl Means of Value Marks
Parameter Mark per Performance
No. Measurement (Marks) obtained
Parameter
1 Group Size and Interview with the 3 Size - 4 to 10 members 1
composition of group group
Homogeneous (Similar 1
economic condition /
livelihoods)
Located with close 1
proximity to each other
2 Availability of Discussion with the 1 Support available and 1
support from specific group screening of individual
agency / members done before
association@ formation of JLGs
3 Knowledge of JLG Interaction with 1 Received training on 1
functioning or has Group members / JLG functioning / has
received training on profile of members knowledge about JLG
JLGs / promoter JLGPI*
4 Potential for Interaction with the 2 Activities have potential 2
proposed activity and group and members have
adequate skills
20.6.2 Objectives of Financing against Gold Jewellery / Ornaments the Gold Loan
Policy:
The policy on lending against Gold Jewellery seeks to achieve the following broad
objectives:
20.6.2.1 To ensure orderly growth of the Loan portfolio of the Bank.
20.6.2.2 To formulate suitable exposure norms and operate within the laid down norms.
20.6.2.3 To ensure compliance with all the directives / guidelines issued by the
Government / Reserve Bank of India and other legal / regulatory requirements.
20.6.8.3 The loan amount shall be need based for the particular activity of the borrower,
on the basis of Scale of Finance/ Cost of Cultivation/Project Cost to meet the
requirements of the activity or on the basis of LTV ratio, whichever is lower.
20.6.9 Safe keeping
20.6.9.1 Tamper evident high security pouches would be used for preserving the Jewels
pledged with the details of the loan recorded on the writable portion as this is a
more secured way of storing the jewels pledged than use of conventional cloth
bags.
The duly packed Jewels shall be kept inside the safe room under joint custody. In
the absence of safe room, the duly packed Jewels shall be safely kept in Fire &
Burglar Resisting safes (FBR safe) under joint custody.
20.6.9.2 The value of Gold ornaments accepted shall be within the available insurance
coverage for securities / cash held in the premises.
20.6.9.3 The insurance coverage shall be continuously monitored by the Branches and
advance intimation should be sent by the Branches to their respective Zonal
Offices. On receipt of such intimation from the Branches, the Zonal Offices shall
take up with the Financial Management Division at Head Office to make the
necessary revision in the blanket insurance system before it exceeds the
prescribed insurance coverage.
not be deputed to Branch ‘A’). The size of the Gold Loan portfolio above which
random checking has to be undertaken shall be revised based on need on approval
from the Credit Approval Committee, at Head Office.
20.8 Approval Grid System for clearing the Agri. Loan proposals:
All the agriculture loan proposals of Rs.10.00 lakhs & above processed at CCPC/Zonal
Office/ Circle Office/ Head Office have to be placed before the Grid Committee for
approval before placing to Sanctioning Authority as per the prevailing guidelines issued
in respect of general advances.
In respect of Agriculture loan proposals processed at Branches, which are falling
within the delegated powers of Branch Manager, clearance from the Grid approval
Committee is waived up to credit limit of Rs.50.00 lakhs.
*****
21 COMMERCIAL CREDIT
21.1 Introduction:
21.1.1 Commercial credit policies apply to situations that involve commercial risk.
Commercial risk exists while lending / investing funds to business segment /
Corporate or when repayment of amount lent / invested is dependent on the cash
flow / sale of primary/ collateral security relating to the business.
21.1.2 The general policy guidelines enumerated in earlier chapters shall be applicable
to all types of credit including commercial credit. This section deals with specific
guidelines relating to commercial lending / investment.
21.2 Appraisal Standards
21.2.1 The financial strength of the borrower constituent shall be adequate, in relation to
the project size / volume of operations proposed to be undertaken and risks
involved therein.
21.2.2 All new proposals, with satisfactory credit rating shall conform to the following
Benchmark ratios:
21.2.2.1 Ratios shall be based on the audited annual financial statements in case of
the existing units/ business enterprises. In case any capital infusion/ funding of
unsecured loans by the promoters during the current/ subsequent financial year,
the same may be taken into account for calculation of the ratios based on
the strength of the certificate by the Chartered Accountants of the company.
21.2.2.2 However, in exceptional and deserving cases, the ratios may be based on the latest
certified quarterly financial statements.
21.2.2.5 In case of New Project Loans, Quasi Equity, Subordinate Debt and Grants may be
treated as Promoter’s Contribution.
21.2.2.6 The benchmark ratios mentioned above shall not be applicable for lending to
NBFCs.
21.2.2.7 The new credit proposals from NBFCs shall conform the following:
i. The credit rating shall be a minimum of investment grade and above
ii. Shall have a minimum capital adequacy ratio of 12% in case of HFC
and 15% in other NBFCs
iii. Gross NPA and net NPA shall be less than 3.5% and 1.25%
respectively
iv. Total borrowings shall not exceed 16 times of NOF for HFCs and 15
times of NOF for other NBFCs
21.2.2.8 However, in deserving and on justifiable grounds, the following mechanism may
be adopted by the sanctioning authority to permit deviations from the
above benchmark ratios.
Current ratio 1.15:1
ZLCC/ CLCC Debt equity ratio 3.50:1
TOL/TNW 4.50:1
HLCC/ CAC shall have the power to permit any deviation beyond the power
of ZLCC/ CLCC.
21.5.8 The aggregate exposure of the Bank to a single NBFC/ NFBC-AFC [Asset
Financing Companies] in private sector shall not exceed Rs. 1000 Crore and
Rs.1500 Crore for group. The said ceiling is not applicable for NBFCs in Public
Sector and HFC..
However, in respect of aggregate exposure above Rs 500 crore to Single and Rs 1000
crore for group,
i. The borrower entities shall have the minimum rating of “AA” by accredited
external credit agencies.
ii. No deviation in bench mark ratios shall be permitted.
21.5.9 Further, the aggregate exposure to all NBFCs put together other than those engaged in
Housing Fi nance and All India Financial Institution shall be restricted to 10% of
aggregate exposure under lending, non-SLR investment and CAPS.
contemplated in the project design. While such public sector units may include
Special Purpose Vehicle [SPV] registered under the Company's Act set up for
financing infrastructure projects, it shall be ensured that these loans/
investments are not used for financing the budget of the State Government.
While such financing, due diligence shall be undertaken on the viability and
Bankability of the projects to ensure that revenue stream from the project is
sufficient to take care of the debt servicing obligations and the repayment/
servicing of debt is not out of budgetary resources. Further, in the case of SPVs,
it shall be ensured that the funding proposals are for specific monitorable
projects.
21.6.1.3 Bank shall also lend to SPVs in the private sector, registered under the
Company's Act for directly undertaking Infrastructure Projects, which are
financially viable and not for acting as mere financial intermediaries. It shall be
ensured that Bankruptcy or financial difficulties of the parent/ sponsor shall not
affect the financial health of SPVs.
21.6.2 Credit facilities shall not be extended by way of working capital finance, term loan,
project loan, subscription to bonds and debentures/ preference shares/ equity shares
acquired as a part of the project finance package which is treated as deemed advance
and any other form of funded or non-funded facilities.
21.6.3 Bank shall enter into take-out financing arrangements with IDFC Bank/ other
financial institutions or avail of liquidity support from IDFC Bank/ other FIs.
21.6.4 Guarantees favouring other lending institutions shall be issued in respect of
infrastructure projects, provided the Bank takes a funded share in the project at least
to the extent of 5% of the project cost and undertakes normal credit appraisal,
monitoring and follow-up of project.
21.6.5 Bank under exceptional cases, shall finance for acquisition of promoters share in an
existing company which is engaged in implementing or operating an infrastructure
project in India, subject to:
a. The Bank finance shall be made with the approval of the Board, for acquisition
of shares of existing companies, providing infrastructure facilities. Further,
acquisition of such shares shall be in respect of companies, where the existing
foreign promoters [and/or domestic joint promoters] voluntarily propose to
disinvest their majority share in compliance with SEBI guidelines, where
applicable.
b. Companies, to which loans are extended, inter alia, shall have sufficient
satisfactory networth.
c. The company financed and the promoter/ director of such companies shall not be
a defaulter to Banks or FIs.
d. In order to ensure that the borrower has a substantial stake in the infrastructure
company, Bank finance shall be restricted to 50% of the finance required
for acquiring the promoter's stake in the company being acquired.
e. Finance extended shall be against the security of the assets of the borrowing
company or the assets of the company acquired and not against the shares of that
company or the company being acquired. The shares of the Borrower Company/
company being acquired may be accepted as additional security and not
as primary security. The security charged to the Bank shall be marketable.
21.6.7 Flexible Structuring of New Term Loans to Infrastructure Projects and Core
Industries.
21.6.7.1 New term loans to infrastructure projects, as per the harmonized master list of
Infrastructure enumerated under “Credit Strategies” of the Group Credit Policy
guidelines and projects in core industries sector [viz., Coal, Crude Oil, Natural Gas,
Petroleum Refinery Products, Fertilisers, Steel (Alloy + Non Alloy), Cement and
Electricity] shall be considered;
21.6.7.2 At the time of initial appraisal of such projects, Bank shall fix an amortization
schedule (Original Amortisation Schedule) while ensuring that the cash flows from
such projects and all necessary financial and non-financial parameters are robust
even under stress scenarios;
21.6.7.3 The tenor of the Amortisation Schedule shall not be more than 80% (leaving a tail
of 20%) of the initial concession period in case of infrastructure projects under
public private partnership (PPP) model; or 80% of the initial economic life
envisaged at the time of project appraisal for determining the user charges / tariff
in case of non-PPP infrastructure projects; or 80% of the initial economic life
envisaged at the time of project appraisal by Lenders Independent Engineer in the
case of other core industries projects;
21.6.7.4 Bank shall sanction the loan for a medium term, say 5 to 7 years, to take care of
initial construction period and also cover the period at least up to the date of
commencement of commercial operations (DCCO) and revenue ramp up. The
repayment(s) at the end of this period (equal in present value to the remaining
residual payments corresponding to the Original Amortisation Schedule) could be
structured as a bullet repayment, with the intent specified up front that it shall be
refinanced. That repayment may be taken up by the Bank or a set of new lenders,
or combination of both, or by issue of corporate bond, as Refinancing Debt
Facility, and such refinancing may repeat till the end of the Amortisation Schedule;
21.6.7.5 The repayment schedules of Initial Debt Facility fixed by the Bank shall normally
correspond to the Original Amortisation Schedule, unless there is an extension of
DCCO. In that case, mere extension of DCCO would not be considered as
restructuring subject to certain conditions, if the revised DCCO falls within the
period of two years and one year from the original DCCO for infrastructure and
non-infrastructure projects respectively. In such cases the consequential shift in
repayment schedule by equal or shorter duration (including the start date and end
date of revised repayment schedule) than the extension of DCCO would also not
be considered as restructuring provided all other terms and conditions of the loan
remain unchanged or are enhanced to compensate for the delay and the entire
project debt amortisation is scheduled within 85%1 of the initial economic life of
the project as prescribed in paragraph ‘c’ above;
21.6.7.6 Bank may modify the Amortisation Schedule of a project loan once during the
course of the loan (after DCCO) based on the actual performance of the project in
comparison to the assumptions made during the financial closure without being
treated as ‘restructuring’ provided:
i. The loan is a standard loan as on the date of change of Amortisation Schedule;
ii. Net present value of the loan remains the same before and after the change in
Amortisation Schedule; and
iii. The entire outstanding debt amortisation is scheduled within 85%1 of the
economic life of the project as prescribed in paragraph 21.6.7.3 above;
21.6.7.7 If the Initial Debt Facility or Refinancing Debt Facility becomes NPA at any stage,
further refinancing by the Bank shall be stopped and the loan account shall be
classified as such and necessary provisions as required under the extant guidelines
shall be made. Once the account comes out of NPA status, the account shall be
eligible for refinancing in terms of these instructions;
21.6.7.8 Bank shall determine the pricing of the loans at each stage of sanction of the Initial
Debt Facility or Refinancing Debt Facility, commensurate with the risk at each
phase of the loan, and such pricing should not be below the MCLR of the bank;
21.6.7.9 Bank shall secure its interest by way of proper documentation and security
creation, etc.;
21.6.7.10 Bank shall initially count the cash flows from periodic amortisations of loans as
also the bullet repayment of the outstanding debt at the end of each refinancing
period for their asset-liability management; however, with experience gained, bank
may undertake in due course to conduct behavioural studies of cash flows in such
amortisation of loans and plot them accordingly in ALM statements;
21.6.7.11 From the risk management perspective, there will be a probability that the loan
will not be refinanced by other Banks which should be taken into account when
estimating liquidity needs as well as stress scenarios. Further, unless the part or
full refinancing by other banks is clearly identified, the cash flows from such
refinancing should not be taken into account for computing liquidity ratios.
Similarly, once committed, the refinancing bank should take into account such
cash flows for computing their liquidity ratios; and
21.6.7.12 These guidelines shall be applicable to all the new loans to infrastructure projects
and core industries projects sanctioned from the date of approval of this policy.
Further instructions on ‘take-out finance’ and ‘transfer of borrowal accounts’ shall
not be applicable to loans sanctioned under these guidelines.
___________________________________
1
A relaxation of only 5% of initial economic life is provided in case of delay in achieving
DCCO from the 80% ceiling of amortisation of project debt prescribed in para ‘e’ & ‘f(iii).
Bank may factor the same while determining the original Amortisation Schedule.
21.9.1 Compliance with the SEBI/ RBI/ Govt. guidelines, such as:
i. The bank shall finance only for acquisition of shares of existing companies
providing infrastructure facilities. Further, Acquisition is due to voluntary sale by
promoter in compliance with SEBI guidelines, wherever applicable.
ii. The companies to which loans are extended shall, inter alia, have a
satisfactory net worth. Further, it shall be ensured that the acquiring company
has adequate cash flows to meet the loan obligations and such cash flows shall be
regularly monitored through escrow and other related mechanisms.
iii. The company financed and the promoters/ directors of such companies should
not be a defaulter to banks/ FIs.
iv. In order to ensure that the borrower has a substantial stake in the
infrastructure company, bank finance shall be restricted to 50% of the finance
required for acquiring the promoter's stake in the company being acquired.
v. Finance extended shall be against the security of the assets of the borrowing
company or the assets of the company acquired and not against the shares of that
company or the company being acquired.
vi. The shares of the borrower company / company being acquired may be accepted
as additional security and not as primary security. The security charged to the bank
should be marketable.
vii. Bank shall ensure maintenance of stipulated margins at all times.
viii. The tenor of the loans may not be longer than seven years. However, the Board
can make an exception in specific cases, wherever necessary, for financial viability
of the project.
ix. The financing acquisition of equity shares by promoters should be within the
regulatory ceiling of 40 per cent of their net worth as on March 31 of the previous
year for the aggregate exposure of the banks to the capital markets in all forms (both
fund based and non-fund based).
x. The proposal for bank finance shall have the approval of the Board.
21.9.2 There should be synergy of operations between the two companies or takeover of a
company is for backward/ forward integration. Further, taking over company shall have
reputation and standing in the comity of corporates.
ii. Risk analysis and sensitivity analysis shall be carried out in respect of projects.
iii. In respect of projects undertaken by PSUs, term loans shall be sanctioned only to
corporate entities [PSUs registered under companies act or corporations established
under relevant statutes].
iv. Loans shall not be in lieu of or to substitute budgetary resources envisaged for the
project. The term loan could supplement the budgetary resources, if such
supplementing was contemplated in the project design.
v. It shall be ensured that the loan shall not be used for financing the budget of the
State Government. Due diligence on the viability and Bankability of such project shall
be undertaken to ensure that the revenue stream from the project is sufficient to
take care of the debt obligations and repayment/ servicing of the debt is not out of
budgetary resources.
vi. It shall be ensured that the funding proposals are for specific monitorable
projects.
21.10.3 Bank shall also lend to SPVs in the private sector registered under the Company's Act
for directly undertaking the infrastructure projects which are financially viable and
not for acting as mere financial intermediaries.
21.10.4 It shall be ensured that Bankruptcy or financial difficulties of the parent/ sponsors
shall not affect the financial health of the SPVs.
21.10.5 Further, while assessing the loan requirements of SPVs, the financial credentials/
viability of the SPV shall be carefully analysed on a consolidated basis supported by
the consolidated accounts/ position of the group
21.18 Bank shall while sanctioning/ renewing credit imits for large borrowers [borrowers
enjoying working capital limits of Rs.10 Crore and above from the Banking system]
fix separate sub-limit [within the overall limits], specifically for meeting payment
obligations in respect of purchases from MSME units.
21.19 Bridge loan shall be extended against the expected proceeds of equity, non- convertible
debentures, external commercial borrowings, global depository receipts and/or funds
in the nature of foreign direct investment, provided the Bank is satisfied that the
borrowing company has already made firm arrangement for raising the aforesaid
resources/ funds.
21.19.1 The exposure under bridge loan facility to be included to the capital market
exposure of the Bank and the aggregate of the both should be within the ceilings
fixed by the Bank for capital market exposure.
21.19.2 Bridge loan shall not be extended against amounts receivable from Central/ State
Governments by way of subsidies, refunds, re-imbursements, etc. However, in the
following instances such bridge loan shall be granted:
i. Against subsidies receivable in respect of fertilizer industries under the normal
Retention Price Scheme [RPS] for a period upto 60 days, which is allowed
as temporary measure.
ii. Against the receivable from Govt. by the Exporters [such as Duty Draw Back
and IPRS]
21.20 While financing the second hand assets, directly, the minimum residual life of such
second hand assets shall not be less than 10 years and the repayment period of the loan
shall be fixed in such a way that there is a minimum positive gap of two years between
the residual life of the asset and the repayment period of the loan.
21.20.1 However, maximum period of the loan shall not exceed 7 years.
21.20.2 The residual life of the asset shall be certified by a Chartered Engineer/ Valuer.
21.20.3 However, margin shall be 50%..
21.20.4 Such proposal / request shall not be considered below the rank of CLCC. Upon
sanction, the borrower file shall be transferred to the respective authority under
whose delegated lending power the exposure normally falls as per the extant
guidelines for further monitoring/ review/renewal.
21.22.3 The following guidelines shall be applicable for permitting Holding on Operations:
a) Holding on Operation in respect of branch and ZLCC sanctions shall be permitted
by ZLCC. CLCC shall permit holding on operations in respect of sanctions by
authorities higher than ZLCC subject to reporting to respective sanctioning
Authority.
b) Holding on operations shall not be generally permitted beyond 6 months However,
on selective basis and on justifiable reasons the authorities mentioned in Para a
above may permit such operations up to 12 months, but not exceeding 6 months
at a time.
c) During holding on operations, the borrower would be permitted to draw funds
from the cash credit account to the extent of the credits in the account.
d) Holding on operation shall be permitted so long as the same is exposure neutral.
e) Interchangeability between Fund based and Non-Fund based facilities shall not be
permitted
f) The asset classification shall be as per the extant IRAC norms.
g) Rehabilitation/Revival/Restructuring of the account, under the extant guidelines
shall be undertaken at the earliest and the entire process shall be completed/
implemented as per the stipulated time lines.
h) Effort shall be made to recover interest / principal while extending Holding on
Operation.
i) It shall be ensured that the sickness is not caused on account of wilful
mismanagement, wilful default,unauthorized diversion of funds, disputes among
partners/ promoters, etc.
c. In all other cases (enhancement sought is more than 10% or Company is rated
BBB & below) then it shall be put up HLCC (up to CLCC sanctions) & above
committees.
d. The above restriction is not applicable in case of the following contractors
subject to compliance of normal lending norms including security/guarantee
standards.
i. Public Sector undertakings and top rated (AA and above) EPC
contractors.
ii. Contractors primarily undertaking Cash Contracts viz. contractors
undertaking PWD contracts, contracts for housing/ any other specific
projects, Large borrowers catering to Govt. Authorities without following
the SPV model, Contractors coming under the ambit of MSME subject to
availability of adequate collateral security other than Inventory/ Book
Debt etc. as per the Collateral Policy of the Bank and or CGTMSE cover.
e. In case of new proposals, while submitting proposals to NBG for In-principle
approval, the details of the security/ collaterals and the security coverage
available shall be indicated in clear terms.
**********
22 RETAIL LENDING
22.2 Marketing:
22.2.1 As part of marketing strategy, MOU shall be entered between reputed vehicle
manufacturers for sourcing vehicle loan proposal through their dealers. Scheme of
payment of Service Charges/Handling Charges to builders /vehicle dealers and dealer
representatives as business facilitators to source housing/vehicle loan applications
etc., may be introduced & modified from time to time having regard to market
demand and viability.
22.2.2 Wherever feasible, Insurance Agents, TRP (Tax Return Preparer) personnel shall be
engaged as business facilitators for sourcing retail loan proposals within the broad
frame work of outsourcing policy of the Bank. The Retired Employees of Bank may
also be engaged as business facilitators for sourcing Corp Scheme Loans.
22.2.3 In order to source large number of housing loan proposals, housing projects of reputed
builders shall be approved before entering into MOU or tie-up with builders for
financing flats in such housing projects. This will speed up sanctioning process by
obtaining single legal opinion.
22.2.4 As a prudent measure to mitigate concentration of risk in a single housing
project/builder, builder-wise, project -wise exposure limit shall be fixed. Proper
system/technology shall be developed /introduced to monitor the exposure limits
fixed to builder/housing project.
22.2.5 Builder/Project approval shall be extended only after doing the due diligence of the
builder/project, his past history, market standing etc.
22.2.6 Builder/Housing projects already approved by other Banks including private sector
Banks may be approved and housing loans may be extended for acquiring flats in
those housing projects.
22.2.7 Wherever loans are sanctioned for acquiring flats in the housing projects where
project finance is extended by other Banks, as a matter of caution, the same shall have
to be brought to the notice of project financing Bank.
22.2.8 Wherever housing projects of reputed builders are approved and project finance is
extended by the Bank, tie-up arrangement shall be made to route all proposals under
the project to our Bank only. This not only liquidates project finance but also gives
an opportunity for bulk housing loans.
22.2.9 In cases any builder has defrauded any of the Banks either himself or colluded with
the borrower, such builder shall be immediately black listed. Such list shall be
circulated among all the Branches including other Banks, IBA and shall be published
in the Bank’s website. No loan shall be entertained for acquiring flats in any of the
housing projects of blacklisted builders.
22.2.10 Group housing loan proposals from housing projects of reputed builders shall be
encouraged for group of employees working in reputed Company/Organization.
Special concession may be offered for group loans where the employer undertakes to
deduct loan installment and to remit the same directly to the Bank.
22.2.11 In case of group housing proposals of employees, exposure limit shall be fixed and
the same may be reviewed at regular intervals based on health of the loans extended
to such group of employees.
22.2.12 Housing /Vehicle loan fairs/melas shall be organized at various centers in association
with Builders/Vehicle dealers/Trade Associations etc. In principle loan sanction letter
shall be issued on the spot to entice the visitors for future business proposition.
22.3.3 As a part of contingency plan, the Centers shall have adequate number of DDAs (Due
Diligence Agents), Advocates, Valuers on its panel.
22.3.4 Retail Loan Centers shall function under the direct supervision of Zonal Office.
22.3.5 Center’s performance shall be regularly monitored by Retail Lending Division at
Head Office.
22.3.6 The revised policy on delegation of powers to link branches especially for the purpose
of conducting annual review & renewal of running account limits under Corp
Schemes in respect of loans sectioned by Retail Loan Centers is introduced and
reviewed by the division on regular intervals.
22.5.2 Intimation on revision in rate of interest charged to loan account shall be sent to the
borrower from time to time and also a notice in this regard to be displayed in the
Branch notice board.
22.5.3 A system generated loan account statement as on 1st of April every year indicating
appropriation of amount out of installments paid during the year towards
interest/principal shall be given to the borrower.
22.5.4 Amortization chart/table has to be provided to borrower on demand so as to enable
him to understand the repayment pattern of loan. Amortization chart is available in
the Bank’s website
22.7 Outsourcing:
22.7.1 The Bank may outsource any activity related to retail credit by engaging Third Party
Entities (TPE) or Business Facilitator within the purview of the Board approved
Outsourcing Policy.
22.7.2 Powers to appoint/renew Due Diligence Agency (DDA) shall be delegated to
ZLCC. ZLCC shall appoint/renew DDA within the criteria stipulated in this matter.
22.7.3 Zonal Office shall ensure that a minimum of 3 DDAs are appointed to Retail Loan
22.7.4 Centers to have a business contingency plan. Further, performance of DDA shall be
reviewed /renewed at least once in a year before renewing the agreement.
22.7.5 Zonal Office shall ensure the following aspects before appointing any DDA:
22.7.6 Due Diligence Agency being appointed shall have a minimum of one year of
experience in the field.
22.7.7 The Concurrent Auditors already in the Bank’s panel shall not be given the
assignment of DDA till their tenure as concurrent auditors is completed.
22.7.8 Appointment of DDA shall be as per RBI guidelines prescribed from time to time.
22.7.9 That name of DDA is not appearing in black list of DDA circulated by IBA.
22.7.10 Due diligence reports submitted by DDAs, if necessary, shall be cross verified
conducting yet another due diligence exercise by a DDA other than the one who has
conducted due diligence earlier.
22.9.8 The written undertaking from the authorized drawing/disbursing officer to provide
check off facility and also an undertaking to obtain NOC from the loan disbursing
branch of the Bank before releasing the terminal/ superannuation benefits of the
employee and to advise the disbursing branch of any transfer/ re-location of the
employee or before shifting the employee’s salary credit to another Bank or mode of
payment shall be obtained. The concurrent audit/ regular internal inspection/
vigilance inspection, statutory audit shall bestow particular attention on bulk
proposals for early detection of disquieting features in the portfolio.
22.9.9 The controlling offices of the Bank shall review the position of Retail Loan portfolio
of the branches on an ongoing basis with focused attention on bulk proposals to avoid
their quick mortality or signs of delinquency.
22.9.10 As per the policy on Retail Lending, retail loans are governed by the scheme specific
guidelines prescribed for respective scheme. However, group exposure norms are
common for all types of loans including the retail loans.
**********
23.1 Introduction:
Real Estate essentially covers residential housing, commercial offices and trading spaces,
such as theatres and retail outlets. Real Estate business involves purchase, sale and
development of residential and non-residential buildings.
23.3.3.2 An exposure to be classified as IPRE/CRE, the essential feature would be that the
funding will result in the creation / acquisition of real estate (such as, office
buildings to let, retail space, multifamily residential buildings, industrial or
warehouse space, and hotels) where the prospects for repayment would depend
primarily on the cash flows generated by the asset. Additionally, the prospect of
recovery in the event of default would also depend primarily on the cash flows
generated from such funded asset which is taken as security, as would generally be
the case. The primary source of cash flow (i.e. more than 50% of cash flows) for
repayment would generally be lease or rental payments or the sale of the assets as
also for recovery in the event of default where such asset is taken as security.
23.3.3.3 The above guidelines will also be applicable to certain cases where the exposure
may not be directly linked to the creation or acquisition of CRE but the repayment
would come from the cash flows generated by CRE. For example, exposures taken
against existing commercial real estate whose prospects of repayments primarily
depend on rental/ sale proceeds of the real estate should be classified as CRE. Other
such cases may include: extension of guarantees on behalf of companies engaged
in commercial real estate activities, exposures on account of derivative transactions
undertaken with real estate companies, corporate loans extended to real estate
companies and investment made in the equity and debt instruments of real estate
companies.
23.3.3.4 As per the above, if the repayment primarily depends on other factors such as
operating profit from business operations, quality of goods and services, tourist
arrivals etc., the exposure would not be counted as Commercial Real Estate.
23.3.3.5 Finance may be extended to public agencies, and not to private builders, for
acquisition and development of land provided it is a part of the complete project
including development of infrastructure such as water systems, drainage, roads,
provision of electricity, etc. In such limited cases, where land acquisition is
financed, such finance shall be limited to the acquisition price plus such
development cost. However, valuation of such land as prime security shall be
limited to the current market price.
23.3.3.6 Wherever land is acquired and developed by State Housing Boards and other public
agencies, credit shall be extended to private builders on commercial terms by way
of loans linked to each specific project.
23.3.3.7 However, fund based or non-fund based facilities shall not be extended to private
builders for acquisition of land even as part of a housing project. Finance shall be
granted to individuals for purchase of a plot, provided a declaration is obtained from
the borrower that he intends to construct a house on the said plot, within maximum
period of five years.
23.3.3.8 The CRE exposures collateralized by eligible credit risk mitigants would be
reduced to the extent of risk mitigating effects of the collaterals. The CRE exposures
to the extent secured by CRE would attract a risk weight of 100 per cent. In cases
where a part of the CRE exposure is not covered by the security of CRE, that part
would attract a risk weight for CRE exposure or as warranted by the external rating
of the borrower, whichever is higher.
23.3.3.9 All necessary permissions, clearances, approvals from statutory/competent
authorities including recently effected Real Estate Regulatory Authority (RERA) in
applicable cases for taking up the project and construction of the building shall be
obtained and copies shall be held on record before release of the limits. Pre/ Post
sanction visit shall be conducted at regular intervals and the frequency between
any two visits shall not be more than three months.
23.3.3.10 Term loans shall not be sanctioned to corporations set up by Government, for
construction of residential quarters for allotment to employees where the loans
were envisaged to be repaid out of budgetary allocations.
23.3.3.11 As FDI is permitted in real estate, the Bank, subject to usual safeguards entertain
proposals with foreign equity participation.
23.3.3.12 The investments made in interbank participation certificates wherein the
underlying assets are real estate loans are also covered under this Policy and all the
norms enunciated shall be made applicable.
23.3.3.13 RBI guidelines in the matter, from time to time, shall be adhered to.
23.4.3 Norms as enunciated under Group Credit Policy with regard to entry level
restrictions, per party / group exposure shall be equally applicable for these loans
as well subject to the overall ceiling as prescribed above.
23.5.1.2 The real estate property offered as security shall be a free hold property with a clear
marketable title. However in exceptional cases, where the land is held on long term
/ perpetual lease basis, the proposal can be considered even on lease hold property
subject to legal clearance.
23.5.1.3 Normally equitable mortgage of the properties proposed to be acquired,
developed, securitised from out of bank finance shall be held as security, after due
compliance with all legal formalities. However, the authorities of the rank of
CLCC/HLCC/ CAC may, on case-to-case basis and on merits, permit security of
alternate properties in exceptional cases. Based on the need felt, in addition to / or
in lieu of equitable mortgage of land proposed to be developed, other
properties in the name of the developer may also be obtained as security.
23.5.1.4 The commercial real estate loan shall normally give an asset coverage ratio of 133%
due to the price and demand risk involved in commercial real estate business.
23.5.1.5 However, in deserving cases and for justifiable reasons, the authorities of the rank
of HLCC/CAC/MC are empowered to relax the requirement of Asset Coverage
Ratio as under:
Maximum Minimum Asset Coverage
Authority
Relaxation up to Ratio shall be
HLCC 23% 110%
CACB 33% 100%
MC >33% <100%
23.5.1.6 The properties offered as security shall be valued once in three years and if there
is a shortfall in the asset coverage ratio prescribed, the borrower shall be asked to
replenish the same.
23.5.2 Guarantee:
23.5.2.1 In case of loans to partnerships, trusts and private limited companies, personal
guarantee of partners, trustees and promoter directors respectively shall generally
be obtained. However, wherever possible, a suitable third party guarantee may be
obtained depending upon the quantum of loan, security coverage and net worth of
the partners/ trustees/ directors.
23.5.2.2 In all other cases, other than corporates, suitable third parties guarantee having
sufficient net worth and acceptable to the bank should invariably be obtained.
23.5.2.3 Wherever third party properties are offered as security, guarantee of the
property owners shall be obtained.
23.5.2.4 However, the authorities in the rank of HLCC & Above are empowered to waive
or modify this clause on justifiable grounds.
23.8 PRICING
23.8.1 To ensure that the return compensates for the capital charge and other risks
involved in commercial real estate loans, the loans are generally priced as per the
gradation of the borrowers and relaxation may be permitted to be continued in
well-deserved and justifiable cases as per the scheme of delegation of lending
powers. But in respect of schematic lending by way of Corp Home, Corp Mortgage
and Corp Rent, interest rate shall be as per scheme guidelines.
23.9 SANCTIONS
23.9.1 Sanction of loans shall be made as per the delegation of lending powers duly
approved by the Bank.
23.9.2 While the housing loans continue to be sanctioned at branch level/ other controlling
offices, Advances towards commercial real estate shall be restricted to the level of
ZLCC/ CLCC/ HLCC/ CAC. This is to have a total control on the extent of
exposure the Bank can take on this sensitive sector.
****
24.1 Introduction:
Loans against the security of shares/debentures/bonds held by an individual may be
granted to meet contingencies/ personal needs or for subscribing to rights or new issues
of shares/ debentures/ bonds or for purchase in the secondary market, etc. subject to RBI
guidelines.
(i) Maximum loan amount per borrower shall be Rs.20 lakhs against dematerialized
shares from the banking system. It shall also be ensured that such accommodation
from different banks is not obtained against shares of a single company or a group
of companies by taking appropriate declaration from the borrower.
(ii) It shall be ensured that the objective of the regulation is not defeated by granting
advances to other joint holders or third party beneficiaries to circumvent the above
limits placed on Loans/advances against shares and other securities.
24.2 Only securities in the demat form from the specified list approved by the bank
shall be considered for financing.
24.3 A minimum margin of 50% subject to RBI guidelines shall be maintained on the market
value of securities. Higher margins may be stipulated based on volatility in the scrips
and risk perceived by the credit approving authority.
24.4 While granting advances against Units of mutual funds including Units of UTI, the
following guidelines shall be complied with:
24.4.1 The Units should be listed in the Stock Exchanges or repurchase facility for the Units
of mutual fund should be available at the time of lending.
24.4.2 The Units should have completed the minimum lock-in-period stipulated in the
relevant scheme.
24.4.3 The amount of advances should be linked to the Net Asset Value (NAV)/ repurchase
price or the market value, whichever is lower and not to the face value in case of units
of mutual funds.
24.4.4 A minimum margin of 50% subject to RBI guidelines shall be maintained on the NAV/
repurchase price or market value, whichever is less
24.4.5 Advances against units of mutual funds would attract the quantum and margin
requirements as are applicable to advances against shares and debentures.
24.5 Stock brokers shall be provided with need based overdraft facility/ Line of Credit for
their broking activity against the security of shares/ debentures or other collaterals on
the basis of commercial judgment. These credits shall be priced from time to time on
the basis of cost of funds and risk perceptions. The credit facilities to stockbrokers shall
be treated as exposure to capital market even though the same is against other
collaterals.
24.5.1 Further, the need based credit requirement for such finance shall be made taking
into account the financial position of the borrower, operations in his own account and
on behalf of clients, income earned, the average turnover, period of stocks and shares
and the extent to which the broker's funds are required to be involved in his business
operations. Large scale investment in share and debenture in own account by the
stock/ share brokers with bank finance shall not be encouraged.
24.5.2 Working capital facility shall be granted to stock brokers registered with SEBI and
who have complied with capital adequacy norms prescribed by SEBI/ Stock
Exchange to meet the cash flow gap between delivery and payment for DVP
transactions undertaken on behalf of institutional clients, viz. FIs, FIIs, Mutual Funds
and banks, the duration of such facility shall be short and would be based on the
assessment of the financing requirement, keeping in view the cash flow gaps, the
brokers funds required to be deployed for the transactions and overall financial
position of the broker.
24.5.2.1 Guarantees shall be issued on behalf of share and stock brokers in favor of stock
exchanges in lieu of margin requirements as per stock exchange regulations.
While issuing such guarantees, a minimum margin of 50% shall be ensured.
24.5.2.2 A minimum cash margin of 25% (within the above margin 50%) would be
maintained in respect of such guarantees issued by the Bank.
24.5.2.3 The above minimum margin of 50% and minimum cash margin requirement of 25%
(within the margin of 50%) will also apply to guarantees issued by Bank on behalf
of commodity brokers in favour of the national level commodity exchanges viz.,
National Commodity & Derivatives Exchange (NCDEX), Multi Commodity
Exchange of India Ltd., (MCX), National Multi-Commodity Exchange of India Ltd.
(NMCEIL) or any other commodity exchanges as approved by SEBI in lieu of
margin requirements as per the commodity exchange regulations.
24.5.3 Guarantees shall also be issued in lieu of margin requirement as per the stock
exchange regulations.
24.6 No advances against primary security of shares and debentures including promoters'
shares to industrial, corporate or other borrowers shall be granted.
24.6.1 However, such securities can be accepted as collateral for secured loans grated as
working capital or for other productive purposes from borrowers other than NBFCs.
24.6.2 The shares accepted, as security must be only in dematerialized form wherever
demat facility is available.
24.9 While granting loans and advances against shares, statutory provisions contained in
sections 19 (2) and (3) and 20 (1) (a) of the Banking Regulation Act 1949 shall be
strictly observed which are as under:
24.9.1 As per Section 19(2), no Banking company shall hold shares in any company,
whether as pledgee, mortgagee or absolute owner, of an amount exceeding thirty
per cent of the paid-up share capital of that company or thirty percent of its own
paid-up share capital and reserves, whichever is less.
24.9.2 As per section 19(3), a Banking company shall not hold shares, whether as pledgee,
mortgagee or absolute owner, in any company in the management of which any
managing director or manager of the Banking Company is in any manner
concerned or interested.
24.9.3 As per section 20 (1) (a), no Banking company shall grant any loans or advances
on the security of its own shares.
24.10 While considering grant of advances against shares/debentures, branches shall
follow the normal laid down procedures for the sanction, appraisal and post sanction
follow-up.
24.11 Shares/debentures/bonds shall be valued at prevailing market prices when they are
lodged as security for advances. Thereafter the market value shall be assessed on a
weekly basis to ensure maintenance of prescribed margin. If the borrower does
not make up the shortfall in the margin, action shall be taken to sell the securities and
recover the dues after giving due notice.
24.12 No advance shall be granted against partly paid shares.
24.13 The Bank shall with the approval of the Board fix overall and sub-ceiling on Bank’s
exposure to the capital market.
24.13.1 Banks' capital market exposures shall include both its direct exposures and indirect
exposures.
24.13.2 The computation of the aggregate exposure (both fund and non-fund based) of Bank
to capital markets in all forms shall be as per the RBI guidelines issued from time
to time.
24.14 Bank shall finance under IPOs to individuals [such as salaried persons, professionals,
businessmen, pensioners etc.], either individually in their own names or jointly with
others.
24.14.1 Under IPOs, loan amount shall be subject to a maximum limit of Rs. 10 Lakhs.
24.14.2 The corporates shall not be extended with credit facilities by Bank for investment
in other companies IPOs.
24.14.3 Bank shall not provide finance to NBFCs for further lending to individuals for
IPOs.
********
25 EXPORT CREDIT
25.1 Export Sector is an important sector of the economy and is major source of
precious foreign exchange for the country. The Government of India and the RBI have
been giving full support to the export sector by way of tax / duty benefits, financial
incentives, and making available adequate credit at reasonable rate of interest through
banks.
25.2 Endeavour shall be made to channelize sufficient credit to export sector to achieve
the target of not less than 12% of Net Bank Credit on average basis, as prescribed
by RBI.
25.3 Pre-shipment / packing credit shall be extended against letter of credit or confirmed
and irrevocable order for the export of goods, unless having regard to the trade
practice these requirements are specifically waived by the sanctioning authority.
25.3.1 Repayment period shall be fixed for packing credit advance depending on the
circumstances of the individual case taking into account time required for procuring,
manufacturing or processing and shipping the relative goods, subject to a maximum
of 180 days period. In exceptional and justifiable cases, where exporters due to
reasons beyond their control are not able to ship the goods within a period of 180
days, HLCC/ CAC shall be empowered to extend repayment period upto 360
days.
25.3.2 End use of pre-shipment credit is to be monitored to ensure that the use is for
genuine requirements of exports.
25.4 Post shipment credit shall normally be granted for a maximum period of 180 days
from the date of shipment inclusive of Normal Transit Period (NTP) and grace period,
if any. Post-Shipment credit shall be liquidated out of the proceeds of export bills
received from abroad in respect of goods exported and / or duty drawback received
from the Government.
25.5 Rupee pre-shipment loans and post-supply rupee export credit may be extended at
concessional rate of interest to parties against orders for supplies in respect of projects
aided/financed by bilateral or multilateral agencies/funds (including World Bank,
IBRD, IDA), as notified from time to time under "Deemed Exports" in the Exim
Policy, which are eligible for grant of normal export benefits by Government of India.
25.5.1 Advances so provided shall be adjusted from free foreign exchange representing
payments for the supplies of goods to these agencies.
25.7 The export credit pre-shipment and post shipment credit extended by the Bank
shall be covered by Whole Turnover Packing Credit Guarantee Scheme (WTPCG) and
Whole Turnover Post-shipment Guarantee Scheme (WTPSG) of ECGC.
25.7.1 The post-shipment credit extended by the Bank shall also be covered by buyer wise
ECGC policy except in cases where the same is specifically waived by the sanctioning
authority.
25.8 The guidelines issued by RBI and other regulatory agencies from time to time shall be
adhered to.
25.9 With a view to simplifying access to bank credit by exporter especially small and
medium exporter and make it borrower friendly in terms of procedures, exporters Gold
Card Scheme for credit worthy exporter clients shall be formulated with the approval
of the Board.
********
f) Outstanding deposits with SIDBI and MUDRA Ltd. on account of priority sector
shortfall.
26.2.9 To ensure that MSMEs do not remain small and medium units merely to remain
eligible for priority sector status, the MSME units will continue to enjoy the priority
sector lending status up to three years after they grow out of the MSME category
concerned.
26.3 Office of the Development Commissioner (MSME), Ministry of Micro, Small and
Medium Enterprises, Government of India regarding categorization of specific
activities under Manufacturing or Service under the provisions of MSMED Act-2006,
has clarified that the following categories have been considered under Manufacturing
or Service Sector :
A. Manufacturing Activities:
i. Medical Equipment and Ayurvedic Product
ii. Separation of iron scrap from slag pots
iii. Power generation by conventional processes
B. Service Activities:
i. Dealers /Sellers of fertilizers, pesticides, seeds and other inputs.
ii. Dealers/ Sellers of inputs for the allied activities such as cattle feed, poultry feed
etc
iii. Dealers in Drip Irrigation/ agricultural machinery
iv. Clinical /Pathological Laboratories and Scanning , MRI Tests
v. Hospitals
vi. Restaurants with Bar
vii. Canteens
viii. Hotels
ix. Motel Industry
x. Consultancy Services including Management Services.
xi. Composite Broker Services in Risk and insurance Management.
xii. Third Party Administration (TPA) Services for medical insurance Claims of
Policy Holders.
xiii. Training-cum-incubator Centre.
xiv. Educational Institutions.
xv. Training Institutes.
xvi. Fair price shops.
xvii. Consumer cooperative stores.
xviii. Private Retail Trade
xix. Practice of Law, i.e. legal services
xx. Trading in medical instruments (brand new).
xxi. Placement and Management Consultancy Services.
xxii. Advertising agency and Training centres.
xxiii. Development of Software and providing software services
Section II
26.4 Certain types of funds deployment eligible as priority sector advances:
26.4.1 Investments
26.4.1.1 Securitised Assets
Investments made by banks in securitised assets, representing loans to various
categories of priority sector, shall be eligible for classification under respective
categories of priority sector (direct or indirect) depending on the underlying assets,
provided the securitised assets are originated by banks and financial institutions
and fulfill the Reserve Bank of India guidelines on securitization. This would mean
that the bank's investments in the above categories of securitised assets shall be
eligible for classification under the respective categories of priority sector only if
the securitised advances were eligible to be classified as priority sector advances
before their securitization.
26.4.1.2 Outright purchases of any loan asset eligible to be categorized under priority
sector, shall be eligible for classification under the respective categories of priority
sector (direct or indirect), provided the loans purchased are eligible to be
categorized under priority sector; the loan assets are purchased (after due diligence
and at fair value) from banks and financial institutions, without any recourse to the
seller; and the eligible loan assets are not disposed of, other than by way of
repayment, within a period of six months from the date of purchase.
26.4.1.3 Investments by banks in Inter Bank Participation Certificates (IBPCs), on a risk
sharing basis, shall be eligible for classification under respective categories of
priority sector, provided the underlying assets are eligible to be categorized under
the respective categories of priority sector and are held for at least 180 days from
the date of investment.
26.4.1.4 Priority Sector Lending Certificate Micro Enterprises: Investment by banks in
PSLC Micro enterprises loans shall be eligible for considering for achievement
towards the Sub target for lending to Micro Enterprises.
Section III
26.5 RBI stipulated growth targets for Domestic Commercial Banks
26.5.1 The domestic commercial banks are expected to enlarge credit to priority sector and
ensure that priority sector advances (which includes Micro, Small & Medium
Enterprises (MSME) sector) constitute 40 % of Adjusted Net Bank Credit (ANBC) or
credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher.
26.5.2 In terms of recommendations of the Prime Minister's Task Force on MSMEs, banks are
advised to achieve 20 % year-on-year growth in credit to Micro and Small Enterprises,
10 % annual growth in number of Micro Enterprise accounts and 60% of total lending
to MSE sector as on preceding March 31st to Micro enterprises.
Section IV
26.6 COMMON GUIDELINES/INSTRUCTIONS FOR LENDING TO MSME
SECTOR:
Sl. Parameter Banks’ Policy
No.
1. Loan Issue of Acknowledgement of Loan Applications
Applications Branches should give acknowledgement for loan applications
received under MSME. Towards this purpose, it may be ensured that
all loan application forms have perforated portion for
acknowledgement to be completed and issued by the receiving
branch. Each branch may affix on the main application form as well
as the corresponding portion for acknowledgement, a running serial
number. While using the existing stock of application forms which
do not have a perforated portion for acknowledgement separately
given, care should be taken to ensure that the serial number given on
the acknowledgement is also recorded on the main application. The
loan applications should have a check list of documents required for
the guidance of the prospective borrowers.
Loan Time norms for disposal of loan applications pertaining to fresh
Applications credit limit or enhancement in existing credit are as under:
Loans up to Rs.5 lakh : Within 2 weeks
Loans above Rs.5 lakh to Rs.25 lakh : Within 3 Weeks
Above Rs.25 lakh : Within 6 weeks
(Provided the loan applications are complete in all respect and
accompanied by a ‘check list’ enclosed to the application form)
3. All the benchmark financial ratios, tenure etc. will be in line with
the Bank’s Domestic Lending Policy.
12. Machinery Each Zonal office will form a Committee headed by the Zonal Head
to Look Into at the Z.O. level to look into the complaints and their time bound
Complaints redressal. The Zonal Head will be the “Nodal Officer” at Z.O. level
for redressal of complaints. The Committee will verify periodically
that the guidelines under Priority Sector in general and MSME sector
in particular are compiled by the branches and complaints are
redressed promptly. The names and addresses with telephone
number of the Nodal Officer with whom complaints can be lodged
should be displayed on the notice board of every branch.
13. Debt 1. Debt Restructuring: As applicable under the Bank’s policy for
Restructurin Debt Restructuring.
g 2. The Bank’s policy of one time settlement for MSME’s as provided
in the Recovery Management Policy will be applicable.
14. Other The other aspects of the Bank’s lending policy/other policy
Aspects guidelines including discretionary authority shall be applicable as
per the changes made by RBI/Banks guidelines in the matter.
Section V
26.7 Specialized MSME branches
In order to render focused attention to MSMEs, our Bank has Specialized MSME
branches located in and around MSME clusters, throughout the country.
26.11 Prime Minister's Task Force on Micro, Small and Medium Enterprises
A High Level Task Force was constituted by the Government of India (Chairman: Shri
T K A Nair) to consider various issues raised by Micro, Small and Medium Enterprises
(MSMEs). The Task Force recommended several measures having a bearing on the
functioning of MSMEs, viz., credit, marketing, labour, exit policy, infrastructure /
technology / skill development and taxation. The comprehensive recommendations
cover measures that need immediate action as well as medium term institutional
measures along with legal and regulatory structures and recommendations for North-
Eastern States and Jammu & Kashmir.
26.12 GRIEVANCES:
Sl Proposal falling within the Grievance Redressal Authority
No. sanctioning powers of
1 Branch Zonal Head of the concerned Zone
2 Zonal Office Functionary at CO who is at least one rank higher
than the rank of the Zonal Head concerned.
26.12.1 All grievances shall be referred to the Customer Services Division at the respective
Zonal Offices in the case of branch sanctions and Customer Services Division-HO
in case of Zonal Office and Head Office sanctions.
Section VI
26.13.3 Framework for engaging of Due Diligence Agencies (DDA) for Small and Medium
Enterprises [SME] loan proposals
1. Background:
1.1. The Branches should establish a relationship with a customer only after knowing the
customer’s true identity which is the basic concept of Know Your Customer [KYC] guidelines.
KYC is a tool to safeguard the interest of the Bank from fraudulent, unscrupulous and unwanted
elements.
1.2. Know Your Customer (KYC) is the primary responsibility of the Branch. Due diligence
of the borrower/guarantor/properties offered as security/unit being financed is carried out by the
Due Diligence Agency by visit to site/residence, neighborhood checks, ascertaining the clients
standard of living and residential status (ownership/rented etc.), business status, verification of
address, income, financials etc.
1.3. Services of external Due Diligence Agencies (DDAs) are engaged for conducting due
diligence of SME loan proposals with credit limit of above Rs.25 lakh. For SME loan proposals
below Rs.25 lakhs, due diligence is being conducted by Branches.
2. Guidelines:
2.1. Number of DDAs:
Zones at Metros and State capitals to have maximum of 3 DDAs each. Other Zones to have
maximum of 2 DDAs each. Work to be allotted to DDAs on rotation basis. If required zones
may submit the proposal to Circle Office for additional empanelment of DDAs based on
geographical spread of the branches.
2.2. Approval Authority for empanelment of Due Diligence Agency:
The power to empanel DDAs is vested with the Circle General Manager at Circle Office. On
obtaining the approval from the Circle General Manager, the Zonal Head has to enter into Credit
Consultancy Service Agreement (CCSA) with the DDA. Likewise, with the prior approval from
the Circle General Manager, the agreement may be renewed by the Zonal Head.
2.3.
DDA shall submit the bill along with the list of proposals for which due diligence has been
conducted during the month to Zonal office for approval. On receipt of approval from the zonal
office, the branches shall pay the DDA fee by debit to the borrower account based on the
irrevocable letter of authority cum undertaking obtained from the borrower along with the
application. DDA shall not collect the fees directly from the borrower. In case the proposal is
rejected after due diligence, the due diligence fee shall be borne by the bank.
3. Uniformity in the tenure of agreement:
On approval for empanelment by Circle General Manager, the Zonal Head enters in to a Credit
Consultancy Service Agreement (CCSA) with Due Diligence Agency for a period of three years
and submit the copy of the agreement to Circle Office and Head Office for records. Zonal
Offices will conduct half yearly review of the external DDAs to ascertain their operational
efficiency and submit report to the respective Circle Office and Head Office. The Zonal Office
has to maintain the MIS on fees paid to each DDA and submit the data along with Half Yearly
review report to Circle Office and Head Office. Circle Office should submit to Head Office their
observations & comments on the reports submitted by the Zonal Office.
4. Conducting Due Diligence Exercise:
For new customers, due diligence exercise is required for all loan proposals with total exposure
of above Rs. 25 lakh at the time of entry.
For existing customers with total outstanding exposure of above Rs. 1 crore, Fresh due
diligence exercise is required at the time of enhancement, if the enhanced amount is above 25%
of the total outstanding exposure.
Due Diligence report should be signed by the promoter of the company / partner of the
partnership firm / Proprietor of the proprietorship firm.
Zonal Office should hold the proof of PAN numbers of promoters/partners/
proprietorship/Company and Corporate Identification Number (Company CIN Number) and
Director Identification Number (DIN) of company appointed as DDA.
It shall be ensured that all the new empanelment and renewals will be done in conformity with
the revised guidelines.
Statutory/Regulatory guidelines, if any, issued from time to time to be followed.
Appendix-I
CALCULATION OF INVESTMENT FOR PLANT AND MACHINERY
1) S.O. 1722(E) – In exercise of the powers conferred by sub-section (1) of 2006) herein
referred to as the said Act, the Central Government specifies the following items, the cost
of which shall be excluded while calculating the investment in plant and machinery in case
of enterprises mentioned in Section 7(1)(a) of the said Act, namely:
a. Equipments such as tools, jigs, dies, moulds and spare parts for maintenance and
cost of consumable stores.
ii. Installation of plant and machinery.
iii. Research and development (R&D) equipment and pollution control equipment.
iv. Power generation sets, extra transformer, etc. installed by the enterprise as per the
regulations of the State Electricity Board.
v. Bank charges and services charges paid to the National Small Industries Corporation or
the State Small Industries Corporation.
vi. Procurement or installation of cables, wiring, bus bars, electrical control panels (not
those mounted on individual machines), oil circuit breakers/miniature circuit breakers
etc. which are necessarily to be used for providing electrical power to the plant and
machinery/safety measures.
vii. Gas producer plant.
viii. Transportation charges (excluding of taxes e.g. Sales Tax, Excise etc.) for indigenous
machinery from the place of manufacturing to the site of the factory.
ix. Charges paid for technical know-how for erection of plant and machinery.
x. Such storage tanks which store raw-material, finished goods only and are not linked with
the manufacturing process.
xi. Firefighting equipment.
2) In calculating the value of plant and machinery for the purpose of calculating investment
limit, the original price thereof, irrespective of whether the plant and machinery are new or
second hand shall be taken into account.
In the case of imported machinery, the following shall be included in calculating the value
namely:-
i. Import duty (Excluding miscellaneous expenses as transportation from the port to the
site of the factory, demurrage pad at the port).
ii. The shipping charges.
iii. Customs clearance charges.
iv. Sales Tax or Value Added Tax.
26.15.4 Individuals who wish to become CCCs shall have to apply & pass the certification
course with IIBF. After successful qualifying the certification course from IIBF,
candidate shall apply to SIDBI through udyamimitra (www.udyamimitra.in)
portal for enrolment. On satisfactory due diligence report, candidates will be
enrolled as CCCs to start providing their services.
*****************
27.2 Purpose:
Bank shall grant Rupee Loan to NRIs for all technically feasible and economically
viable activities and/ or other personal purposes such as educational, housing and
social ceremonies, by ensuring that the proceeds of the rupee loan are not utilised for any of
the following activities:
a. The business of chit fund, or
b. Nidhi Company, or
c. Agricultural or plantation activities or in real estate business, or construction
of farm houses, or
d. Trading in Transferable Development Rights [TDRs], or
e. Investment in capital market including margin trading and derivatives
27.2.1 A declaration to this effect shall have to be obtained from the NRI borrower at the
time of availing the loan stating that the loan amount shall not be utilized in any of the
above mentioned restrictive activities.
27.3 Sanction of loans to NRIs is subject to compliance all extant RBI guidelines.
27.4 The rate of interest, tenor, method of assessment shall be as applicable for
domestic borrower for similar nature and type of advance.
27.5 Margin to be debited to NRE/ FCNR/ NRO accounts of the non-resident borrowers or
out of inward remittances by the borrowers.
27.6 Repayment in the case of commercial loans shall be out of the income generated out
of cash flows and in the case of personal loans, the repayment shall be made out of
inward remittance from abroad/ by debit to the NRE/ NRO account. However, in
exceptional cases and on justifiable grounds, CACB may permit for inclusion of inward
remittances out of the salary of such NRE/PIO to the income generated out of cash flows.
27.7 All the norms stipulated to resident borrower shall be made applicable.
27.8 Branches can sanction only housing loans and loans against deposits at the branch
level, within their delegated lending powers.
27.9 Housing loans beyond the delegated lending powers of the branch and all other
retail loans shall be sanctioned only by the Retail Loan Centres or Zonal Office (ZLCC)
or Circle Office (CLCC) or Head Office (HLCC/CAC) within their delegated lending
powers based on the loan amount.
****************
III. The Company should have obtained Stock Exchange Approval for getting
its shares listed on exchanges.
IV. The Bank should not come within the definition of ‘Person related
to promoters’ as per the SEBI (ICDR) regulation 2009..
V. The allotment of shares/specified securities to the Bank is restricted to 50%
of the issue size.
VI. Shares allotted to Bank can only be sold on a recognized Stock
Exchange within one year from date of allotment.
VII. The Company whose equity shares are listed on a Stock Exchange
having nationwide trading terminal can issue or place securities under QIP.
28.6.2 Regulatory limits for cross holding of capital among Banks/ financial institutions:
Bank’s / FI’s investment in the following instruments, which are issued by other Banks /
FI’s are eligible for capital status for the investee Bank/ FI’s, should not exceed 10 % of
the investing Bank’s capital funds (Tier 1 plus Tier II)
I. Equity Shares
II. Preference Shares eligible for capital status
III. Subordinate debt instruments
IV. Hybrid debt capital instruments and
V. Any other instrument in the nature of capital.
to decide whether the current price is on the higher side. Based on such analysis and also
market enquiries through brokers, a note should be prepared, indicating the floor/cap
prices for buying the shares. The Sanctioning authority may, based on day-to-day
variation in the market prices and change of perception, review the floor/cap rates.
Detailed analysis must be again made if there is a substantial change in the industry
outlook or in the fundamentals of the company.
28.8 For delegation of powers in respect of investment in Pre IPO and Private
Placement Equity, Investment Policy of the bank shall be referred.
***********
*********
30.2 Introduction:
30.2.1 The Government of India, having recognised the urban sector as a key driver of the
economy of the country and in the light of the rapid pace of urbanisation, has
undertaken various initiatives and announced programs like the Jawaharlal Nehru
National Urban Renewal Mission (JNNURM), the Urban Infrastructure Development
Scheme for Small & Medium Towns (UIDSSMT), tax free Municipal Bonds,
the Pooled Finance Development Fund etc. to bring urban infrastructure sector into
enhanced focus and to attract private sector investments. These Govt. programmes
are aimed at creating economically productive, efficient, equitable and responsive
cities providing incentive as well as support for undertaking reforms at State and
Cities level.
30.2.2 In the above background, a need was therefore felt to have innovative ways of
funding the urban infrastructure taken up by the municipal corporations, Urban Local
bodies etc. It is in this context several NBFCs, Development financial institutions,
Public Sector Banks have taken the initiative and evolved a new way of funding this
vital sector of the economy and Pooled Municipal Debt Obligation Facility (PMDO)
is one such innovation. The sponsors such as ILFS and other Banks have requested
other Banks to participate in such programs.
30.2.3 This guidelines is for participation in such programmes and for formulation of
risk framework in the Bank.
30.3 Guidelines:
The brief highlights of the policy prescriptions are as under:
30.3.1 The Bank shall participate in structured debt obligation such as Pooled Municipal
Debt Obligation facility, sponsored by the development financial institutions, Public
Sector Banks, Reputed Private Sector Banks, NBFCs etc.
30.3.2 The ultimate beneficiaries of such programmes shall be Municipal Corporations,
Urban Local Bodies, Local Authorities, etc. for developing Urban Infrastructure
projects across cities in India on an integrated basis. In other words, the pooled
funds shall be utilised by way of term lending to Municipal Corporations, Local
Bodies, and Local Authorities etc.
30.3.3 The purpose of such term lending shall be towards the following sectors:
i. Water Supply & Sewage,
ii. Solid Waste Management,
31.3.3 These products shall cover a wide gamut of debt instruments which would address
requirements of Indian Corporates / infrastructure space across multiple situations i.e.
mergers & acquisitions, capital restructurings, purchase of non-core assets,
monetisation of assets, stressed assets, construction period finance, start up, ramp up
and bridge funding.
31.3.4 The instruments used by the facility would be flexible and adopt some of the best
structures available internationally. The range of instruments would cover
optionally Convertibles, sub-ordinate debt, guarantees, Risk Participating
Agreements, Pay-in-kind instrument, collaterised debt obligations, viability gap
instruments and other forms of mezzanine debt.
31.3.5 The purpose of such facility is to fund structured mezzanine instruments, which
address these opportunities in infrastructure funding, acquisition funding, capital &
financial restructuring space and other forms of M & A to achieve higher income/
yields to the participating Banks.
31.3.6 The maximum amount of participation shall not exceed Rs. 100.00 Crore in any one
such facility. The aggregate exposure under Structured Mezzanine Credit Facility
shall not exceed Rs. 500.00 Crore at any point of time.
31.3.7 The Bank shall participate in secured lending programmes, which generates enough
assets / income to secure / repay the loans. Bank shall not participate in unsecured
lending programs. The assets and interest created out of Bank finance shall be secured
to the participating Banks.
31.3.8 Borrower shall open a Trust & Retention Account with the sponsor / any of the
participating banks, who in turn allocate the share to each of the participating banks
towards payment of equated quarterly/monthly installments. The Borrower shall
deposit all its receivables, Grant, toll and any other income to the TRA. The surplus
amount in the TRA after meeting the repayment obligation shall be transferred to a
designated sub-account of the Borrower, to be utilised by the Borrower as per its
requirements.
31.3.9 The tenor of such loans shall not normally exceed 10 years from the last
disbursement under each project
31.3.10 On achieving the financial closure, a common loan agreement shall be executed by
the participating banks detailing the terms of the PMDO facility. The individual
lenders commitment to the PMDO facility would be captured in the agreement.
Subsequent documentation for each such project within the PMDO facility would be
executed by the Security Trustee with the respective borrowers. The documentation
shall be done under due legal advice.
31.3.11 The ROI shall be market-determined rate as agreed by the participating banks and
payable quarterly in arrears with right to reset once every three years. The Bank shall
also be entitled for Management / Commitment Fee/Pre-payment Penalty as agreed
by the participating banks.
31.3.12 The Bank shall participate in Credit Committee meetings as and when it is inducted
as one of the member.
31.3.13 The Bank shall receive financial statement of the SPVs (in case the Borrower is SPV)
within 90 days from the end of the financial year.
31.3.14 The Bank shall have the right to securitise the assets at a future date and an
undertaking from the borrower shall be obtained to this effect.
31.3.15 The policy shall be modified to give effect to the changes in the extant
guidelines/directives/ instructions that may be advised by the Reserve Bank of
India / Government of India from time to time.
********
32 GUIDELINES ON SECURITISATION
32.1 Objective:
For raising resources:
32.1.1 To raise resources for the Bank (through mortgage / asset backed securitization) at a
reasonable cost.
32.1.2 For better asset liability management as long tenure assets can be disposed-off, IN
CASE OF NEED, to reduce the maturity mismatches.
32.1.3 To manage the capital funds efficiently without affecting the growth of the Bank. To
rotate assets and to continue to book business even while capital availability is scarce.
32.1.4 To access to new source of funding and diversify the existing funding sources
32.1.5 To maximize the returns by churning assets fast
32.1.6 For better managing the credit portfolio. By hiving of assets in sectors of high
concentration, the Bank would be in a position to continue to book additional business
in these sectors and hence maintain market share, client relationship etc.
For Deploying Surplus Funds
Avenue for bulk deployment of surplus funds either by subscribing to the PTCs or by
purchase of assets through bi-lateral assignment of debt with reasonable rate of return.
32.3 Compliance:
32.3.1 All the operating units / functional divisions are expected to comply with the policy
guidelines laid down in this document. In case of any doubt about the applicability
of any aspect of these policies to any situation, clarification / approval shall first be
sought from CPPS / Credit Division prior to committing the Bank.
SECTION A
32.5 Requirement to be met by the Bank as a originating Bank:
Assets eligible for Securitisation:
32.5.1 In a single securitisation transaction, the underlying assets shall represent the debt
obligations of a homogeneous pool of obligors. Subject to this condition, all on-
balance sheet standard assets1, except the following, shall be eligible for securitisation
by the originators:
i. Revolving credit facilities [e.g., cash credit accounts, credit card
receivables etc.]
ii. Assets purchased from other entities.
iii. Securitisation exposures [e.g., Mortgage-backed / asset –backed securities]
iv. Loans with bullet repayment of both principal and interest2.
1
In these guidelines the term loans / assets have been used to refer to loans, advances
and bonds which are in the nature of advances as defined in Para 2.1 [vii] of Master
Circular – Prudential Norms for Classification, Valuation and operation of Investment
Portfolio by banks dated July 1, 2011.
2
Loans with tenor up to 24 months extended to individuals for agricultural activities
[as defined by Rural Planning and Credit Department of the Reserve Bank of India, in
the Master Circular – Lending to Priority Sector] where both interest and principal are
due only on maturity and trade receivables with tenor up to 12 months discounted /
purchased by banks from their borrowers will be eligible for securitisation. However,
only those loans / receivables will be eligible for securitisation where a borrower [in
case of agricultural loans] / a drawee of the bill [in case of trade receivables] has fully
repaid the entire amount of last two loans / receivables [ one loan, in case of
agricultural loans with maturity extending beyond one year] within 90 days of the due
date.
32.6.3 The MHP shall be applicable to individual loans in the pool of securitised loans. MHP
shall not be applicable in para No. 32.5.1
32.8.1 In case Bank exceeds the above limit, the excess amount shall be risk weighted at
1250%.
32.8.2 Credit exposure on account of interest swap / currency swap entered into with the
SPV shall be excluded from this limit as this would not be control of the Bank.
32.8.3 The 20% limit on exposure shall not be deemed to have been breached if it is exceeded
due to amortization of securitisation instruments issued.
obtained by the Bank from the SPV. These disclosures should be made in the format
given in Appendix 2.
income, volatility of the market values of the collaterals supporting the loans, cyclicality of
the economic activities in which the underlying borrowers are engaged, etc.);
d. the reputation of the originators in terms of observance of credit appraisal and credit
monitoring standards, adherence to MRR and MHP standards in earlier securitizations, and
fairness in selecting exposures for securitization;
e. loss experience in earlier securitizations of the originators in the relevant exposure
classes underlying the securitization position, incidence of any frauds committed by the
underlying borrowers, truthfulness of the representations and warranties made by the
originator;
f. The statements and disclosures made by the originators, or their agents or advisors,
about their due diligence on the securitized exposures and, where applicable, on the quality
of the collateral supporting the securitized exposures; and
g. where applicable, the methodologies and concepts on which the valuation of collateral
supporting the securitised exposures is based and the policies adopted by the originator
to ensure the independence of the valuer.
32.13.1.3 When the securitized instruments are subsequently purchased in the secondary
market by a Bank, it shall, at that point of time, ensure that the originator has
explicitly disclosed that it will retain a position that meets the MRR.
SECTION B
Guidelines on Transactions Involving Transfer of Assets through Direct Assignment
of Cash Flows and the Underlying Securities
1. Requirements to be met by the Bank as an originator
1.1 Assets Eligible for Transfer9
1.1.1. Under these guidelines, Bank shall transfer a single standard asset 10 or a part of
such asset or a portfolio of such assets to financial entities through an assignment
deed with the exception of the following:
(i) Revolving credit facilities (e.g. Cash Credit accounts, Credit Card receivables
etc.)
(ii) Assets purchased from other entities.
(iii) Assets with bullet repayment of both principal and interest.11
9 In these guidelines, transfer would mean transfer of assets through direct sale,
assignment and any other form of transfer of assets. The generic term used for transfers
would be sale and purchase.
10 In these guidelines, the term loans/assets have been used to refer to loans, advances
or bonds which are in the nature of an advances as defined in para 2.1 (vii) of Master
Circular – Prudential Norms for Classification, Valuation and Operation of Investment
Portfolio by banks dated July 1, 2011
11 Loans with tenor up to 24 months extended to individuals for agricultural activities
(as defined by Rural Planning and Credit Department of the Reserve Bank of India, in
the Master Circular – Lending to Priority Sector) where both interest and principal are
due only on maturity and trade receivables with tenor up to 12 months
discounted/purchased by banks from their borrowers will be eligible for direct transfer
through assignment. However, only those loans/receivables will be eligible for such
transfer where a borrower (in case of agricultural loans) /a drawee of the bill (in case of
trade receivables) has fully repaid the entire amount of last two loans / receivables (one
loan, in case of agricultural loans with maturity extending beyond one year) within 90
days of the due date.
1.2.3 1.2.3 The MHP shall be applicable to individual loans in the pool of securitised loans.
MHP shall not be applicable in foot note No 2 in para No. 2.1
1.4.3 Treatment of Assets sold not Meeting the Requirements stipulated above
All the guidelines contained in the above paragraphs except in Para 1.4.2 will be
applicable only to the new transactions undertaken on or after 07.05.2012. Instructions in
Para 1.4.2 will be applicable to both existing and new transactions 13. If Bank fails to
meet the requirement laid down in paragraphs 1.1 to 1.6 above, it will have to maintain
capital for the assets sold as if these were still on the books of the Bank.
13 For existing transactions para 1.4.2 would apply to credit enhancements or any other
type of retained exposures.
loan to value ratios with band widths that facilitate adequate sensitivity analysis. Such
information, if not collected directly by the Bank and obtained from the servicing agent,
shall be certified by the authorized officials of the servicing agent. Bank may inter alia make
use of the disclosures made by the originators in the form given in Appendix 1 to monitor
the exposures.
2.4.2 Depending upon the size of the portfolio, credit monitoring procedures may include
verification of the information submitted by the Bank concurrent and internal auditors.
The servicing agreement shall be provided for such verifications by the auditors of the
Bank. All relevant information and audit reports shall be available for verification by the
Inspecting Officials of RBI during the Annual Financial Inspections of the Bank.
2.5 True Sale Criteria14
2.5.1 The ‘sale’ (this term would hereinafter include direct sale, assignment and any
other form of transfer of asset, but does not include loan participation through
Inter-Bank Participation Certificates, bills rediscounted, outright transfer of loan
accounts to other financial entities at the instance of the borrower and sale of
bonds other than those in the nature of advance) shall result in immediate legal
separation of the ‘selling bank’15 (this term hereinafter would include direct
selling bank, assigning bank and the bank transferring assets through any other
mode), from the assets16 which are sold. The assets shall stand completely
isolated from the selling bank, after its transfer to the Bank, i.e., put beyond the
selling bank’s as well as its creditors’ reach, even in the event of bankruptcy of the
selling / assigning / transferring bank.
2.5.2 The selling bank shall effectively transfer all risks / rewards and rights/ obligations
pertaining to the asset and shall not hold any beneficial interest in the asset after
its sale except those specifically permitted under these guidelines. The Bank shall
have the unfettered right to pledge, sell, transfer or exchange or otherwise dispose
of the assets free of any restraining condition. The selling bank shall not have any
economic interest in the assets after its sale and the buyer shall have no
recourse to the selling bank for any expenses or losses except those specifically
permitted under these guidelines.
14 For true sale criteria for securitization transaction, please refer to Annex 7 of our Master
Circular –New Capital Adequacy Framework dated July 01,2011.
15 In this para, the term ‘selling bank’ will include other financial entities selling loans to banks.
16 In case of sale of a part of an asset, true sale criteria will apply to the part of the asset sold.
2.5.3 There shall be no obligation on the selling bank to re-purchase of fund the
repayment of the asset or any part of it or substitute assets held by the buyer or
provide additional assets to the buyer at any time except those arising out of breach
of warranties or representations made at the time of sale. The selling bank should
be able to demonstrate that a notice to this effect has been given to the buyer and
that the buyer has acknowledged the absence of such obligation.
2.5.4 The selling bank shall be able to demonstrate that it has taken all reasonable
precautions to ensure that it is not obliged, nor will feel impelled, to support any
losses suffered by the buyer.
2.5.5 The sale shall be only on cash basis and the consideration shall be received not
later than at the time of transfer of assets. The sale consideration should be market-
based and arrived at in a transparent manner on an arm’s length basis.
2.5.6 If the seller of loans acts as the servicing agent for the loans, it would not detract
from the ‘true sale’ nature of the transaction, provided such service obligations do
not entail any residual credit risk on the sold assets or any additional liability for
them beyond the contractual performance obligations in respect of such services.
2.5.7 An opinion from the selling bank’s Legal Counsel shall be kept on record
signifying that: (i) all rights, titles, interests and benefits in the assets have been
transferred to the buyer; (ii) selling bank is not liable to the buyer in any way with
regard to these assets other than the servicing obligations as indicated in para 2.5.6
above; and (iii) creditors of the selling bank do not have any right in any way with
regard to these assets even in case of bankruptcy of the selling bank.
2.5.8 Any re-schedulement, restructuring or re-negotiation of the terms of the underlying
agreement/s effected after the transfer of assets to the buyer, shall be binding on
the Bank and not on the selling bank except to the extent of MRR.
2.5.9 The transfer of assets from selling bank must not contravene the terms and
conditions of any underlying agreement governing the assets and all necessary
consents from obligors (including from third parties, where necessary) should have
been obtained.
2.5.10 In case the selling bank also provides servicing of assets after the sale under a
separate servicing agreement for fee, and the payments/repayments from the
borrowers are routed through it, it shall be under no obligation to remit funds to
the buyer unless and until these are received from the borrowers.
2.8.2 In purchase of pools of both retail and non-retail loans, income recognition, asset
classification, provisioning and exposure norms for the Bank shall be applicable based
on individual obligors and not based on portfolio. Bank shall not apply the asset
classification, income recognition and provisioning norms at portfolio level, as such
treatment is likely to weaken the credit supervision due to its inability to detect and
address weaknesses in individual accounts in a timely manner.
2.8.3 If the Bank is not maintaining the individual obligor-wise accounts for the portfolio of
loans purchased, it shall have an alternative mechanism to ensure application of
prudential norms on individual obligor basis, especially the classification of
the amounts corresponding to the obligors which need to be treated as NPAs as per
existing prudential norms. One such mechanism shall be to seek monthly statements
Section C
1. SECURITISATION ACTIVITIES/EXPOSURES NOT PERMITTED
Bank shall not undertake the securitization activities or assume securitization exposures as
mentioned below:
1.1 Re-securitisation of Assets
A re-securitisation exposure is a securitization exposure in which the risk associated with
an underlying pool of exposures is tranched and at least one of the underlying exposures is
a securitization exposure. In addition, an exposure to one or more re-securitisation
exposures is a re-securitisation exposure. This definition of re-securitised exposure will
capture collateralized debt obligations (CDOs) of asset backed securities, including,
for example, a CDO backed by residential mortgage-backed securities (RMBS).
1.2 Synthetic Securitisations
A synthetic securitization is a structure with at least two different stratified risk positions
or tranches that reflect different degrees of credit risk where credit risk of an underlying pool
of exposures is transferred, in whole or in part, through the use of funded (e.g. credit- linked
notes) or unfunded (e.g. credit default swaps) credit derivatives or guarantees that serve to
hedge the credit risk of the portfolio. Accordingly, the investors’ potential risk is dependent
upon the performance of the underlying pool.
1.3 Securitisation with Revolving Structures (with or without early amortization features)
These involve exposures where the borrower is permitted to vary the drawn amount and
repayments within an agreed limit under a line of credit (e.g. credit card receivables and
cash credit facilities). Typically, revolving structures will have non-amortising assets such
GROUP CREDIT POLICY 222
SECURITISATION
as credit card receivables, trade receivables, dealer floor-plan loans and some leases that
would support non-amortising structures, unless these are designed to include early
amortization features. Early amortization means repayment of securities before their
normal contractual maturity. At the time of early amortization there are three potential
amortization mechanics: (i) Controlled amortization; (ii) Rapid or non-controlled
amortization; and (iii) Controlled followed by a subsequent (after the completion of the
controlled period) non-controlled amortization phase.
2. the appropriateness and suitability of transactions prohibited in the above guidelines
would be revisited in due course.
Exposure Norms:
As Bank is making a foray in to the securitisation market, the exposure ceilings
are proposed as under:
Exposure Ceilings
Areas
Per Occasion Overall
Bilateral Assignment of Debt (Acquisition of loan
assets on direct assignment basis)
- If the underlying pool of assets are Rs 1500 Crore Rs 5000 Crore
reckoned as priority sector loans
- If the underlying pool of assets are not reckoned Rs 500 Crore Rs 2000 Crore
as priority sector loans
Subscription through PTCs Rs. 50 Crore Rs. 200 Crore
Exposure Ceilings
Areas
Per Client Overall per Bank
Inter Bank Participation Certificate Rs. 200 Crore Rs. 1500 Crore
(IBPCs)(Per Bank Exposure)
Delegation of Powers:
Powers for acquiring assets through bilateral assignment of debts / subscription of PTCs /
IBPCs shall be exercised as under:
Mode Powers
Acquisition of Assets through As the amount invested will be reckoned as Advances, powers
bilateral assignment of debt as applicable for other advances (as per scheme of delegation of
powers duly approved by the Board) shall be made applicable
Securitised Transaction As the amount invested will be reckoned as Investments,
through PTCs powers as spelt out by the Board for investments in PTCs shall be
made applicable
Investment in IBPCs of As approved by the Board for this purpose
other banks
Appendix I
Format for Disclosure Requirements in offer documents, servicer report, investor
report, etc.18
Name/ Identification No. of Securitisation transaction19:
Sl. Nature of Amount
No disclosure Details /percentage/ years
1 Maturity (i) Weighted average maturity of the underlying
characteristics of assets (in years)
the underlying assets (ii)Maturity-wise distribution of underlying assets:
(on the date of
disclosure) a)Percentage of assets maturing within one year
b)Percentage of assets maturing within one to
three years
c) Percentage of assets maturing within three to
five years
d) Percentage of assets maturing after five years.
2 Minimum (i) MHP required as per RBI guidelines
Holding Period (years/months)
(MHP) of securitized (ii) a) Weighted average holding period of
assets securitized assets at the time of securitization
(years/months)
b) Minimum and maximum holding period of the
securitized assets
3 Minimum (i) MRR as per RBI guidelines as a percentage of
Retention book value of assets securitized and outstanding on
Requirement (MRR) the date of disclosure
on the date of (ii) Actual retention as a percentage of book value of
disclosure assets securitized and outstanding on the date of
disclosure
(iii) Types of retained exposure constituting MRR in
percentage of book value of assets securitized
(percentage of book value of assets securitized)20
a) Credit Enhancement (i.e. whether investment
in equity/subordinate tranches, first/second loss
guarantees, cash collateral, overcollateralization
b) Investment in senior tranches
c) Liquidity support
d) Any other (pl specify)
iv) Breaches, if any, and reasons therefore
4 Credit quality of the (i) Distribution of overdue loans
underlying a) Percentage of loans overdue upto 30 days
loans
b) Percentage of loans between 31-60 days
c) Percentage of loans overdue more than 90 days
18This appendix will also be applicable to direct transfer of loans. For that purpose
the world’s ‘securitised assets’/asset securitised’ may be interpreted to mean ‘loans
directly transferred/assigned.’ Banks should disclose/report the information in respect of
securitization and direct transfers separately.
19These disclosures should be made separately for each securitisation transaction
throughout the life of the transaction.
20 this item is not relevant for direct transfer of loans, as there will be no credit enhancement,
liquidity support and tranching.
Appendix 2
Disclosures to be made in Notes to Accounts by Banks
21 Only the SPVs relating to outstanding securitization transactions may be reported here
*************
33 CHANNEL FINANCE
[For financing dealers of Reputed Original Equipment Manufacturers]
33.1 With the intense competition among banks for credit deployment in diversified
segments such as mid corporates, trade and SMEs, some banks have developed special
loan products to leverage the relationship between the corporates and their dealers
to deploy credit with short cycles. In this type of finance, taking advantage of the
relationship between the dealers and the manufacturers, banks offer credit on terms
which is affordable to the dealers, who are the channel participants. Banks select the
channel participants in consultation with the manufacturers. Financing Channel
Participants will broad base bank’s exposure to several constituents and minimise the
risk. This loan product has gained popularity as it serves the purpose of both
the O.E. Manufacturers as well as dealers. While O.E. Manufacturers are benefited
by getting funds in time for recycling and can concentrate on their core manufacturing
activities without bothering about the realisation of their receivables, dealers are
benefited by getting continuous supply of goods at cheaper terms, as upfront payment
through channel financing entitles them for cash discount etc.
33.2.8 Though the Bank relies on the due diligence of the OEMs, the final approval of channel
participants for financing is solely the decision of the Bank keeping the broad
parameters evolved in selection. The scheme envisages obtention of confidential
opinion from the existing bankers of the Channel participants.
**********
34.1 Bills purchase/ discounting facilities which are self-liquidating in nature are to be
allowed to the customers as a part of their working capital requirements.
34.2 The bills Purchase/discounting facility shall be decided on the basis of the holding of
receivables projected by the customer. Normally, the usance period should not exceed
90 days in the case of domestic bills. However ZLCC/CLCC/ HLCC/ CAC may extend
inland bills discounting limits in respect of bills having tenor upto 180 days.
34.3 Accommodation Bills should not be discounted. The underlying trade transactions
should be clearly identified, and a proper record thereof should be maintained for the
bills discounted.
34.4 Purchase/ discounting / negotiation of bills under LCs shall be done only in
respect of genuine commercial and trade transactions of the borrower
constituents who have been sanctioned with regular credit facilities by the Bank.
Therefore, fund based [including bills financing] or non-fund based facilities like
opening of LCs providing guarantees and acceptances shall not to be extended to
non-constituent borrower or/ and non-constituent member of a consortium/
multiple Banking arrangement. However, in case where negotiation of bills drawn
under LC is restricted to our Bank, and the beneficiary of the LC is not our Bank's
constituent, such LC shall be negotiated, subject to the condition that the proceeds will
be remitted to the regular Banker of the beneficiary.
34.5 Bills drawn under Prime Bank LCs may be negotiated, on `with recourse' or
`without recourse' basis. However, Bank shall not purchase/ discount of other bills [the
bills drawn otherwise than under LC] on `without recourse' basis.
34.6 Bills rediscounting shall be restricted to usance bills held by other banks. Bills
earlier discounted by NBFCs except in respect of bills arising from sale of light
commercial vehicles and two/ three wheelers are not to be re-discounted.
34.7 In order to promote payment discipline which would to a certain extent encourage
acceptance of bills, all corporates and other constituent borrowers having turnover
above Rs.10 Crore should disclose `ageing schedule' of their overdue receivables in
their monthly statement of book-debts submitted by them.
34.8 No Repo transactions using bills discounted/ re-discounted as collateral shall be
entered into by the Bank.
34.9 Advance against supply bills will be allowed only in respect of genuine
transactions with the government departments/ semi-government departments/ public
sector undertakings and that too in cases where proper irrevocable power of attorney is
registered in favour of the Bank. The Supply Bills will invariably be accompanied by
Inspection Note/ Delivery Note or Receipted Challan which should be not older
than two weeks and the same must show unqualified acceptance of goods by the drawee
concerned.
34.10 Normally, Bills arising out of purchase/ sale of goods shall only be purchased/
discounted. In exceptional cases, ZLCC/CLCC/HLCC/CAC may sanction facility for
purchase/ discount of bills emanating from service transactions. However, while
discounting such bills, it should be ensured that actual services are rendered and
accommodation bills are not discounted.
34.11 only bills covering purchase of raw material/ inventory for production purpose and sale
of goods should be discounted. Bills covering payments of electricity charges, customs
duty, hire purchase/ lease rental installments, sale of securities and other types of
financial accommodation should not be discounted.
34.12 Delegation of Powers
34.12.1 The delegatees shall purchase/ discount bills only of the customers who are having
regular working capital limits. In other words, no bill shall be purchased/ discounted
for customers who are not enjoying regular working capital limits and having only
current account. However, such facilities may be extended upon the sanction of
regular credit limits after due appraisal/ assessment.
34.12.2 The delegatees shall negotiate bills drawn under LC if negotiation is restricted to
our Bank even though the beneficiary of the LC is not a constituent of our Bank.
34.12.3 The delegatees shall purchase/ discount bills of the customers within their
delegated powers as laid down in Scheme of Delegation of Lending Powers
34.12.4 HLCC/ CAC shall exercise its lending powers for purchase/ discounting of
bills drawn on the associates/ sister concern of the borrower and that too on being
satisfied that there is an underlying genuine trade transaction.
***********
a. Eligibility: Bank may consider proposals for underwriting [solely or jointly with other
agencies as co-syndicator] from the PSUs / reputed Corporates. Further, the internal
gradation of the borrower shall be within CB1 to CB4 as per latest audited financial
statement and / or Bank loan rating through external rating agencies shall not be below
BBB. The proposals with gradation CB5 and below and Bank loan rating [external
rating] below BBB- shall not be considered for underwriting.
b. Quantum: The maximum extent of underwriting the loan shall be within the limit
assessed by the Bank to the proposed business activity as per appraisal method prescribed
in the Group Credit Policy subject to the prudential exposure ceilings fixed for single /
group borrower / various other exposure ceiling prescribed in the Group Credit Policy. In
the case of prospective borrower the same shall not exceed the entry-level ceiling fixed
by the Bank.
c. Nature: Bank shall underwrite part or entire debt by indicating hold on position of the
Bank. Hold on position of the Bank shall indicate the size and volume of loan / debt which
the Bank indicates to keep in its book out of underwritten amount. Bank may disburse
the entire underwritten amount before participating by other Bank /FIs and down sell the
same subsequently to other banks.
Bank shall down sell the balance amount [Net of its hold position] within 6 months from
the date of sanction of the underwritten deals. In case Bank is not able to down sell the
required amount, the same shall be reported to the HLCC/ Credit Approval Committee /
Management Committee of the Board along with the reasons for the delay in down sell.
In case, Bank decides to increase the hold on position out of underwritten amount, the
same may be done on approval by the Sanctioning Authority who is empowered to
sanction the entire hold position of the Bank. However, Circle Level Credit Committee
shall be empowered to down sell the additional amount in part or full amount of Bank's
hold position.
d. Ceiling: The aggregate outstanding underwritten amount at any point of time shall
not exceed 3% of the Net Bank Credit as at 31st March of previous year.
e. Others: Bank shall have the liberty to cancel the underwriting if any adverse feature is
noticed / any misreporting or suppression of material information by the company / group
surfaces.
f. Underwriting Fee: Bank may charge upfront underwriting fee of upto 1% of the amount
underwritten in addition to the normal syndication fee.
Any concession in the underwriting fee below 1% shall be considered with the approval
of Credit Approval Committee of the Board.
h. Monitoring: The status report of the individual borrower wise underwritten debt
remaining unsold shall be placed before the Board by Credit Division on half yearly
basis.
****************
37.2 Guidelines for hedging foreign currency exposures for USD 5.00 Mio and above
All customers except those specified below having availed fresh FCTL/FCDL in
substitution of working capital, working capital Demand loan or Term Loan in Indian
Rupees, shall hedge their currency exchange risk through one or more derivative product
offered by the Bank.
a) FCTL/FCDL extended to borrower clients who are otherwise having natural hedge
by way of export, atleast equivalent to their unhedged forex exposure.
b) Corporates, who are otherwise having exchange risk management cell with laid down
policies to manage their overall exposures on a regular basis through their experienced
dealers in foreign exchange. The company shall furnish the details of such
arrangements along with other details and seek specific exemption from hedging
of FCTL/FCDL and also undertake unconditionally to bear the exchange risk and
absorbs any losses arising from keeping their position open. If the corporate is having
a Board approved policy for not hedging the forex exposure, the same may be
furnished to the branch.
37.3 Guidelines for hedging foreign currency exposures in FC up to USD 5.00 Mio
All customers availing FCDL/FCTL shall hedge their exposure through one or more derivatives
like Forwards, Options, etc. Exceptions shall be made by sanctioning authority in the following
cases.
a. Where there is a natural hedge by means of future foreign currency flows by
exports/remittance/receipts in foreign currency.
b. Where natural hedge is not available, waiver shall be considered only in case
of borrowers with Gradation CB1, CB2 or CB3 and on their unconditional
undertaking that they have understood the risks involved in such exposures
and have capacity to absorb any loss arising from keeping their position open
37.5 In case of un-hedged positions if the exchange fluctuations are adverse amounting to
5% or more in the FCDL/FCTL in Indian Rupee value, branch shall earmark the other
outstanding Working capital/Term loan limits or insist for booking of Forward
Contract or obtain additional margin, to comply with the terms of sanction. This
exercise shall be done on periodical basis
**********
SECTION III
On the basis of the above early warning signals, the branch maintaining the account
should consider forwarding the stressed accounts with aggregate loan limits above
Rs.10 lakh to the Committee as referred in para 38.3.3 within five working days for
a suitable corrective action plan (CAP). Forwarding the account to the Committee
for CAP will be mandatory in cases of accounts reported as SMA-2.
38.2.2 As regards accounts with aggregate loan limits up to Rs.10 lakh identified as SMA-
2, the account should be mandatorily examined for CAP by the branch itself under
the authority of the branch manager/ OR such other official designated by the Branch
Manager (hereinafter referred to as ‘designated official’). Other terms and conditions,
such as time limits, procedures to be followed, etc., as applicable to the cases referred
to the Committee as referred in para 38.3.3, should be followed by the branch
manager / designated official. However, the cases, where the branch manager /
designated official has decided the option of recovery under CAP instead of
rectification or restructuring as mentioned in para 38.5.3 (a) or (b), should be referred
to the Committee at Zonal office for their concurrence. The branch manager /
designated official should also examine the accounts reported as SMA-0 and SMA-
1, if it is deemed necessary. All decision with respect to revival framework should
be minutised and made available for verification.
38.2.3 Identification by the Borrower Enterprise - Any MSME borrower may voluntarily
initiate proceedings under this Framework, if the enterprise reasonably apprehends
failure of its business or its inability or likely inability to pay debts or there is erosion
in the net worth due to accumulated losses to the extent of 50% of its net worth during
the previous accounting year, by making an application to the branch or directly to
the Committee as referred in para 35.3.3, wherever applicable.. When such a request
is received by lender, the account with aggregate loan limits above Rs.10 lakh should
be referred to the Committee. The Committee should convene its meeting at the
earliest but not later than five working days from the receipt of the application, to
examine the account for a suitable CAP. The accounts with aggregate loan limit up
to Rs.10 lakh are to be dealt with by the branch manager / designated official for a
suitable CAP.
only] per sitting. The expenditure may be debited to the miscellaneous expenses under
General charges.
The term of such nominee in the committee may be fixed at one year. Zonal/Circle
Head shall issue a letter of nomination to the concerned person. The meeting of
committee shall be convened on any convenient day so as to dispose the application
under Revival framework as per the time norms stipulated.The notice of such meeting
should be conveyed to the members well in advance along with agenda note.Minutes
of the meeting shall be minutised and made available for verification.
Decisions of the Committee will be by simple majority, the Chairperson shall have
the casting vote, in case of a tie. In case of accounts under consortium / MBA, lenders
should sign an Inter-Creditor Agreement (ICA) on the lines of Joint Lenders’ Forum
(JLF) Agreement.
38.3.5 All eligible stressed MSMEs shall have access to the Committee for resolving the
stress in these accounts in accordance with regulations prescribed in this Framework.
38.3.6 Provided that where the Committee decides that recovery is to be made as part of the
CAP, the manner and method of recovery shall be in accordance with the existing
policy approved by the board, subject to any regulations prescribed by the Reserve
Bank of India and extant statutory requirements.
38.4.2 Where an application is filed by a bank / lender and admitted by the Committee, the
Committee shall notify the concerned enterprise about such application within five
working days and require the enterprise to:
a. respond to the application or make a representation before the Committee; and
b. disclose the details of all its liabilities, including the liabilities owed to the State
or Central Government and unsecured creditors, if any, within fifteen working
days of receipt of such notice;
Provided that if the enterprise does not respond within the above period, the Committee
may proceed ex-parte.
38.4.3 On receipt of information relating to the liabilities of the enterprise, the Committee
may send notice to such statutory creditors as disclosed by the enterprise as it may
deem fit, informing them about the application under the Framework and permit
them to make a representation regarding their claims before the Committee within
fifteen working days of receipt of such notice. It is mentioned here that these
information are required for determining the total liability of the Enterprise in order
to arrive at a suitable CAP and not for payments of the same by the lenders.
38.4.4 Within 30 days of convening its first meeting for a specific enterprise, the
Committee shall take a decision on the option to be adopted under the corrective
action plan as given in subsequent paragraphs and notify the enterprise about such
a decision, within five working days from the date of such decision.
38.4.5 If the corrective action plan decided by the Committee envisages restructuring of
the debt of the enterprise, the Committee shall conduct the detailed Techno-
Economic Viability (TEV) study (also refer para 38.5.1) and finalise the terms of
such a restructuring in accordance with the extant prudential norms for
restructuring, within 20 working days (for accounts having aggregate exposure up
to Rs.10 crore) and within 30 working days (for accounts having aggregate exposure
above Rs.10 crore and up to Rs.25 crore) and notify the enterprise about such terms,
within five working days.
38.4.6 Upon finalisation of the terms of the corrective action plan, the implementation of
that plan shall be completed by the bank within 30 days (if the CAP is Rectification)
and within 90 days (if the CAP is restructuring). In case recovery is considered as
CAP, the recovery measures should be initiated at the earliest.
38.4.7 Where an application has been admitted by the Committee in respect of an MSME,
the enterprise shall continue to perform contracts essential to its survival but the
Committee may impose such restrictions, as it may deem fit, for future revival of
the enterprise.
38.4.8 The Committee shall make suitable provisions for payment of tax or any other
statutory dues in the corrective action plan and the enterprise shall take necessary
steps to submit such plan to the concerned taxation or statutory authority and obtain
approval of such payment plan.
c. Recovery:– Once the first two options at (a) and (b) above are seen as not feasible, due
recovery process may be resorted to. The Committee may decide the best recovery process
to be followed, among the various legal and other recovery options available, with a view
to optimizing the efforts and results.
38.6 The decisions agreed upon by a majority of the creditors (75% by value and 50% by
number) in the Committee would be considered as the basis for proceeding with the
restructuring of the account, and will be binding on all lenders under the terms of the
Inter-Creditor Agreement. If the Committee decides to proceed with recovery, the
minimum criteria for binding decision, if any, under any relevant laws or Acts shall be
applicable.
38.7 Time-lines
Detailed time-lines are given for carrying out various activities under the Framework.
If the Committee is not able to decide on CAP and restructuring package due to non-
availability of information on statutory dues of the borrower, the Committee may take
additional time not exceeding 30 days for deciding CAP and preparing the restructuring
package. However, they should not wait beyond this period and proceed with CAP.
38.9 If the Committee decides on options of either ‘Rectification’ or ‘Restructuring’, but the
account fails to perform as per the agreed terms under these options, the Committee
shall initiate recovery under option 38.5.3(c).
b. However, the Committee may consider restructuring of the debt, where the account
is doubtful with one or two lender/s but it is Standard or Sub-Standard in the books
of majority of other lenders (by value).
c. Wilful defaulters shall not be eligible for restructuring. However, the Committee
may review the reasons for classification of the borrower as a wilful defaulter and
satisfy itself that the borrower is in a position to rectify the wilful default. The
decision to restructure such cases shall have the approval of the Board of concerned
bank within the Committee who has classified the borrower as wilful defaulter.
d. Cases of Frauds and Malfeasance remain ineligible for restructuring. However, in
cases of fraud / malfeasance where the existing promoters are replaced by new
promoters and the borrower company is totally delinked from such erstwhile
promoters / management, banks and the Committee may take a view on
restructuring of such accounts based on their viability, without prejudice to the
continuance of criminal action against the erstwhile promoters / management.
Further, such accounts may also be eligible for asset classification benefits available
on refinancing after change in ownership, if such change in ownership is carried out
under guidelines already communicated to branches in terms of RBI circular
DBR.BP.BC.No.41/21.04.048/2015-16 dated September 24, 2015 on “Prudential
Norms on Change in Ownership of Borrowing Entities (Outside Strategic Debt
Restructuring Scheme)”.
e. Existing guidelines on restructuring of assets shall be followed for such accounts.
38.10.2 Viability
a. The viability of the account shall be determined by the Committee based on
acceptable viability benchmarks determined by them.
b. The parameters may, inter-alia, include the Debt Equity Ratio, Debt Service
Coverage Ratio, Liquidity or Current Ratio, etc.
38.11 Review
a. In case the Committee decides that recovery action is to be initiated against an
enterprise, such enterprise may request for a review of the decision by the Committee
within a period of ten working days from the date of receipt of the decision of the
Committee.
b. The request for review shall be on the following grounds:
i. a mistake or error apparent on the face of the record; or
ii. discovery of new and relevant fact or information which could not be produced
before the Committee earlier despite the exercise of due diligence by the
enterprise.
********************
39.1 INTRODUCTION
39.1.1 Occasions do arise when the borrowers are unable to meet the stipulated repayment
schedule due to various business reasons. Many a times, even the interest charged in
the accounts may not get recovered. In respect of new projects under implementation
(even in expansion projects), a delay in completion of the project can result in
inability of the borrowers in meeting their repayment schedules. Under all the
above circumstances, the accounts go out of order in the normal course and pro-active
measures are to be initiated to appropriately restructure the accounts. Therefore, there
is a need to ensure that restructuring proposals are submitted by branches to
appropriate authorities for sanction well in time so as to implement corrective measures
without any delay.
39.1.2 Restructuring of advances on account of natural calamities will come under the
purview of separate set of guidelines issued by the Rural Planning and Credit
Department (RPCD) of the RBI
39.3.4 While the borrowers indulging in frauds and malfeasance will continue to remain
ineligible for restructuring, bank may review the reasons for classification of the
borrowers as willful defaulters specially in old cases where the manner of classification
of a borrower as a willful defaulter was not transparent and satisfy itself that the
borrower is in a position to rectify the willful default. The restructuring of such cases
may be done with Board's approval, while for such accounts the restructuring under the
CDR Mechanism may be carried out with the approval of the Core Group only.
Cases of Frauds and Malfeasance remain ineligible for restructuring. However, in cases
of fraud / malfeasance where the existing promoters are replaced by new promoters and
the borrower company is totally delinked from such erstwhile promoters / management,
banks and the Committee may take a view on restructuring of such accounts based on
their viability, without prejudice to the continuance of criminal action against the
erstwhile promoters / management. Further, such accounts may also be eligible for asset
classification benefits available on refinancing after change in ownership, if such
change in ownership is carried out under guidelines already communicated to branches
in terms of RBI circular DBR.BP.BC.No.41/21.04.048/2015-16 dated September 24,
2015 on “Prudential Norms on Change in Ownership of Borrowing Entities (Outside
Strategic Debt Restructuring Scheme)”.
39.3.5 BIFR cases are not eligible for restructuring without their express approval. CDR
Core Group in the case of advances restructured under CDR Mechanism / the lead bank
in the case of SME Debt Restructuring Mechanism and the individual banks in other
cases, may consider the proposals for restructuring in such cases, after ensuring that all
the formalities in seeking the approval from BIFR are completed before implementing
the package.
Henceforth, the following General Conditions would be applicable in all cases of
restructuring in addition to General Conditions already mentioned
i. All restructuring packages will be required to be implemented in a time bound
manner. All restructuring packages under CDR/JLF/Consortium/MBA
arrangement should be implemented within 90 days from the date of approval.
Other restructuring packages should be implemented within 120 days from the
date of receipt of application by the bank.
ii. Promoters must bring additional funds in all cases of restructuring. Additional
funds brought by promoters should be a minimum of 2 percent of banks’ sacrifice
or 2 per cent of the restructured debt, whichever is higher. The promoters’
contribution should invariably be brought upfront while extending the
restructuring benefits to the borrowers. Promoter’s contribution need not
necessarily be brought in cash and can be brought in the form of conversion of
unsecured loan from the promoters into equity;
iii. Banks should determine a reasonable time period during which the account is
likely to become viable, based on the cash flow and the Techno Economic
Viability (TEV) study;
iv. Banks should be satisfied that the post restructuring repayment period is
reasonable, and commensurate with the estimated cash flows and required DSCR
in the account as per their own Board approved policy.
v. Each bank should clearly document its own due diligence done in assessing the
TEV and the viability of the assumptions underlying.
39.5.2.7 The restructuring under consideration is not a repeated restructuring. When a bank
restructures an account a second (or more) time(s), the account will be
considered as a repeatedly restructured account.
However, if the second restructuring takes place after the period up to which the
concessions were extended under the term of the restructuring, that account shall
not be reckoned as a repeatedly restructured account.
In case of rollover of short term loans where proper pre-sanction assessment has
been made, and the roll-over is allowed based on the actual requirement of the
borrower and no concession has been provided due to credit weakness of the
borrower, then these might not be considered as restructured accounts. However,
if such accounts are rolled-over more than 2 times, then third rollover onwards
the account would have to be treated as a restructured account.
39.5.3 During the specified period, the asset classification of the sub-standard/doubtful
accounts will not deteriorate upon restructuring, if satisfactory performance is
demonstrated during the specified period. These accounts would be eligible for
upgradation to standard category after observation of satisfactory performance
during the specified period.
39.5.4 In case, however, satisfactory performance after the specified period is not
evidenced, the asset classification of the restructured account would be governed as
per the applicable prudential norms with reference to the pre-restructuring payment
schedule.
39.5.4.1 The term ‘Specified Period’ as per RBI guidelines shall be a period of one year
from the commencement of first payment of interest or principal whichever is
later, on the credit facility with the longest period of moratorium under the terms
of restructuring package.
39.5.4.2 The term ‘Satisfactory Performance’ as per RBI guidelines shall be satisfactory
performance during the specified period means adherence to the following
conditions during that period.
i. Non-Agricultural Cash Credit Accounts : In the case of non-agricultural cash credit
accounts, the account should not be out of order any time during the specified period,
for duration of more than 90 days / 180 days as applicable to Tier I and Tier II UCBs
respectively. In addition, there should not be any overdues at the end of the specified
period.
ii. Non-Agricultural Term Loan Accounts : In the case of non-agricultural term loan
accounts, no payment should remain overdue for a period of more than 90 days. In
addition there should not be any overdues at the end of the specified period.
iii. All Agricultural Accounts : In the case of agricultural accounts, at the end of the
specified period the account should be regular.
39.5.5.2 Provision on Restructured Standard Accounts shall be in a phased manner for the
existing restructured accounts. Provision on existing restructured advances shall
be 2.75% by 01.06.2013 and it shall go upto 3.50% by 31.03.2014 &
4.25% by 31.03.2015 & 5.00% by 31.03.2016.
39.5.6 The Bank shall decide on the issue regarding convertibility (into equity) option as
a part of restructuring exercise whereby the bank shall have the right to convert a
portion of the restructured amount into equity, keeping in view the statutory
requirement under section 19 of the Banking Regulation Act, 1949 and relevant
SEBI regulations.
39.5.6.1 Conversion of debt into preference shares shall be done only as a last resort
and such conversion of debt into equity/ preference shares shall, in any case, be
restricted to a cap (say 10 percent of the restructured debt). Further any
conversion of debt into equity shall be done only in case of listed companies.
39.5.6.2 The detailed guidelines on conversion of debt into preference shares, the master
circular on Income Recognition and Asset Classification Norms by RBI, may be
referred.
39.5.7 All restructuring packages must incorporate ‘Right to Recompense’ clause and
in any case minimum 75 percent of the recompense amount should be recovered
by the bank and in cases where some facility under restructuring has been extended
below MCLR, 100% of the recompense amount should be recovered.
39.6 In line with the recommendation of the Working Group (Chairman: Shri B.
Mahapatra) to review the existing prudential guidelines on restructuring of
advances by banks/ Financial Institutions, the extant incentive for quick
implementation of restructuring package and asset classification benefits (Para No.
36.5 & 36.4 above) available on restructuring will however be withdrawn for all
restructurings effective from April 1, 2015 with the exception of provisions
related to changes in DCCO (Date of Commencement of Commercial Operations) in
respect of infrastructure as well as non-infrastructure project loans (Refer Para 36.6
and 36.7). It implies that with effect from April 1, 2015, a standard account on
restructuring (for reasons other than change in DCCO) would be immediately
classified as sub-standard on restructuring as also the non-performing assets, upon
restructuring would continue to have the same asset classification as prior to
restructuring and slip into further lower asset classification categories as per the extant
asset classification norms of the RBI with reference to the pre-restructuring repayment
schedule.
39.7.2 A loan for an infrastructure project will be classified as NPA if it fails to commence
commercial operations within two years from the original DCCO, even if it is regular
as per record of recovery, unless it is restructured and becomes eligible for
classification as 'standard asset' in terms of Para 36.6.3 to 36.6.5 below.
39.7.3 If a project loan classified as 'standard asset' is restructured any time during the
period up to two years from the original date of commencement of commercial
operations (DCCO), in accordance with the provisions of Part B of this Master
Circular, it can be retained as a standard asset if the fresh DCCO is fixed within the
following limits, and further provided the account continues to be serviced as per the
restructured terms.
(a) Infrastructure Projects involving court cases : Up to another 2 years (beyond the
existing extended period of 2 years, as prescribed in Para 39.6.2, i.e. total extension of
4 years), in case the reason for extension of date of commencement of production is
arbitration proceedings or a court case.
(b) Infrastructure Projects delayed for other reasons beyond the control of
promoters : Up to another 1 year (beyond the existing extended period of 2 years, as
prescribed in Para (39.6.2), i.e. total extension of 3 years), in other than court cases.
39.7.4 It is re-iterated that the dispensation in Para 38.6.3 is subject to adherence to the
provisions regarding restructuring of accounts as contained in the Master Circular
of RBI which would inter alia require that the application for restructuring should
be received before the expiry of period of two years from the original DCCO and
when the account is still standard as per record of recovery. The other conditions
applicable would be:
a. In cases where there is moratorium for payment of interest, banks should not
book income on accrual basis beyond two years from the original DCCO,
considering the high risk involved in such restructured accounts.
b. Banks should maintain following provisions on such accounts as long as these are
classified as standard assets in addition to provision for diminution in fair value:
Particulars Provisioning Requirement
If the revised DCCO is within two years 0.40 per cent
from the original DCCO prescribed at the
time of financial closure
If the DCCO is extended beyond two years Project loans restructured with effect from June
and up to four years or three years from the 1, 2013:
original DCCO, as the case may be, 5.00 per cent – From the date of such
depending upon the reasons for such delay restructuring till the revised DCCO or 2 years
from the date of restructuring, whichever is later.
Stock of project loans classified as restructured as
on June 1, 2013:
* 3.50 per cent - with effect from March
31, 2014 (spread over the four quarters of
2013-14)
* 4.25 per cent - with effect from March
31, 2015 (spread over the four quarters of
2014-15)
39.7.5 For the purpose of these guidelines, mere extension of DCCO would not be
considered as restructuring, if the revised DCCO falls within the period of two years
from the original DCCO. In such cases the consequential shift in repayment period
by equal or shorter duration (including the start date and end date of revised
repayment schedule) than the extension of DCCO would also not be considered as
restructuring provided all other terms and conditions of the loan remain unchanged.
As such project loans will be treated as standard assets in all respect, they will attract
standard asset provision of 0.40 per cent.
39.7.6 In case of infrastructure projects under implementation, where Appointed Date (as
defined in the concession agreement) is shifted due to the inability of the
Concession Authority to comply with the requisite conditions, change in date of
commencement of commercial operations (DCCO) need not be treated as
‘restructuring’, subject to following conditions:
a) The project is an infrastructure project under public private partnership
model awarded by a public authority;
b) The loan disbursement is yet to begin;
c) The revised date of commencement of commercial operations is documented
by way of a supplementary agreement between the borrower and lender and;
d) Project viability has been reassessed and sanction from appropriate authority
has been obtained at the time of supplementary agreement.
39.8 Project Loans for Non-Infrastructure Sector (Other than Commercial Real
Estate Exposures)
39.8.1 A loan for a non-infrastructure project will be classified as NPA during any
time before commencement of commercial operations as per record of recovery (90
days overdue), unless it is restructured and becomes eligible for classification
as 'standard asset' in terms of Para (39.7.3) to (39.7.5) below.
39.8.2 A loan for a non-infrastructure project will be classified as NPA if it fails to
commence commercial operations within one year from the original DCCO, even if
is regular as per record of recovery, unless it is restructured and becomes eligible for
classification as 'standard asset' in terms of Para (36.7.3) to (36.7.5) below.
39.8.3 In case of non-infrastructure projects, if the delay in commencement of commercial
operations extends beyond the period of one year from the date of completion as
determined at the time of financial closure, banks can prescribe a fresh DCCO, and
retain the "standard" classification by undertaking restructuring of accounts in
accordance with the provisions contained in this Master Circular, provided the fresh
DCCO does not extend beyond a period of two years from the original DCCO. This
would among others also imply that the restructuring application is received before
the expiry of one year from the original DCCO, and when the account is still
"standard" as per the record of recovery.
The other conditions applicable would be:
d. In cases where there is moratorium for payment of interest, banks should
not book income on accrual basis beyond one year from the original DCCO,
considering the high risk involved in such restructured accounts.
e. Banks should maintain following provisions on such accounts as long as these
are classified as standard assets apart from provision for diminution in fair
value due to extention of DCCO:
Particulars Provisioning Requirement
If the revised DCCO is within two years from 0.40 per cent
the original DCCO prescribed at the time of
financial closure
If the DCCO is extended beyond one years Project loans restructured with effect from June
and upto two years from the original DCCO 1, 2013:
prescribed at the time of financial closure. 5.00 per cent – From the date of restructuring for
two years.
Stock of project loans classified as restructured
as on June 1, 2013:
* 3.50 per cent - with effect from March
31, 2014 (spread over the four quarters of
2013-14)
* 4.25 per cent - with effect from March
31, 2015 (spread over the four quarters of
2014-15)
* 5.00 per cent - - with effect from March 31,
2016 (spread over the four quarters of 2015-16)
The above provisions will be applicable from
the date of restructuring for 2 years.
39.8.4 For the purpose of these guidelines, mere extension of DCCO would not
be considered as restructuring, if the revised DCCO falls within the period of one
year from the original DCCO. In such cases the consequential shift in repayment
period by equal or shorter duration (including the start date and end date of revised
repayment schedule) than the extension of DCCO would also not be considered as
restructuring provided all other terms and conditions of the loan remain unchanged.
As such project loans will be treated as standard assets in all respect, they will
attract standard asset provision of 0.4 per cent.
39.9 Other Issues:
39.9.1 Any change in the repayment schedule of a project loan caused due to an increase in
the project outlay on account of increase in scope and size of the project, would not be
treated as restructuring if:
a. The increase in scope and size of the project takes place before
commencement of commercial operations of the existing project.
b. The rise in cost excluding any cost-overrun in respect of the original project
is 25% or more of the original outlay.
c. The bank re-assesses the viability of the project before approving the
enhancement of scope and fixing a fresh DCCO.
d. On re-rating, (if already rated) the new rating is not below the previous rating
by more than one notch.
******
40 EXIT GUIDELINES
40.1 Guidelines For Problem Credit Management
In spite of putting in place a well laid down systems & procedure for credit initiation,
appraisal, sanction/ approval and monitoring, quite a large number of accounts are drifting
to NPA category exerting pressure on the bank’s earnings and strain on profitability. Such
accounts also draw a lot of time and energy of the field level functionaries for their
monitoring/ recovery of dues which otherwise could have been made use of for business
development that contributes to the profitability/ bottom line of the Bank. In this backdrop,
the Exit Scheme guidelines have been formulated.
ii. Deterioration in critical financial ratios (Current ratio in the case of working
capital limits, TOL/TNW & DER in the case of term loans).
iii. Frequent overdrawls, return of cheques, not meeting obligations on time;
iv. undue delay in submission of stock statements, financial statements, renewal
papers etc.,
v. Frequently appearing in SMA category;
vi. CRILC / CIBIL reports are not satisfactory; company engaged in frequent
litigation
vii. Group accounts are found to be not operated satisfactorily.
41 OTHER ASPECTS
41.1 Bank Loans for Financing Promoters’ Contribution:
41.1.1 As per the extant RBI guidelines on “Loans and Advances – Statutory & Other
Restrictions”, the promoters' contribution towards the equity capital of a company
should come from their own resources and Bank should not normally grant
advances to take up shares of other companies.
41.1.2 However, as a special provision under Revitalising Distressed Assets, RBI has
informed that banks can extend finance to ‘specialized’ entities established for
acquisition of troubled companies subject to the general guidelines applicable to
advances against shares / debentures / bonds as contained in the Master Circular on
“Loans and Advances – Statutory & Other Restrictions”. However, the lenders shall
assess the risks associated with such financing and ensure that these entities are
adequately capitalized, and debt equity ratio for such entity is not more than 3:1.
41.1.3 In this connection, a ‘specialized’ entity will be a body corporate exclusively set up
for the purpose of taking over and turning around troubled companies and promoted
by individuals or/and institutional promoters (including Government) having
professional expertise in turning around ‘troubled companies’ and eligible to make
investments in the industry/segment to which the target asset belonged.
41.2 Credit Risk Management:
41.2.1 Bank shall carry out independent and objective credit appraisal in all cases and shall
not depend on credit appraisal reports prepared by outside consultants, especially
the in-house consultants of the borrowing entity.
41.2.2 To aid in taking a view on the viability of the project, at the time of deciding
Corrective Action Plan [CAP], the Bank shall carry out sensitivity tests / scenario
analysis, especially for infrastructure projects, which shall inter alia include project
delays and cost overruns.
41.2.3 Bank shall ascertain the source and quality of equity capital brought in by the
promoters /shareholders. Multiple leveraging, especially, in infrastructure projects,
is a matter of concern as it effectively camouflages the financial ratios such as
Debt/Equity ratio, leading to adverse selection of the borrowers. Therefore, Bank
shall ensure at the time of credit appraisal that debt of the parent company is not
infused as equity capital of the subsidiary/SPV.
41.2.4 While carrying out the credit appraisal, Bank shall verify as to whether the names
of any of the directors of the companies appear in the list of defaulters/ wilful
defaulters by way of reference to DIN/PAN etc. Further, in case of any doubt arising
on account of identical names, Bank shall use independent sources for confirmation
of the identity of directors rather than seeking declaration from the borrowing
company.
41.3 Reinforcement of Regulatory Instructions
41.3.1 Before opening Current account / sanctioning post sale limits, Bank shall obtain the
concurrence of main bankers and/or the banks which are sanctioned inventory
limits.
Manager [Recovery Division] in case the account is NPA shall be the convener. The meeting
shall be invariably attended by the concerned functional General Manager and in case of
leave of absence; the meeting shall be attended by the Alternate General Manager.
Scope of the Committee: The committee after taking into account the facts and submissions
made, shall classify/identify a borrower as non-cooperative borrower.
Appeal: Once, the identification committee concludes that a borrower is non-cooperative;
Bank shall issue a Show Cause Notice to the concerned Borrower (and the promoter/whole-
time director’s in case of companies) and call for his/her/their submission. After considering
the submissions made by the borrower, an order is to be issued recording therein the reasons
for identifying the borrower to be non-cooperative borrower. Further, an opportunity shall
be given to the borrower for a personal hearing, if the committee feels such an opportunity
is necessary.
B. Review Committee: The order so issued by the ED level Committee, should be
reviewed by another Committee headed by the Managing Director and CEO and consisting,
in addition, of two independent directors of the bank. Thereafter, the order shall become
final only after it is confirmed by said Review Committee.
41.5.4 Reporting to Central Repository of Information on Large Credits (CRILC):
The present practice of reporting information on non-cooperative borrowers to Central
Repository of Information on Large Credits (CRILC) under CRILC-Main (Quarterly
Submission) return as advised by RBI vide Circular No. DBS.OSMOS,No.14703/
33.01.001/2013-14 dated 22.05.2014 shall continue. As per the said circular, the Quarterly
CRILC Main Report is required to be submitted within 21 days from the close of the relevant
quarter. The Reserve Bank of India has reiterated that as CRILC data is collected under the
provisions of the RBI Act, non-adherence to reporting instructions attract penal provisions
under the Act.
41.5.5 Review of Status:
The Bank’s Board of Directors shall review on a half-yearly basis the status of non-
cooperative borrowers for deciding whether their names can be declassified as evidenced by
their return to credit discipline and cooperative dealings. Further, removal of names from the
list of non-cooperative borrowers shall be separately reported under CRILC with adequate
reasoning/rationale for such removal.
41.5.6 Provision requirement on fresh exposure:
Any new/fresh loans sanctioned to borrower/s reported as Non-Cooperative Borrower/s as
also new loans sanctioned to any other company that has on its board of directors any of the
whole time directors/promoters of a non-cooperative borrowing company or any firm in
which such a non-cooperative borrower is in charge of management of the affairs, will by
implication entail greater risk necessitating higher provisioning. Hence, higher provisioning
as applicable to substandard assets in respect of such exposure shall be made.
In this regard, the Reserve Bank of India has advised that for the purpose of asset classification
and income recognition, the new loans would be treated as standard asset, which supersedes
*************