credit policy of the bank - 2009apgb.in/files/1_4_50974af1d6b99.pdf · 2014-12-27 · pragathi...

ANDHRA PRAGATHI GRAMEENA BANKHEAD OFFICE :: KADAPA

Circular No. 57-2009-BC-CD Date:19.03.09

CREDIT POLICY OF THE BANK - 2009

Attention of the Branches and Regional Offices is invited to Circular No.47-2006-BC-

CD dated 14.08.2006.

Since the earlier Credit Policy issued in August 2006, the dynamics that govern

dispensation of Bank Credit have undergone several changes. Within this period,

there has been dramatic shifts on various fronts impacting Bank credit. There is a

need to match the changing dynamics in credit demand with appropriate changes in

our policy imperatives focus areas of business, credit strategies.

Accordingly, the credit policy has been revised consolidating the additions

modifications made during the intervening period and taking the various initiatives

forward, in order to place the Bank in a position from which it can take advantage of

the emerging trends in the credit market during the period ahead.

The revised credit policy, which has been approved by the Board of Directors in their

meeting held on 13.02.09, is enclosed. The revised credit policy comes into force

with immediate effect.

It is clarified that while credit policy document enunciates the broad policy /

procedural guidelines on credit, for other detailed operational / procedural guidelines,

Branches / Regional Offices shall refer to the relevant Circulars / Desk Guide and

other communications issued from time to time.

Clarifications required, if any, on this circular may be sought from Credit Department,

Head Office, Kadapa.

(M.JAI PRAKASH) CHAIRMAN

Enclosure to Circular No.57-2009-BC-CD Date:19.03.09

CREDIT POLICY OF THE BANK

1) Rationale of the new policy:

The two years, which have elapsed since the last credit policy of the Bank after

amalgamation and formation of Andhra Pragathi Grameena Bank. Within these

two years there has been dramatic shifts on various fronts impacting Bank credit.

These necessitated amendments to the credit policy which were circulated to

Branches / Offices through circulars issued from time to time. It is now felt

necessary to come out with a fresh credit policy incorporating all the changes

during the intervening period as also, new approaches / strategies to achieve

Bank's goals and objectives within the accepted credit philosophy.

Trends that characterized credit growth:

The main factors which contributed to the rapid expansion of credit were

financial deepening, increased competition among Banks, improvement in

asset quality and product innovations. The drive towards greater financial

inclusion in the last two years has also led to higher credit penetration among

hither to unbanked areas and social segments. With the increase in the

number of players in the credit market, competition has intensified resulting in

narrowing of margins. To make up for the squeeze in margins, Banks have

had to increase credit volumes by aggressively marketing credit. The

repeated interest hikes and higher provisions and risk weights on select

categories of retail credit brought the quality of retail credit under stress. The

growth under this sector has slowing down and incidence of NPAs also

appeared. Hence, the Bank has taken steps by tightening its monitoring and

control systems. The credit to priority sector grown over 25 percent in the last

two years. The instances of agricultural distress came down considerably as

agriculture growth gained tempo. The emerging trends like contract farming,

farm mechanisation, tissue culture and upswing in the economic activities in

rural areas and smaller towns has opened more avenues to Banks for

deploying credit in priority sector.

Contd…2


: 2 :

a. Policy imperatives: The imperatives of the Bank's credit policy are therefore

modified as under in keeping with the changes in the economic scenario.

• Emphasis on maintenance of Asset quality end Management of Spreads.

• Ensuring availability of adequate Sanctioning Powers duly balancing business

growth with risk management considerations.

• Thrust on Priority Sector lending especially to Agriculture and Small & Medium

enterprises where fresh business opportunities are emerging.

• Introduction of Fair practices Code for lendings as per RBI Directors.

• Sensitization and preparation of credit functionaries at all levels.

b. Need for revision of credit policy:The amendments and additions effected to the credit policy in the intervening

period since the last revision of the policy document were aimed at aligning the

policy guidelines to the above imperatives. The changes now affected seek to

balance measures that aim to maintain growth while effectively managing the

credit risks that emerge in the process.

c. Credit Philosophy of the Bank:The underlying credit philosophy of the bank continues unchanged which is as

under:“ To achieve credit expansion for the development of Agriculture by

covering all non-loanee farmers, increasing infrastructure and term loan lending ;

emphasis on SSI, SME sector, Micro credit and other production activities in both

priority and non-priority sectors so as to sustain the viability of the Bank”.

OBJECTIVES & STRATEGIES

1. The balanced deployment of credit to various sectors with focus on priority

sector, particularly coverage of all Non-loanee farmers with an emphasis on

maintenance of asset quality and management of spreads.

2. Efforts to increase investment credit to ensure that creation of assets / infra-

structure with advanced technology under agriculture.

3. Ensuring ALM driven deployment of resources for ensuring desired returns

and liquidity.Contd….3


: 3 :

4. Maximise interest yields from the credit portfolio through a judicious manage-

ment of varying spreads for loan assets based on their size, credit rating and

tenure.

5. Continue to involve actively in lending under poverty alleviation programmes.

6. To ensure women empowerment through a strong and viable SHG portfolio

and strengthen the farmers’ club programme for integrated development of vil -

lages.

7. To extend financial assistance to tenant farmers / share croppers through

RMGs.

8. Ensure due compliance of various regulatory norms, including CRR, SLR, in-

come recognition, asset classification and provisioning.

9. Develop and maintain enhanced competencies in credit management at all

levels through a combination of training initiatives and dissemination of best

practices.

10. Ensure maintenance of healthy assets by intensive monitoring to avoid accre-

tion of NPAs while reducing the existing NPAs.

CREDIT STRATEGIES:

The Strategies suggested for accomplishment of the objectives are as follows:

1. Increasing the Agricultural advances:The strategy adopted to increase agricultural advances both under production

credit and investment credit is by identifying Non-loanee farmers by conducting

village level customer meets, providing financial assistance basing on the scale

of finance depending on the crops raised and other investment activities for Farm

mechanisation, Electric Motors, Submersible pumps etc.

2. Financing to SSI & SME Units:The Bank has joined as member lending institution with Credit Guarantee Fund

Trust for Micro and Small Enterprises (CGTMSE). Hence, the credit facility

sanctioned to Micro and Small Enterprises (both manufacturing and service

sector excluding retail trade) as defined under Micro, Small and Medium

Enterprises Development Act 2006 can be covered under the scheme. The Contd….4


: 4 :

working capital and Term credit can be covered under the scheme upto Rs.50.00

lakhs without any collateral security. Hence, SSI / SME finance would constitute

one of the key areas of focus in the business strategy of the Bank and steps to

increase the flow of credit to SSI / SME.

3. Diversification of Credit Portfolio:The Bank will take steps to design and launch new credit products, keeping in

view the local necessities, market demand and also with an aim at development

of rural areas and total financial inclusion of all rural households.

4. Flexibility in pricing:The deregulation of interest rates on advances has conferred a competitive

advantage on the bank, which will be exploited by adopting a flexible approach to

pricing of loans and advances.

5. Adoption of Fair Practices Code:The Bank’s tradition of high quality service and fair customer practices will be

maintained to retain the clientele base and to enlarge it further.

6. Credit risk strategies:Various measures like loan review mechanism, prudential ceilings and exposure

norms, monitoring the problem accounts based on early warning signals

implementing credit risk code system, etc. to manage the credit risk.

7. Credit supervision and monitoring:The maintenance of the quality of loan assets is to be ensured through an

ongoing system of continuous review and supervision. The high value loan

accounts shall be monitored every quarter from the Head Office/Regional Offices

and deterioration in asset quality be prevented.

8. Ensuring end use of funds lent:The health of loan assets has a direct relationship with the utilisation of the funds

for the purpose for which they were extended. RBI has advised that steps should

be initiated by Banks to check willful defaulters by ensuring that end use of funds

forms part of their loan policy documents and by putting in place appropriate

systems and measures for this purpose. Hence, as a part of the strategy to

protect the quality of the portfolio, end use of funds lent should be closely

monitored. Contd….5


: 5 :

CREDIT EXPANSION – FOCUS AREAS:

1. Agricultural and Other Priority Sector Advances:

Bank shall endeavour to deploy credit to meet and surpass the following

percentages mandated by the regulatory authorities.- Priority sector : 60% of gross Bank Credit

- Advances to agriculture : 18% of gross Bank Credit

of which, direct agriculture : 13.5% of gross Bank Credit

- Advances to weaker sections : 15% of gross Bank Credit

- Advances to Cottage, Khadi & Village Industries,: 40% of advances to SSI

Artisans, Tiny Industries with investment in plant

and machinery upto Rs.5 lakhs

- Advances to SSI units with investment in plant : 20% of advances to SSI

and machinery above Rs.5 lakhs and

up to Rs.25 lakhs

- Advances to SSI units with investment : 40% of advances to SSI

in plant and machinery exceeding Rs.25.00 lakhs

- Advances to women beneficiaries : 5% of net Bank credit

- DRI loans : 1% of previous year’s total advances

Branches having good potential and substantial exposure under these sectors

shall aim for higher growth especially under agricultural advances.

1. PRAGATHI KCC/PRAGATHI MULTI PURPOSE KCC:

Pragathi Kisan Credit Card/Pragathi Multipurpose Kisan Credit Card addresses

these national policy concerns admirably as it provides hassle free credit to

farmers taking into account the entire production credit requirements of the

farmer for the full year. The scheme also provides for comprehensive coverage of

the entire range of credit needs of the agriculturist including investment credit

needs for agriculture, ancillary activities and even consumption needs to a limited

extent i.e. 10% of the loan amount or Rs.10000/- whichever is less.

Hence, it is insisted that concerted efforts should be made to improve the

coverage under the scheme by conducting ‘Grama Sabhas’ to identify non-loanee

farmers/other needs of the farmers and to ensure that all eligible borrowers are

covered under any one or more of our schemes. Contd….6


: 6 :

2. PRAGATHI PRODUCE LOAN SCHEME:

The scheme is introduced to protect the interest of the small and marginal

farmers who are the Bank’s major clientele. The scheme is introduced by the

bank to finance against the pledge of the produce to meet out immediate needs

of the farmers thereby preventing distress sale of produce during harvest/glut

seasons when the market price will be much low. Depending upon the market

trends the SF/MF avail loans against their produce and sell in the market, when

there is remunerative market price, thereby earn more income.

3. PRAGATHI AGRI GOLD SCHEME:

Jewel loans can be sanctioned to the customers for the purpose of agricultural

operations upto Rs.3 lakhs per borrower. Repayment period is as per seasonality.

The per gram lending rate is Rs.750/- on the net weight of the ornaments or 75%

of the market value of the ornaments as on the date of arranging the loan,

whichever is less. All the prudential norms applicable to the Pragathi KCC will

also applicable to these loans. Interest rate and per gram lending rate is subject

to change from time to time.

4. SELF HELP GROUPS (SHGs):

In tune with the Government of India/Reserve Bank of India/NABARD policy for

extending hassle-free financial support to the Self Help Groups, the SHG bank

linkage programme shall be given due importance. In this process, all the eligible

‘A’ rated groups shall be considered for financial assistance adequately basing on

the Micro Credit Plans.

The minimum repayment period shall be 24 months. In case of groups where the

financial assistance is Rs.1.00 lakh and above, the repayment period shall be 50

months. The interest rates are subject to change from time to time.

The assets created out of the financial assistance shall be the security. The

decisions of the State Level Bankers’ Committee (SLBC) to be adopted from time

to time.Contd….7


: 7 :

5. A) RYTHU MITRA GROUPS (RMGs) :

In order to consider financial assistance mainly to the SF/MF/Tenant

Farmers/Share Croppers/ Lessee farmers, financial assistance required to RMGs

may be realistically assessed and financed and repeat finance may be extended

up to 1:20 depending on quality of the RMG and the recovery position of the

loans extended to RMGs.

The financial assistance can be for crop production, investment credit, etc. and

repayment period shall be as per the scheme/purpose. The good functioning

groups shall only be considered for financial assistance.

Presently, the interest rate shall be 7% up to Rs.3.00 lakh in the case of crop

production loans and in the case of investment credit the interest rate shall be

depending upon the purpose.

The assets created out of the financial assistance shall be the security.

(B) FINANCING TENANT FARMERS:

Since the system of tenant farming is also prevalent in our area, the tenant

farmers should also be financed either through RMGs formed exclusively for

tenant farmers or to the individual tenant farmers.

It should be ensured that they are not denied any credit for crop production

purpose or other genuine productive activities and at least 2% of our crop

production finance is extended to tenant farmers.

6 INVESTMENT CREDIT:

It is considered as imperative to increase the share of investment credit to at

least 35% from the present level of 31% against total agricultural credit. Hence,

the Bank has taken measures to train the Branch Managers and Officers (Adv.)

on investment credit activities to enable them to appreciate the need of the

investment credit to farmers and to implement the following schemes depending

upon the need of the farmers in their area of operation.

Contd….8


: 8 :

Dairy Farming (Pala Dhara), Sheep Rearing, Heifer Calf Rearing, Ram lamb

Rearing, Pragathi Farm Mechanisation, Kisan Pumpsets, Horticulture and

Orchards, Bio-Diesel, Land Purchase Scheme, Agri Business & Agri Clinics,

Pragathi Jalaraksha, Sericulture, Fisheries, Rural Godowns, Bio-Gas, Organic

Farming, Vermiculture and Vermicomposting, Venture Capital, Cold Storage, Milk

Chilling Centres, etc.

7 PRAGATHI RETAIL CREDIT CARD:

The scheme covers retail trade, small business, professional and self employed

persons up to Rs.2 lakhs. No collateral security up to Rs.1 lakh. Above Rs.1 lakh,

collateral security is required.

8 PRAGATHI FLEXI TRADE LOAN:

To finance traders/small business men who intend to avail working capital term

loans instead of cash credit finance. The repayment period will be 60 months.

The security is, up to Rs. 1 lakh- hypothecation of the stock-in-trade; above Rs.1

lakh - hypothecation of stock in trade and mortgage of immovable property. The

security coverage shall be 150% of the loan. The borrower’s contribution will be 25%.

9 PRAGATHI SWAROJGAR CREDIT CARD SCHEME:

NABARD has issued comprehensive guidelines on SCC under which the working

capital or block capital or both to small artisans, handloom weavers, service

sector, fishermen, self-employed persons and other micro entrepreneurs are

covered. SHGs can also be covered under SCC Scheme. Hence, it should be the

endeavour of the Bank that all the above activities should be financed under this

scheme wherever their credit needs are up to Rs.50000/-.

10 PRAGATHI GENERAL CREDIT CARD:

NABARD has given detailed guidelines of the scheme. The loan amount is limited

to Rs.25000/-. This facility is in the nature of over draft or cash credit and it is

designed for meeting out the general credit needs of the customers of small

means, without insisting on purpose and end use of the credit. This should be

used as a major tool to achieve 100% financial inclusion of rural and semi-urban

households.

Contd….9


: 9 :

11 PRAGATHI VIDYA SCHEME:

Maximum loan amount for studies in India is Rs.10.00 lakhs and for studies in

abroad is Rs.20.00 lakhs. No security up to Rs.4.00 lakhs. Collateral security in

the form of satisfactory third party guarantee acceptable to the Bank shall be

obtained for amount above Rs.4.00 lakhs and upto Rs.7.50 lakhs and collateral

security of 100% of loan amount for the loans above Rs.7.50 lakhs. Repayment

for these loans is 5 to 7 years commencing from 1 year/6 months after

completion of course or on securing the job whichever is earlier.

12 PRAGATHI SWAGRUHA SCHEME:

Maximum loan amount of Rs.20.00 lakhs subject to 85 % of the estimated

construction cost/valuation of ready built house will be considered under the

scheme. Security is mortgage of the site and building to be constructed thereon.

For repairs/renovations also, we will consider loans up to Rs.2.00 lakhs in

municipal areas and Rs.1.00 lakh in other areas.

13 PRAGATHI MULTI PURPOSE MORTGAGE LOAN (PRAGATHI MPML):

In this scheme, maximum Rs.25.00 lakhs of loan will be considered subject to

50% of valuation of property, 5 times of annual income, 50% of cut back. Security

for the loan is mortgage of building/commercial complexes, layout approved plots

etc. Repayment period of the loan is 7 years. Branches shall ensure end utilization by obtaining relevant bills / receipts, proofs etc.

14 PRAGATHI MULTI PURPOSE SECURED OVERDRAFT (PRAGATHI MPSOD):

The Board of Directors in their Board meeting held on 13.2.2009, advised the

Bank to withdraw this scheme with immediate effect and the existing PMPSOD

accounts would be either recovered in full or to be converted into PMPML (Term

loan) within a year. Accordingly, PMPSOD scheme which is appended in the “Desk Guide on advances” stands withdrawn with immediate effect.

15 PRAGATHI SWARNA CREDIT CARD:

All the individual customers of the branch, who are having SB a/c, are eligible for

coverage under the scheme. The loan is extended for meeting both productive

and consumption requirements with a per party limit upto Rs. 2.00 lakhs.

Contd….10


: 10 :

The Account shall be in the form of Cash Credit/Overdraft facility for a period of 2

years from the date of arranging the facility. The per gram lending rate is Rs.650/- per gram on the net weight of the ornaments or 70% of the market value as

on the date of arranging whichever is less.

The OD carries at present an interest rate of 15% p.a. with monthly rests and an

overdue interest @ 2.25 % over the normal rate shall be charged on the overdue

loan a/c. the loan is secured against the security of jewels with 22 carat

purity/gold bars, gold coins with 24 carat purity. The interest rate and per gram

lending rate are subject to change from time to time.

16 PRAGATHI COMMERCIAL COMPLEX LOAN:

Financial assistance up to 50% of estimated cost of construction will be

considered under the scheme for construction of commercial complexes,

school/college buildings, etc. Mortgage of site and building to be constructed

thereon shall be taken as security. Repayment of loan is within 10 years,

including the gestation period allowed.

17 PERSONAL BANKING LOANS:

These loans can be considered to salaried class up to 15 months’ gross salary

subject to 60% cut back norms. Repayable in 60 EMIs. All employees in Govt.,

Quasi Govt., Local Bodies, Govt. Aided Bodies, etc. who are drawing their salar-

ies through our branches are eligible to avail these loans.

18. PRAGATHI SRTO:

This scheme is introduced to meet the financial requirements for purchase of

power driven vehicles i.e. Auto Rickshaws, Van, Boat, Lorry, Truck, Cabstar,

Cars etc. An individual or an association of not more than 6 persons propose to

own and operate by himself or themselves as the case may be are eligible for

the loan. Finance is restricted to 75% of the cost. Security for the loan upto

Rs.1.00 lakh is by hypothecation of vehicle to be purchased and for the loan

amount above Rs.1.00 lakh requiring mortgage of immovable property worth

100% of loan amount apart from hypothecation of vehicle purchased.

Repayment period is 3 to 5 years.

Contd….11


: 11 :

19 SCHEME FOR SANCTION OF LOANS UNDER CREDIT GUARANTEE FUND TRUST FOR MICRO AND SMALL ENTERPRISES (CGTMSE):

The Bank has joined as Member lending institution with Credit Guarantee

Scheme of Credit Guarantee Fund Trust for Micro and Small Enterprises and

the scheme is implemented with effect from 15.04.2008.

The Credit Guarantee Fund Trust for Micro & Small Enterprises was set up by

GOI and SIDBI with an objective to provide Bank Credit without the hassels of

collaterals / third party guarantees. Importance given to project viability and

secure the loan purely on the primary security of the assets financed.

It is our endeavour to give composite loans, both term loan working capital

facilities to the borrower. Interest rate is in accordance with GOI / RBI

guidelines.

Credit facility sanctioned to Micro and Small Enterprises as defined under

MSMED Act 2006 (Both manufacturing and service sector excluding Retail

Trade) can be covered under the scheme. Eligible credit facility under the

scheme is Rs.50.00 lakhs per borrower. Credit facility of above Rs.50.00 lakhs

can also be covered under the scheme. The Guarantee and service fee shall be

passed on to the borrower.

20. PRIME MINISTER’S EMPLOYMENT GENERATION PROGRAMME (PMEGP)

The GOI introduced a new scheme called “PMEGP” by merging REGP (KVIC)

and PMRY schemes. The scheme will be implemented by KVIC at national level

and at State level KVIB, District Industries Centre and Bank.

The main objective of the scheme is to generate employment opportunities in

rural and urban areas of the country and to increase wage earning capacity of

artisans. The maximum cost of project under manufacturing sector is Rs.25.00

lakhs and the maximum cost of project under Business/Service sector is

RS.10.00 LAKHS .The rate of subsidy under General category is 15% in urban

areas & 25% in rural areas in project cost. Under Special category like

SC/ST/OBC/Minorities/Women/ Physically challenged the subsidy in the project

cost will be 25% in urban areas &35% in rural areas.

Contd…12


: 12 :

The individual above 18 years of age is eligible and there will be no income

ceiling for assistance for setting up projects. However, for setting project costing

above Rs.10.00 lakhs in manufacturing sector & above Rs.5.00 lakhs in the

Business sector the beneficiary should posses at least VIII th standard pass

educational qualification. The repayment schedule is ranging between 3 to 7

years.

21. CLCSS – Credit Linked Capital Subsidy Scheme for upgradation Small and Micro Enterprises:

The scheme aims to facilitate technology upgradation of Small and Micro Enter-

prises units, by providing 15% capital subsidy for induction of well established

and improved technologies.

The operation of the scheme is extended from X plan to XI plan (i.e. 2007-2012).

Sole proprietorship, Partnership, Co-operative Societies, Private and Public

Limited Companies in SSI sector are eligible borrowers. Capital subsidy under

the scheme shall be available for such projects, where term loan have been

sanctioned by eligible PLIs, on or after 4 th December 2002. Small Industries

Development Bank of India, SIDBI and NABARD will act as the Nodal Agencies.

Promoters contribution, security, debt-equity ratio, upfront fee will be deferred as

per existing norms. Unit availing subsidy under CLCSS shall not avail any other

subsidy for technology upgradation from Central / State / UT Government. The

scheme will be monitored by Governing and Technology Approved Board (GTAB).

22. ADVANCES TO REAL ESTATE SECTOR:

Loans granted for the purpose of acquisition of land, site, plot and/or construction

of dwelling apartments or office space with an intention to generate income by

selling the same and clearing the loan out of such sale proceeds may be

classified as Real Estate Advances as follows:

• Advances to Buildings

• Advances to property developers

• Advances for construction of housing/office/ commercial complexes, shops,

flats, dwelling units/houses for the purpose of resale. Contd…13

• Enclosure to Circular No.57-2009-BC-CD Date:19.03.09

: 13 :

• Advances to this sector shall not exceed 4% of the gross credit of the Bank• Prior clearance shall be obtained from the sanctioning authority to entertain

proposals under real estate sector since the Bank has to exercise caution in view of the high risk involved and restrictions communicated by RBI.

Minimum criteria for considering Real Estate loan proposals:• Loans to be project specific and the loan should invariably co-terminate with project

completion and sale proceeds should clear the loan in full settlement.

• The borrower should already have been in this line of business with necessary proof

of having executed such projects in the past preference shall be given to applicants

who are existing clients of the Bank. New clients should be entertained on a very se-

lective basis on merits.

• Value of the security both primary and collateral offered shall not be less than 200%

of the limits sought.

• The margin should be 50% of the project.

• The average debt/equity ratio over the last 3 years should not have been more than

2:1.

• The average solvency ratio over the last 3 years should not have been more than

4:1.

• The repayment shall not exceed 35 months period.

• The prudential exposure limit shall not exceed two times the tangible net worth of the

borrower.

• The end utilisation should be ensured that the bank credit is used for production de-

velopment/construction activity and not for activity connected with speculation in real

estate.

• Take-over of accounts in this category is not permitted.

23. TERM LOANS:

Loans which are repayable in not less than 36 months period are referred as

Term Loans. There is need to increase lending under term loan category of

our Bank both under Farm Sector and Non-Farm Sector. Concerted efforts

have to be made to increase the advances under this category of loans and

this alone will help to increase the outstanding advances and to sustain the

growth rate and profitability.Contd…14


: 14 :

24. REPHASEMENT OF TERM LOANS:

Rephasement of term loans may be considered by the respective sanctioning

authorities on merits, after getting permission from the next higher authority,

taking into account factors such as delay in implementation of project, delay in

commencement of production and other genuine difficulties faced by the

borrowers.

25. NON FUND BASED BUSINESS:

It generates non-interest income for the Bank without committing the funds of

the Bank. Plans are to be drawn for improving non-fund based business to

ensure that bank gets substantial business under this head.

26. SMALL & MEDIUM ENTERPRISES (SMEs):

Govt. of India has announced that Small and Medium Enterprises would form

a thrust area for the lending operations of the Banks. SME financing would

therefore constitute one of the key areas of focus in the business strategy of

the Bank and efforts shall be made to improve the Bank’s share under SME

sector.

27. POLICY FOR TAKE OVER OF LOANS FROM OTHER FINANCIAL INSTITUTIONS BANKS:

Take-over of borrowal accounts from other banks or financial institutions

directly is one of the preferred ways of achieving healthy credit expansion.

The effective use of pricing advantages can be employed in taking over well

conducted accounts from other banks/financial institutions. However, no

lender would normally wish to lose a good borrowal account. Certain

precautions are to be observed while taking over of accounts. The guidelines

to be followed while taking over of borrowal accounts are narrated below.

A. Take over of housing loans:Before taking over of any housing loan from another bank/financial institution,

Branch Managers have to seek prior approval from Regional Offices by

submitting all the required details about the existing loan and other details

required as per the guidelines. For the loans under the powers of the Regional

Offices prior clearance has to be obtained from HO-Credit Department.Contd…15


: 15 :

After getting clearance from Regional Office/HO-Credit Department, the loans for

taking over housing loans can be sanctioned by the Branches and the Regional

Offices up to their delegated powers. Loans beyond their powers have to be

referred to Head Office-CRD for sanction.

The guidelines for taking over of housing loans are as follows:

1. Branches/Regional Offices can be permitted to selectively take over Housing

Loans from LIC Housing Finance Ltd., HDFC, Public Sector Banks, other banks,

Housing Intermediaries, Non Banking Financial Companies (NBFCs), Housing

Finance Companies (HFCs,) Cooperative Banks and Cooperative House Building

Societies.

2. It shall be ensured that the account does not have overdues at the time of

take over and did not show any significant spell of overdues during the earlier

period also. If possible, loan ledger extract may be obtained and enclosed to the

application.

3. It shall be further ensured that the underlying security viz. the house/flat does

not suffer from any impairment or deficiency in the matter of title, value or market-

ability.

4. The repayment period may be so fixed to co-terminate with the repayment

period of the earlier loan or a longer repayment period may be given as permiss-

ible under the housing loan scheme. Latest property tax paid receipt should be

enclosed.

5. While taking over Housing loans, the legal opinion on the title taken by earlier

lender may be accepted subject to the same being vetted and found satisfactory

by our bank’s Legal Advisers on production of subsequent up to date E.C. and

property tax paid receipt. Valuation report obtained by the previous financing in-

stitution may also be accepted provided margin is maintained to the satisfaction

of our Bank, subject to the loan not exceeding the liability outstanding with the

other bank/financing institution, if additions, alterations and repairs are not re-

quired / undertaken for the building. Subsequent valuations may be done through

Bank’s approved valuer periodically as required of mortgage loans.

Contd…16


: 16 :

6. While taking over housing loans, if the owners wish to make any additions or

internal/external alterations to the original building, after obtaining the necessary

approvals from the appropriate authority, additional loan may be considered

along with take over loan up to 85% of the cost of such additions and alterations.

If any necessary repairs have to be undertaken (only after 5 years of original con-

struction), 75% of the cost of such repairs can be considered for additional loan

subject to the maximum loan amount fixed for this purpose under the scheme for

repairs from time to time. Additional loans for furnishing can also be considered,

while taking over, up to 75% of the cost of such furnishing subject to

a maximum amount not exceeding 10% of the total cost of construction of the

house. The outstanding balance in the existing loan to be taken over and the ad-

ditional loan considered put together should be within the eligibility norms and de-

duction/cut-back are within the stipulated norms/repaying capacity of the borrow-

er.

7. The financial institution shall give a “No Objection Certificate/Letter” either

to the party or to our Bank stating that they have no objection to hand over the

original documents to any financial institution/bank interested in taking over of

their housing loan, on receipt of proceeds, equivalent to the outstanding loan

amount, from loan taking over bank/institution.

8. There should not be much time-gap in arranging the loan and in getting back

the documents of title deeds (from other bank/institution) and creation of mort -

gage in favour of our Bank. If the time gap is more than 4 days, then bank should

collect 1.25% service charges for the actual days of time-gap, from the

borrower/s. The parties should also give an undertaking to our bank stating that

they will collect back the title deeds and produce to the Bank immediately.

9. Branch should inspect the property, conduct local enquiry with regard to the

value of the property and scope for appreciation of value of the property. Further,

branches should submit AF-27 (valuation certificate of immovable property),

along with 3 photos (front view, both side views) duly signed by the borrower/s

Contd…17


: 17 :

and the Manager on the back side of the photos. The value of the property should

be sufficient to cover the loan amount with the required margin as per the

scheme.

B. Take over of Personal Banking Loans (DL-Contingencies):

Branch Managers/Regional Managers are permitted to take over PBS Loans up to their delegated powers only after getting prior clearance from Regional

Office / HO-Credit Department respectively, by submitting the required particulars

for consideration of such loan. The proposals beyond their powers should be

referred to Head Office for sanction. However, the taking-over of Personal

Banking Loans shall be on a very selective basis and not in a routine manner. 1. Such loans shall be regular at the time of take over. This can be confirmed

by referring to the statement of accounts or certificate received from the

financing banker.

2. Loan shall be sanctioned as per the eligibility norms and terms and condi-

tions existing at the time of take over. The loan amount can be more than

the loan amount to be taken over if his/her eligible loan amount is more as

per our norms.

3. After arranging the loan at the branch, first release should be made by way

of Pay Order/Demand Draft favouring the Bank from which the loan is to be

taken over and that should be sent directly to the Bank and a confirmation

for receiving the pay order/demand draft and closure of the loan should be

obtained and kept with the documents.

4. If the loan amount sanctioned is more than the loan amount to be taken

over, after following the procedure as mentioned under Point No.3 above,

balance amount can be released as second instalment.

C. Take over of all the term loans and all the working capital limits should also be referred to Head Office for clearance and sanction. Prior clearance from

Head Office has to be obtained before the complete proposal is entertained, by

submitting the basic details necessary to ascertain whether they conform to the

take over policy enunciated. Contd…18


: 18 :

D. Take over of Term Loans (other than housing loans and PBS loans) from Banks / Financial Institutions:

1. Specific reasons for shifting to our Bank should be ascertained.

2. It should be ensured that there are no overdues with the banks/finan-

cial institutions not only at the time of take over but also during earlier period.

3. None of their associate accounts should have any overdues with finan-

cial institutions/other banks/our bank.

4. The term loan should have been availed for acquisition of new assets only.

5. The underlying securities should be distinctly identifiable.

6. The average DSCR should not be less than 1.8.

7. If it is a running unit of more than 3 years old, it should have registered profits,

during the preceding 3 years.

8. The project should not be in implementation phase. It should have com-

menced commercial production and surpassed the break even phase.

9. The activity should have good prospects in future.

E. Take over of Working Capital / Short Term loans and advances from Banks / Financial Institutions:

1. None of the group account should have defaulted in repayment of dues

to the bank including our bank and/or financial institutions.

2. The unit/borrower should be consistently showing an increasing trend

in respect of sales (volume and value), net profits and tangible net worth.

3. Current Ratio and Debt Equity Ratio should be within the acceptable

levels/bench marks (presently, the acceptable levels fixed are Current Ratio

1.33 : 1 and Debt Equity Ratio = 2.5 : 1).

4. The average utilisation of working capital should be to the extent of

75% of the

sanctioned limit.

F. Other Guidelines (Except for Take over of PBS Loans):

a) While taking over borrowal accounts along with the requirements already

prescribed above, the following shall also be insisted:

Contd…19


: 19 :

1. Confidential opinion of the previous lender in respect of the borrower and

guarantor. In case confidential opinion is not received even after taking up

with the previous lender, wherever feasible, the concerned branch official can

have a discussion with the officials of the lending institution and the informa-

tion on the conduct of the account elicited from them may be recorded in the

appraisal note.

2. The statement of account for the past 2 years or since the date of opening

whichever is later.

3. Copies of earlier sanction letters with amendments, if any.

b) The take-over shall be in full and also preferably that all accounts of the party

are taken over to ensure exclusive dealings. All the securities also are to be

taken over without exception.28. FINER RATES OF INTEREST/COMMISSION/SERVICE CHARGES:

The finer rates on interest, commission and service charges constitute a part

of a Bank’s business strategy to retain the existing business and addition of

new business. All such proposals should be referred to Head Office through

Regional Office and no concession should be extended unless permitted by

Head Office.

“Finer rates for the bank’s advances can be extended by the Chairman

selectively up to a maximum of 2% less than the normal existing interest rates

unless or otherwise with the sanction/approval of the Board, taking into

account the volume of business, lesser risk involved, competition in the

market coupled with risk of loosing the business and the credit expansion

needs of the bank.” The interest concession mentioned above may be

extended only in respect of

i. individual loan facility with a minimum limit of Rs.10.00 lakhs and

ii. group loans (example: Employees of any Institution/Govt. Department) with a

minimum number of 30 loans.

In all these cases prior sanction/approval of the Board is to be obtained.Contd…20


: 20 :

“Concession in the commission/service charges can be extended by the

Chairman selectively, taking into account the volume of business, the threat of

loosing the entire existing business due to competitive/lesser rates offered by our

competitors, the long range advantages/future business growth potential, lesser

operative/ servicing cost and any other business advantages anticipated. The

extent of concession shall be up to a maximum extent of 50% of the normal

commission/service charges, unless or otherwise with the sanction /approval of

the Board.”

29. ASPECTS TO BE COVERED IN THE RECOMMENDATION FOR FINER RATES:

• Value of account

• Volume of business

• Threat of loss of existing business

• Income derived from ancillary business passed on by the customer

• Perception of long term benefit

• Availability of security minimum 100%

• Competition factor

• Customers length of relationship dealing with the Bank

• Strategic consideration

Branches may forward the proposals for finer rate with their specific

recommendations to HO-Credit Department through the respective Regional Offices.

30. APPRAISAL STANDARDS:

The appraisal process has been standardised in the Bank for the assessment of

working capital, non-fund based and term loan facilities.

Working capital assessment:

The working capital requirements of borrowers shall be assessed by adopting the

following methods:

i. Simplified method in case of borrower seeking fund based working capital lim-

its of up to Rs.5 lakhs adopting a holistic approach, taking into account the bor-

rowers business potential, business plans, past dealings, credit worthiness, mar-

ket standing, collateral security and ability to repay, etc. The working capitalContd…21

Enclosure to Circular No.57-2009-BC-CD Date:19.03.09ii .

: 21 :

requirement may be considered 20% of the annual projected scales accepted by

the Bank.

ii. Liberal trade finance scheme to the small traders and small businessman on

the basis of total turn over declared in the sales tax returns or 20% of their turn

over in their accounts with us, up to a limit of Rs.10 lakhs under Pragathi MPS-

OD.

Basic financial parameters for working capital assessment:The following are the basic financial parameters to be complied within the use of all

the borrowers [Non SSI, SSI and Small Scale (Industry related) Service and

Business Enterprises (SSSBE) irrespective of the methods of assessment excepting

where limits have been assessed through simplified procedure for less than Rs.5

lakhs.

Financial parameters Name of the Ratio Prescribed Band

i) Liquidity Current Ratio 1. 1.33 under EWCL.

2. 1.25 to 1.33 under

Projected Turnover

Method for non SSI/

SSSBE borrowers.

3. Minimum of 1.25 un-

der Projected Turnover

Method for SSI and

SSSBE borrowers.ii)Indebtedness Solvency Ratio (TOL:TNW) Below 5:1.

However, in exceptional

cases, it may be allowed up

to 10:1 by the sanctioning

authority. This need not be

treated as a deviation for

which approval of the higher

authorities is required.

iii) Security Security Coverage Ratio Minimum 1.25 for SSI and

SSSBE borrowers and 1.30

for non SSI/SSSBE

borrowers.

iv) Profitability Net Profit – positive The minimum requirement shall be that the business is making profit and not incurring losses for the past two years. However exceptions may be made by the Sanctioning Authority wherever the borrower suffers temporary setback leading to loss in any one year. This need not be treated as a deviation for which approval of the higher authorities is required.

For new units/venture, item Nos. (i), (ii), (iii) and (iv) may be on the basis of projected figures.

Contd…22


: 22 :

OVERALL COMPLIANCE TO THE BASIC FANACIAL PARAMATERS

While it may be ideal to look for sound financial parameters say, current ratio

at 1.33, low TOL:TNW ratio, high profitability, strong security position etc. in

practice it may not always be possible to get the borrowers with all the

financial parameters strong. In view of this, one of the parameters is allowed

to be relaxed if other financial parameters have stronger values within the

prescribed bands. In other words, all the basic financial parameters accepted

for sanctioning the credit facilities should collectively afford proper risk

management.

However, in case of existing borrowers, whose dealings are satisfactory and

limits are fully secured by way of mortgage / deposits /

IVP/NSC/KVP/Surrender value of LIC Policies, sanctioning authorities may

renew the limits even if more than one of the basic parameters are not

complied with and in case any enhancement is involved clearance from the

next higher authority shall be obtained.

The delegates at Head Office however, may permit deviations in other cases

required on the merits of each case and having due regard to the business

expediency.

ASSESSMENT OF NON-FUND BASED FACILITIES:

1. Bank Guarantees:It is absolutely essential to appraise the proposal for Bank Guarantees also with

same diligence and vigorous scrutiny as in the case of fund based limits and

obtain adequate cover by way of cash margin/security so as to prevent the

constituents to develop a tendency of defaulting in payments when guarantees

are invoked.

2. Financial Guarantees:At the time of advising requirement of issuing financial guarantees, it is to be

satisfied that the customer would be in a position to reimburse the Bank in case

the Bank is required to make payment under the guarantee.Contd…23


: 23 :

3. Performance Guarantee:In case of Performance Guarantees, branches should exercise due caution and

have sufficient experience with the customer to satisfy themselves that the

customer has the necessary experience, capacity and means to perform the

obligations under the contract and is not likely to commit any default.

Precautions:

Branches shall normally refrain from issuing guarantees on behalf of custom-

ers who do not enjoy credit facilities with them, unless such guarantees are fully

secured by cash margin/tangible securities.

Branches are not empowered to give partly secured/unsecured Bank Guaran-

tees.

Branches should avoid recommending unsecured/partly secured guarantees

for large amounts.

ASSESSMENT OF TERM LOAN:

For assessment of term loan the forms prescribed are used and debt equity

ratio, average DSCR and security coverage ratio are taken into consideration.

The following minimum financial parameters are required to be satisfied for a

term loan proposal:

- Debt Equity Ratio – not more than 2.5 : 1

- Average DSCR - not less than 1.8

- Security Coverage Ratio - minimum 1.5

Ratios for appraising working capital and term loans:

A) For Working Capital limits

Sales: Achievement of projected turnover (%)

Actual sales X 100Projected sales

Current Ratio Current Assets /Current Liabilities

Solvency Ratio (TOL/TNW)

Total Outside Liabilities/Total Net Worth

Security Coverage Ratio Total value of security offered for working capital limits (including collateral)

Total credit limits sanctioned including non-fund based.

Profitability (%) (Net Profit /Net sales) x 100

Contd…24


: 24 :

B) For Term Loans

Debt Equity Ratio Long Term Debt /Tangible Net Worth

Average DSCR Net Profit + Depreciation + Interest on term loan Term Loan instalment +Interest on term loan

Internal exposure ceilings for various business entities:

1) The Bank’s exposure to any borrower shall not exceed five times of the tan-

gible net worth of the borrower (two times of the tangible net worth of the bor-

rower in case of real estate loans), subject to monetary ceiling given below:

Category of borrowers Monetary ceiling for exposure limit

1. Individuals / Proprietorship borrowers / HUF concerns

Rs.1.00 crore

2. Partnership / Trusts / Co-operative societies

Rs.2.00 crore

2) Computation of Tangible Net Worth (TNW) of business entities for the purpose of internal exposure guidelines:

The Tangible Net Worth for the purpose of exposure guidelines shall be

computed as under:

a) Tangible Net Worth (TNW) = Capital + Reserves (excluding revaluation re-

serves) less intangible/ fictitious assets.

b) In case of borrowers enjoying credit limits of above Rs.10.00 lakhs, the Tan-

gible Net Worth shall be determined on the strength of audited Balance

sheets.

c) However, in case of borrowers enjoying credit limits of Rs.2.00 lakhs and

above and upto Rs.10.00 lakhs, the TNW may be determined on the strength

of the unaudited balance sheets.

d) In case of borrowers enjoying credit limits of less than Rs.2.00 lakhs where

Balance sheet is not available, TNW of the party shall be calculated as under:

1.Individual / Proprietary concern:

i. Movable assets such as Bank deposits, gold / ornaments, jewellery etc.

Contd…25


: 25 :

ii. Personal immovable properties, self acquired properties of an individu-

al, share in the ancestral properties acquired on the division of the joint

Hindu family less personal liabilities.

2.Partnership firms / Joint Hindu family concerns:

i. Capital invested in the business.

ii. Undivided profits or accumulated losses, if any.

iii. Total worth of individual partners.

iv. While assessing the worth of the partners, his investment in the firm

should be ignored as such investment will form part of the firm’s worth.

e) Quasi capital in the form of funds infused by relatives / partners in specific

cases may be accepted for computation of TNW.

3) Permission to include Quasi capital for computation of Net Worth in ex-ceptional cases:

In exceptional cases, the competent authority, on merits may permit the

following type of quasi capital to be included in the computation of tangible net

worth, for the limited purpose of internal exposure ceilings.

Loans and Advances from relatives / Partners of the proprietor / Partners

which are long term in nature and not withdrawable during the tenure of the

credit facilities extended.

4) Applicability of exposure limits:

All the sanctions, except the following, shall be subject to prudential exposure

limit guidelines.

Loans / Overdrafts against Deposits and Bank Guarantees covered by 100%

cash margin.

5) Relaxation in internal exposure norms:

a) Occasionally, a proposal may merit consideration though the exposure

norms my not be met, as the proposal involves financing of long standing

customers etc. The Sanctioning Authority, in such cases may recommend

Contd…26


: 26 :

the proposal explaining the reasons for relaxations / deviations to the next

higher authority seeking permission for such relaxations in internal expos-

ure norms.

b) The next higher authority may consider the above relaxations on the re-

spective merits of each case, after recording the circumstances warranting

such relaxations in the internal exposure norms and precautions taken for

safe guarding the interest of the Bank (say, in the form of additional capital

to be brought in within a stipulated period, additional securities to be

offered, undertaking not to withdraw quasi – capital without Bank’s prior

permission etc.)

c) The Chairman is empowered to relax internal exposure norms in individual

cases on merits in respect of their sanctions.

6) Sector wise Deployment of credit:

a) The sector wise deployment of credit furnished as under, mandated by

regulatory authorities.

Priority sector 60% of gross Bank Credit

Advances to agriculture 18% of gross Bank Credit

of which, direct agriculture 13.5% of gross Bank Credit

Advances to weaker sections 15% of gross Bank Credit

Advances to Cottage, Khadi & Village Industries, Artisans, Tiny Industries with investment in plant and machinery upto Rs.5 lakhs

40% of advances to SSI

Advances to SSI units with investment in plant and machinery above Rs.5 lakhs and up to Rs.25 lakhs.


Advances to SSI units with investment in plant and machinery exceeding Rs.25.00 lakhs


Advances to women beneficiaries 5% of net Bank credit

DRI loans 1% of previous year’s total advances

Real Estate 4% of Gross credit

Contd…27


: 27 :

b) Limits on unsecured exposure (fund based and Non-fund based):

The outstanding unsecured exposure shall not exceed 25%of total outstanding

advances.

STATUTORY AND OTHER RESTRICTIONS:

Restrictions have been placed on certain types of advances by statutory

regulating and other authorities. The list of such restrictions are given below.

While granting loans/advances, branches shall ensure that there is no inadvertent

breach of statutory, regulatory and other restrictions.

• Loans and Advances shall not be extended against shares/debentures as se-

curity.

• Loans and advances against fixed deposit receipts of other banks shall not be

extended.

• Loans shall not be granted against certificate of deposits.

• Finance for construction of buildings meant for Govt./Semi Govt./ Municipality

Panchayat shall not be granted.

• Accommodation bills should not be purchased/discounted/negotiated.

• Advances against gold bullion should not be granted.

• Advances to silver bullion dealers should not be granted for speculative pur-

poses.

• Bank Guarantees having maturity of more than 10 years should not be issued.

DELEGATION OF POWERS FOR CREDIT SANCTIONS:

One of the basic regulatory prescriptions for a robust credit risk management

system is a scheme of delegation of credit sanctioning powers which

empowers sanctioning authorities to sanction higher credit limits to better

rated/quality customers. The guiding note on credit risk management issued

by RBI also emphasises that Banks should have multiple credit approvers

making financial sanctions subject to approvals at various stages.

It has also been emphasised that for successful Credit Management, Bank

should have a clear, well dominated scheme of delegation of powers for credit

sanction.Contd…28


: 28 :

With these broad objectives, the credit sanctioning powers of various

functionaries of the Bank have been approved. It is hoped that these

delegated powers would enable quicker decisions and reduced response time

in meeting customer needs. This should lead to addition of fresh quality credit

at a faster pace so that the medium term goals of the Bank which seek to

realise a quantum leap in business are fulfilled.

Revised credit sanctioning powers delegated to various functionaries at

present are already communicated vide our Cir. No. 91-2007-BC-CD

dt.21.05.07.

Any restriction in the sanctioning powers of different functionaries has to be

placed before the Board for prior approval. While exercising the credit

sanctioning powers, the sanctioning authorities shall be guided by the

guidelines described in the sections, which follow. These sections will serve

as “Best practice code” for exercise of credit sanctioning powers for various

functionaries.

USE OF DELEGATED POWERS TO BE JUDICIOUS:

The delegated powers shall be exercised judiciously by the delegatees with

due care, in good faith and in relation to the responsibilities and the duties

entrusted to them. They shall ensure compliance with the guidelines/rules laid

down by the Head Office, including any other regulatory/instructions issued

from time to time by the Head Office or any other controlling authority.

CRITERIA FOR EXERCISE OF SANCTIONING POWERS:

1. At branches, sanctioning

powers are vested with Managers in charge of

branches, including those holding charge temporarily, depending upon

his/her scale.

2. Higher authority may exercise the powers vested in lower authority

but lower

authority cannot exercise the powers of higher authority, unless duly

authorised.

Contd…29


: 29 :

3. Wherever a higher authority passes orders which are beyond his/her delegated

powers, the lower authority acting upon the orders of such higher authority, will

presume that the higher authority has obtained the required sanctions from the

appropriate authority for passing the said order. However, the higher authority has

to make necessary noting in this regard.

EXERCISING DELEGATED POWERS DURING THE PERIOD PRIOR TO RETIREMENT:

1. Sanction of loans and advances by Branch Manager during the period of six months prior to their normal retirement/superannuation/voluntary retirement

shall be reviewed by the Regional Office with due care to ensure that the sanc-

tions are in conformity with the delegated powers and laid down policy guidelines.

Regional Offices shall send a report to HO-Credit Department, in this regard.

2. Executives at Head Office and Regional Managers are permitted to exercise

all the delegated sanctioning powers independently, even during 6 months period

prior to normal retirement/superannuation/voluntary retirement.

APPLICATION FORMS/PROCESS NOTES:

Credit sanctioning powers can be exercised only after receipt of appropriate

application form/receipt in writing from the borrower and based on which the

appraisal of proposals as per prescribed norms has been completed. To the

extent possible, all credit proposals shall be processed only in the structured

formats prescribed by the Bank. Credit proposals falling within branch sanctioning

powers shall be processed in the structured process note formats or the process

note format forming part of the printed application forms. When credit facilities are

sanctioned, sanction letter shall invariably be issued to the borrower giving full

details and terms and conditions of sanction. Signature of the borrower shall be

obtained on the duplicate copy of the sanction letter as a token of his having

accepted the terms of sanction and the same shall be preserved with the loan

papers.

Contd…30


: 30 :

LOANS & ADVANCES TO DIRECTORS OF THE BANK AND THEIR RELATIVES:

In the cases of loans and advances to Directors of the Bank and their

relatives, firm/ companies in which they are interested, branches shall obtain

prior clearance from Head Office, Credit Department. The expression ‘relative’

for the purpose of sanction referred here is defined as follows:

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 and sister (including

step sister) of the spouse.

SELECTIVE CREDIT CONTROL:

As regards granting advances against commodities under selective credit

control directives of RBI, the delegated powers shall be exercised in

accordance with the guidelines issued from time to time.

SANCTION UNDER SPECIFIC SCHEME:

Whenever specific schemes are formulated for granting loans and advances,

the delegated powers shall be exercised only by complying with the terms and

conditions set out in the schemes.

PROHIBITION & RESTRICTIONS IN EXERCISE OF SANCTIONING POWERS:

1. Sanctioning to one’s own advantage:

No sanctioning authority shall sanction any credit facility or pass any other order

which shall be directly or indirectly to his own advantage. Such sanctions/orders

shall be ordinarily accorded / passed by the next authority.

2. Sanctioning to relatives or concerns in which relatives are interested:

Powers are not exercisable by any authority for granting loans (except against

Ban Deposits) to his relatives or concerns in which his relatives are interested.

Such proposals should be forwarded for consideration to the next higher

authority. The word ‘relative’ for this purpose is defined as under:

Contd…31


: 31 :

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 and sister (including step sister) of

the spouse.

3. Sanctioning of proposals rejected by the Higher Authority:

Where the applications for credit facility has been previously rejected by a higher

authority, the delegated powers shall not be exercised without the knowledge/

consent of the authority who had previously rejected the proposal.

4. Other restrictions:The delegate is expected not to:

i. Consider further facilities to a party in case of continued irregularities in the

account.

ii. Adjust advances granted in one account by giving accommodation in another

account of the same party or group/associate concern.

iii. Adjust advances against dis-honoured bills by purchasing or discounting fresh

bills drawn on the same drawee or by granting overdraft in current account or

by debiting cash credit account without drawing power.

iv. Purchase ‘Accommodation Bills’.

v. Sanction/recommend renewal of additional credit, without disclosing material

irregularities such as large returns of bills/cheques purchased, shortfall in

stocks, lack of turnover of stocks, etc.

vi. Split up a transaction to avoid reference to higher authority.

vii. Enter into a transaction with a party with prior knowledge of such party having

‘defaulted’ with the Bank in the past; unless clearance for such transaction is

received from the Higher Authority.

5. Lending to Borrowers with unsatisfactory past record:a.In case of advances classified as doubtful assets or loss assets, permission of

the next Higher Authority shall be obtained for exercise of the delegated

powers.Contd…32


: 32 :

b. Wherever the Bank’s experience on a party/group in prior transactions/

dealings had revealed unsatisfactory features of a serious nature like fraud, fil -

ing of suits for recovery of dues, attachment/seizure of security, filing of DICGC

claims/claim under RR Act and similar recovery proceedings, settlement of dues

under compromise with concessional interest/scaling down of debts, cases in-

volving write off etc., the delegatee shall not exercise his power for lending in

favour of the same party/group without clearance from the next Higher Author-

ity.

RELEASE / REVALIDATION / TRANSFER / APPORTIONMENT OF CREDIT LIMITS:

1. Compliance of terms of sanctioning to be ensured before release of credit facilities:

The credit facilities sanctioned shall not be released unless all the documents are

obtained and sanctioning terms are duly fulfilled. Procedure laid down in credit

policy shall be followed for entrusting compliance of terms of sanction.

2. Revalidation of sanction:Credit limits sanctioned shall be availed by the party within a maximum period of

TWO months from the date of sanction. The lapsed sanction may be revalidated

by the sanctioning authority if the following are satisfied:

i. There is no adverse report against the borrower.

ii. Reasons for delay is genuine.

iii. No unfavourable changes have occurred in the means of the borrower or the

composition/value of securities offered.

iv. Assumptions made at the time of sanction still hold good.

Contd…33


: 33 :

SUPERVISION AND MONITORING:

1. Loan Review Mechanism:

The sanctions/rejections made by a lower authority shall be reviewed by a next

higher authority. An illustrative list is given below:

Sanctions made by To be reviewed byi) Branch Manager Regional Manger

ii) Regional Manager General Manager

iii) Senior Manager-HO (Credit) General Manager

iv) General Manager Chairman

v) Chairman Hon’ble Board

2. Submission of process notes:

Branches/Controlling Offices shall send copies of process notes in respect of

advances above Rs.100000/- on aggregate per party (except for loans to SHGs),

excluding JL, LD and CDD to the Regional Office/Head Office as the case may be

immediately and in any case not later than 7 days from the date of

sanction/rejection. For loans to SHGs, the limits of loans above which the process

notes have to be submitted to the RO/HO is as below:

Scale I : Rs.1.00 lakh Scale II : Rs.1.50 lakh Scale III : Rs.2.50 lakh

3. Review of credit sanctions/rejections:

Regional Office/Head Office shall review the sanction/rejections made by the

Branch/Regional Office as the case may be. The objective of the review is that

the sanctions made are in conformity with the policy norms of the Bank and that

deviation, if any, should be with proper justification. As such, a clear distinction

should be made between processing of credit proposals and review of sanction.

This should be borne in mind while conducting the exercise of review of credit

sanctions. If sanction is ‘taken note of’ by the Reviewing Authority, the need to

look into the accountability angle up to this stage is to be treated as closed unless

lapses of serious nature are observed later.

Contd…34


: 34 :

4. Communication of ‘Noting of Sanction’:

The Reviewing Authorities are required to communicate the Noting of the

sanctions/other observations, within 30 days from the date of submission of the

copy of the Process Note unless there is any adverse comment or further

clarification is required from the sanctioning authority on any aspect of sanction.

Where there are violations, the same shall be brought to the notice of the

sanctioning authority concerned and immediate corrective actions shall be taken

to safeguard the interest of the Bank.

5. Documentation/Legal Compliance:

i. No credit facilities are released without obtaining security documents as pre-

scribed in the sanction letter as per usual practice.

ii. In respect of limits of above Rs.10 lakhs, documents/creation of charges shall

be vetted by external solicitors/branch advocates and a certificate is obtained

from him as per Annexure II and submitted to the sanctioning authorities along

with BCS.

iii. Wherever stipulated, mortgage must be created before the release of credit

facilities.

iv. Documents should be revalidated / renewed periodically to ensure that the

same do not get time barred.

v. In respect of corporate accounts/limited companies, necessary charges shall

be registered with Registrar of Companies. Wherever stipulated, second

charges to be created and registered with Registrar of Companies. Assistance

must be taken of company secretaries for this purpose.

6. PERIODICAL INSPECTION OF SECURITIES:

All securities of the loans/credit limits should be periodically inspected to ensure

availability of the same and ascertain their status and value. This should be

confirmed by submitting the reports/statements to the concerned sanctioning

authorities and they should be reviewed purposefully.

Contd…35


: 35 :

The most important statements/reports and their periodicity is mentioned below.

Name of the statement

Description Periodicity

AF-21 Monthly Stock Statement Last day of every month

AF-22 Quarterly Statement of Declaration of Stock

Last day of every quarter

AF-25 Vehicle Inspection Report Once in every half year

AF-26 Machinery Inspection Report Once in every half year

AF-27 Inspection of Immoveable Properties

Once in a year

The above are the minimum requirements in respect of regular accounts. The

periodicity is to be increased if the accounts become irregular and impairment of the

assets is anticipated.

The follow-up cum inspection reports of all securities in respect of Agricultural

Advances should be submitted periodically and reviewed. Eg: Milch animals and

other animals, Machinery and implements, Pumpsets, Tractors, etc.

7. PERIODICAL VALUATION OF SECURITIES:

Securities, primary or collateral such as land and buildings, plant and machinery,

vehicles, etc. obtained as security for advances of Rs.2.00 lakhs and above shall be

got revalued once in 2 years except in the case of housing loans which are regular

and classified as Standard Assets.

&&&&&