loan policy abridged

8/3/2019 Loan Policy Abridged

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State Bank of India

Project SME Gyanshala Capsule Training Programme for Officials handling SME Credit 9.1

INTRODUCTION TOLOAN POLICY


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State Bank of India


OVERVIEWChapters:

1. Introduction 11 . Take-over of Advances 2. Exposure Levels 12 . Defaulters List of RBI3. Substantial Exposures 13 . Credit Monitoring4. CRA Min. Scores /

Hurdle Rates14 . Mid-Corporates

5. Credit Appraisal Stds. 15 . NPA Management6. Documentation Stds. 16 . Deviations : Major & Minor

7. Delegation of Powers 17 . Advances to P Seg.8. Maturity of Advances 18 . Export Credit9. Pricing 19 . Priority Sector10 . Review / Renewal 20 . Services Sector


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State Bank of India


1. INTRODUCTIONThe present Loan Policy Document of the Bank is

effective 26th

December 2003.It is aimed at accomplishing the Banks Mission.

It is an embodiment of the Banks approach tosanctioning, managing and monitoring Credit Risk.

It aims at making the systems and controls effective.

The Policy applies to all domestic lendings.

The Central Board of the Bank is the apex authorityin formulating all matters of policy in the Bank.
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State Bank of India


2. EXPOSURE LEVELSLoan Policy recognises the need for measures aimed at better

Risk Management and avoidance of concentration of CreditRisk.

With this in view, limits have been prescribed for Banks exposure to single borrower, group of borrowers, specific

industry / sector, etc.

The primary guiding factors for fixing ceiling on exposures arethe Prudential Exposure Norms prescribed by RBI.


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State Bank of India


2. EXPOSURE LEVELSPRUDENTIAL EXPOSURE NORMS OF RBI

Maximum Exposure of15% of Capital Funds : For Single Borrower

40% of Capital Funds : For a Group

And upto20% of Capital Funds : For Single Borrower


provided the additional exposure is on account ofinfrastructure projects.


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State Bank of India


2. EXPOSURE LEVELSThe following Exposure Levels are prescribed. It would meanMaximum Aggregate Credit Facilities (FB & NFB) other thanagainst Specified Securities:

a) Individuals : Rs. 25 crores

b) Non-Corporates : Rs. 100 crores(Partnerships, JHF, Assn.)

c) Corporates : As per PrudentialExposure Norms of RBI


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State Bank of India


3. SUBSTANTIAL EXPOSURE LEVELSSubstantial Exposure Norms are in-house norms set

within the Prudential exposure Norms and areintended to help in monitoring credit concentrations.

These should not be deemed as a cap on further

exposures and should not come in the way ofbooking bankable business.


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State Bank of India


3. SUBSTANTIAL EXPOSURE LEVELS While Prudential exposure Norms of RBI would be theguiding factor for monitoring credit concentrations in terms ofexposure as defined by RBI, the following levels of exposureswill be deemed to be Substantial Exposures for triggeringinternal monitoring mechanism:

In excess of

7.50% of Capital Funds : For Single Borrower



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State Bank of India


4. CRA MINIMUM SCORES / HURDLE RATES The CRA models adopted by the Bank take into

account all possible factors which go into appraisingthe risks associated with a loan.

These are categorised into Financial, Business &

Industry and Management Risks and are ratedseparately.

To arrive at the overall risk rating, the factors dulyweighted are aggregated and calibrated to arrive ata single point indicator of risk associated with thecredit decision.

The overall score out of a maximum of 100 marks is

rated on a 16 point scale from SB-1 to SB-16.


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State Bank of India


5. CREDIT APPRAISAL STANDARDS Certain basic parameters have evolved over the years.These could be broadly classified as (A) Qualitative and(B) Quantitative.

A. Qualitative Parameters: The proposition is examined from theangle of viability and also from the Banks prudential levels of

exposure to the Borrower, Group and Industry. Our pastexperience, if any, is also taken into account. OpinionReports from existing bankers and published data are alsoperused.


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State Bank of India


5. CREDIT APPRAISAL STANDARDS B. Quantitative Parameters: i) Working Capital:

i. Liquidity : Mfg.: CR of 1.33 will generally beconsidered as a benchmark level of liquidity.However, the approach has to be flexible. CR of 1.33is only indicative and may not be deemed mandatory.

Others: For FBWCL upto Rs. 5 crores, CR of min.1.00 and for FBWCL above Rs. 5 crores, CR of min.1.20.

ii. NWC : Movements in NWC to be watched toascertain whether there is a mismatch of LTSvis--vis LTU for purposes not readily acceptable tothe Bank.


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State Bank of India


5. CREDIT APPRAISAL STANDARDS B. Quantitative Parameters: i) Working Capital:

iii. Financial soundness : This will be dependent uponthe owners stake or the leverage. Here again, thebenchmark will be different for Mfg., Trading, HP& Leasing concerns. For Mfg. ventures, a TOL / TNW

ratio of 3 is reasonable, but deviations in selectivecases may be accepted. For others, Max. 5.00.


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State Bank of India


5. CREDIT APPRAISAL STANDARDS iv. Turnover : The trend in turnover is carefully gone into

both in terms of quantity and value as also marketshare.

v. Profits : While NP is the ultimate yardstick, CashAccruals conveys the more comparable picture in

view of changes in rate of Depreciation and taxationwhich may have taken place in intervening years.Non-Operating income also to be excluded.

vi. Credit Rating : Wherever the company has been ratedby a Credit Rating Agency for any instrument such asCP / FD, this will be taken into account while arrivingat a final decision.


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State Bank of India


5. CREDIT APPRAISAL STANDARDSThe norms for financing units under T&S Sector are:

1. The C/R and TOL / TNW ratio (as per audited B/S not olderthan 12 months) should be as per the indicative levels givenbelow:

C/R of not below 1 is acceptable upto FBWCL of Rs. 5 cr.

For FBWCL of above Rs. 5 cr., C/R upto 1.20 may beconsidered acceptable, depending upon the activity.

TOL / TNW ratio higher than 3 and upto 5 would bepermissible depending on the type of activity.


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State Bank of India


5. CREDIT APPRAISAL STANDARDS2. The unit should have earned profits (post-tax) in each of the

immediately preceding 3 years. However, if the unit hasbeen in existence for a lesser period, it should have earnedNet Profit (post-tax) in the preceding year of operation inwhich it has been in operation.

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5. CREDIT APPRAISAL STANDARDS B. Quantitative Parameters: ii) Term Loan / DPG:

i. Technical Feasibility & Economic Viability : To be vetted by theBank. If required, second opinion from TCC / Consultants ofBank / SBI Caps may be sought.

ii. Promoters Contribution * : To be at least 30% (Mfg.) (20% forothers) in the total equity. However, this is not a definitivebenchmark.

iii. DSCR (Net) : Not to be normally below 2.

iv. DSCR (Gross) : Not to be normally below 1.75.v. Margin : This would depend on Debt / Equity gearing for the

project. To be maximum 2 : 1. Deviations may be permittedvery selectively.

* Unsecured Loans brought in by the promoters and their close friends and relatives may be treated, except in thecase of Non-Corporates, as Quasi-Equity, highly selectively. The standard basic covenant that has been laid downin this regard should invariably be complied with under such circumstances.

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State Bank of India


6. DOCUMENTATION STANDARDS The ultimate objective of documentation is to serve asprimary evidence in any dispute between the Bank and theborrower and for enforcing the Banks right to recover theloan amount together with interest thereon, through a Courtof Law as a final resort, in the event of all other recoursesproving to be of no avail.

Documentation is a continuous and ongoing processcovering the entire duration of an advance comprising thefollowing stages:

Pre-execution formalitiesExecution of documentsPost-execution formalitiesProtection from Limitation / Safeguarding Securities

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State Bank of India


7. DELEGATION OF POWERS A carefully formulated Scheme of Delegation of Powers is inoperation in the Bank in respect of Financial andAdministrative matters for exercise by the variousfunctionaries.

This is based on the premise that an executive is required toexercise only those powers which are related to theresponsibilities and duties entrusted to him / her.

An appropriate control system is also in operation in tunewith the Delegation Structure.

St t B k f I di
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State Bank of India


8. MATURITY OF BANKS ADVANCES The maturities of different components on the SBIs assetsportfolio, ideally are determined, based on the composition ofits resources pool.

The maturity of any Term Loan, including moratorium, shouldnot normally exceed 8 years, except cases under CDRMechanism / Rehabilitation Packages approved by the Bank,Infrastructure Loans, HTLs to individuals, Education Loansand ATLs under approved schemes.

In cases where maturity exceeds 8 years, (except in case ofexempted categories mentioned above) the loans should beadministratively cleared by the appropriate authorities asprescribed in Loan Policy.

The tenor of the loan will be reckoned from the day of first draw-down.

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State Bank of India


9. PRICING Pricing in the Bank can be divided into interest pricing andnon-interest pricing. Pricing of loans upto Rs. 2 lacs will beas prescribed by RBI.

In line with RBI guidelines, the Bank announces from time totime its single Benchmark Prime Lending Rate (BPLR), i.e.,reference / indicative rates at which the Bank would lend toits best customers.

The BPLR would be referred to as State Bank Advance Rate(SBAR) in our Bank.

Interest rate without reference to SBAR could be charged inrespect of certain categories of loan / credit like discountingof bills, etc.

State Bank of India


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State Bank of India


10. REVIEW / RENEWAL OF ADVANCES Working Capital Facilities are granted by the Bank for aperiod of 1 year and thereafter they are required to berenewed each year, i.e., fresh sanction is accorded for thelimits.

Where, however, renewal is not possible for some reason,sanction for the continuance of the limits is obtained in eachcase by reviewing the facilities.

Term Loans which are irregular will be reviewed once in 6months.

State Bank of India


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State Bank of India


11. TAKE-OVER OF ADVANCES Norms for take-over of advances under C&I or SSI (includingT&S Sector) segments will be as under:

i. The advance to be taken over should be ratedSB-3 (old model) or above.

ii. The unit should score the minimum scores as prescribed,under the various risk segments as per revised CRA.

iii. The account should have been a Standard Asset in thebooks of the other Bank / FI during the preceding 3 years.

iv. The unit should have earned Net Profits in each of theimmediately preceding 3 years. (If in operation for a lesser

period, Net Profit in the preceding year of operation).v. The TL proposed to be taken over should not have been

rephased, generally, by the existing FI / Bank aftercommencement of commercial production.

State Bank of India


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State Bank of India


11. TAKE-OVER OF ADVANCES vi. The remaining period of scheduled repayment of the Term

Loan should be atleast 2 years, when only TLs are taken

over.vii. For takeover of existing TLs, while the original time frame

for repayment will be generally adhered to, flexibility maybe allowed in the quantum of periodical repayments. Ifsanction of fresh TL is proposed alongwith the takeover,the schedule of repayment for the existing TLs, ifnecessary, may be permitted to extend upto 8 years.

[The norms at v, vi and vii above are not applicable fortake-over of WCL]

State Bank of India


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State Bank of India


12. FACILITIES : RBIS LIST OF DEFAULTERS The Directors of any company may be classified as Promoter

/ Elected / Professional / Nominee / Honorary Directors.

RBI has been collecting and circulating information ondefaulting companies among Banks / FIs, including names ofdirectors of such companies.

RBIs List of Defaulters is given due cognizance in theappraisal process.

A general policy on the issues relating to sanction / continuation of credit facilities to such companies whosedirectors are in RBIs List of Defaulters has been put in placeby the Bank.

No additional facilities shall be granted by the Bank to thelisted Wilful Defaulters.

State Bank of India


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State Bank of India


13. CREDIT MONITORING & SUPERVISION The Bank has put in place an effective post-sanction processto facilitate efficient and effective Credit Management and tomaintain high level of Standard Assets.

The post-sanction activity can be classified into:

Follow-up function

Supervision function

Monitoring & Control function

Detailed operative guidelines on various aspects of effective

credit monitoring are in place. E.g.,: Post-sanctionresponsibilities of different functionaries, Reporting forcontrol, Security documents, Statement of Stocks & Book-Debts, etc.

State Bank of India


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State Bank of India


14. ADVANCES TO MID-CORPORATES Financing Mid-Corporates would be a thrust area for theBank.

Mid-Corporate Account:

1. Annual turnover between Rs. 50 crores and Rs. 500crores, or

2. Aggregate Working Capital Limits (Existing or proposed)of Rs. 10 crores or more from our Bank, or

3. Term Loan (Existing or proposed) of Rs. 10 crores or morefrom our Bank.

State Bank of India


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State Bank of India


15. NPA MANAGEMENT The Bank has a separate NPA Management Policy whichseeks to lay down the Policy on Management & Recovery ofNPAs and proactive initiatives to contain Net NPAs to lessthan 1.10% of the Banks total loan assets by March 2009, inconformity with international standards.

The Policy lays stress on a system of early identification andreporting of all existing and potential loans as a first steptowards management of NPAs.

Such an Early Alert System which captures early warningsignals is an integral part of the Banks Risk Managementprocess.

State Bank of India


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State Bank of India


16. MAJOR & MINOR DEVIATIONS Deviations from the Banks Loan Policy have been classifiedas Major and Minor based on:

Criticality of the norms from asset quality angle

General compliance levels

Need for flexibility

Proposals with Major deviations from the Banks laid downpolicies would be required to be sanctioned by a higherauthority.

Deviations not specifically categorized as Major would beconsidered as Minor, and may continue to be permittedselectively by the SA, except where a separate structure hasbeen laid down involving approval by some other authority.

State Bank of India


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State Bank of India


16. MAJOR & MINOR DEVIATIONS With respect to specific products / schemes, deviations (otherthan Major Deviations) in general norms such as eligibilitycriteria, quantum of finance, etc., are sometimes required tobe considered for business or strategic considerations.

Where the loan is to be sanctioned by CCC-I / MCG / CAGCommittee and below, such deviations will be approved bythe CGM (Circle / MCG / CAG) concerned, where necessary.Where loans are sanctioned by CC, such deviations may bepermitted by the SA.

In case the deviation is sought on a stand-alone basis, inrespect of sanctions by CCCC / WBCC, necessary approvalwill be given by the Group Executive concerned.

In respect of sanctions by ECCB, approval will be accordedby CCCC.

State Bank of India


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16. MAJOR & MINOR DEVIATIONS Some of the Major Deviations listed by the Bank are:

FB Exposure to a particular industry not to exceed 15% ofthe total FB exposure (ECCB)

NFB Exposure at the whole-Bank level not to exceed 2times the FB Exposure (ECCB)

Maturity of Term Loans, including moratorium, generallynot to exceed 8 years / 10 years (NCC / SA / CCC-I / SA)

General Exposure Norms (ECCB)

CRA linked minimum scores (CCC-II / SA / CCC-I / SA)

Hurdle rates (CCC-I / SA)

Credit facilities to companies whose directors are in RBIs List of Defaulters (CCC-I / SA)

State Bank of India


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17. ADVANCES TO PERSONAL SEGMENT While opportunities for lending to Infrastructure, Mid-Corporates and T&S Sector are considerable, the growthopportunities are even more in Personal Banking.

The Bank has the brand name, extensive distribution system,large customer base and ever improving technologyutilisation to tap the tremendous growth potential in thissector.

The Bank is aiming at increasing the share by approximately2% annually.

Strategies being adopted include creating special deliveryplatforms like PBBs, Housing Finance Branches and LoanDivisions.

State Bank of India


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18. EXPORT CREDIT Export Sector has been recognised as a thrust areaconsidering its importance and contribution of this sector tothe economy.

Therefore, the sector is being presently extended finance atconcessional rates, with flexibility in financing norms.

Export Finance is by and large regulated through thedirectives / guidelines issued by RBI, DGFT & FEDAI.

Export Finance is broadly classified into 2 categories

Pre-Shipment Finance

Post-Shipment Finance

State Bank of India


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19. ADVANCES TO PRIORITY SECTOR Advances to Agriculture & Allied Agricultural Activities, SSIs,Transport Operators, Retail Trade, Small Business,Professional & Self Employed Persons, Education Loans &Housing Loans are considered as Priority Sector Advances.

At least 40% of the Net Bank Credit of the Bank should be toPriority Sector, 18% to Agriculture and 10% to the weakersections of the society as a part of the Priority Sector.

State Bank of India


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20. ADVANCES TO SERVICES SECTOR As per WTO, services can be divided into 12 differentsectors:

1. Communication2. Business Services, including Professional & Computer3. Educational4. Environmental5. Health6. Financial Services like Insurance & Banking7. Tourism & Travel8. Recreational & Cultural9. Transport10. Constructional & Engineering11. Personal, Community & Social12. Miscellaneous & Others

State Bank of India


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loan policy abridged

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