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INTEGRATED RISK MANAGEMENT DEPARTMNENT

DOMESTIC LENDING POLICY Page 1 of 198

ALLAHABAD BANK

INTEGRATED RISK MANAGEMENT DEPARTMENT

HEAD OFFICE: 2, NETAJI SUBHAS ROAD, KOLKATA – 700001

INSTRUCTION CIRCULAR NO. 14220/CPRMD/2015-16/22 DATE: 22.03.2016

BANK’S DOMESTIC LENDING POLICY

To: All Offices/Branches

Attention of Branches/Offices is drawn to Instruction Circular No. 13340/CPRMD/2014-

15/14 dated 30.09.2014 as well as subsequent amendment on Bank’s Guidelines on

“Bank’s Domestic Lending Policy”.

Meanwhile, in view of the suggestions/various guidelines received from Ministry of

Finance/ RBI/ IBA, the Bank’s Board in its meeting held on 11.03.2016 have reviewed/

amended “Bank’s Domestic Lending Policy”. A copy of the revised guidelines duly

approved by the Bank’s Board is enclosed as “Annexure B”. The gist of major

amendments is as per “Annexure A”.

These revised guidelines will be effective from the date of this circular.

The Branches / Offices are advised to carefully go through the guidelines and note the

contents therein for strict compliance.

(S. L. Jain)

General Manager (IRM)

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Annexure A

GIST OF MAJOR AMMENDMENTS

i. Regulatory Priority sector targets and sub-targets is included.

ii. As a part of Credit Risk Measurement, 19 RAM Models, 11 Score Card & Thumb

Rule have been included along with Facility Rating & Composite Rating under

RAM as per HOIC No. 14025 dated 26.11.2015.

iii. RBI relaxed certain categories of loan to Chief Executive Officer/ Whole Time

Directors, which has been added.

iv. Commodities i.e. Food Grains, Oil Seeds, Raw cotton & Kapas and cotton textile

added under Selective Credit Control as per RBI guidelines.

v. Restrictions on other loans and advances pertaining to “Using long term export

advance to liquidate rupee loans which are classified as non-performing assets”

included.

vi. Other Restriction (Prohibited category of borrowers) : Clause for willful defaulters

revised as “Borrowers/Directors/Partners/Proprietors/Guarantors who is/ are

included in the Willful Defaulters list issued by RBI will be debarred from

institutional finance for floating new ventures for a period of five years from the

date of removal of their name from the list of willful defaulters as published/

disseminated by RBI/CICs”.

vii. Bills Discounted under Letter of Credit: Where Bill discounting/ Negotiation/

Purchase and LC issuing bank is our bank, the same will be classified as

exposure to borrower.

viii. Share Application money: Definition & treatment clarified in the policy.

ix. Ownership criteria of step-down subsidiaries by Indian Companies from more

than 51% holding to minimum 51% holding modified.

x. The Sanction Letter should include information pertaining to Loan amount &

Term of loan, Interest, fees payable, penalty, EMI, Securities etc. to all the

borrowers included.

xi. In Pre-sanction Scrutiny & Credit Appraisals, additional points also to be taken

care are a) Market information, b) Involvement in legal disputes, c) Raids

conducted, d) Validation of data from ROC.

Further, to incorporate a clause in the appraisal note that ‘ No third party is involved at

any stage in the loan sanction process’ as a tool of preventive vigilance.

xii. Non-Fund based facilities including Partial Credit Enhancement (PCE) may be

extended to those borrowers who do not avail any fund based facility from any

bank in India, subject to certain conditions incorporated.

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xiii. In order to extend timely adequate credit to borrowers in the MSE segment within

the broad MSME policy guidelines, consideration of sanction of additional

Standby Credit facility for Fresh Term Loans for project loans / funding capital

expenditure and additional Working Capital Limits specified.

xiv. The criteria for Bank Finance to Factoring Companies amended.xv. Bill Finance : Purchase /discount/negotiation of bills under LCs clarified.

xvi. HLCC ED and above is authorized to permit establishment of LC with non

recourse clause on behalf of our clients, in favour of AAA/AA/A rated Public

Sector Enterprises added.

xvii. The sanctioning authority will take a view & permit/ issue NOC for Re-

Constitution of Firm/ Company.

xviii. Undrawn Exposure: Disbursement schedule should be mentioned in sanction

letter for conservation of capital specified.

xix. Discretionary Authorities for considering Relaxations under Retail LendingSchemes is as per HOIC No. 14188/Retail Credit/2015-16/19 dated 11.03.2016.

xx. Credit Audit can also be entrusted to empanelled Retired Bank Officers is

included.

xxi. While doing Review of Borrowal Accounts, diversion of funds, adequacy of

drawing power, stress in group accounts, market developments, stock price

movements, etc. should also be examined.

xxii. Early warning signals mentioned to enable branches to take timely preventive

corrective measures.

xxiii. Separate Chapter on Restructuring/Rescheduling and para on Strategic DebtRestructuring Scheme, Flexible Structuring & Refinancing Long Term Project

Loan incorporated.

xxiv. Financing Second Hand Assets: The Authority to reduce the gap between the

residual life of the asset and the repayment period of the loan as also margin is

specified.

xxv. Financing of purchase of units for onward sales in part / scrap: Amendment in

respect of minimum margin, tangible collateral security, maximum exposure per

borrower and Discretionary Power specified.

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Annexure B

ALLAHABAD BANK

DOMESTIC LENDING POLICY

INTEGRATED RISK MANAGEMENT DEPARTMENTHEAD OFFICE

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Contents

1. INTRODUCTION & OBJECTIVE OF THE LOAN POLICY .............................................. 9

1.1. Introduction ......................................................................................................................... 10

1.2. Policy Coverage ................................................................................................................ 10

1.3. Basic Objectives ................................................................................................................ 10

1.4.

Regulatory Credit .............................................................................................................. 11

1.5. Definition of Regulatory Retail for the purpose of Calculation of CRAR .............. 12

1.6.

Strategies to achieve objective ...................................................................................... 12

1.7. Loan Policy Compliance & Relaxation ......................................................................... 13

1.8. Credit Risk Management ................................................................................................. 14

1.8.1.

Credit Risk Identification ...................................................................................14

1.8.2.

Credit Risk Measurement .................................................................................15

Credit Risk Rating System / Modules ...........................................................................15

1.8.3.

Credit Risk Mitigation and Collateral Management .................... ................ 17

1.8.4.

Strategy for Credit Management .....................................................................19

1.9. Industry wise Lending Guidelines ................................................................................. 19

2.

Credi t Deployment......................................................................................................... 20

2.1. Credit Planning & Budgeting .......................................................................................... 21

2.2.

Thrust Areas ....................................................................................................................... 21

2.3. Asset Liability Management ............................................................................................ 22

3. STATUTORY RESTRICTIONS ....................................................................................... 24

A. Statutory Restrictions ................................................................................................................. 25

3.1. Prohibitions List ................................................................................................................. 25

3.1.1. Restrictions as per Section 20 of the Banking Regulation Act, 1949.................... 25

3.2. Regulatory Restrictions ................................................................................................... 29

3.2.1. Restrictions on Grant of Loans and advances to off icers and relatives of Senior Officers of

Banks 29

3.2.2. Advances to self /close Relatives.................................................................................. 30

3.2.3. Restriction on Advances against Sensitive Commodities under Selective Credit Control: 30

3.2.4. Restrictions on other loans and advances .................................................................. 31

3.2.5. Financing Infrastructure/ Housing Projects ................................................................. 34

3.2.6.

Issue of Bank Guarantees in favour of Financial Institutions .................................. 35

3.2.7. Loans and advances to Real Estate Sector ................................................................ 35

3.2.8. Bridge Loans against receivables from Government ................................................ 36

3.2.9. Restriction on Guarantee & Co-acceptances: ............................................................ 36

3.3. Other Restriction (Prohibited category of borrowers) ............................................... 36

3.4.

Hurdle Risk Rating for Financing ................................................................................... 37

3.4.1. Guidelines on Fresh Exposure- Hurdle Rating for Credit Limits of Rs 25 Crore & above 37

4.

EXPOSURE MANAGEMENT ......................................................................................... 39

4.1.

Capital funds ...................................................................................................................... 40

4.2. Exposure ............................................................................................................................. 40

4.3. Exposure Ceilings ............................................................................................................. 40

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4.3.1.

Exposure Norms Prescribed by RBI ............................... ............................... 40

4.3.2.

Credit Exposures to Individual/Group Borrowers ........................................ 40

4.3.3.

Substantial Exposure Limit ...............................................................................41

4.3.4.

Bills discounted under Letter of Credit (LC) ................................................. 41

4.3.6.

Exposure Norms for NBFC as prescribed by RBI ....................................... 41

4.3.7.

Bank’s Internal Prudential Exposure limit for Individual and Group Borrower 42

4.3.8. Prudential Exposure Limit for Individual and Group Borrower ................. 43

4.4.

Exemptions to Exposure Ceiling ................................................................................... 44

4.5. Exposure to Capital Market ............................................................................................ 44

4.6. Exposure to Individual /Proprietorship/Partnership Firms /H.U.F /LLP/AOP ...... 46

4.7.

Advances to Individuals against shares....................................................................... 47

4.8. Exposure to Indian Joint Ventures/ Wholly Owned Subsidiaries/ Step- down Subsidiaries. 47

4.9. Sector wise Exposure Ceiling ........................................................................................ 49

4.10. Secured and Unsecured Advances .............................................................................. 51

4.10.1. Exposure by way of Unsecured Guarantees and Unsecured Advance ............... 51

4.11. Export Credit ...................................................................................................................... 53

4.12.

Bank Financing to PSU Disinvestments...................................................................... 53

4.13. Intra group Exposure (For the purpose of Loans) ..................................................... 54

5. System & Proc edures ................................................................................................... 55

5.1. Fair Practice Codes for Lenders .................................................................................... 56

5.2. KYC Norms including e-KYC.......................................................................................... 57

5.3. Credit Information Bureaus and Credit Reports ......................................................... 57

5.4. Credit Reports from Bankers & Exchange of Information ....................................... 58

5.5. Guidelines for trigger points for shares / unit of mutual funds held as primary / collateralsecurity. .............................................................................................................................................. 59

5.5.1. In cases, where listed shares / mutual funds are kept as prime security ............. 59

5.5.2. In cases, where listed shares / mutual funds are kept as collateral security as exclusivecharge 60

5.5.3. In cases, where listed shares / mutual funds are kept as collateral security under pari-passucharge with other lenders ............................................................................................................... 60

5.5.4. In cases, where unlisted shares / mutual funds are kept as collateral security .. 60

5.6. Advances to borrowers appearing in Defaulters’ List/ Caution List ....................... 60

6.

PRE-SANCTION, APPRAISAL & EVALUATION .......................................................... 63

6.1. Credit Approval Authorities ............................................................................................. 64

6.2. Credit Approval Committees .......................................................................................... 64

6.3.

Pre-sanction Scrutiny & Credit Appraisals .................................................................. 64

6.3.1. Lending to PSUs / Central and State Government Corporate / Municipal Committees /

Corporations etc............................................................................................................................... 67

6.4. Appraisal cum Proposal Memorandum........................................................................ 67

6.5. Due diligence on Suppliers ............................................................................................. 68

6.6.

Exposure in case of Forex Loans – Hedging Requirements .................................. 69

6.8. New Business Group ....................................................................................................... 70

6.9. Environmental Pollution ................................................................................................... 71

6.10. Adoption of Environment and Social Risk Framework (ESRF) Guidelines ......... 72

6.11. Methods of assessment................................................................................................... 72

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6.12.

Financing to NBFC ........................................................................................................... 76

6.12.1.

Broad classification of NBFCs .........................................................................76

6.12.2. Bank Finance to NBFCs registered with RBI ..................................... .......... 76

6.12.3.

Bank Finance to NBFCs not requiring Registration .................................... 77

6.12.4.

Bank Finance to Residuary Non-Banking Companies (RNBCs) ............. 77

6.13. Bank Finance to Factoring Companies ........................................................................ 77

6.14.

Sick/Weak Units ................................................................................................................ 77

6.15.

Finance to Construction Companies ............................................................................ 78

6.17. Additional Credit Limits to Exporters ............................................................................ 78

6.18. Holding Periods ................................................................................................................. 79

6.19. Composite Limit /Sub-Limits ........................................................................................... 80

6.20. Bench Mark Ratios ........................................................................................................... 80

6.21.

Treatment of items while calculating MPBF ................................................................ 85

6.22. Term Loan .......................................................................................................................... 86

6.22.1. Techno economic viability study norms (For Fresh Term Loan) ............................ 88

6.22.2. Relaxations in financial parameters .............................................................................. 91

6.23.

Line of Credit ...................................................................................................................... 92

6.24. Bill Finance ......................................................................................................................... 92

6.25. Bridge Loan ........................................................................................................................ 96

6.26.

Loan System for Delivery of Bank Credit .................................................................... 96

6.27. Bank Guarantee ................................................................................................................ 96

6.28. Deferred Payment Guarantees ...................................................................................... 99

6.29. Letter of Credit ................................................................................................................... 99

6.30. Other guidelines .............................................................................................................. 101

6.31.

Extension of Expired Limit ............................................................................................ 102

6.32. Security ............................................................................................................................. 103

6.33.

Margin................................................................................................................................ 106

6.34. Induction of promoters contribution ............................................................................ 109

6.35. Conveying of Sanction ................................................................................................... 110

6.36. Valuation of Collateral Securities & Empanelment of Valuers .............................. 110

6.37. Pricing ................................................................................................................................ 111

6.38.

Quoting of Interest Rates .............................................................................................. 112

6.39. Time Frame for Disposal of Proposals ....................................................................... 113

b. Monitoring of pendency of loan proposals ................................................................ 113

6.40. Documentation Standards ............................................................................................ 115

6.41. Ad hoc Credit Facilities/ Overdrawing ........................................................................ 117

6.42.

Re- Constitution of Firm / Company........................................................................... 118

6.43. Undrawn Exposure ......................................................................................................... 118

6.44. Syndication of Loan ........................................................................................................ 118

6.45. Interchangeability and operation in the account on devolvement of LC and invocation ofGuarantee ........................................................................................................................................ 119

7. CHAPTER: MONITORING OF LOAN ASSETS ........................................................... 121

7.1. Monitoring of Loan Assets ............................................................................................ 122

7.2.

Submission of MDA ........................................................................................................ 122

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7.3.

Monitoring before Disbursement ................................................................................. 123

7.4. Post Disbursement Monitoring ..................................................................................... 124

7.5. Preventing slippages for Technical Reasons ........................................................... 134

8. CHAPTER: RESTRUCTING/ RESCHDULING, FLEXIBLE STRUCTURING ............. 135

8.1. Restructuring / Rescheduling ....................................................................................... 136

8.2.

Eligibility & other Criteria for restructuring of advances ......................................... 142

8.3. CDR Mechanism ............................................................................................................. 145

8.4. SMA Loan Account ......................................................................................................... 145

8.5. Restructuring through Joint Lenders Forum (JLF) .................................................. 146

8.6. Strategic Debt Restructuring Scheme ........................................................................ 147

8.7. Review/ Renewal of Restructured Accounts ............................................................ 148

8.8. Flexible Structuring and refinancing Long Term Project Loan to the Infrastructure and CoreIndustries ......................................................................................................................................... 148

9. IMPORTANT SECTORAL FINANCES ......................................................................... 150

9.1. Financing to Infrastructure ............................................................................................ 151

9.2.

Financing Second-Hand Assets.................................................................................. 154

9.3. Financing Promoter’s Equity ........................................................................................ 155

9.4.

Acquisition of assets through assignment of debts/IBPCs/ Securitization etc. . 156

9.5. Securitization of Assets / Future Receivables .......................................................... 157

9.6. Project Finance ................................................................................................................ 157

9.7. Financing for purchase of industrial units .................................................................. 158

9.8. Financing of purchase of units for onward sales in part / scrap ........................... 158

9.9. Short Term Loan for corporate and PSUs ................................................................. 159

9.10. Commercial & Other Real Estate ................................................................................ 159

9.11.

Buyers/Suppliers’ Credit ................................................................................................ 159

10. RELAXATIONS, CONCESSIONS AND OTHER CREDIT RELATED ISSUES........... 161

10.1. Reporting of Deviations/Concessions ........................................................................ 162

10.2. Other General Guidelines ............................................................................................. 162

10.3. Sunset Clause ................................................................................................................. 163

ANNEXURES ......................................................................................................................... 164

I.

Committees associated with Lending Policy ........................................................... 165

II. Consortium/ Mult iple Banking/Joint Lenders Forum .............................................. 167

III.

Group concept ............................................................................................................. 181

IV. Procedures for cancellation of expired guarantee .................................................. 184

V. Guidelines on Sanctioning & Moni tor ing of LC & BG facil iti es .............................. 187

VI. List o f private banks whose L/Cs, Co-acceptance can be accepted for the purpose of

discount ing of bi lls .............................................................................................................. 189

VII. Top Sheet: Check points ............................................................................................ 190

VIII. Risk Rating& Validation .............................................................................................. 192

A.3. Compos ite Rating ......................................................................................................... 193

IX. Operat ional Review Format ........................................................................................ 195

X. Salient Features of National Building Code (NBC) 2005 ......................................... 198

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1. INTRODUCTION & OBJECTIVE OF

THE LOAN POLICY

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1.1. Introduction

The Domestic Lending Policy of the Bank was last reviewed and revised by the Board

of Directors in its meeting held on 29.09.2014.

The Bank’s Domestic Lending Policy is annually reviewed by incorporating theregulatory and operational guidelines circulated by Reserve Bank of India, IBA, and

GoI, suggestions/comments given during Annual Financial Inspection / Long Form

Audit Report (LFAR) etc. Further the amendments in the policy is also made from time

to time to meet the market realities and business priorities so as to help all

functionaries at the Bank in discharging their responsibilities for a steady and healthy

growth in credit portfolio

1.2. Policy Coverage

Domestic Lending Policy of the Bank is the Mother Policy for all credit relatedpolicies. As such any specific policy shall be read in conjunction with the

mother policy for better understanding and interpretation thereof.

The policy is designed in such a way so as to give an overall flavor about

certain basics of lending, Exposure norms, pre-sanction appraisal, post-

sanction monitoring.

The provisions of the Lending Policy will be applicable to entire portfolio

(domestic) of the bank, if otherwise not prescribed in specific schematic

advances under Retail, MSME, Priority Sector and Recovery. The Policy does

not cover in itself all the instructions and guidelines related to lending andhave to be read in consonance with other Operational Instructions, Manuals,

Circular issued/ amended by the bank from time to time.

The guidelines contained in loan policy documents are subordinated to

RBI/FEMA/SEBI/other regulatory guidelines. All regulatory guidelines

subsequent to this loan policy guidelines and not covered will be integral part

of the loan policy documents and will be followed strictly.

This loan policy does not include matters relating to investments, derivatives

and overseas lending, for which bank has in place separate policy

documents/guidelines.

1.3. Basic Objectives

To provide broad guidelines for extending financial assistance to various

business segment.

Balanced growth and maintenance of healthy credit portfolio with sound Risk

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Management culture and practices.

Focus on qualitative credit for meeting corporate objectives.

Enlarge clientele base of corporate and non-corporate segments through

Credit Marketing and focus on their genuine credit needs.

To increase Non-fund and Non-interest income

To ensure credit discipline at all levels viz. borrowing entity, operating staff

and the management.

Due compliance of all regulatory requirements, such as capital adequacy,

exposure norms, asset-liability management guidelines etc.

To strengthen the credit delivery system and to instill a sense of credit culture

enterprise-wide.

1.4. Regulatory Credit

Bank will strive to augment diversified credit portfolio with a mix of Corporate,MSME, Priority Sector and Retail Segments in sync with National Priorities.

Bank aims to achieve following Priority Sector Targets in-line with the RBI

directives (Ref: HOIC 13803 dated 13.07.2015):

Sector

Targets

(Computed against Adjusted Net Bank Credit or credit equivalent

amount of Off-Balance Sheet Exposure, whichever is higher as on the

corresponding date of the preceding year)

Priority Sector 40%

Within Priority sector

Total Agriculture 18% (Within Agriculture, Small & Marginal Farmers – 8%, to be achieved in

a phased manner i.e. 7% by March’2016 & 8% by March’2017)

Micro Enterprises 7.5% (to be achieved in a phased manner i.e. 7% by March’ 2016 and

7.5% by March’2017).

Weaker Section 10%

Export Credit Incremental export credit over corresponding date of the preceding year, up

to 2 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet

Exposure, whichever is higher, effective from April 1, 2015 subject to a

sanctioned limit up to Rs 25 crore per borrower to units having turnover of

up to Rs 100 crore would be classified as Priority Sector.

.

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1.5. Defini tion of Regulatory Retail for the purpose of Calculation of CRAR

In line with the Basel Guidelines, Exposure (both FBL & NFBL) to a borrower for

Rs.5 crore & below will be considered as Regulatory Retail for the purpose of

calculation of CRAR. The other criteria for inclusion in regulatory retail areas

under:

a) Orientation Criterion- The exposure to an individual person or persons or

to a small business where the total average annual turnover is less than

Rs 50 Crore. The turnover criterion will be linked to the average of the last

three years in the case of existing entities; projected turnover in the case

of new entities; and both actual and projected turnover for entities which

are yet to complete three years.

b) Product Criterion- The exposure should be in the form of cash Credit,Overdraft, lines of credit, term loans and leases etc.

c) Granularity Criterion - Aggregate exposure to a single borrower should

not exceed 0.2 per cent of the overall regulatory retail portfolio. NPAs

under retail loans are to be excluded from the overall regulatory retail

portfolio when assessing the granularity criterion for risk-weighting

purposes.

However, the following exposure even if below Rs.5.00 Crore, both FBL & NFBL,shall be excluded from the regulatory retail portfolio:

a. Housing Loans and Commercial Real Estate as they qualify for separate

treatment for CRAR;

b. Loans and Advances to bank’s own staff which are fully covered by

superannuation benefits and / or mortgage of flat/ house;

c. Consumer Credit, including Personal Loans and credit card receivables;

d. Capital Market Exposures;

e. Venture Capital Funds.

f. NBFCsg. Or any other categories of loans as defined by RBI from to time.

1.6. Strategies to achieve objective

a. Adherence to the norms of Fair Practices Code for Lenders.

b. Prescribing general norms and standards for existing as well as new

borrowers.

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c. Mobilization of fresh/ quality credit proposals ensuring proper return.

d. Need based enhancement in existing limit on review.

e. Focus on tapping Non-fund business.

f. Balanced diversification/ rebalancing of loan portfolio so as to avoid

Concentration Risk.g. Effective Supervision and Monitoring to keep loan assets performing.

h. Acquisition of assets through assignment of debts/IBPCs/ Securitization of

rent, toll, cess, rights, trade receivables etc.

1.7. Loan Pol icy Compliance & Relaxation

a. All the Branches/Offices (Branches, Zonal Offices, FGM Offices and Head

Office) 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

policy guidelines to any situation, clarification/approval shall be sought fromIntegrated Risk Management Department, Head Office. The authority for

interpretation / clarification shall vests with the Executive Director.

b. The policy requires a degree of flexibility to the decision makers to cope

with the competitive business environment as such this policy contains

necessary provisions indicating the authority competent to permit relaxation

from various provisions in the policy guidelines and scheme formulated by

Bank.The deviation / exemption from the norms / bench-mark levels laid down

in the Policy may be permitted only in genuine and exceptional cases, onaccount of business exigencies.

The deviations / exemption from the norms / benchmark levels shall be clearly

mentioned in the appraisal note, duly recording the reasons / justifications

/mitigations thereof. The relaxation will be permitted on case to case basis.

c. On account of business compulsions, CAC is empowered to sanction

proposals, allow deviations/ exemptions/ amendments, falling under the

authority of MCBOD and the same will be reported to MCBOD in the ensuing

meeting.

d. MCBOD will have full powers for sanction of limits (including over and

above Internal Prudential Cap but within Statutory/ RBI Ceilings) and also

permitting deviations/ relaxations over and above mentioned in the policy.

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In case of sanction of limits above internal prudential cap, it will be reported to

Board in their next meeting. In case of sanction of limits above RBI Ceiling

(beyond 15%/20% and 40%/50%), approval from Board is required to be

obtained beforehand.

e. Deviations / Modifications in sector specific schemes will be permitted as

per the guidelines given in the respective schemes. Deviations / modifications

which are not covered or beyond the scope of the respective schematic

guidelines will be considered by HLCC GM and the same will be placed

before the CAC in tabular form on monthly basis for information/ ratification.

f. Micro level issues pertaining to assessment of credit requirement and

other operative guidelines are not dealt in detail in this document. Various

sanctioning authority to take suitable credit decision on case to case basiswithin the broad contour of this policy guidelines and subsequent

modification, if any.

1.8. Credit Risk Management

a. The Credit Risk Management would be guiding principle for the Lending

Policy. While Lending Policy would address the business development facet,

the guidelines under Credit Risk Management Policy will also be integrated to

build quality asset portfolio and to minimize risks.

b. Guidelines under Credit Risk Management shall be strictly adhered to,

with specific reference to Credit Risk Rating, Credit monitoring, Risk

Mitigation & Collateral Management, Pricing and Operational procedures

c. The Credit Risk Management process consist of following steps:

1.8.1. Credit Risk Identification

The Bank recognizes that every credit decision, in respect of both fund

based limits (FBL) and Non-fund based limits (NFBL), involves Credit

Risk

Identification

Risk

Measurement

Risk Mitigatio

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Risk. Therefore, the Bank has put in place the Credit Risk Rating System

towards effective measurement, monitoring and mitigation of such risks in

its credit portfolio.

1.8.2. Credit Risk Measurement• All credit exposures should be rated under internal rating

modules/score-cards.

• Risk Grading System serves as a single point indicator of diverse risk

factors of counterparty and for taking credit decisions in a consistent

manner.

• Accurate and timely credit grading is one of the basic components of

an effective portfolio management and loan review mechanism.

• Credit Risk Grading involves assessment of credit quality, identification

of problem loans and assignment of risk-rating. A proper credit gradingwould support evaluation of portfolio quality and as such it should be

given priority at all levels.

• To reveal / assess the overall risk of lending, critical inputs for setting

pricing and non-price terms of loans and also for meaningful review

and management of loan portfolio, the Guidelines on Credit Risk

Grading System as set out by the Bank should be meticulously

followed.

Credit Risk Rating System / Modules

• The borrower account shall be rated on any of the Model/ Score Card

System as under :

a) 19 Models under CRISIL RAM,

b) 11 Score Cards,

c) Thumb Rule

Further, the facility rating & composite rating will be calculated on RAM

Modules.

The details of above models are outlined in the HOIC No.14025 dated

26.11.2015.

• Validation of risk rating of commercial loans (i.e. other than agricultural

loan, schematic lending, Retail loans etc.) will henceforth as follows:

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Sanctioning Authori ty Rating validating Authori ty

Scale – 1 to 3 Branches Branch Head

Scale – 4 & above BranchesSecond line officer handling Credit

Department.

ZLCC AGM/DGM / FGM LCC Second-line officer or Head of CreditDepartment in ZO/FGMO

HLCC GM/ ED/ CAC/ MCBOD IRM Deptt Head Office

• The sanction will be made only after validation of rating by the

appropriate authority / department.

• Since Bank is in the process of migration to IRB approaches, the

updation of Internal Rating in CBS system is of paramount importance.

Hence, immediately after validation of Internal Rating, the same should

be fed into CBS system.

• Matters relating to Credit Risk Rating will be governed by the Model

Risk & Risk Rating Policy of the Bank.

• Normal credit Risk assessment exercise should be done in case of

PSUs / Central and State Government Corporate / Municipal

Committees / Corporations etc and no specific exemptions favoring to

them, if any be allowed. The primary criteria for the loan have to be

based on economic parameters as applicable to evaluation of any

other loan project supported with a statement of cash flow.

• Balance Sheet, Auditor’s report, Notes on Accounts, qualification of

auditors as also consolidated financial statements wherever available,

should be analyzed thoroughly within one month of receipt of audited

financials for accounts having exposure of Rs 1 Crore & above and

adverse features including impact on ratings, if any, should be brought

to the knowledge of sanctioning authority. Compliance in this regard

will be monitored as under:

Offices Sanctioning Authority

Zonal Offices ZLCC & Branches under them

FGMO FGM LCC

Credit Deptt., HO HLCC GM & above

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External Ratings

• Bank will encourage Corporate borrowers including PSU and NBFC

(AFC/IFC/HFC) enjoying total credit limits of Rs.10 Crore and above to

go for external rating from RBI accredited rating agencies such as

CRISIL, CARE, ICRA, Brickwork, India Ratings (formerly FITCH) &SMERA Ltd.

The sanctioning authority may stipulate necessary conditions including

charging of additional rate of interest over the applicable interest to be

charged and/or withdrawal of concessions granted, if any, in case the

borrower fails to obtain credit rating afresh or within 6 months from

sanction/enhancement/ renewal/ expiry of existing rating.

• Under Standardized Approach, the rating assigned by the eligible

External Credit Rating Agencies will largely support measure of CreditRisk. However, the in-house risk grading will continue to be part of

Credit decision making and accordingly the discretionary powers for

credit related decisions has been delegated. The External rating will

however would help the bank to continuously assess the accuracy of

internal model and fine-tuning the same to switch over to Advanced

approaches under Basel Guidelines.

Under standardized approach the Risk weights are assigned based on

External ratings and as such better rated portfolio will save the capital

charge.

1.8.3. Credit Risk Mitigation and Collateral Management

• There is grave risk on loan without security. As such, the Bank will

continue to obtain collateral security.

• Under Basel III Standardized Approach, Bank will get the benefit in

calculation of regulatory capital charge on eligible financial collaterals

and guarantee. As such, possibilities be explored for obtaining such

eligible financial collaterals/ guarantees.• Eligible financial collateral includes Cash, Deposit receipts, NSC, KVP,

Gold, Securities issued by Central/ State Govt, Surrender value of Life

Insurance Policies, Debt securities rated/ unrated by a chosen credit

rating agency, units of mutual funds regulated by the securities

regulator.

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• Eligible guarantees include CGTMSE, ECGC. Central & State Govt.

guarantee.

• Bank will maintain a proper balance in various risk grade-wise

exposure for a meaningful distribution of loan assets. With this

objective, total exposure in various grades should normally becontained within following ceiling of gross credit :

Risk Profile Credit Risk Rating Portfolio Distribution

Low Risk AB-1, AB-2 and AB-3 45% maximum in each category

Moderate Risk AB-4 and AB-5 35% maximum in each category

High Risk AB-6

AB-7 and AB-810% maximum in each category

• CAC is authorized to ratify a breach up to the extent of 10% in any of

the Low / Moderate Risk categories, which will be subsequently

reported to the Board for information. The above grade wise ceiling

may be reviewed/revised or amended by the RMC as and when

required based on Risk appetite of the Bank.

• Records for exposure beyond the ceiling of 10% in AB 6 category due

to migration of account should be kept separately at IRM Department,

Head Office.

• The control mechanism will have following dimensions:

o Ensuring compliance of necessary monitoring terms,

maintaining continuous follow up and supervision measures.

o Adoption of suitable risk mitigation measures like ensuring

obtaining financial collaterals / guarantees.

o Avoidance by staying away from risky borrower.

o Reducing exposure i.e. adherence to lower limit.

o Fixing higher level of margin

o Insurance cover of assets against loss, damage, calamity etc.

o Institutional guarantee cover against default risk from Credit

Guarantee Fund Scheme for small industries/ECGC etc.

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1.8.4. Strategy for Credit Management

a. Primary Focus of Credit Risk Management process would be at two

levels as under:

i. Portfolio Level (Macro level approach for Intrinsic Risk of Bank’s

Credit Portfolio i.e. Prudential Limits / Concentration etc.).

ii. Individual Borrower Level (to deal / address default risk of

individual borrower through Assessment/Measurement of asset

quality of borrowal accounts and risk through Credit Risk

Grading /Rating.

b. Loan pricing on a scientific basis preferably based on risk grading of

the accounts and also keeping in view the interest rate charged by

other banks/lenders.

c. Controlling the risk through Loan Review Mechanism, by effectivelyimplementing Bank’s Lending Policy containing exposure norms for

borrowers / group / sectors / industries etc., so as to maintain healthy

and diversified portfolio, Portfolio Management. Credit selection should

be based on credit risk acceptability criteria / hurdle rate.

d. Building up of historical data base on migration of borrowal accounts

over various rating grades for using the same in measurement of credit

risk under advanced approaches (IRB Framework).

e. Prudential credit risk management practices shall receive greater

attention by timely identification, quantification, management and

mitigation of various risks associated with credit.

f. Compliance with all the Statutory and Regulatory

stipulations/requirements shall be strictly ensured in credit operations

of the Bank.

1.9. Industry wise Lending Guidelines

a. Wherever necessary, the Bank shall frame, with approval of the Board

of Directors / Committee of Directors on Integrated Risk Management,specific guidelines for adherence.

b. Industry specific policies in respect of IT Software, Iron & Steel

Industry, Diamond Industry, Textile Industry, Commercial Real Estate,

Ship Breaking Industry, Construction Contractors, and Advance

against Shares etc., besides retail, priority sector credit schemes etc.

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2. Credit Deployment

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2.1. Credit Planning & Budgeting

a. The Bank will formulate credit budgets in consultation with field

functionaries.

b. Bank’s credit is to be broadly covered under Priority Sector and Non-Priority Sector lending. Bank would adopt the RBI guidelines on Lending

targets set under Priority Sector.

c. The Bank will endeavor to increase credit exposure to all types of

customers such as Individual, Proprietorship concerns, Partnership firms,

Limited Liability Partnership, Companies registered under Companies Act,

Association of Persons and Undertakings owned by Governments

including PSUs etc.

The borrowers eligibility includes:i. The Borrower(s) and activity of the borrower should be legally

permitted.

ii. Satisfactory track record with the existing Bank, wherever

applicable.

iii. The borrower(s) are having good track record, managerial

competence, and satisfactory market reports.

iv. Acceptability under KYC/AML norms.

v. Compliance of CIBIL score/waiver.

vi. An affidavit shall be obtained from all new borrowers and fromexisting customer (in case of enhancement) to the effect that none

of the accounts of their associates /group concerns are classified

as NPA with other banks / financial institutions.

vii. The dealings of a borrower customer, either individual or group

account, shall preferably be confined to one branch only, unless

specific reasons justifying multi branch dealing is accepted.

2.2. Thrust Areas

a. The primary goal before the Bank is to scatter the credit risk in its portfolio

in productive sectors and therefore, the Thrust Area concept will be

utilized to channelize credit into low credit risk avenues.

b. Agriculture, SME and Retail Banking shall remain the focus area and the

Bank has separate policy guidelines for SME and Retail Banking products.

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Lending to Agriculture would be guided by extant guidelines issued by

Priority Sector Department. Lending to SME segment and Retail Products

segment would be guided by the extant guidelines issued by respective

functional departments.

c. Based on the experience/ industry scenario received from various

sources, the thrust areas may be communicated to the field functionaries

by Credit Monitoring Department/PSC department/IRM Department/Credit

Department, HO from time to time.

2.3. Asset Liabi li ty Management

a. As a financial intermediary, Bank’s prime responsibility is to provide term

& working capital finance to all productive sectors i.e. Corporate, Retail

banking including housing and other requirements of credit worthy

households, besides its socio-economic obligations in lending, matching

with the maturities of the resource mobilized.

i. For Asset-Liability Management, the maturity period of Term loan

will be defined based on remaining maturity of loan tenure as

under:

Remaining Maturity of Term Loan Loan ClassificationBelow 3 Years Short Term Loan

3 years and above but up to 5 years Medium Term Loan

Above 5 Years Long Term Loan

ii. The Long Term Loan and financing of infrastructure projects may

lead to Asset – Liability Mismatches, particularly when such

financing is not in conformity with the maturity profile of the bank’s

liabilities. Therefore, before financing, asset-liability position of

Bank should be examined so that Bank does not run into liquidity

mismatches on account of lending to such projects.

iii. In this backdrop, the authority to permit/ sanction of the Term loan

at various maturities is as under:

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Aggregate Repayment

(Door to Door)

Authority to permit / sanction of

the Term Loan

Up to 7 years The respective discretionary authority

Above 7 years and up to 10 years HLCC (GM) /FGM LCC

Above 10 yearsHLCC (ED) and above within their

discretionary authority.

iv. Exemptions:

Such permission will not be necessary in case of term loans

extended to Housing Sector (both direct and indirect), Agricultural

Loan, Government Sponsored Schemes, Educational Loan, All

Bank Rent, All Bank Loyalty Reward Scheme, and any other

specific scheme etc., Restructured Loan, Rehabilitation packageundertaken for revival of Sick/Weak units.

v. The moratorium period for infrastructure generally should not

exceed 3 years and in case of loans other than infrastructure

sector, educational loan, housing loan, should not exceed 2 years.

However, the sanctioning authority in deserving cases may

consider a moratorium period of maximum 5 years in case of

infrastructure & 3 years for other than infrastructure, considering

the cash flow position.

vi. In case of financing under consortium/multiple banking, the

sanctioning authority may accept repayment schedule as accepted

by lead bank/ majority lender.

vii. Restructuring of loan will be exempted from the maximum

moratorium period.

viii. CAC/MCBOD may consider moratorium higher than prescribed in

the schematic/ Retail/ Infrastructure etc.

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3. STATUTORY RESTRICTIONS

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A. Statutory Restrict ions

3.1. Prohibitions List

a. The Bank will strictly adhere to the Statutory restrictions imposed on

lending activities through Banking Regulation Act, RBI Act, Companies

Act, SEBI Guidelines and also the directives from RBI/Government etc.

b. The Bank will also draw and maintain a list of sectors/activities to which

no credit will be considered in accordance with section 20 of the Banking

Regulation Act, 1949 and other legal and regulatory guidelines issued

from to time. The list will be termed as ‘Prohibitions List’. The list shall

comprise of following sectors / activities:

3.1.1. Restr ict ions as per Section 20 of the Banking Regulation Act, 1949

a. Advances against bank's own shares: In terms of Banking Regulation Act,

1949, no loans will be granted on the security of bank’s own shares.

b. Advances to Bank’s Directors:

i. RBI has put forth restrictions on Lending to Bank’s Director. The

restriction on financing to Bank’s Directors as detailed in Discretionary

Authority should be complied with.

For the above purpose, the loans and advances shall not include the

loans and advances against Govt. Securities, Surrender value of Life-

insurance policies or fixed deposits, loan as a part of the

compensation/ remuneration policy, to Chief Executive Officer/WholeTime Directors for

i. Purchasing of car

ii. Purchasing of personal computer

iii. Purchasing of furniture

iv. Constructing/acquiring a house for personal use

v. Festival advance

vi. Credit limit under credit card facility

ii. Grant of loans to Directors of any Bank /Grant of loans to relatives of

Directors: Without prior approval of the Board or without the

knowledge of the Board, no loans and advances will be granted to

relatives of Bank’s Chairman and Managing Director or other

Directors, Directors of other Banks and their relatives, Directors of

Scheduled Co-operative Banks and their relatives, Directors of

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Subsidiaries / trusties of mutual funds /venture capital funds set-up by

the bank.

iii. Unless sanctioned by the Board of Directors/Management Committee,

bank will not grant loans and advances aggregating Rs. 25 lakhs and

above to:

• Directors (including the Chairman/Managing Director) of

other banks*;

• Any firm in which any of the directors of other banks * is

interested as a partner or guarantor; and

• Any company in which any of the directors of other banks *

holds substantial interest or is interested as a director or as

a guarantor.

* including directors of Scheduled Co-operative Banks,directors of subsidiaries/trustees of mutual funds/venture

capital funds.

iv. Unless sanctioned by the Board of Directors/Management Committee,

bank will also not grant loans and advances aggregating Rs.25 lakhs

and above to:

• Any relatives of the Chairman & Managing Directors or

other Directors of our Bank;

• Any relatives of the Chairman & Managing Director or other

directors of other banks *;

• Any firm in which any of the relatives is interested as a

partner or guarantor;

• Any company in which any of the relatives hold substantial

interest or is interested as a director or as a guarantor.

* including directors of Scheduled Co-operative Banks,

directors of subsidiaries/trustees of mutual funds/venture

capital funds.

v. The proposals for credit facilities for an amount less than Rs.25 lakhto these borrowers may be sanctioned by the appropriate authority

under powers vested in such authority, but the matter should be

reported to the Board.

vi. The Chairman & Managing Director or other director who is directly or

indirectly concerned or interested in any proposal should disclose the

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nature of his interest to the Board when any such proposal is

discussed. He should not be present in the meeting unless his

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. The above norms relating to grant of loans andadvances will equally apply to awarding of contracts.

vii. The declaration will give details of the relationship of the borrower to

the director of the bank. If it transpires that the borrower has given a

false declaration the loan facility should be recalled immediately.

viii. Bank may grant loan or advance to or on behalf of spouses of their

Directors in cases where the spouse has his/her own independent

source of income arising out of his/her employment or profession and

the facility so granted is based on standard procedures and norms for

assessing the creditworthiness of the borrower. Such facility should be

extended on commercial terms.

ix. The term ‘loans and advances’ will not include loans or advances

against:

• Government securities

• Surrender value of Life insurance policies

• Fixed or other deposits

• Stocks and shares

•

Temporary overdrafts for small amounts, i.e. up to Rs. 25,000/-• Casual purchase of cheques up to Rs. 5,000 at a time

• Housing loans, car advances, etc. granted to an employee of

the bank under any scheme applicable generally to employees.

x. The term ‘substantial interest’ shall have the same meaning as

assigned to it in Section 5(ne) of the Banking Regulation Act, 1949.

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

bank.

i. Every borrower should furnish a declaration to the bank to the

effect that –

1. (Where the borrower is an individual) he is not a director or

specified near relation of a director of a banking company;

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2. (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

3. (Where the borrower is a joint stock company) none of its

directors is a director or specified near relation of a directorof a banking company.

ii. The declaration should also give details of the relationship of the

borrower to the director of the bank.

Directors mentioned above mean the promoter directors having more

than 2% share.

xi. Banks should forthwith recall the loan when it transpires that the

borrower has given a false declaration.

xii. Restrictions on Power to Remit Debts

Bank shall not, except with the prior approval of the Reserve Bank,remit in whole or in part any debt due to it by any of its directors, or

any firm or company in which any of its directors is interested as

director, partner, managing agent or guarantor, or any individual, if

any of its directors is his partner or guarantor.

Any remission made in contravention of the provisions stated above

shall be void and have no effect.

xiii. Loans and advances facilities should be extended to the Directors of

Bank and their relatives on “Commercial Terms”.

c. Restriction on Holding Shares in companies:

i. In terms of Section 19(2) of the Banking Regulation Act, 1949, banks

should not hold shares in any company except as provided in sub-

section (1) whether as pledgee, mortgagee or absolute owner, of an

amount exceeding 30 percent of the paid-up share capital of that

company or 30 percent of its own paid-up share capital and reserves,

whichever is less.

ii. Further, in terms of Section 19(3) of the Banking Regulation Act,

1949, the banks should 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 bank is in any manner

concerned or interested.

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d. Restriction on Credit to Companies for buy-back of their Securit ies

Bank will not provide loans to companies for buy-back of

shares/securities. However the companies are permitted to purchase their

own shares or other specified securities out of their free reserves, or

securities premium account, or the proceeds of any shares or otherspecified securities, subject to compliance of other conditions specified in

the Company act.

3.2. Regulatory Restrictions

3.2.1. Restrictions on Grant of Loans and advances to officers and relatives of

Senior Officers of Banks

a. RBI has put forth restrictions on Grant of Loans and advances to officers

and relatives of Officers of Banks. The Bank’s discretionary authority

guidelines cover the guidelines for restriction on financing of Bank’sofficers and their relatives which should be complied with.

b. To ascertain the interest of relatives of the officer of the bank in the Credit

Proposals, every borrower should furnish a declaration to the bank to the

effect that:

i. if he is an individual, that he is not a specified, near relation to a

senior officer of a Bank

ii. if it is a partnership or HUF firm, that none of the partners, or none

of the members of the HUF, is a near, specified relation of any

senior officer of the bank, andiii. If it is a joint stock company, that none of its directors, is a relative

of any senior officer of the bank.

iv. The detailed guidelines on advances to the sanctioning authority

and close Relatives of his own and also the employees working

under him are enclosed under the heading “Advances to self /close

Relatives”.

v. The term ‘Senior Officer’ will refer to any officer in senior

management level in Grade IV and above.

vi. 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 bank

should be reported to the Board.

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3.2.2. Advances to self /close Relatives

a. The delegatee shall not exercise lending powers for sanctioning any loan

to himself and should refer to next higher authority.

b. The delegate/ any Committee comprising an officer as member shall not

exercise lending powers for sanctioning any loan to his close relativesand also the close relatives of employees working under him except

following loans up to a maximum exposure of Rs 5 lacs:

i. Advances against Bank’s own term deposits.

ii. Advances against government securities/postal cash certificates,

NSCs, Kisan Vikas Patras, Indira Vikas Patras, Surrender value of

LIC Policies

iii. Advances against approved shares/debentures quoted on Stock

Exchanges

c. ZLCC & above is empowered to sanction loans to close relatives ofemployees up to their discretionary authority.

d. The scope of the term “relative” as defined by RBI is as under:

1. Spouse 2. Father

3. Mother (including step-mother) 4. Son (including step-son)

5. Son's Wife 6. Daughter (including step-daughter)

7. Daughter's Husband 8. Brother (including step-brother)

9. Brother’s Wife 10.Sister (including step-sister)

11.Sister’s husband 12.Brother (including step-brother) of the spou

13.Sister (including step-sister) of the spouse

3.2.3. Restriction on Advances against Sensitive Commodities under

Selective Credit Contro l:

With a view to preventing speculative holding of essential commodities

with the help of Bank’s credit and the resultant rise in their prices, the

Reserve bank of India stipulates specific restrictions on Bank advances

against specified sensitive commodities. The branches/ Offices shall

continue to comply with the RBI guidelines issued and as circularized by

the bank from time to time in this direction.

Presently, the following commodities are covered under stipulations of

Selective Credit Control:

a) Food grains i.e. cereals & pulses

b) Selected major oil seeds indigenously grown viz groundnut,

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rapeseed /mustard, cottonseed, linseed & caster seed, oils thereof,

vanaspati vegetable oils

c) Raw cotton and kapas

d) Cotton textiles which include cotton yarn, man-made fibres and

partly out of cotton yarn and partly out of man made fibres.e) Sugar :

• Buffer stock of sugar with Sugar Mills

• Unreleased stocks of sugar with Sugar Mills representing

o levy sugar, and

o free sale sugar

• Margin Stipulation:

Commodity Minimum Margin With effect from

(a) Buffer stocks of sugar 0% 01.04.1987

(b) Unreleased stocks of sugar withSugar Mills representing -

-----levy sugar

-----free sale sugar

10%

@

22.10.1997

10.10.2000

@ Margins on credit for free sale sugar, Food Grains, Selected major oil

seeds, raw cotton & kapas and Cotton textiles will be decided by bank from

time to time based on commercial judgment.

a) Valuation of Sugar Stocks:

1. The unreleased stocks of levy sugar charged to Bank as security by sugar

mills shall be valued at levy price fixed by Government

2. Unreleased stock of free sale sugar including buffer stocks of sugar

charged to the bank as security by sugar mills, shall be valued at the

average of the price realized in the preceding three months (moving

average) or the current market price, whichever is lower; the prices for this

purpose shall be exclusive of excise duty

3.2.4. Restr ict ions on other loans and advances

a. No loans to be granted against Certificate of Deposits

b. Loans against Third party deposits

c. No Loan will be granted against security of other Bank’s term deposits.

d. No loans to be granted to partnership / proprietorship concerns against

primary security of shares and debentures.

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e. Bank shall not extend finance to partnership firm, AOP (Association of

Person) where a NBFC/HUF is one of the partners.

f. Bank will not extend the finance for setting up of new units consuming /

producing the Ozone depleting Substances (ODS).

g. Bank will not sanction any loan for acquisition of / investing in smallsavings instruments including Kisan Vikas Patras (KVPs).

h. Bank will not grant any advance for purchase of gold in any form

including primary gold, gold bullion, gold jewellery, gold coins, units of

Gold Exchange Traded Funds (ETF) and units of gold Mutual Funds

specially minted gold sold by the banks may not be in the nature of

bullion/primary gold. However, for advance against gold ornament &

jewellery, the bank’s specific guidelines issued in this regard to be

followed.

i. Bank will desist from granting advances to silver bullion dealers whichare likely to be utilized for speculative purposes.

j. The Bank shall not extend advances for speculative purposes and

activities banned by RBI / Govt. from time to time.

k. Bank shall not extend advances against company shares to promoters

of such companies during lock-in-period

l. Bank Shall not Purchase cheques drawn in favor of borrowers by their

associate / Group concerns, friends or close relatives without genuine

trade transactions / considerations.

m. Bank shall not grant any loan / advance for subscription to IndianDepository Receipts (IDRs) and also not grant any loan / advance

against security / collateral of IDRs issued in India.

n. Restriction on issuance of guarantees for placement of funds with

NBFCs. These instructions would cover all types of deposits/ loans

irrespective of their source, including deposits/loans received by

NBFCs from trusts and other institutions. Guarantees should not be

issued for the purpose of indirectly enabling the placement of deposits

with NBFCs.

o. Bank shall not execute guarantees covering inter-company deposits/

loans and indirectly enabling the placement of deposits with non-

banking institutions. This stipulation will apply to all types of

deposits/loans irrespective of their source, e.g. deposits/ loans

received by non-banking companies from trusts and other institutions.

p. No Loans to be granted against partly paid shares.

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q. Advances to Agents / Intermediaries based on consideration of Deposit

Mobilization: Bank will desist from being party to unethical practices of

raising of resources through agents /intermediaries to meet the credit

needs of the existing/prospective borrowers or from granting loans to

intermediaries, based on the consideration of deposit mobilization, whomay not require the funds for their genuine business requirements.

r. Repayment of Rupee loans availed from domestic banking system

through ECBs extended by overseas branches/ subsidiaries of Indian

Banks is not permitted.

s. Using long term export advance to liquidate rupee loans which are

classified as non-performing assets as per RBI guidelines.

t. Bank finance to Non-Banking Financial Companies (NBFC):The

following activities undertaken by NBFCs, are not eligible for bank

credit:i. 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, bank should satisfy about

the bona fides and track record of NBFCs which have

discounted the bills.

ii. Investments of NBFCs both of 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.

iii. Unsecured loans/inter-corporate deposits by NBFCs to/in any

company.

iv. All types of loans/advances by NBFCs to their subsidiaries,

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group companies/entities.

v. Finance to NBFCs for further lending to individuals for

subscribing to Initial Public Offerings (IPOs).

vi. Bridge loans / interim finance: Banks will not grant bridge loans

of any nature, or interim finance against capital/debentureissues and/or in the form of loans of a bridging nature pending

raising of long-term funds from the market by way of capital,

deposits, etc. to all categories of Non-Banking Financial

Companies, i.e. equipment leasing and hire-purchase finance

companies, loan and investment companies, Residuary Non-

Banking Companies (RNBCs) and Venture Capital Funds

(VCFs). Bank to strictly follow these instructions and ensure that

these are not circumvented in any manner whatsoever by

purport and / or intent by sanction of credit under a differentnomenclature like unsecured negotiable notes, floating rate

interest bonds, etc., as also short-term loans, the repayment of

which is proposed / expected to be made out of funds to be or

likely to be mobilized from external / other sources and not out

of the surplus generated by the use of the asset(s).

vii. Advances to NBFCs against collateral security of shares:

Shares and debentures cannot be accepted as collateral

securities for secured loans granted to NBFCs borrowers for

any purpose.viii. Restriction on guarantees for placement of funds with NBFCs:

Banks should not execute guarantees covering inter-company

deposits / loans thereby guaranteeing refund of deposits / loans

accepted by NBFCs / firms from other NBFCs / firms. The

restriction would cover all types of deposits / loans irrespective

of their source, including deposits / loans received by NBFCs

from trusts and other institutions. Guarantees should not be

issued for the purpose of indirectly enabling the placement of

deposits with NBFCs.

3.2.5. Financing Infrastructure/ Housing Projects

a. Bank will not grant finance for construction of buildings meant purely

for Government/Semi-Government offices, including Municipal and

Panchayat offices.

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b. Projects undertaken by public sector entities which are not corporate

bodies (i.e. public sector undertakings which are not registered under

the Companies Act or which are not corporations established under the

relevant statute) may not be financed by bank. Even in respect of

projects undertaken by corporate bodies, as defined above, bank willsatisfy themselves 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.

c. In case of housing projects, which the government is interested in

promoting, either for weaker sections or otherwise a part of the project

cost may be met by the Government through subsidies made available

and/or contributions to the capital of the institution taking up theproject. In such cases bank finance should be restricted to the project

cost excluding the amount of subsidy/ capital contribution from the

Government. The bank should ensure the commercial viability of the

project.

3.2.6. Issue of Bank Guarantees in favour of Financial Institutions

Bank may issue guarantees on behalf of its borrower constituents favoring

other FIs/ Banks/ other lending agencies up to 20% of Tier-I of total capital

fund. The Bank shall assume a funded exposure of at least 10% of theexposure guaranteed. HLCC GM will accord the permission to have an

exposure favoring other FIs/ Banks/ other lending agencies subject to

compliance nature of security, margin , periodical review etc as per Bank’s

norms as laid down in the Lending Policy and RBI guidelines/ FEMA. For

exceeding the same up to Prudential Ceiling, the specific permission to be

sought from CAC.

3.2.7. Loans and advances to Real Estate Sector

While financing under Real Estate it must be ensured that prior to

disbursement of the loans, the borrowers have obtained requisite

permission from Govt. / Local Govt. / Other statutory Authorities for the

project. Other guidelines on financing as issued by the Bank for financing

to Real Estate Sector will be strictly abided by.

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3.2.8. Bridge Loans against receivables from Government

Banks should not extend bridge loans against amounts receivable from

Central/State Governments by way of subsidies, refunds, reimbursements,

capital contributions, etc. The following exemptions are, however, made:

Banks may continue to finance subsidy receivable under the normal

Retention Price Scheme (RPS) for periods up to 60 days in case of

fertilizer industry. It is clarified that the facility is being allowed as a purely

temporary measure and the fertilizer companies should strengthen their

financial position gradually so that they do not depend on the banks for

finance against subsidy. No other subsidy receivables such as, those in

respect of claims raised by units on the basis of expected revision in

retention price because of escalation in costs of inputs and in respect of

freight, etc. , should be financed by the banks.

Banks may continue to grant finance against receivables from

Government by exporters (viz. Duty Draw Back and IPRS) to the extent

covered by the existing instructions.

3.2.9. Restr ict ion on Guarantee & Co-acceptances:

RBI has advised the Banks to refrain from issuing guarantees on behalf of

customers who do not enjoy credit facilities with them. As non-compliance

of RBI regulations in this regard is likely to vitiate credit discipline, RBImay consider penalizing noncompliant banks. However, BG /LC may be

issued by Banks to clients of co-operative banks against counter

guarantee of the cooperative bank. Further, banks must satisfy

themselves that the concerned co-operative banks have sound credit

appraisal and monitoring systems as well as robust Know Your Customer

(KYC) regime. Before issuing BG/LCs to specific constituents of co-

operative banks, they must satisfy themselves that KYC has been done

properly in these cases.

3.3. Other Restriction (Prohib ited category of borrowers)

a. Borrowers/Directors/Partners/Proprietors/Guarantors who is/ are

included in the Wilful Defaulters list issued by RBI will be debarred

from institutional finance for floating new ventures for a period of five

years from the date of removal of their name from the list of wilful

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defaulters as published/disseminated by RBI/CICs.

b. MCBOD & above can only consider the cases of Promoter Director of

a defaulting company or director of a defaulting company shown under

RBI defaulter List, who resigned from the Board of defaulting company,

to circumvent any obstacle in getting credit.c. Where a letter of comfort and / or the guarantees furnished by the

companies within the Group on behalf of the wilfully defaulting units,

are not honoured when invoked by the banks / FIs, such Group

companies should also be reckoned as wilful defaulters.

d. Borrowers/Guarantors who have defrauded our bank / other banks /

institutions should not be financed.

e. No restructuring or grant of additional facilities shall be made in the

case of Red Flagged Accounts or fraud accounts.

f. Regarding restriction on financing to Non-cooperative borrowers,

please refer page 117 & 118 of the policy.

g. Financing for exports to those countries for which Export Credit

Guarantee Corporation Ltd does not extend Guarantee cover.

h. Borrowers/facilities prohibited under RBI/Govt. guidelines issued from

time to time.

3.4. Hurdle Risk Rating for Financing

MCBOD is empowered to take fresh exposure in the accounts having overall

Risk Rating of AB-7 & AB-8.

3.4.1. Guidelines on Fresh Exposure- Hurdle Rating for Credit Limi ts of Rs

25 Crore & above

I. Normally, fresh exposure for Rs 25 Crore & above will be taken on the

borrower or their flagship company having external rating of “BBB &

above”.

For taking fresh exposure in BB/B/C/unrated borrower with amount of

Rs 25 Crore & above, the proposal will be sanctioned by the next

higher authority provided collateral security coverage is maintained at

least 75%.

II. The condition of obtaining collateral security as mentioned above will

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not be applicable for the sanction made by HLCC ED & above.

III. The above restrictions are not applicable to:

a. Priority Sector Advances including MSME sector especially to

take care of New Entrepreneurs where Government has givenspecial thrust.

b. Retail banking schemes of our Bank.

c. External credit rating is not applicable in case of real estate

projects provided tangible security coverage is equal or more

than 125%.

d. Pledge facilities

e. Greenfield Projects

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4. EXPOSURE MANAGEMENT

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4.1. Capital funds

Capital funds for the exposure purpose will comprise of Tier I and Tier II capital

as per the published accounts as on March 31 of the previous year. The infusion

of capital under Tier I and Tier II, either through domestic or overseas issue,

after the published balance sheet date will also be taken into account fordetermining the exposure ceiling.

4.2. Exposure

Exposure shall include:

a. Credit

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