REVENUE LEAKAGE-

Performance
Analysis
How to Plug
Q3 FY 2020
Jan 24, 2020
 Revenue Leakage
Revenue leakage is any unnoticed or unintended loss of revenue from Bank.

Revenue leakage happens as a result of a bank’s failure to collect all legitimate revenue
owed. It can occur at every stage through the customer lifecycle. Money that goes
uncollected is wasted opportunity and eats away at profit margins.

This unintended loss of revenue can impact the bottom line considerably. The impact
is typically -stunted growth, revenue loss, and missed market expectations.

In the present economic scenario, Banks are facing pressure on their profitability as
NIM is very thin due to competitive Rate of Interest, Service Charges and rising NPAs. In
such a situation, it is necessary for all the Branches and Controlling offices to ensure
that whatever Income has accrued to the Bank by rendering the services or granting
Credit facilities are recovered correctly on due date.

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 Revenue Leakage - Impact

Revenue Leakage Detected to Bank’s Net Profit (Amt in crores)

8000 66.59% 70.00%

7272
7000 60.00%
6000 50.46%
50.00%
5000
40.00%
4000
30.00%
3000
20.00%
2000
10.64%
1000 829 774 10.00%
545 552
275
0 0.00%
FY 2019-2020 FY 2020-2021 FY 2021-2022
Revenue Leakage Detected Net Profit of Bank
% of Revenue Leakage to Net Profit
The Revenue Leakage detected is apart of Operational Profit and has direct
bearing on the Performance Linked Incentive payable to employees.

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 Analysis of Major Areas of Revenue Leakage

FY 2019- FY 2020- FY 2021-

Parameter 2020 2021 2022
Rate of Interest Not correctly
charged / Not Charged / Penal
Interest Not Charged 37.17% 56% 54.07%
Processing Charges Not
Recovered 48.23% 32% 26.54%
Other Charges not Recovered
(including ESCROW A/c &
Inspection Charges) 13.51% 10% 17.78%

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Major Areas of Revenue Leakage (Assets)

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Major Areas of Revenue Leakage (Assets)

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 Revenue Leakage – Rate of Interest
1. Degradation of Internal Rating

• The rating exercise for eligible borrowers under BOBRAM/BOBICON will be conducted annually
based on the audited financials. of the previous year. In exceptional cases where audited financials
are delayed, rating may be completed on the provisional financials and if the adverse variation is
more than 10%, then fresh rating shall be done based on audited financials. The derived Rate of
Interest (based on Rating) will be effective from 1 st October or Date of Rating whichever is earlier.
• In the case of borrowers with exposure of Rs. 5.00 crore and above where there are significant
increase in the credit risk, as indicated by falling under SMA 1 & 2 category etc, re-rating is
required to be done immediately and the latest credit rating grades are to be considered for
charging interest rate from the date of rating approval till the next review date.

How to Plug Leakage:

A. Branch should check the Final Rating when received back from RMD ( within 1
month). Branch Rating & RMD Rating (Final) should be kept in File.
B. Rate of Interest in Finacle should be effected as per guidelines.
C. All charges should be recovered promptly as and when due.

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 Revenue Leakage – Rate of Interest
2. Application of Incorrect Rate of Interest / Zero Rate of Interest
 In many instances incorrect Rate of Interest is applied due to ,
 Keying of Incorrect Rate of Interest Table Code ( which either results in application of lower
Rate of Interest or in case of Redundant Code , “0%” Interest is applied in the account)
 Non-Feeding of Spread as stipulated in sanction
 Continuation of Concession in Interest even though the same is lapsed / not renewed
by Sanctioning Authority. Normally concessions are sanctioned for a period of -12-
months / next review of the account whichever is earlier.

How to Plug Leakage:

 The list of accounts where Interest is not applied can be generated from the following Finacle Menu – (1) BOBMENU –
DATA CENTER REPORT – ACCOUNT-WISE INTEREST REPORT ( To Check Correct Application Of Interest In The Account)
and (2) BOBMENU- MISC DOWNLOADS AND REPORTS – INTEREST FAIL REPORT CC/OD / LOANS.
 The reasons for the incorrect / non-application of interest should be ascertained such as
 At the time of modification of limit level interest flag is checked and no interest rate is given. Action:
Modify the limit level details (feed interest rate) through HACLHM.
 Collect interest flag at account level is checked off – as a result no interest gets applied. Action: Modify
the account details through HACMLA.
 Pegging tab should be Y and frequency should be properly inserted as per guidelines .

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 Revenue Leakage – Rate of Interest
3. Incorrect Classification

The entities which are outside the purview of MSMED Act 2006 (in terms of investment in
Plant & Machineries/Equipment’s) and having a gross annual turnover of up to Rs.250/-crore
(including export sales) as per the last Audited Balance Sheet or Previous Financial Year / any
other statutory returns (e.g. GST return) will be classified as Non-Regulatory MSME/ MSME
Expanded.
 Incorrect Classification in Exporter Category: Benefit to only those Exporters who
have export sales in excess of 60% of total sales.

 In case of ADHOC/EXCESS allowed the ROI is @2% higher than the applicable rate
of interest is to be verified from the HAINTRPT report for the said period.

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 Revenue Leakage – Penal Interest
 The Bank may apply penal interest of minimum 2% p.a. for delay in submission of financial
statement, stock statements, creation of security or breach of stipulated covenants etc.

 Scan the sanction proposal thoroughly for some special conditions are stipulated in the sanction
like:
 Closure of current accounts with other bank
 Security perfection within -3- months
 Carry out external rating within stipulated time
 Infusion of capital
 Reduction in limit within stipulated time etc……

How to Plug Leakage:

 Finacle Report to check application of Penal Interest / Appropriate Interest– HAINTRPT.
 Insert the desired SOL Id, Account no ( for which interest report is to be generated), From – To Date
( period for which report is required), MRT File ( Report type) and Various selectors depending upon
the Nature of Data Requirement.
 Once the report is generated, the same is to be checked for application of correct ROI / Penal Interest.
 If the same is not applied, the applicable ROI / Penal Interest needs to be keyed in Finacle Menu -
HINTTM

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 Revenue Leakage –
Processing Charges (Fresh Sanction)
 Processing Charges:

 Review/Annual Manual/ Review of short Term loan/DL/Corporate

Loan/TL/DPG : 0.10% without Cap

How to Plug Leakage:

 The list of Fresh Accounts opened during a given period can be generated from Finacle option –
BOBMENU – ADV A/C OPENED DURING GIVEN PERIOD
 Applicable processing charges of such accounts needs to be promptly recovered.

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 Revenue Leakage –
Processing Charges (Review)
 Review Related: Large corporate accounts/MSME are reviewed with delay. In such cases the
Processing charges are to be recovered for unreviewed period + Review Period. The branch
sometimes fails to recover the processing charges for the unreviewed period.

 Revalidation of Sanction: 25% of the applicable processing charges ( Not applicable for
Export Finance)

 Lead Bank charges as Leader of Consortium on total assessed limits :0.20% of the
aggregate of Fund Based and Non Fund Based, subject to a minimum of Rs. 5 lakhs and
maximum of Rs. 50 lakhs. This will be in addition to the processing charges.

How to plug leakage:

 The list of accountswhere Review / Limit / DP is changed during a given period can be
generated from Finacle option – BOBMENU – ERROR/ WARNING REPORT –
LIMIT/DP/REVIEW DT CHANGE REPORT.
 In case of change in Review Date / Limit, applicable Review Charges needs to be promptly
recovered.

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 Revenue Leakage – Others

 ESCROW Account Charges : In case of project loans wherein ESCROW accounts are opened,
ESCROW Account charges are to be recovered Annually. 
 Mortgage Creation Charges: Mortgage creation charges to be recovered for all Credit Facilites
except Education Loans and Home Loans/ Home Improvement Loan and Top-up Loan. The
charge is applicable for extension of equitable mortgage recorded in favour of other lenders also.
The charges are applicable for extension of mortgage for enhancement and for substitution of
title deeds also.
 Inspection Charges (Linked to BOB Rating & Nature of Security)
 Modification Charges.

How to Plug Leakage:

A. Any Modification in Finacle / Noting of Inspection Report ( carried out by Branch
Official) / Mortgage etc should be accompanied by appropriate Charges Recovery
Entry / Vouchers.
B. Appropriate noting of recovery of charges should be made Register / Records .

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 Revenue Leakage - Others (Commitment Charges)

 Commitment charges: (Corporate)

Parameters Charges
For customers submitting QIS @ 0.75% (exclusive of GST) for the balance
statements un–utilized portion viz-a-viz 60% of limits
For customers not submitting @ 0.50% (exclusive of GST) for the balance
QIS statements un–utilized portion viz-a-viz total limits.

How to Plug Leakage:

 The average quarterly utilization in the account is generated from Finacle Menu -
HABI.
 The same can be used to calculate the un-utilized amount can be calculated. The
commitment charges can be calculated based on un-utilized amount.
 Appropriate commitment charges to be promptly recovered.

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 Revenue Leakage – Others
 Documentation Charges: For Corporate accounts above < 1 Crore: 0.10% of limit with
a maximum of Rs. 25,000/- to be charged in addition to actual expenses incurred.
 Review with increased limits For the entire amount of reviewed limit.
 Issuing of NOC of all Manual types like granting NOC for ceding parri passu charge,
exclusive charge, 2nd charge etc. (Not applicable in case of NOC / Exchange of
parripassu letter in consortium accounts.)
 Charges for TEV study
 Prepayment charges on Term Loan/ Demand Loan / Working Capital Demand Loan:
At the rate of 2% p.a. on the balance amount of loan and for the residual period of
prepayment except Retail Loan including Loan against Future Rent Receivables/Staff
Loans.

How to Plug Leakage:

A. Applicable charges should be recovered immediately and appropriate noting of
recovery of charges should be made in Register / Records .

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 Revenue Leakage - Liabilities
Automatic Recovery of majority of charges in case of Liability Products are being already
taken care by Data Centre. However, still there are certain areas where manual intervention
is required in case of Liabilities Product, such as
 Addition/ deletion of names in Joint Accounts
 Nomination
 Charges for issuance of Balance / Interest Certificate
 Inssuance of Solvency Certificate
 Issuance of Bankers’ Certificate on behalf of contractor clients for participating in the
Government tender
 Operating account with restrictive operations
 Operating account with POA/ Mandate
 Change of authorized signatory including reconstitution of A/c.
 Safe Custody Charges
 Attestation of customers’ signature

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 Reference Material

Sr Particulars Reference Circular

No
1. Global Credit Exposure Management Circular
Policy
2. Finacle Workbook Available in Baroda Gurukul
3. Latest Service Charges HO:BR:112:286 dated 29.06.20
4. Escrow Account Charges ( Retail) BCC: BR: 114:431 dated 02.07.22
5. Prepayment Charges BCC:BR:113: 750 dated 04.12.21
6. Recovery of Processing Charges BCC:BR:113:80 dated 06.02.21
(Corporate)
7. Commitment Charges (MSME) BCC:BR:113:122 dated 04.03.21
8. Commitment Charges / Inspection BCC:BR:112:411 dated 13.07.20
Charges / Modification (Large / Mid
Corporate)
9. Inspection Charges (MSME) BCC:BR:112: 597 dated 06.10.20

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Thank you