Manual of Instructions

Volume - 4 Chapter - II
Processing and Sanction of Credit Proposals

CONTENTS
S.No Subject Page No. 3 3 4 5 5 6 6 8 9 10 13 14 16 22 25 27 29 30 32 34 36 39 47 48 49 50 54 57 57 67 67 67 68 72 72

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35

Introductory Application Forms Preliminary scrutiny of applications received Register of Credit Applications received and disposed of Issuance of Acknowledgements to applicants. Appraisal Study of Application Forms and Enclosures Property Statements Income Tax / Sales Tax / Value Added Tax / Wealth Tax Assessment Orders Financial Statements Study of the Applicant Interviewing the applicant Gathering of Credit Information Credit Investigation Assessment of Net Worth Study of the Project /Activity Pre-sanctions unit Inspection Appraisal Forms/Reports Appraising Authority for various types of Proposals Assessment of Credit Needs Security Credit Rating of Borrowal Accounts Credit Exposure Norms Submission of proposals to the sanctioning authority Disposal of Credit Proposals - Time Norms Discretionary Powers Sanction of limits Validity Period of Limits General Terms and Conditions applicable to large borrowal accounts Revalidation of lapsed sanctions Cancellation/Curtailment of Limits Change in Terms and Conditions of Sanction Sanction of Ad-hoc/Emergency Credit limits/Excess Drawals Oral or Telephonic Sanctions/Permissions Sanction Commitments (In principle sanctions)

36 37 38 39 40 41 42 43

Rejection of Credit Proposals Consortium advances Multiple Banking Line of Credit Photographs of Applicants General Aspects Branch and Controlling Office Sanctions Reporting and Review Guidelines for sanction of Loans and advances to Charitable Trusts ANNEXURES

72 74 77 78 79 80 81 83

I II III IV V VI VII VIII IX X XI XII

XIII XIV XV XVI XVII XVIII XIX XX

Register of Credit Applications Received and Disposed of Proforma of Acknowledgement for receipt of application pertaining to Weaker Section Advances. Proforma of Acknowledgement for receipt of application for advance other than Weaker Section Advance Credit Information Form Credit Investigation Report Rating For SSI / Retail Trade / Small Business Category Rating For Professional & Self Employed Category Rating For RTO Category Credit Risk Assessment Of The Borrowal Account (Where audited Balance Sheet is available) Credit Rating System (CRS) Credit Rating Model For New Units Without Audited Balance Sheet (applicable for Rs.50.00 lacs & above accounts) Credit Rating Model For New Units Without Audited Balance Sheet (Applicable for Rs.5.00 lacs & above but less than Rs.50.00 lacs) Explanatory Notes On Various Parameters In Industry & Management Risks For New Units Without Audited Balance Sheet Applicable For Both Credit Rating Models Proforma of Communication of Sanction ADA - I ADA -V ADA - IX ADA - X ADA - VIII A ADA - VIII B

84 85 86 87 91 93 95 97 99 117 120 124 127 134 133 135 137 138 139 140

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Volume-4 : Chapter-II PROCESSING AND SANCTION OF CREDIT PROPOSALS

1.
1.1

Introductory
Every application for a credit facility should be studied carefully to determine whether it satisfies the broad parameters stated in Chapter-I "Advances General Guidelines" in this volume of the Manual of Instructions as well as to the Guidelines given in the Credit Policy of the Bank. The guidelines regarding the study of the proposals and the details of the various steps involved in processing of credit proposals are dealt with in this chapter. Guidelines relating to constitution, contractual capacity, borrowing capacity, restriction / prohibition on sanction of credit facilities, requirement of referring credit proposals to Zonal Office/Higher Authority etc relating to each type of constituent are given in the Chapter "Types of Constituents" of the Manual of Instructions. All such guidelines should be observed while processing the credit proposal of a constituent. As stated in the Credit Policy of the bank, the credit proposals received from HUF / TRUST applicants shall be referred to Credit Department, Head Office for Administrative Clearance before sanction by respective sanctioning authorities. Once administrative clearance is accorded by Head Office for sanction of credit facilities, for subsequent renewals and enhancements may be done by respective sanctioning authorities within their delegated powers without further reference to Head Office provided there in no change in the composition or activity of the HUF/TRUST.

1.2

1.3

2.
2.1

Application Forms
Standard application forms are available for various types of credit facilities, falling under different categories of advances. Branches should ensure appropriate use of the forms by the applicants. For this purpose, branches may refer to the book-let on Loan Applications and Process Notes as well as its soft copy made available to them. As far as possible, all the credit facilities required by a party should be applied for at a time. Filling up of columns in Application Forms Applicants should be advised to exercise due care in filling the application forms as the information given therein forms the basis for taking the credit decision. The guidelines / instructions if any, given in the application forms should be carefully read and followed by the applicants while filling the forms. Bank staff may provide necessary help / guidance to the applicants in filling the application forms.

2.2 2.3

2.4

The columns in the application forms should be filled in clear and unambiguous manner. No column in the application forms should be left blank. If any column is not applicable for a specific case, the words 'Not Applicable' should be written. Any alterations / overwritings should be authenticated by the applicants with their full signatures.

The columns indicated in the application forms need not necessarily be deemed exhaustive as the information required for credit decisions may vary from case to case depending upon the nature of business/activity. If the given space in the application forms is not adequate, separate sheets may be attached after making a note of the fact in the application form. 2.5 Depending upon the sanctioning authority under whose powers (i.e. Branch, Zonal Office & Head Office) the application falls, suitable number of copies of the application and other enclosures should be obtained. Every application form should be duly signed by the applicant and the co-obligant/ guarantor (wherever applicable) in the space provided for in the form. Illiterate applicants should affix their left hand thumb impressions on the application forms along with their photographs invariably. Applications of constituents other than individuals should be signed by persons who are competent and authorized to borrow on behalf of the applicant concerns. Generally, the list of various enclosures to be submitted along with an application form is given in the application form itself. Applicants should be advised to submit all the required enclosures/information in one lot so as to minimise delays and avoid unproductive correspondence. Wherever a particular enclosure as indicated in application form is not enclosed, the reasons for the same be given. Branch Managers/Controlling Authorities should avoid entertaining proposals sponsored by middlemen/consultant firms.

2.6

2.7

2.8

3.
3.1

Preliminary scrutiny of applications received

Immediately on receipt of an application, the date stamp of the branch should be affixed thereon. The officer handling credit / Manager Credit / Manager of the branch should make a preliminary scrutiny of the application and ensure that i) ii) iii) iv) v) it is made on the appropriate form, it is duly filled in, it contains adequate information, it is duly signed by the applicant and co-obligant/guarantor, if any, and it is accompanied by the required enclosures as applicable to the case.

3.2

When Application is incomplete/with Gaps: If any deficiencies are found during the preliminary scrutiny, the application together with its enclosures should be returned to the concerned applicant under a written communication stating the reasons for returning the application and the corrective action to be taken by the applicant, in case he wants to resubmit the application. When the applicant resubmits the application, the procedure given in the previous paragraph should be followed once again.

4.
4.1

Register of Credit Applications received and disposed of

Applications, other than those for advances against Bank Deposits or Gold Ornaments, when they are received in full form, should be entered in the Register of Credit Applications received and disposed of. The Register should be maintained in the format given in Annexure No: I. The serial number in the register should be given on yearly basis. The serial number of the entry in the register should be noted on the relative application. Depending upon the need, branches may enter applications received sector / category / scheme wise in separate folios of the register, duly giving a suitable prefix to the serial number. Column Nos. 1 to 7 of the register should be filled in at the time of making the initial entry. The remaining columns of the register should be filled in subsequently at different stages as per the progress of the application. All entries made in the register should be verified and initialed by the concerned credit officer of the branch. Branch Manager should personally review the entries made in the list, at least once in a week and enquire about inordinate delay, if any, in disposing of any application. Where there is inordinate delay, the reasons thereof and follow up action taken by the branch should be noted against relative entry under the initials of the branch manager under column number 18 and 20 respectively.

4.2 4.3 4.4

4.5

4.6

4.7

5.
5.1

Issuance of Acknowledgements to applicants.

In respect of applications, which are complete and found to be in order, branches should issue acknowledgements to the concerned applicants as per the proforma given in Annexures as stated below. Annexure No: II Annexure No: III Acknowledgement for receipt of applications pertaining to Weaker Section Advances. Acknowledgement for receipt of applications pertaining to Other Advances.

Time norms for disposal of Applications: Priority Sector Advances Loans upto Rs. 25,000 Loans above Rs. 25,000 For MSME Upto Rs.25,000 upto Rs. 5 lacs 5.2 Fortnight 8-9 weeks 2 weeks 4 weeks

The acknowledgements to applicants should be issued on the very day of receiving the applications, after making entries of the same in the Register of Credit Applications

Received and Disposed of. The serial number of the entry in the Register should be mentioned against the column' serial number' in the acknowledgements. Care should be taken to ensure that the same serial number is also recorded on the main application form. 5.3 Issuance of acknowledgements may be waived in respect of applications for credit facilities, for which spot-sanction can be given under discretionary powers of Branch Managers.

6.
6.1

Appraisal
What is Appraisal Appraisal is basically the process of evaluating the worth, merits and demerits, advantages and disadvantages of a credit proposal in the light of Bank's loan policy, lending norms, past experience, instructions and guidelines received from Head Office / higher authorities etc. Appraisal involves study of application and other forms, gathering of credit information about the applicant and assessment of viability of the venture to be financed.

6.2

Appraisal enables the Bank in knowing the desirability or otherwise of financing a proposition. Scientific appraisal of credit proposals helps the Bank in i) ii) iii) ensuring judicious distribution of scarce credit, diffusing and minimising the credit risk, providing need based, purpose oriented and timely credit.

6.3

Broad guidelines for Appraisal Though the degree and manner of appraisal of credit proposals vary from case to case depending upon the category of the borrower, purpose of credit, quantum and nature of credit facility required etc., broad guidelines pertaining to appraisal of credit are given in the following paragraphs. Apart from the guidelines in the following paragraphs, branches should also follow the guidelines given under Chapter Nos. 7 to 12 in the Hand Book on Small Scale Industrial Advances to the extent such guidelines are relevant in individual cases, apart from the loan policy guidelines issued by Head Office from time to time.

7.
7.1

Study of Application Forms and Enclosures

Examining the data furnished Normally the data furnished in an application and its enclosures forms the basis for the credit decision to be taken. As such, a detailed and careful study of the application and its enclosures is considered to be the first and foremost important step in credit appraisal.

7.2

Branches must ensure that an application for a credit facility conforms to the guidelines given hereunder. i) Appropriate format: The application for a credit facility should be as per bank's standard formats prescribed in the Booklet on Loan Applications and Process Notes. It must be accompanied by all the necessary enclosures required for taking a credit decision. ii) Name An application received from an individual should contain his/her full name and surname and father's/husband's name. iii) Address: Every application should contain full and correct business/official address as well as residential address, with telephone and mobile numbers, if any, of the applicant. An application submitted by a Joint Hindu Family concern or a partnership firm should contain the names and addresses of co-parceners/partners along with the business address of the concern. An application received from a limited company should invariably contain names with full and correct address of its registered office, Administrative office and Factory. In case the applicant is having different establishments at different places, full and correct addresses of all such establishments should be given in the application. iv) Where an applicant for a credit facility is having sister/associate concern, the following additional details should be given in the application. a) b) c) d) e) f) v) vi) Name and address of the concern. Date of establishment Details of Investment made Line of Business/Activity Name and address of the bankers Details of credit facilities enjoyed, if any.

Where the applicant is having dealings with our bank or some other bank, nature of such dealings should be furnished in the application. In case the applicant is already enjoying credit facilities with some other bank/ institution, complete details of the facility such as name and address of the financing bank/institution, nature of credit facilities, limit, details of securities offered etc., should be given in the application. Copies of Inter-se Agreement among the financing Banks should be obtained. Further, a 'No objection

certificate obtained from the concerned financing Bank(s)/Institution(s) should be submitted along with the application for credit facility. vii) Co-obligants/Guarantors Where the limits applied for are proposed to be secured by co-obligation / guarantee of a third party, the application should contain the following details about the co-obligant/guarantor: a) b) c) d) e) Name and business / official as well as residential address of the coobligant / guarantor. Nature of business. Nature of relationship between the applicant and the co-obligant / guarantor. Name and address of the Banks and nature of credit facilities enjoyed, if any. Name and address of sister concern, if any, of the co-obligant/ guarantor.

Wherever, co-obligation/guarantee is stipulated in a sanction, a declaration should be obtained from the borrowing concern as well as from the co-obligant / guarantor to the effect that "No consideration by way of commission, brokerage, fee or in any other form would be paid by the borrower or received by the coobligant/guarantor directly or indirectly for standing as co-obligant/ guarantor." viii) The information given in the application should be adequate, forthright and consistent with the purpose of advance.

8.
8.1 8.2

Property Statements
Property statements are basically meant for assessing the worth of the parties / individuals concerned. In respect of all types of credit proposals, property statements of applicants as well as those of co-obligants/guarantors should be obtained as per bank's standard proforma (Comp No. 40118). Obtention of property statements can, however, be waived in respect of advances against bank deposits and advances against gold ornaments. In respect of credit facilities to Partnership firms/Joint Hindu Family concerns, property statements of the individual partners/members should also be obtained. Branches should obtain property statements of parties/individuals not only at the time of original sanction of the facilities but also at the time of every renewal/enhancement of the limits. All the columns in the Bank's standard proforma (Comp No.40118) of property statement should be duly filled in. Every property statement should contain the bio-data and family history of the party concerned, particulars of movable/immovable properties held by him, 8

8.3

8.4

8.5

the income derived there from and the details of encumbrances, if any, thereon. The statement should contain information about all the properties belonging to the parties irrespective of the fact whether such properties are offered to the bank as security or not. Where properties are held in joint names, particulars of share in the property and also in the income should be furnished. 8.6 Every property statement should be signed by the concerned party and authenticated by a Village Officer/Revenue Official/Chartered Accountant under his seal with date. Documentary evidence, wherever available, in support of the properties described in the statement to be obtained. Authentication of property statements may however, be waived in the following cases. i) ii) Where properties are stated as NIL'. In the case of advances for small amounts and are of temporary nature against Government Securities, Shares and Debentures, Insurance Policies, Postal/ National Savings Certificates etc. In respect of parties from whom' Wealth Tax Assessment Orders' or certified copies of Wealth Tax Returns have been obtained. In respect of renewal proposals where there is no change in the particulars of property statements of the parties concerned.

iii) iv) 8.7

Where there is unreasonable delay between the date of authentication of a property statement and the date of its submission to the Bank, the reasons for the delay should be properly enquired into. Where found necessary, branches should call for latest property statements. Obtention of Property Statement is essential as this would provide important details of the Individual borrowers and also the properties owned by him which are useful to the Bank in case of any eventuality at a later date.

8.8

9.
9.1

Income Tax/Sales Tax/Value Added Tax/Wealth Tax Assessment Orders

Tax assessment order provides authentic proof for the income/turnover/worth of the parties concerned. They also help the Bank in knowing the latest position in respect of tax dues of the parties concerned. While considering credit limits for sanction, branches should invariably enquire whether the concerned parties (applicants/co-obligants/guarantors) are Income Tax / Sales Tax / VAT / Wealth Tax Assessees. In case the parties inform that they are not Income Tax / Sales Tax / VAT / Wealth Tax Assessees, a declaration to that effect should be obtained and kept on record. In such cases, if the parties belong to professional or business category, certificate of their income / turnover, duly attested by a Chartered Accountant should also be obtained and kept on record. Where the worth of a party to a credit facility is more than Rs. 15 lacs, the position regarding wealth tax should invariably be stated in the credit application form. Where a party to a credit facility is an Income Tax and/or Sales Tax/VAT and/or Wealth Tax assessee, copies of the latest Income Tax / Sales Tax / VAT / Wealth Tax 9

9.2

9.3 9.4

assessment orders should be submitted to the bank along with the credit application form. In such cases, branches should also call for the original orders and the tax receipts thereof for verification and return. The copies of the orders submitted should be verified with the concerned originals and a remark to that effect should be incorporated on every copy of the assessment order under the signature of the credit officer/Sub-Manager /Manager of the branch, with date. 9.5 At times, a party to a credit facility who is a tax assessee may express his inability to produce copies of the latest tax assessment orders for want of completion of the assessment by the tax authorities. In all such cases, branches should obtain letters from the concerned parties together with copies of returns filed with the concerned tax authorities. Documentary proof in evidence of payment of tax dues should also be obtained. The letters given by the parties in this regard, should interalia, contain, i) ii) iii) reasons for non-submission of the tax assessment orders, a declaration to the effect that there are no arrears of tax dues, and an undertaking to produce original tax assessment orders as and when the tax assessment is over.

The letters submitted by the parties as well as the copies of tax returns submitted by them should bear authentication by a Chartered Accountant. Parties should be advised to produce tax assessment orders as and when the tax assessment is over. 9.6 Where a party, who is a tax assessee as per rules, fails to produce a copy of the tax assessment order or return, branches should insist upon submission of a 'Tax Clearance Certificate', issued by a competent authority. Tax assessment orders/returns/certificates should be insisted upon not only at the time of original sanction of limits, but also at the time of subsequent renewal/enhancement of limits. A declaration to be obtained from the borrower with regard to statutory dues.

9.7

9.8

10.
10.1

Financial Statements
Financial Statements provide important information about the performance and financial soundness of a concern over a period of time. They help in evaluating the credit worthiness and credit requirements of the concerned unit. The two most important financial statements are Balance Sheet and Profit and Loss Account. Balance Sheet: i) A Balance Sheet is a statement of position of Assets and Liabilities on a particular date. As per convention, the assets are shown on the right hand side and the liabilities are shown on the left hand side. While liabilities constitute source of funds, the assets evidence use of funds.

10.2 10.3

10

ii) 10.4

The Balance Sheets of limited companies should be prepared in the format prescribed under the Indian Companies Act 1956.

Profit and Loss Account: i) Profit and Loss Account is a statement of Income and Expenditure of a concern during a specific period. While the income is shown on the right hand side, the expenditure is shown on the left hand side. When the income is more than the expenditure, the concern is said to have earned profit and when expenditure is more than income, the concern is said to have incurred loss. The resultant profit or loss is transferred to the Balance Sheet. For the sake of convenience, a Profit and Loss Account may be divided into two or three parts as given below. a) b) c) Trading and Manufacturing Account showing Gross Profit. Profit and Loss Account showing Net Profit. Profit and Loss Appropriation Account showing appropriation of profit towards reserves, dividends etc., (Generally prepared in the case of limited companies).

ii)

10.5

Balance Sheet and Profit and Loss Account are interdependent and always go together. While the Profit and Loss Account shows flow of funds during a specific period, the Balance Sheet gives position of funds, as at the end of the period. Finalising Profit and Loss Account is a must for preparation of a Balance Sheet. Trading/Business/Industrial concerns prepare their balance Sheets and Profit and Loss Accounts (hereinafter referred to as financial statements) at periodical intervals to ascertain the results of the activities carried on by them and also for tax purposes. Normally, the financial statements are prepared once in a year. Preparation of detailed financial statements on annual basis is statutory for limited companies as per the Indian Companies Act. As per the Act, every company, incorporated under the Act, is required to place audited financial statements before its share holders in the Annual General Meeting. As per the Indian Income Tax Act, every firm/company having an annual turnover/ gross receipts exceeding Rs. 40 lacs and every professional having annual income exceeding Rs.10 lacs should submit financial statements, duly audited by Chartered Accountants, to the Income Tax Department every year. Branches should insist upon submission of audited financial statements from corporate clients who are as under. The term 'Corporate Clients' include, i) ii) Public Sector Corporations and Companies. Private Sector Companies (including State managed companies).

10.6

10.7

10.8

10.9

11

iii) iv) v)

Banks (including Co-operative Banks and Credit Societies). UTI, Insurance Corporation & Companies, PF Institutions etc. Other Financial Institutions such as Industrial Finance Corporation of India, State Financial Corporations and other similar corporations. (Also includes financial institutions in private sector such as investment companies and other companies dealing in stocks, shares, bullion etc., The financial statements should be in the statutorily prescribed formats).

10.10 Sometimes a private limited company, which does not need to print a Balance Sheet, may furnish a copy saying that there is only one original Balance Sheet. In such a case, branches should obtain a Photostat copy of the original Balance Sheet, certified as 'true' by the Chairman or Secretary of the company concerned. Where the concern seeks to submit its Balance Sheet without the auditor's certificate, production of auditors certificate should be insisted upon. 10.11 In the case of corporate clientele, the financial statements submitted to the bank should also be accompanied by the relative (i) Auditor's Report and (ii) Directors' Report, along with all Schedules. The financial statements submitted by such parties should be compared with the copies of those filed with the Registrar of Companies, so as to confirm their genuineness and accuracy. 10.12 Where audited financial statements are submitted by a non-corporate applicant, branches should get separate confirmation of the financial statements from the auditor, who has prepared and audited the accounts of the applicant. The letter in this behalf should be sent to the auditor under Regd. Post Ack. Due. The signature of the auditor on the reply letter should tally with the signature on the financial statements. 10.13 In respect of credit limit upto Rs. 5 lacs, maintenance of books of accounts is difficult. However, for credit limits of above Rs. 5 lacs and below Rs. 10 lacs, books of accounts shall be maintained by the borrower without auditing when the turnover does not exceed Rs. 40 lacs. In other cases i.e. in respect of credit limits of Rs. 10 lacs and above from the banking system, audit of accounts of the borrowers by chartered accountants would be mandatory. Therefore, audited financial statements shall be insisted in respect of credit limits of Rs. 10 lacs and above from the banking system or where the annual turnover of the borrower exceeds Rs. 40 lacs per annum. 10.14 Where the limits applied for are proposed to be secured by guarantee of another business concern, the financial statements of such guarantor concern should also be obtained along with the application form. 10.15 Where the applicant concern is having sister/associate concerns, the financial statements of such sister/associate concerns should also be obtained along with application form. 10.16 Sometimes, the Balance Sheet submitted by a limited company relates to all the units of the company, i.e., a consolidated Balance Sheet, while the unit/division to be financed by the bank is only one of them. The Balance Sheet of the company, as a whole could be very different from that of the unit for which the bank is financing. It would, therefore,

12

be necessary that in addition to the Balance Sheet of the company as a whole, separate Balance Sheet of the unit to be financed by the bank should also be enclosed to the credit application form. 10.17 The financial statements submitted to the bank should be latest. Where the financial statements are more than six months old, provisional statements indicating the latest position/results should invariably be submitted. The financial statements submitted to the bank should be signed by the applicants stating that they are true and accurate statements. 10.18 In the case of existing concerns, copies of financial statements for the last 3 years (including the latest one) should be submitted to the Bank, so that the performance of the concern over a period of time can be assessed. 10.19 Wherever audited financial statements are submitted, branches should carefully go through the concerned auditor's reports. Qualified financial statements, such as financial statements bearing a remark by the auditors prepared as per the books placed before me should not be accepted. 10.20 While studying the financial statements, branches should assess the applicant's financial health in the following areas. i) ii) iii) iv) v) whether the applicant is financially sound, whether the applicant's earning capacity is good, whether the applicant's liquidity position is satisfactory. whether the applicant's business is well managed, and how the applicant's business is financed till now?

10.21 As there is every possibility of a deceitful applicant trying to influence Bank's decision by presenting manipulated financial statements giving out a rosy picture of his position, branches should be extremely careful while dealing with financial statements. No credit decision should be made merely basing upon the financial statements presented by the applicant. 10.22 Copies of the latest financial statements should be called for not only at the time of original sanction of limits but also for subsequent renewals/enhancements/ review of the limits. 10.23 Guidelines pertaining to study of financial statements are given in the chapter "Analysis of Financial Statements and Ratio Analysis" in the Hand Book on Small Scale Industrial Advances. Branches should follow the given guidelines to the extent they are relevant in individual cases while dealing with the financial statements.

11.
11.1

Study of the Applicant

In the concept of appraisal, much reliance is placed on the credentials of the applicant. It is not advisable to entertain any credit proposal unless branches are thoroughly satisfied with the capacity and integrity of the applicant concerned.

13

11.2

The antecedents of the applicant to a credit proposal should be thoroughly enquired into. Where the applicant is not already known to the Bank, suitable introductory reference should be insisted upon and a confidential report on the applicant should be called for from the reference and the report be examined. In respect of every credit proposal, branches should ensure that the, i) ii) iii) iv) v) applicant is of high integrity. applicants plans, of which the purpose of advance is an integral part, are sound and business-like and promise due repayment of the credit. applicant can be relied on to adhere to the plans discussed and not to divert the facilities to a basically different purpose, applicant can be trusted not to misuse the facilities for an improper purpose like speculative, extravagant or illegal activity etc. applicant has the capacity and business ability to carry his affairs through to a successful conclusion, and that the applicant will not engage in any fraudulent / dishonest or speculative practices which would inevitably undermine the safety of his position.

11.3

vi) 11.4

Application form and various other enclosures accompanying it will provide basic information about the applicant and his means. Adequate background knowledge about the applicant can also be obtained through the following means. i) ii) Interviewing the applicant. Gathering of credit information through market enquiries and from other sources.

12.
12.1

Interviewing the applicant

The interview with the applicant gives an excellent opportunity to the Bank to have first hand information about the personal traits of the applicant, to verify his credentials and to cross check the veracity of the particulars given in the application and its enclosures. As such, appraisal of every proposal should start with the interview of the applicant concerned. During the course of interview with the applicant, the following aspects should generally be covered. i) Family background of the applicant and occupations of his family members and relatives. Details of the activity/project/venture/trade/purpose for which bank finance is required. Applicant's experience in the line of business.

12.2

ii) iii)

14

iv) v) vi) vii) viii) ix) x) xi) xii) xiii) xiv) xv) 12.3

Machinery, equipment, stocks etc., required and their purpose and utility. Details of suppliers and their standing. Availability of technical know-how and infrastructure facilities existing and expected. Operating cost. Licenses/permissions, if any, required to run the business. Details of premises If taken on lease, the terms and conditions of lease. General trend of the business as per applicant's version. Profitability/pricing. Contacts/arrangements the applicant is having on hand, expecting to run the business successfully. Adequacy of credit applied for. Details of statutory dues, other borrowings. Source(s) from which the applicant proposes to bring margin. Details of properties owned by the applicant and the details of the securities proposed to be offered.

While conducting an interview of the applicant(s), the under given guidelines also should be followed by branches. i) Before arranging the interview, the critical areas that require clarification/ substantiation from the applicant should be identified so that the interview can be meaningful and fruitful. The interview should preferably be in the place of business of the applicant. Interview should be conducted by the Credit Officer/Sub-Manager/Manager of the branch. Assistance of specialists like Technical Officers/Rural Development Officers and Agricultural Clerks may be availed of, wherever necessary. The applicant should be made to feel at ease and comfortable. This is very important since an anxious or disturbed mind cannot, in most cases, be rational and it may lead to concealment of information involuntarily. The applicant should be encouraged to talk more about what he wants to say. However, care should be exercised to see that he does not drift away from the subject matter. The Queries should be properly sequenced. Probing Questions, if asked in the first instance, are likely to keep the applicant on defensive resulting in getting distorted information. Hence, the interview should start with casual questions that will loosen all the defences in the applicant and bring him emotionally closer to the interviewer.

ii) iii)

iv)

v)

15

vi)

The interviewer should start the interview without any preconceived notions and conduct it in an unbiased manner. He should listen to the applicant carefully and make tactful enquiries, so as to get the required information without hurting the feelings/ego of the applicant. The date, time and venue of the interview and the observations made by the interviewing official should be duly recorded on a separate sheet of paper and the same should be submitted to the appraising and sanctioning authorities for consideration.

vii)

12.4

The information obtained during the course of interview should be cross checked with the information furnished in the application and other enclosures. Independent market enquiries should also be made wherever necessary, to verify the veracity of the information.

13.
13.1

Gathering of Credit Information

Gathering of credit information comprises collection of information about the integrity, means and financial position of an applicant through various means and sources. Credit information enables the Bank in taking a prudent and judicious credit decision. The need, degree and manner of gathering credit information varies from case to case, depending upon factors like category of the applicant, purpose of the credit, nature and extent of credit required, security offered etc. Branch Managers should carefully assess the need in individual cases and determine the mode and extent of gathering information. Normally, credit information from external sources should be gathered in respect of all credit proposals barring advances against bank deposits, gold ornaments, and Govt., securities like NSCs, KVPs, etc., The credit information gathered should be properly recorded as per the prescribed format. It must be analysed and should be suitably incorporated in the relative credit proposal for consideration of the sanctioning authority. Credit information about an applicant can be gathered from the following sources. i) ii) iii) iv) v) vi) vii) viii) Application form and its enclosures. Dealings, if any, of the applicant with the bank. Market enquiries. Status reports from other branches/banks. Branch should verify the latest Defaulters Lists supplied by RBI,ECGC,CIBIL etc., News papers, periodicals and other publications, Information exchanged among banks, financial institutions, Search/verification of public records.

13.2

13.3

13.4

16

13.5

Application form as well as its enclosures such as property statements, Income Tax / Sales Tax / VAT / Wealth Tax Assessment Orders, Financial Statements etc., provide very valuable credit information about the applicant. The guidelines pertaining to study of these forms are already given separately in the earlier paragraphs. Dealings of the applicant with the bank: Where the applicant is a constituent of the bank, either presently or in the past, a resume of his dealings with the bank will provide authentic and accurate information about his integrity and credit worthiness. Persistent irregularities in conduct of accounts, frequent bouncing of cheques, undue delay in retiring/realisation of bills, attachment/garnishee orders received, failure to keep up promise in time, major irregularities pointed out by internal inspectors/statutory auditors/RBI officials etc., are negative signals and warrant caution.

13.6

13.7

Market Enquiries i) Market enquiries provide first hand and latest information about the integrity, business reputation and financial position of a party. However, to guard against getting biased information, greatest care should be exercised in choosing the sources. Normally a minimum of two sources not connected with or related to the applicant should be selected for obtaining the information. The sources so selected should themselves be of established repute having some knowledge / information about the applicant by virtue of their official/business position. The market enquiry about an applicant should cover the following aspects. a) b) c) d) e) f) g) iv) Constitution. Extent and composition of movable and immovable properties. Business practices. Record of making payments and suppliers' observations thereon. General credit and business standing. Extent and nature of market borrowings. Opinion about general business acumen and management of business affairs such as cautious/overtrading/enterprising/litigious etc.

ii)

iii)

The officer looking after advances should collect the information through market enquiries and record the same in a separate register maintained for the purpose. Full details of the applicant as well as the source from which information is collected and the date of collecting the information should be noted in the register. Separate folios in the register may be earmarked for entering details party-wise. Apart from this, Sub-Manager/Manager of the branch should also make independent enquiries on their own, and record the same with full details in

17

a separate register. At the time of considering a proposal for sanction, the information collected through market enquiries by the officer looking after advances and the Sub-Manager/Manager should be consolidated and compared with the information furnished by the applicant. Major discrepancies, if any, between these two should be probed into. 13.8 Status Reports from other Branches/Banks i) Where the applicant for a credit facility is a constituent of some other branch of our bank, a confidential report about the means, integrity and creditworthiness of the applicant should be called for from the concerned branch. The confidential report obtained in this regard, should, interalia, contain the following particulars: a) Nature of account maintained, if any, with specific details such as manner of operations, tendency to overdraw without prior arrangements, signs of overtrading etc. Broad lines of credit granted, if any, with particulars of security offered, repayment, operating experience etc Frequency and volume of Bill business handled with details of experience.

b) c) ii)

Where an applicant for a credit facility is a constituent of some other bank, a status report about the means, integrity and credit-worthiness of the applicant should be called for from the concerned Bank. The guidelines on obtention and furnishing of information given in Part-C "Secrecy of Customer Accounts" in the Chapter-I of Volume-2 of the Manual of Instructions and in Banks Loan Policy guidelines issued from time to time on exchange of credit information on our customers with other banks should be followed by branches in this regard.

13.9

Verification of RBI defaulters/CIBIL Defaulters/Caution/ECGC Caution lists Dissemination of information by Credit Information Bureau of India Ltd., (CIBIL), Reserve Bank of India (RBI) and Export Credit Guarantee Corporation (ECGC) are as under: i) Dissemination of information in respect of suit filed category by CIBIL: Credit Information Bureau (India) Ltd (CIBIL) was set up to serve as an effective mechanism for exchange of information between Banks and Financial Institutions for curbing the growth of NPAs. In respect of the Suit Filed Accounts category, information on Defaulters of Rs.1.00 crore and above and Willful Defaulters of Rs.25.00 lacs and above is being disseminated by CIBIL. The information is kept on Website of CIBIL at www.cibil.com. The information is accessible to general public and any one can access the information through website. This information is made available free of cost to all. All the controlling offices / branches are therefore advised to access the website of CIBIL at www.cibil.com for Suit Filed Accounts category and verify whether

18

the names of Borrowers, Partners/Directors of Borrowing Concerns; Associate / Group Concerns and Guarantors are figuring in Defaulters / Willful Defaulters list of Suit Filed Category disseminated by CIBIL. ii) Dissemination of information by RBI As per the provisions of Section 45-B of the Reserve Bank of India Act, 1934, Reserve Bank of India has been collecting and circulating to Banks and notified all India Financial Institutions, at periodical intervals, information in respect of Non-Suit filed category of defaulting borrowers of Rs.1 crore and above (Doubtful and Loss accounts) and Willful Defaulters of Rs.25.00 lacs. Since the information on Suit Filed Accounts category is being disseminated by CIBIL, such accounts are not included in the defaulters lists circulated by RBI. The Defaulters lists/willful defaulters lists received from RBI and Exporters Caution list received from ECGC in the form of Compact Discs (CDs) are being circulated periodically as and when received from RBI by CMRD, Head Office to Zonal Offices, Exceptionally Large Branches, Very Large Branches, Large Branches and all the branches where computer facilities are available to verify whether the names of Borrowers, Partners/Directors of Borrowing Concerns; Associate/Group Concerns and Guarantors appear/do not appear in Defaulters / Willful Defaulters list/ECGC (SAL) list of RBI and ECGC. Branches where computer facilities are not available shall avail the facilities from the nearby branches by obtaining a letter to this effect. Caution Advices: Reserve Bank of India is also sending caution advices and the same are circulated to all controlling offices for exercising caution before granting/renewing any facilities to the parties mentioned in the caution advices. iii) In view of the above, in respect of information on defaulters and willful defaulters, Branches and Controlling Offices are advised to verify the following lists. a) b) c) d) e) f) Defaulters List of Rs. 1 crore and above (Non-suit filed category) of RBI. Willful Defaulters List of Rs.25 lacs and above (Non-suit filed category) of RBI. Defaulters List of Rs. 1 crore and above (Suit filed category) of CIBIL (www.cibil.com) Willful Defaulters List of Rs.25.00 lacs and above (Suit filed category) of CIBIL. (www.cibil.com) Caution List of RBI. ECGC SAL List.

The appraisal at Controlling Offices and branches should include a clause to the effect that the latest of above lists have been verified and the names of the

19

constituent / connected promoters / accounts, other than nominee directors and professional directors, appear/do not appear in the lists. If it is noticed that the names of the constituent/connected promoters/associate companies who approach the Bank for credit facilities and also the existing borrowers, appear in the defaulters list circulated by RBI/ECGC/CIBIL and if it is informed by the borrower/prospective borrower that the borrowing company constituent/person is not the same and is/are not connected in any way to the companies mentioned in the defaulters list, branch is advised to verify independently and satisfy themselves and record the findings in the appraisal. Branch should in such a case, obtain / verify a) Written confirmation from the concerned lending bank or Financial Institution that the constituents referred to them are not their defaulters before sanction of credit facilities or recommending the proposal to Head Office. The factual position from the copies of applications/forms filed regarding appointment of directors from the ROC, wherefrom full details regarding full name, age, fathers name, address etc. obtained could be compared with RBI defaulters list and ensured that the names of the director(s) is/are two different persons under the same name.

b)

If any borrower or their directors are found in defaulters list, we may finance / continue the existing finance/enhance duly justifying such financing and the reasons thereof for his/her name appearing in the defaulters list, assessing the requirements of the unit independently. iv) DEFAULTERS LIST In cases where any borrower / director / guarantor is appearing in RBIs defaulters list, the competent authority for according administrative clearance for sanction / renewal / enhancement of limits by the sanctioning authority is as follows: Sanctioning Authority Competent authority for according administrative clearance

Branch Manager DGM as Zonal GM (Cr.) at HO Manager and DGM/AGM as 2nd level Official at ZO GM (Cr.) or GM as Zonal Manager ED CMD MC ED CMD CMD MC

20

v)

WILLFUL DEFAULTERS LIST: As per RBI guidelines, in the case of wilful defaulters any fresh / renewal / enhancement of limits shall only be considered by board of directors. In view of the above, cases where any borrower / director/guarantor is appearing in Wilful Defaulters List, prior administrative clearance of the Board shall be obtained before consideration of proposals for sanction/renewal/enhancement of loans and advances by various functionaries vested with delegated lending powers.

13.10 News papers, periodicals and other publications: Newspapers, periodicals and publications such as Business Journals, Stock Exchange Directories provide latest and useful information, on aspects like change in constitution, change in financial position (like notices of insolvency, property transfer etc.,) pending litigation, prospects of the business etc. A reference to local newspapers, periodicals and other publications will enable our branches to know about the creditworthiness of the parties and the prospects of the business/activity undertaken, by them. 13.11 CRIS-INFAC: CRIS-INFAC Industry information service presents a detailed and comprehensive analysis of the current trends and the long-term performance outlook on 41 industries in India. It provides a detailed long-term forecast including the evolution of an industry, the regulatory, environment, cost structures, nature and extent of competition. It also provides an analysis of the global trends along with statistical information on capacities, production, imports, exports, domestic and international prices, consumption patterns and provides the financial summary of the key players in the industry. The parameters are updated on Monthly basis. With a view to expand the usage of the Cris-Infac information the same is installed in the Banks Integrated Portal (Intranet) facility. Branches may login to the Portal and verify the information. 13.12 Information exchanged among Banks and other Financial Institutions: Of late, Banks and other financial institutions have started exchanging of information on alleged irregularities, malpractices and misdemeanors, of Bank customers among themselves. Similarly, the system of circulating the list of defaulters among Banks, and other financial institutions is also in vogue in many places. Branches should carefully preserve the information; communications received in this behalf and make a reference to the information/communications, before extending credit facilities 13.13 Credit proposals received from 'Black Listed Parties', Economic offenders and parties who are on the defaulters list of our bank or some other bank/financial institution should not be entertained. 13.14 Search/Verification of Public Records and enquiries with Public Offices: Search/verification of records maintained by offices such as Registrar of Companies, Registrar of Assurances and enquiries with 'public offices like Courts, Municipal and Panchayat Offices etc., will help branches in getting latest and authentic information about the applicants and also about their properties. Extracts from the public records /

21

search reports, wherever obtained/prepared, should be submitted to the sanctioning authority along with the proposal. 13.15 Gathering of credit information about a constituent should be a continuous process. Information about the means, integrity and creditworthiness of a constituent should be gathered not only at the time of initial processing of the credit proposal but also subsequent to sanction and disbursement of credit. Branch Managers and other officer / clerical staff connected with advances should keep themselves constantly in touch with the market and other sources of credit information and gather information independently. Any perceptible change in the means, integrity and credit worthiness of a borrower, which is likely to affect bank's interest adversely, calls for an immediate remedial action from the branch.

14.

Credit Investigation
Whenever credit proposals are to be considered, it is necessary to conduct a credit investigation before taking up such cases for evaluation. This process of preliminary study needs to be undertaken invariably before detailed evaluation.

14.1

Importance of Credit Investigation: Credit Investigation and compilation of Credit Report, as a preliminary study, unfolds valuable information on integrity, honesty, reliability, creditworthiness, financial status, capacity, competence, experience, of prospective borrower, associate concerns and guarantors, Market reports, details of the project and performance of the industry etc. The reports serve as preliminary information about the prospective borrower.

14.2

Accounts for which Credit Investigation is to be conducted: New advances of all borrowal accounts irrespective of the limit are subject to Credit Investigation including proposals falling within the discretionary powers of Officer-in Charge of Personal Banking Center (PBC) / Trade Finance Center (TFC). However, Agricultural advances, Government Sponsored Schemes and Weaker Section advances upto a limit of Rs. 25 lacs are exempted from the purview of Credit Investigation. Credit Investigation Reports shall accompany such proposals for the sanctions to be made by branches and higher authorities at Zonal/Head Office level.

14.3

Purpose: The Credit Investigation report shall serve as the basis for taking a decision for entertaining the proposal for detailed evaluation, appraisal and approval by the sanctioning authority.

14.4

Areas of Credit Investigation: i) Integrity of a borrower has no substitute. Before entering into any new credit relationship, reasonable efforts shall be made to ensure that the bank is dealing with an individual or organization of sound repute and creditworthiness. Know Your Customer (KYC)" principle, is equally applicable to borrower customers. Through a proper credit investigation, the Bank shall screen and disassociate 22

itself from individuals/organizations involved in unethical practices, fraudulent activities and other crimes committed, if any. Bank credit shall not be extended without understanding the customer or his business, or where Banks reputation may get affected. ii) Interview, discussion with the borrower shall be carried out to ascertain past track record, activities presently undertaken, details of associate, sister, allied and group concerns. Details of project, infrastructure arrangements, forward and backward linkages, availability of proper licenses from competent authorities, sources of margin, financial tie up with other banks, procurement of raw material, availability of power, labour and marketing arrangements etc. shall be ensured. The inputs so received through the process of discussion will help the sanctioning authority in taking a decision whether or not to take up the case for evaluation. Industry performance, present position of industry/activity, future prospects, demand and supply, major competitors, market share, proposed installed capacity should be obtained. Sources of information may be from financial magazines, cris-infac, Industry profiles etc. Number of units financed by bank, asset quality, industry exposure ceilings, credit ratings etc. shall be collected. Financial Statements of borrower, sister concerns shall be obtained and scrutinized. These statements/documents throw light on growth in sales, Profitability, cash accruals, tangible net worth position, investments in sister concerns, term liabilities, repayment obligations compared to cash generation etc. The auditors notes to the financial statements shall reveal the accounting practices followed by the business entity, details of contingent liabilities guarantee obligations, claims relating to Income Tax/Sales Tax/VAT/Excise Duty /Custom Duty pending in the courts/tribunals. The information gathered as above shall enable the bank to get an idea on the business ethics adopted by the constituent and take a decision whether or not to have dealings with the constituent. Information on the associates also is to be obtained. v) Quantitative and Qualitative aspects of verification i.e. evaluation of the worth, background, experience, honesty, integrity, character and capability of the borrower shall be ensured. Market Reputation: Enquiries shall be made about the applicant/associates with industry associations, units in similar line of business / buyers / suppliers / competitors etc., are recorded. In the case of existing accounts information shall be kept updated on the constituent through reports appearing in the local press/ news papers/business magazines/contacts with government officials/businessmen/banker-colleagues / credit rating agencies Incase of small borrowers, it shall be ensured that the individual resides / undertakes activity within the command area of the branch and his address shall be got confirmed. Further discreet enquiries shall be made with nearby residents

iii)

iv)

vi)

23

/ businessmen/banker-colleagues on the standing and credit worthiness of the borrower. vii) Confidential report with the existing bankers shall be obtained with full details of credit facilities sanctioned, conduct of the accounts and submission of data / information etc. Reports from Credit Information Bureau of India Ltd. shall be obtained on the credit facilities enjoyed by the constituents as well as the status of the accounts, when it becomes fully operationalized. Pre-sanction unit inspection shall be conducted and is to be reported in the prescribed proforma. Verification of RBI defaulters list, willful defaulters list, ECGC-SAL list and caution list in respect of borrowing entity, associates and co-obligants/guarantors. After undertaking credit investigation and collecting information from various sources as explained above a due diligence report shall be prepared covering aspects like Character, Capacity and Credit-worthiness of the constituent and shall be reported in the formats prescribed as under. 14.5 Credit Investigation Formats: i) ii) 14.6 Credit Information Form to be obtained from prospective borrower in the format given as Annexure No IV. Credit Investigation Report to be submitted by Credit Investigation Officer in the format given as Annexure No. V.

viii) ix)

Reporting: Credit Investigation Officers shall submit Credit Investigation Reports directly to Zonal Office/Branch. Controlling Offices and branches are also advised to ensure that all the process notes shall invariably record the findings of Credit Investigation and a copy of the Credit Investigation Report shall be submitted by the sanctioning authority to the reviewing authority for review along with the process note. Credit Investigation shall be conducted by the Credit Investigation Officers designated for the purposes. In case of branches, where the services are not made available to branches by Zonal Office, the branch manager/Officers in-charge of Personal Banking Centers / Trade Finance Centers himself shall undertake Credit Investigation and prepare Credit Investigation Report. Wherever the Sanctioning Authority is different from Credit Investigation Officer, Sanctioning Authority shall invariably record his remarks on the findings of the credit investigation officer in the credit investigation report. In respect of all the new proposals falling under the powers of Head Office, Credit Investigation Report shall invariably contain the remarks of the Zonal Manager on the findings of the Credit Investigation Officer/Branch Manager so as to serve as a tool for taking a decision by the Sanctioning Authority at Head Office. Time Norms prescribed for disposal of the proposals shall be ensured and under no circumstances the proposal shall be delayed for the sake of Credit Investigation.

24

15.
15.1

Assessment of Net Worth

'Worth' indicates the capacity of the party to bring in the required capital/margin. It also indicates the cover available to the Bank by way of personal security in the case of failure of the business venture/activity. In respect of all credit proposals, the worth of the applicant and the co-obligant/ guarantor must be assessed and clearly noted in the relative appraisal form/report. In the case of parties filing wealth tax returns, the assessment of worth should be based on the latest wealth tax returns (year of assessment to be specified). In the case of parties, who have not submitted wealth tax returns, assessment of worth should be based on the information furnished in the property statements, financial statements, Income Tax Returns, etc. In such cases, discreet market enquiries should be made to verify the accuracy and authenticity of the information furnished in the statements before assessing the worth of the parties. The basis on which the worth of a party is assessed should be indicated in the relative appraisal form/report. Methodology of computing networth: The following methodology should be adopted for the purpose of assessing net worth of the parties in the context of bank lending. i) Individuals and Sole Proprietary Concerns: a) b) Moveable Assets Personal unencumbered immoveable properties: Self acquired properties The share in the ancestral properties acquired on division of the Joint Hindu Family as per the Hindu Succession Act/Indian Succession Act

15.2

15.3 15.4

15.5

15.6

c)

Capital Investment in the business including investment in partnership: Total Worth of the party Deduct: -- Existing borrowings, if any. Net Worth of the party

25

ii)

Partnership Firms/Joint Hindu Family Concerns: Add: a) Capital (from the Balance Sheet) invested in the business b) Undivided profits, if any Deduct: a) Accumulated losses, if any b) Drawings by the partners /members, if any c) Investment in subsidiary firms, if any. Net Worth of the Firm/JHF Concern

iii)

Limited liability Companies and other Body Corporates Add: a) Paid-up Capital b) Free Reserves (including balance in share premium account, capital and debenture redemption reserves and any other reserves not being one created for repayment of any future liability or for depreciation in assets or for bad debts or a reserve created by revaluation of the assets) Deduct: Accumulated balance of loss, balance of deferred revenue expenditure as also other intangible assets. Investment in subsidiary and branch companies and loans/advances due from subsidiary companies / affiliates other than those of trading nature. Net Worth:

iv)

Other Entities a) Owned Funds (Capital + Free Reserves+ Accumulated

profits)

Less: b) Accumulated Losses c) Intangible Assets Investments in/advances due from sister/associate/allied concerns or branch offices. Net Worth

26

15.7

The under given guidelines should be followed while assessing worth of parties: i) Any property standing in the name of a party jointly with others may be generally disregarded. Similarly, undivided share in Joint Hindu Family properties should be ignored for the purpose of computing individual worth of the parties. The value of properties representing minor's share therein and properties under dispute should be excluded. Self acquired properties of members of Joint Hindu Family should not be taken into account for assessing the worth of a Joint Hindu Family Firm. Properties of Joint Hindu Families are sometimes held in the individual names of members, in which case branches should satisfy themselves after making necessary enquiries that the properties in question are in fact ancestral family properties, before taking them into account for arriving at the net means of the Joint Hindu Family firm. In such cases, a suitable declaration should also be obtained from the concerned members stating that the properties (to be described in the letter) standing in their names and included in the assets of the Joint Hindu Family firm are the absolute properties of the Joint Hindu Family of which they are members and that such properties are held by them on behalf of and for the benefit of the firm. It should be noted that in the prosecution of their enquiries branches must exercise tact and discretion compatible to the end view and must avoid irritating well known constituents of good standing by calling for inquisitorial details.

ii) iii) iv)

v)

16.
16.1 16.2

Study of the Project /Activity

In the context of purpose oriented and need based lending the study of the project/ activity proposed to be financed need not be over - emphasized. Banks standard application forms meant for sanction of credit to small borrowers normally contain provision for incorporating required data about the project/activity proposed to be financed. Where the Bank's standard application forms do not contain specific provision for incorporation of the data or where the application/appraisal forms stipulate submission of separate Project Report/Economics of working, the same should invariably be obtained from the concerned applicants along with the application forms. A 'Project Report' is a document prepared by the entrepreneur or his consultant covering techno economic details of the project. It should provide all the information such as location, land and building, details of machinery and services, infrastructure facilities, raw materials, production capacity, projected cost of production, profitability and balance sheet estimates, cash flow/funds flow for repayment period of the term loan, licence / clearance from government agencies, capacity/competence of the promoters, key personnel etc. In the case of term loan proposals, the regular repayment of instalments depends upon the continued profitability of the concern. Though fixed assets and, other properties are secured to the bank, resort to such securities is not desirable in an ongoing concern. 27

16.3

16.4

Also in the event of forced sale, such security may not always bring adequate funds to repay the bank's debt. Much reliance cannot, therefore, be placed on the security of fixed assets. The continued viability of the project should be the main cardinal principle. 16.5 While in the case of existing units, a good deal of data concerning the past performance is available, Bank has to depend on projections in the case of units which are started afresh. As there is every possibility of the project estimates and forecasts not coming true due to margin of error branches must be extremely careful while dealing with estimates / projections submitted by the applicant by subjecting the proposal to Sensitivity analysis in case of high ticket advances. Branches should, in the first instance, satisfy themselves about the reasonableness of the estimates/projections, before proceeding further in the matter. In respect of agricultural credit and other advances to small borrowers, necessary guidance/assistance may be extended to the applicants for preparation of the project reports/economics of working. Every proposal should be studied carefully in the light of the (i) information submitted by the party, (ii) the information collected/gathered by the Bank and (iii) the knowledge / experience gained by the Bank in financing the same or similar activities. The services of the specialist staff such as Rural Development Officers and Technical Officers may be availed of wherever necessary. In respect of proposals pertaining to productive/commercial ventures. The following feasibility studies should be conducted to ascertain whether the proposals are bankable or not. i) Technical Feasibility: There should be a reasonable certainty that the applicant will be able to achieve what he wants to achieve through bank finance. This depends upon location of the unit, the availability of suitable men, Machinery and material, the technology adopted and the availability of other infrastructure facilities. Assumptions made, if any, should be realistic but not idealistic. ii) Commercial Viability: The earning capacity of a unit primarily depends upon its sales. The applicant can honour his commitments only when he is able to sell what he has produced. Commercial viability studies involve study of the market for the goods/services produced by the applicant. The pattern for supply and demand for the product, the prospects for future demand. Consumer preference, impact of expansion of existing units, possibility for new technological innovations are some of the aspects to be examined in this regard. iii) Financial Feasibility: The financial feasibility will depend upon whether, a) estimated cost of the project/activity is reasonable.

16.6

16.7

16.8

28

b) c) d) e) iv)

the financial arrangements are adequate and make possible the availability of cash when needed. the income and cost estimates are realistic, and the borrower's repaying capacity, can fairly be depended upon. the basis of arriving at the estimated projections in sales and assumptions should be clearly spelt out.

Managerial Ability: Managerial competence is the touchstone for any venture. The person(s) behind the enterprise, their integrity, drive, business acumen, technical and commercial competence are very important. Branches should carefully examine the managerial ability of the applicants and suitability of the venture to them in the light of their age, qualification and experience.

16.9

Apart from making the feasibility studies, branches should also ensure that the project / activity proposed to be financed complies with the guidelines/instructions issued by Head Office and the refinancing agency, if any.

16.10 In the context of feasibility and viability studies, branches should follow the guidelines given in the "Handbook on Small Scale Industrial Advances" to the extent such guidelines are relevant to the individual cases. 16.11 While appraising credit proposals, factors such as geographical areas of operations of the constituents, competition in the industry, market share of the borrower, likely competition and industrial scenario that may arise in near future shall be taken into account and SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis is to be done to mitigate the perceived threats/risks.

17.

Pre-sanctions unit Inspection

Pre sanction unit inspection not only gives the first hand knowledge about the working of the venture but also enables the bank to verify the correctness of the information submitted by the applicant. Pre-sanction unit inspection is one of the means of assessing the credit worthiness of a prospective borrower and credit risk involved in the proposal. In case of existing borrowers, the unit inspection before considering renewal /enhancements of credit facilities serves as a means to ensure that the affairs of the borrower are being run on expected lines and there is no material change in the status of the borrower. Several adverse features like poor industrial relations, interrupted production, poor maintenance of Plant and Machinery come to light during unit inspection. During the course of pre-sanction unit inspection, aspects such as locational advantages of units, availability of infrastructure and marketing facilities, licenses / permissions etc., should be examined. The correctness of the address furnished by the applicant and co-obligant/guarantor may also be verified during pre-sanction unit inspections. The observations during pre sanction unit inspections should be properly recorded and submitted to the sanctioning authority along with the relative credit proposal. The following guidelines shall be ensured:

29

i)

All the credit proposals falling under HO powers either for fresh/renewal/or enhancement, shall be sent to Head Office accompanied by unit inspection reports; All credit proposals falling in Zonal Office powers either for fresh or for renewal /enhancement, shall be accompanied by unit inspection reports; and Branches shall ensure that credit facilities, fresh/renewal/enhancement, shall be sanctioned only after conducting pre-sanction unit inspection.

ii) iii)

Branch Manager/Sub-Manager/Credit Officer should conduct pre-sanction unit inspection of the unit after going through the data made available by the applicant but before submitting a proposal to the sanctioning authority.

18.
18.1

Appraisal Forms/Reports
On the basis of the reports and statements received and the independent enquiries made, branches should decide whether the applicant deserves the credit facility sought for and whether the proposal conforms to canons of sound lending and banking principles. In case the proposition is sound on its merits, an appraisal report should be prepared. Branches should exercise extreme care in preparing the appraisal form/report since the decision of the sanctioning authority is normally based on the information furnished in the appraisal form/report. Every effort should be made to ensure that the information furnished in the appraisal form/report is authentic, accurate, adequate and gives a true picture of the borrower and the activity proposed to be financed. The strong as well as weak points of the proposal should be duly highlighted so that a judicious decision can be taken by the sanctioning authority. Standard appraisal forms are available for different categories of advances which are brought in the shape of a book-let and compact disc form. The sanctioning authority should use the same format for appraisal. The standard appraisal forms contain exhaustive information about the borrower and the activity. Branches should fill up the forms in accordance with the guidelines given therein and submit the same together with the required enclosures to the sanctioning authority for consideration. However branch /controlling office/Head Office may add any other information which they feel is relevant for taking a decision on the proposal. It is the responsibility of the officer originating the processing note to fill up all the columns. All the columns in the appraisal should invariably be filled up without any omission. No existing column in the prescribed format should be omitted even if the system is mechanized. Where information against a particular column is nil/not applicable/not available, the same shall be noted against it. No column can be left blank without noting information against it. The overall responsibility will however rest with the branch manager. In respect of proposals for which standard appraisal forms are not available, the concerned application forms are having provision for appraisal report. Branches while dealing with such proposals should fill in the relative reports before submitting the same to the sanctioning authority for consideration.

18.2

18.3

18.4

30

18.5

Appraisal forms/reports should be prepared in all cases whether sanction of limits covered therein falls under the discretionary powers of the Branch Manager or of a higher authority. While preparing the appraisal forms, branches should follow the guidelines given hereunder: i) ii) Every appraisal form should contain the relative application number on the top in the first page. Depending upon the case, the words 'New Proposal', 'Renewal Proposal'. 'Enhancement Proposal' etc., should be prominently noted on the top of the appraisal form; In case of renewals, the due date of the renewal, date on which the proposal is received at the branch and the date on which clarifications received thereon should also be noted. Full names, addresses and worth of the applicant/s, co-obligants and guarantor/s and the nature of relationship, if any, among them should be duly furnished in the appraisal form. Every appraisal form should contain brief but precise particulars of the line of activity/business of the applicant. Specific information, instead of generalised information, should be furnished where the applicant is engaged In different lines of activities/business particulars of all such activities/business/should be given even if the credit limit applied for relates to one or some of the lines of activities/ business. Brief but precise particulars of the purpose of advance should be given in the appraisal form. Vague information like 'for business', 'for expansion' should be avoided. Precise description of the security offered together with particulars such as ownership, location, value, charge proposed to be created in Bank's favour, whether first charge, second charge, pari-passu charge etc., should be given in the appraisal form. In case the security offered is already under charge to the Bank in connection with some other facilities, full details of all such facilities together with the latest liabilities there under should be furnished. All direct and indirect liabilities (as partners, Co-parceners, co-obligants. guarantors) of the applicant and the co-obligant/guarantor to the Bank as on the date of proposal, should be furnished in the proposal form. Where the applicant and the co-obligant/guarantor is having sister/associate concerns, the nature of dealings, if any, between the Bank and such sister/associate concern should also be furnished. Appraisal form should also contain nature and quantum of facilities applied for and recommended. In case of renewal with or without enhancements, branches have to invariably incorporate the irregularities pointed out in the inspection reports internal/external and the rectification thereof. The appraisal forms may be prepared by the officer looking after advances under the guidance / supervision of the Sub-Manager/Manager of the branch. 31

18.6

iii)

iv)

v)

vi)

vii)

viii)

ix)

x)

In case of branches, (other than branches manned by only one officer including the Branch Manager), the appraisal should be put up by the officer other than the sanctioning authority. In case of exigency, when the appraisal and sanction is done by the Branch Manager himself, then such sanction should be specifically brought to the notice of the reviewing authority with reason. For this purpose, the remarks column in the reporting format shall be utilised. The controlling authority shall review such exigencies and strengthen the credit management at the branch. In case of branches manned by only one officer including Branch Manager, appraisal and sanction shall be done by the Branch Manager. Advances with deposit potential: Quality of assessment of proposal should not be diluted under any circumstances even if supported with deposit potential and the assessment should be independent of any deposit support. Proper justification for sanctioning of any loan/enhancement should be duly incorporated in the appraisal note.

xi)

19.

Appraising Authority for various types of Proposals

Proposals falling within the powers of i) Branch Manager Who has to appraise and to whom to submit Small Branch: In case of branches manned by only one officer including Branch Manager, appraisal and sanction shall be done by the Branch Manager. Medium and Large Branches: Branch should allot the handling of credit to one of the officers while making allocation and rotation of duties. The name of such officer with dates from & to should be recorded in Rotation of duties Register. Officer handling credit has to appraise the proposal and submit the same with his specific recommendations to the Branch Manager. In case of exigency, when the appraisal and sanction is done by the Branch Manager himself, then such sanction should be specifically brought to the notice of the reviewing authority with reason. For this purpose, the remarks column in the reporting format shall be utilised. The controlling authority shall review such exigencies and strengthen the credit management at the branch. No. of copies of proposal forms required Single Copy

32

Very Larqe Branches & Exceptionally Large Branches: Manager (Credit) has to appraise the proposal and submit the same with his specific recommendations to the Chief Manager / Executive heading the Branch. The officer handling credit of the branch, where there is Manager (Credit), shall, apart from work allotted from time to time, attend to the function of handling credit including preparation of process notes apart from obtention of appropriate application form duly filled up in all respects along with relevant enclosures.

ii) Zonal Office

A t Branch Level: Manager / Chief Manager / Executive heading the Branch has to appraise the proposal with the help of the Officer handling credit / Manager (Credit) and submit the same with his specific recommendations to the Zonal Office. At Zonal Office Level: Concerned Officer handling credit /Manager (Sr. Manager Credit) would go into all the details and put-up a note to the sanctioning authority i.e. 1st level or 2nd level authority as the case may be through / Chief Manager (Credit) / Chief Manager / AGM (in case of Zones headed by DGM) and DGM (in case of Zones headed by GM). In case of sanctions to be made by Ist level authority, at Zonal Office, such proposals shall be routed through Credit Committees constituted for the purpose. Duplicate (First copy to be submitted to Zonal Office and retain the second copy as branch copy)

iii) Head Office

At Branch level and l Zonal Office level, Triplicate. procedure as applicable for proposals First & second falling under Zonal Office powers. copies to be sent to Zonal Office At Zonal Office Level: retaining third copy at branch. Appraisal should be done as per the 33

procedure indicated for proposals falling within the powers of Zonal Manager. After completing the processing, a note with specific recommendations of the Zonal Manager has to be submitted to Head Office along with a copy of the proposal. A copy of the proposal should be retained at Zonal Office. At Head Office level: Concerned Assistant General Manager / Dy. G.M. with the help of the Chief Manager / Officer handling credit of the concerned department has to peruse the proposal in the light of the overall experience of the Bank in financing such project and submit a brief of the proposal along with his views/recommendations to G.M./E.D/C.M.D/MC for sanction of the limits through the Credit Committees constituted for the sanctions to be made under the discretionary powers of G.M. and above G.M. If the proposal falls within the powers of the MC/Board, the procedure, as above, would be followed and after the note is cleared by ED/CMD, it would be referred to the Board. Zonal Office to retain second copy and send first copy to Head Office.

20.
20.1

Assessment of Credit Needs

Bank lending should always be need-based and adequate for the applicant to take up the proposed project/activity. Both over-financing and under-financing are equally harmful as they are likely to affect the very viability of the project/activity. To have a scientific and accurate assessment of credit needs of an applicant, branches should have a clear idea about the following. i) ii) iii) What is the total cost involved in taking up the proposed project/activity. What is the contribution from the applicant. Upto what extent funds for the proposed project/activity are coming from other sources. Eg. Subsidy, borrowings from other banks, institutions, unsecured loans from friends and relatives, credit allowed on purchases etc.

20.2

Total outlay of the project/activity i.e., (i) above, net of (ii) and (iii) above will normally be the amount of credit required from the bank. 34

20.3

The assessment of credit needs should normally be made depending upon the data furnished by the applicant. However, branches should take care to see that the estimates/projections are not over-stated or under-stated. While examining the data, branches should make use of their commonsense. The knowledge/experience gained by them in financing same/similar ventures may also be used in this regard; Local enquiries may also be made wherever necessary. Services of specialist staff can also be availed of and guidance may be sought from the controlling authorities, wherever necessary. While examining the total outlay required for the project/activity, branches should ensure that every item of genuinely required investment, however small it appears to be, is added to the cost of the project/activity. A suitable provision for contingencies and price escalations should also be taken into the estimated outlay. The applicant's promise to bring in his contribution should be well supported by his sources/competence/capacity. Similarly any claim to mobilise resources by way of subsidy or outside borrowings should also have been duly substantiated to the satisfaction of the Bank. The 'cost of the project' and 'means of finance' should be taken into consideration while considering sanction of term loans to new units. In respect of term loans to existing units, the cost of the assets to be created and funds available from the applicant and from other sources should be taken into consideration. Sensitivity Analysis: A cut off limit of Rs.50 lakhs and above is fixed for sensitivity analysis in respect of term loans. The outstandings in existing term loans and proposed term loan is the basis for arriving at the cut off point. The Percentage of reduction and escalation in variables like sales, costs, occupancy rates etc., shall be based on case to case basis taking into account industry trend with rationale.

20.4

20.5

20.6

While assessing the working capital requirements, Credit Assessment Methods like Turnover Method, Inventory Method, Cash Budget Method etc., as applicable as per the lending norms and loan policy shall be ensured. The following are some of the aspects, which should be studied and appropriate limits, sub limits, peak season limits, off-season limits as well as appropriate Margins should be stipulated basing on such study. i) ii) iii) Whether the activity is seasonal. Whether the activity is ancillary to some other industrial unit. Whether the activity is to manufacture goods as per specifications of customers whereby marketability of the goods is restricted. Whether the activity is conducted at different places. Whether the activity is dependent on imports and the extent of such dependency.

20.7

iv) v) 20.8

Normally, the applicant should invest a reasonable amount by way of capital before availing of Bank finance for the shortfall of his business needs. This stipulation may, however, be relaxed in cases where specific exemptions are given by Head Office.

35

Ex : 20.9

Financing under Anti-poverty and other Government sponsored schemes, lending under special schemes of refinance and rehabilitation etc.

While assessing credit needs of applicants, branches should keep in view the margin requirements and other guidelines issued by Head Office from time to time. Where the proposed lending is to be covered under the' Refinance Scheme' of any agency, the terms and conditions prescribed by the Refinancing Agency should also be taken into consideration while assessing the credit needs of the applicant.

21.
21.1

Security
Security is obtained normally to serve as a cushion in case of need, to cover margin of error, if any, in extending credit and to act as a motivating factor for the borrower to repay the bank credit. No advance should, however, be made purely relying on the security. The asset created out of Bank finance should always be charged to the Bank by way of primary security. Depending upon the risk involved, suitable collateral security of adequate value, as per guidelines issued by Head Office from time to time, should also be obtained. For applying norms regarding collateral security, branches should take the aggregate credit limits applied for into consideration. Wherever immovable properties, shares, debentures, life insurance policies, Government securities and other like securities are offered as cover for advances, Branch Managers should make preliminary scrutiny of the party's title to the securities and verify whether such securities can be charged to the bank or not. This should be done well before submitting the proposal to the sanctioning authority so that the credit, when sanctioned can be disbursed without any hindrance. In respect of immovable properties offered as security, Branch Managers should assess the value of the property and submit a Certificate of Valuation of the property as per R.F.216/Comp. No.40112 along with the credit proposal. Precautions to be taken while accepting securities from the borrower and/or third parties: i) Branches must be more vigilant in obtaining securities and obtaining legal opinion of the high value securities, i.e., where the value of the property or value of any one of the properties is Rs.5.00 lacs and above. Branches have to collect all the original title deeds / documents from the borrower/co-obligant/guarantor (who are offering the securities for the proposed loan) relating to the property for which equitable mortgage is to be created and send the title deeds and other documents to the panel advocate directly with a request to offer his opinion as to whether the borrower/co-obligant/guarantor has clear and marketable title to the property described in the title deeds and whether the property is free from any other encumbrance. In no case the title deeds and other documents should be sent to the advocate through the borrower/coobligant / guarantor and in no case photo copies of the documents should be sent to the advocate for his opinion. It is necessary that Branches satisfy themselves with the identity of the owner of the property before accepting the property as security. 36

21.2

21.3

21.4

ii)

iii)

iv)

Branch has to pay the fees to the advocate directly by crediting his account and debiting the partys account after obtaining the legal opinion. In case of fresh sanctions the borrower must be advised to open a Current/Savings Bank account with a minimum balance of Rs.10,000/- or atleast equal amount to meet the expenses for obtaining the legal opinion, valuation and other incidental expenses. While accepting equitable mortgage of a property, in all cases branches must obtain legal opinion and also encumbrance certificate without fail upto the date of actual deposit of title deeds with the branch. As a matter of abundant caution branches are advised to ensure obtaining of Encumbrance Certificate for atleast a period of THIRTEEN years prior to the date of deposit of title deeds with the bank or for a longer period equivalent to the age of title deed covering the transaction of the title deed infavour of the borrower / coob-ligant / guarantor. In other words the Encumbrance Certificate should contain entry of the title deed deposited with the branch.

v)

vi)

The opinion of the advocate should be in the prescribed format only. If the advocates opinion indicates obtaining of some more documents or to do certain acts to perfect the creation of equitable mortgage, such things should be complied with, without any deviation before sanction of the loan/release of the amount. In all the cases where the value of any property offered as security is more than Rs.5.00 lacs, before accepting mortgage of such property, the branch must request the advocate to offer his opinion as stated in para No. ii above and also: a) to obtain a Certified copy of the title deed which is being sent to the advocate forgiving his opinion about accepting the property as collateral security by equitable mortgage, to obtain an Encumbrance Certificate for the property for the period as stated under para No. v above and to conduct search of the records in the office of the Sub-Registrar and to submit the search report.

vii)

b)

c)

The procedure should be followed for all the new sanctions. In case of existing accounts as the legal opinion is already available, at the time of renewal, the Branches have to request the advocates: a) b) c) to obtain Certified copy of the title deeds already deposited with the Branch, to obtain Encumbrance Certificate for the subsequent period till date and to conduct search of the records in the Office of the Sub-Registrar and to submit the Search Report.

37

viii) ix)

The person offering the collateral security should normally be either a close relative or closely connected to the borrower like a partner, co-director etc. The Branch Manager sanctioning / recommending the loan proposal, should have thorough knowledge of the borrower / the third parties who are offering securities. The Branch Manager should be extra cautious while accepting securities from third parties and make independent enquiries, including inspection of the properties offered, before accepting / recommending. Recommendation / sanction of credit limits should be based on the viability of the industry / business in which the borrower deals and not on the basis of collateral securities. Branches are also advised to review the existing borrowal accounts wherein securities from third parties have been accepted and be satisfied about the veracity of the properties. Third party for this purpose, means any person other than the borrower i.e. proprietor / partner of the firm or Directors of the Company. Even the close relatives of the borrowers and also guarantors should be treated as third parties. Wherever, co-obligation/guarantee is stipulated in a sanction, a declaration should be obtained from the borrowing concern as well as from the co-obligant / guarantor to the effect that "No consideration by way of commission, brokerage, fee or in any other form would be paid by the borrower or received by the coobligant/guarantor directly or indirectly for standing as co-obligant/ guarantor."

x)

xi)

xii)

xiii)

xiv)

Wherever third party title deeds are accepted as collateral security the identity of the party should be established as in the case of opening new deposit accounts. For this purpose, a savings account has to be opened in the name of the party, depositing title deeds, with proper introduction and other formalities like obtaining photo, confirmation of address etc. An attested photo should be kept along with RF 255 (Comp.No.40115). Extra care should be taken to establish the identity of the person by taking the full postal address supported by copies of driving license / electricity bills, tax receipts etc. The Branch Manager has to be satisfied about the introducers knowledge of the introduced person. A letter of thanks also should be sent both to the introducer and introduced (depositor) and wait for the response. Apart from obtaining Valuation Report from approved valuers (as per extant guidelines) Branch Managers or authorized officer should visit independently, unaccompanied by the borrowers, or their representatives and make their own enquiries about ownership and valuation from the neighbours / office bearers of the residents society, if any. The first visit should be along with the borrower. A certificate to this effect, in the following format has to be kept along with the loan document (The certificate can be used in all cases of collateral securities).

xv)

38

ANDHRA BANK __________________ BRANCH CERTIFICATE OF INSPECTION OF COLLATERAL SECURITY 1 2 3 4 5 6 Name of the branch Name of the borrowal a/c Constitution Name of Proprietor / partners / Directors Facilities applied / enjoying Names of the persons offering collateral securities with addresses: 7 Details of the col. securities (Door No./Survey No, area, Address, Boundary etc.) 8 Dates of visits 1st visit along with the borrower and 2nd visit independently 9 Persons contacted during the (names and addresses) independent visit 10 Approximate Market value as per the opinion of the verifying official 11 Any other remarks Signature ________________ (Name of the Inspecting Officer)

Date: _____________

22.
22.1

Credit Rating of Borrowal Accounts

One of the strategies employed in managing credit risks is Credit Rating of borrower accounts. It occupies a position of prominence as it involves rating of borrower accounts from a risk perception for the purpose of pricing and supervision. Credit Risk Frame work is essential to avoid the limitations associated with a simplistic and broad classification of loans/exposures into a good or bad category. Credit Rating deploys an alphabet symbol as a primary summary indicator with risks associated with an exposure. Such a Credit Rating Frame work is the basic module for developing Credit Risk Management System and all advanced models/approaches are based on this structure. It helps in standardizing and uniformly communicating the judgment in credit selection procedures. Basically the Credit Rating Frame Work can be used for the following purposes: i) ii) It helps in Individual Credit Selection - wherein either a borrower or a particular exposure/facility is rated. It is a tool for measurement of various risks associated with lending. It provides basis for risk pricing and fixation of rate of interest on lending to different borrowers based on their credit rating arrived at.

22.2

39

iii)

It helps in gauging the relative health of the account while revealing the weaker parameters based on the points scored. This facilitates the bank to monitor/focus on the weaker areas and follows up borrower for bringing about improvement. It will also help in identifying the parameters, which have improved/deteriorated by comparing with earlier ratings. Credit Rating helps in selection of fresh borrowers in addition to monitoring and controlling of the existing advances and borrowers. The overall health of the advances can be judged by portfolio analysis and reporting based on the spread/distribution of credit exposures over the different Risk categories of Credit Rating and extent of migration in the past. Assessing the aggregate risk profile of bank/lender. These would be relevant for portfolio level analysis. The mean and the standard deviation of losses occurring in each Credit Rating category and the overall migration of exposures would highlight the aggregated credit risk for the entire portfolio of the bank. Surveillance, monitoring and internal MIS.

iv) v)

vi)

vii) 22.3

As per the existing guidelines, the following Credit Rating systems are in vogue. i) Rating System for Small Loans above Rs. 2 lacs below Rs. 5 lacs. a) b) c) ii) MSME/Retail Trade/Small Business (Annexure No: VI) Professional & Self Employed (Annexure No: VII) Road Transport Operators (Annexure No: VIII)

Rating System for Existing units where Audited Balance Sheet is available: a) CRAS for fund/non-fund based limits of Rs.50.00 lacs and above (Annexure No: IX) CRS for fund based limits of Rs.5.00 lacs and above but less than Rs.50.00 lacs. (Annexure No: X)

b) iii)

Rating System for Newly Established Units where Audited Balance Sheet is not available. a) b) For fund/non-fund based limits of Rs. 50.00 lacs and above (Annexure No: XI) For fund based limits of Rs.5.00 lacs and above but less than Rs.50.00 lacs (Annexure No: XII)

22.4

Applicable Guidelines for Rating System for small loans above Rs. 2 lacs and below Rs. 5 lacs: (Annexure No: XIII)

40

The rating exercise shall be done at the time of sanction and also at the time of renewal of working capital limits. The sanctioning authority shall fix the rating. In case of new proposals, the borrower shall secure a minimum total score of 40% to be eligible for sanction of limits. The credit rating arrived is for the purpose of risk gradation of the borrower. However, rate of interest to be charged shall be as per the interest rates as specified for the type/category of advance as per HO circulars in force. 22.5 Applicable Guidelines for both CRAS/CRS (Existing and New Accounts) i) As per the existing guidelines the Credit Risk Assessment System (CRAS) and Credit Rating Model for new units without audited balance sheet is applicable to accounts with aggregate fund and/or non-fund based credit limits of Rs.50.00 lacs and above. As per the existing guidelines the Credit Rating System (CRS) and Credit Rating Model for new units without audited balance sheet is applicable to accounts with credit limits of Rs.5.00 lacs but below Rs.50.00 lacs. Interest as per Credit Rating finalised by the sanctioning authority shall be charged for all advances of above Rs.10.00 lacs. For advances between Rs. 5.00 lacs to Rs. 10.00 lacs, the fixed slab rate as specified for the type/category of advance shall be charged. CRAS/CRS is applicable for the borrowal accounts with both working capital and term loan limits under the industry, business, trade and agriculture segments. In respect of stand alone term loans (Rs.5 lacs and above) Risk Rating as per CRAS/CRS shall be done at the time of half yearly / annual review basing on latest audited balance sheet and wherever applicable pricing shall be reset as per the Credit Rating so arrived at by the sanctioning authority. The interest spread as applicable to working capital limits at the time of renewal shall also be applicable to term loans where both working capital limits and term loan facilities co-exist unless it is specifically mentioned in the sanction letter. In respect of export/import credit proposals, CRAS/CRS exercise should be done, however rate of interest as stipulated by RBI/Bank from time to time should be charged. Credit Rating should be done to arrive at CRAS/CRS for non-fund based limits also. However fee/commission as advised by HO shall be charged in such cases. In case of rice mills, a seasonal industry, peak season may not coincide with the financial year ending of the firms. Hence, audited balance sheet in such cases will not depict the true picture of the financial position. Hence, the CRS and the relevant rates of interest are to be applied for rice mill accounts with limits of above Rs.10.00 lacs irrespective of any upper limit. For agriculture segment, credit rating has to be done in case of advances above Rs.5.00 lacs to firm and corporate borrowers and Rs.25.00 lacs and above in case of individual and non-corporate borrowers.

ii)

iii) iv)

v)

vi)

vii) viii)

ix)

41

x)

The following categories of agricultural loans are exempted from charging of interest based on credit rating. a) b) c) d) e) Loans under DWCRA/SHGS Loans under IRDP/SGSY/SCAP/STAP Loans routed through FSCS/LAMPS Cold Storages, Rural Godowns Scheme/storages finance under capital investment subsidy scheme of NABARD. In case of existing term loans sanctioned under NABARD refinance, the interest rate as per original sanction will continue to be charged for the entire duration of loan.

22.6

Financial Statements to be obtained: For arriving at the CRAS/CRS basing on various financial parameters, at the time of renewal/sanction, audited balance sheet of the latest financial year shall be the basis. If the audited balance sheet of the latest financial year is not available then the least of ratings arrived based on the latest provisional balance sheet or last audited balance sheet shall be awarded to the constituent. In all such cases the sanctioning authority shall obtain audited balance sheet for latest financial year within a reasonable period of time not exceeding 6 months and finalize credit rating and re-fix interest accordingly. If this process is not completed within 6 months from the date of closure of financial year, an additional 1% interest shall be charged from 1st October onwards till submission of audited balance sheet. This additional interest will be applicable for all fund-based advances of Rs.100.00 lacs & above. The overall penal interest (chargeable for nonsubmission of stock and book debt statements/MSOD/ QIS etc.,) including the said additional interest shall not exceed 2% to the borrower.

22.7

Clubbing of Various Limits: For the purpose of deciding the size of a loan under CRAS/CRS, the following guidelines shall be followed: CRAS: Fund and/or Non-fund based limits shall be clubbed together (Borrower enjoying fund based limits of Rs.80.00 lacs and non-fund based limits of Rs.30.00 lacs shall be rated under CRAS as the size of loan is arrived at is Rs.110.00 lacs.) CRS : Fund based limits only shall be clubbed together. The following additional guidelines are to be considered in this regard. Where the party has applied/availing limits both for agriculture and non-agricultural activities, the size of loan shall be decided separately for each category of advance.

42

In case of agricultural advances, the size of loan shall be arrived at separately for short term production credit and others (Working Capital and Term Loan). 22.8 Entry Level Norms: While entertaining new borrowal accounts, it shall be ensured that the party secures a minimum overall score of 40% for taking up exposure under CRS/CRAS. The party shall also secure minimum of 40% against the score allotted to each parameter i.e. Industry/Management & Financial risks. 22.9 Timing of CRAS/CRS The CRAS/CRS exercise is to be undertaken along with fresh proposal/renewal/ enhancement/review of the accounts. In case the audited balance sheet is not received within reasonable time of six months of the financial year ending of the borrower, CRAS/CRS is subject to review. A view is to be taken by the sanctioning authority based on the available financial position like provisional balance sheet, half yearly/quarterly balance sheet, QIS etc., and operational experience of the account. 22.10 Acceptable and un-acceptable Credit Risk Ratings The existing Credit Risk Assessment System (Rs.50 lacs & above) and Credit Rating System (Rs. 5 lacs & above and below Rs. 50 lacs) with acceptable risk ratings (A+++, A++, A+, A, B & C) representing standard assets is revised by introducing un acceptable risk ratings as under: i) D rating with 40% & below marks: No further exposures shall be taken for accounts falling under this category with 40% & below marks treating them as un-acceptable. ii) (D1, D2 & D3) ratings so as to reflect regulatory requirement of asset classification i.e substandard, doubtful & loss assets as under. Marks secured CRA Rating Grade Applicable Spread

Acceptable Credit Rating: Above 95% A+++ >90 to 95% A++ >80 to 90% A+ >70 to 80% A >60 to 70% B >40 to 60% C Unacceptable Credit Ratings: 40% & Below D NPA accounts are D1 to be classified D2 under this rating D3 category.

Prime Excellent Very good Good Satisfactory Average Poor Substandard (SSA) Doubtful (DA) Loss Asset (LA)

Spread applicable to rating shall applied

as C be

43

22.11 Rating/Quality based delegation of powers: Once the borrower account migrates to C grade on risk rating scale, subsequent sanction of renewal/enhancement of limits shall be by one level higher to the sanctioning authority. Similarly, once the borrower account migrates to D grade on risk rating scale, subsequent review and renewal of limits shall be done by one level higher to the sanctioning authority. On migration of C and D rated borrower accounts to B grade & above, the respective sanctioning authorities can consider renewal/enhancement of limits with in their delegated powers. 22.12 Magnitude of Risk Tenure of Term Loans & Frequency of Review: The revised internal Credit Risk Assessment System (CRAS) applicable for advances of Rs. 50 lacs & above / Credit Rating System (CRS) applicable to Rs. 5 lacs & above and upto Rs. 50 lacs represents Acceptable and Un Acceptable Credit Risk Categories with default risk associated with an exposure. A +++, A++, A+, A, B, C rated borrower accounts with above 40% Marks are graded as acceptable risks and D rated borrower accounts with 40% and below marks and D1, D2 & D3 rated accounts representing substandard, doubtful & loss assets are graded as unacceptable risks. The following systems are evolved whereby tenure of loan, frequency/intensity of review varies depending on the magnitude of risk. Rating A+++ A++ A+ A Tenure of Loan / Intensity of Review Maximum Tenure of Term Loan is as under: 1) In case of A+++, A++ rated RTO loans, the repayment period shall be 6 years including holiday period. In case of A+, A, B rated RTO loans, the repayment period shall be 5 years including holiday period. In case of A+++, A++ rated Infrastructure Projects, the repayment period shall be 12 to 15 years including gestation period. In case of A+, A, B rated infrastructure projects the repayment period shall be 10 to 12 years including gestation period.

2)

In case of all other loans, the repayment period shall be 7 years excluding holiday period. Frequency of Review: The frequency of review in case of Term Loans with large exposures of Rs. 5 crores and above shall be at half yearly intervals and in other cases once in a year as per HO guidelines in force and format prescribed for the purpose. Tenure of term Loan: Tenure of term loan shall not exceed 5 years excluding holiday period in respect of C rated borrowers.

3)

44

Frequency of Review: Periodicity of review shall be at yearly intervals as per HO guidelines in force and as per format prescribed for the purpose. Frequency of Review: Periodicity of review shall be at yearly intervals as per HO guidelines in force and as per format prescribed for the purpose.

22.13 Discriminatory time schedule for renewal of borrower accounts: At present, working capital facilities shall be sanctioned for a period of 12/24 months depending on the credit rating of the borrower and the same shall be reviewed & renewed as the case may be. In view of RBI guidelines for discriminatory time schedule for renewal of limits, mid term review of all B C & D rated borrower accounts shall be done in addition to annual review and renewal of accounts. For all other rated borrowal accounts (i.e. A+++, A++, A+ & A) the existing procedure of review/renewal of borrowal account with in a year from the date of last renewal has to be followed. 22.14 Repeating Credit Rating System bi-annually: CRAS/CRS once assigned shall be normally valid for a minimum period of six months. Credit Rating of the borrower account shall be reviewed and revised basing on the audited financial statements/provisional financial statements at 6 monthly intervals. In the event of slippage of credit rating assigned to the borrower based on provisional balance sheet, the account shall be down graded but not upgraded. 22.15 Competent Authority for finalizing the Credit Ratings: The sanctioning authority of an account will be the competent authority for finalizing the ratings under CRAS/CRS also except in the cases of A+++ and A++ grades where the competent authority is not below the rank of General Manager (Credit) at Head Office. 22.16 Confirmation of Credit Rating assigned: i) Branch & II level sanctions at Zonal Office: The rating assigned by the appraising staff shall be approved by the sanctioning authority i.e. Branch Manager and II level Official at ZO and the same shall be reviewed and confirmed by the next level higher authority. ii) Ist level sanctions at Zonal Office: The Credit Committee functioning for the sanctions to be made under the powers of Zonal Manager shall confirm credit rating (assessed/arrived by the dealing officials who puts up the note) while recommending the same to sanctioning authority.

45

iii)

GM (Credit), ED & CMD sanctions: The credit rating recommended by the Zonal Managers shall be reviewed and confirmed by the Credit Committees, functioning for the sanctions to be made under the powers of the General Manager and for the sanctions to be made under the powers of above General Manager while recommending the same to sanctioning authority.

iv)

MC sanctions: However, in case of accounts under the powers of Management Committee, CMD (ED, in the absence of CMD) is vested with powers for finalizing the CRAS/CRS. The Credit rating allotted by the sanctioning authority under CRAS/CRS shall be verified and confirmed by the reviewing authority. A +++ and A ++ Grades shall be assigned only in exceptional cases by an authority not below the rank of General Manager (Cr.) at HO.

22.17 Effective date The effective date for revision of interest rates is the date of approval of CRAS/CRS by the sanctioning authority (in case of sanctions by MC, date of finalization by CMD; ED, in the absence of CMD). The sanctioning authority is also vested with powers to quote revised rates with retrospective/prospective effect. However, prior permission from next higher authority should be obtained for reduction in rate of interest with retrospective effect. The sanctioning authority is also vested with powers to quote higher rate of interest than the rate of interest corresponding to CRAS/CRS, depending upon the market conditions. 22.18 Rate of interest for accounts upto and below Rs 10 lacs: For accounts other than consumer credit for loans upto and below Rs 10 lacs, the rate of interest as advised by Head Office through various circulars from time to time shall be stipulated. 22.19 Rate of interest for NBFCs/bridge loans: Non Banking Finance Companies and bridge loans are to be charged interest applicable to C rating / as per HO Guidelines issued from time to time. 22.20 Consortium accounts In case of consortium accounts where our Bank is the leader, CRAS/CRS of our Bank should be adopted. In case of consortium accounts where we are member, interest rate shall be as is being charged by consortium leader or as per our rating. However, in case of consortium leader or any member charges a lower rate, we may fall in line subject to our BMPLR.

46

22.21 Flexibility in interest spread: Range of interest spreads are provided against certain ratings under CRAS. Sanctioning authority is to decide the exact rate within the band, depending upon the market conditions. Whenever there is a change in the spread subsequent to the original sanction, the branch has to communicate the revised spread to be charged to the existing borrowers. 22.22 Score: No marks should be awarded under a parameter, which is not applicable to a borrower. In such cases, the percentage of marks should be arrived at on the basis of total marks secured out of maximum marks allotted for the parameters applicable to that borrower. Marks for the various parameters should be on the perception of the branch manager / sanctioning authority, if actuals are not available. 22.23 Transparency: To have continued relationship and transparency with the clients, the CRS/CRAS and applicable rate of interest may be informed to the borrower. 22.24 Re-pricing of an exposure: Pricing of an exposure including finer rate of interest and Sub BMPLR lending shall be reviewed and revised whenever there is a change in the rating and value of collateral securities secured for the limit

23.
23.1

Credit Exposure Norms

To spread the risk and to ensure that funds of the Banks are not locked-up with limited number of clients, the Reserve Bank of India has laid down guidelines on Credit Exposures to Individual / Group Borrowers to the effect that: i) Banks exposure to a single borrower should not exceed 15% of Banks tier I capital (plus) tier II capital as per the Audited Financial Statements of the previous year. Banks exposure to individual borrower can be allowed upto 20% of tier 1 capital (plus) tier II capital as per Audited Financial Statements of the previous year for the purpose of financing Infrastructure projects. Banks aggregate exposure to borrowers belonging to a group shall not exceed 40% of Banks Tier I capital (plus) Tier-II capital as per Audited Financial Statements of the previous year; Bank exposure to a group can be allowed upto 50% of tier I capital (plus) tier II capital as per Audited Financial Statements of the previous year for the purpose of financing Infrastructure projects.

ii)

iii)

iv)

47

v)

Banks may, in exceptional circumstances, with the approval of their Boards, consider enhancement of the exposure to the borrower up to a maximum of further 5 per cent of capital funds i.e. Tier I capital + Tier II capital applicable for individual as well as group borrower subject to the borrower consenting to the banks making appropriate disclosures in the Notes of account in annual financial statements in respect of the exposures where the bank had exceeded the prudential exposure limit during the year

23.2

Besides the above, Reserve Bank of India has also laid down statutory and Regulatory exposure ceilings for Leasing, hire purchase and factoring services, statutory limit on shareholding in companies, Regulatory limit on advances against shares, debentures, PSU Bonds and units etc. Reserve Bank of India advised that each bank should fix its own prudential exposure limits within the overall exposure limits fixed by them. Fixing of exposure limits to different industries/sectors has been left to the discretion of individual banks. Each bank has to fix its own exposure limit, basing on its experience and risk perception. Thus, fixing of exposure limits, to limit the concentration risk has become an important aspect of credit risk management. Our bank has fixed internal exposure norms within the overall ceilings prescribed by Reserve Bank of India towards Hire purchase, leasing & factoring services, advances against shares, debentures, PSU bonds and units etc, The bank has also fixed exposure ceilings for substantial exposures, industry wise exposure ceilings for fund based limits & non fund based limits, constitution of the borrower wise limits, unsecured exposures and Off balance sheet exposures. Full details on Statutory and Regulatory exposure ceilings fixed by Reserve Bank of India and Banks internal exposure ceilings and competent authority to permit deviations in banks internal exposure norms as approved by Board are discussed at full length in the Banks Loan Policy guidelines. Branches and controlling Offices have to ensure that the borrowal accounts fall within the exposure ceilings prescribed before sanction / recommending the proposal for sanction to higher authorities.

23.3

23.4

23.5

24.
24.1

Submission of proposals to the sanctioning authority

After processing of a proposal is over, the relative appraisal Note together with the relative application and other enclosures should be submitted to the sanctioning authority for consideration. It must be ensured that the forms submitted to the sanctioning authority are complete in every respect and contain specific recommendations of the appraising authority. Every proposal submitted to the sanctioning authority should bear the signature of the appraising authority with date, name, code and designation of the appraising authority. The officer handling credit, who has assisted the appraising authority in preparation of the appraisal form/report should also sign the appraisal form, duly indicating his name, code, and designation. Wherever proposals are submitted to higher authority for consideration, the fact of the same should be noted in the 'Register of Credit Applications Received and Disposed of' against the relative entry. 48

24.2

24.3

24.4

Every proposal submitted to sanctioning authority should contain precise and specific recommendations of the appraising authority with name, staff code and designation. The recommendations should inter alia, include brief history of the applicant's past dealings, the strong and weak points of the proposal, additional advantages, if any that accrue to the bank, justification for the limits applied for, the source for the Borrower's Margin and terms of repayment etc. If the appraising authority has certain reservations on the proposal, he can make appropriate remarks on the proposal and the sanctioning authority has to take such remarks into consideration while taking the credit decision.

24.5

25.
25.1

Disposal of Credit Proposals - Time Norms

Inordinate delay in disposal of credit proposals is likely to cause dissatisfaction to customer and may result in complaint. To avoid customer's dissatisfaction in this regard, branches should attend to credit proposals promptly. All the information should be called for in one stroke. However, the eagerness to dispose of a credit proposal quickly should not result in dilution of quality of appraisal. Time frame fixed for decision on credit proposals are as follows: Proposals under Branch Powers: The time taken for accounts falling under branch powers shall not be more than one week. Proposal falling under the powers of Zonal Office: The decision shall be given within two weeks. Proposals falling under the powers of Head Office: For the accounts coming under the powers of Head Office, decision shall be given within 30 days from the receipt of the proposal at the branch for the accounts falling under the powers of Chairman & Managing Director and below. For accounts falling under the powers of Management Committee, decision shall be given within 45 days. Time norms for disposal of Applications: Priority Sector Advances Loans upto Rs. 25,000 Loans above Rs. 25,000 For MSME Upto Rs.25,000 upto Rs. 5 lacs Fortnight 8-9 weeks 2 weeks 4 weeks

A checklist shall be prepared and the branch shall ensure that the application provides all the information as required in the checklist. Within two days of receipt of the proposal, branches shall advise the applicant, whether any major information gap is there in the proposal. If there is delay, the reasons for the same shall be informed to the sanctioning authority in writing.

49

If there is delay beyond stipulated time, there is a potential risk of prospective borrower approaching other Banks or seeking help of Ombudsman. 25.2 To ensure time norms set for disposal of credit proposals, branches should keep track of every credit application. For this purpose, the procedure given under para no. 4.1 of this chapter should be followed scrupulously. Obtaining inadequate/piecemeal data from the applicant is generally the main reason for delay in disposing of credit proposals. As such, branches should ensure that all the data required for processing of a credit proposal is obtained in one lot from the applicant. It must also be ensured that proposals submitted to higher authorities are complete in every respect and contain enough information to take a credit decision.

25.3

26.
26.1

Discretionary Powers
In order to avoid delay in referring proposals to higher authorities for sanction, Branch Managers are delegated certain discretionary powers to grant advances to the deserving clientele. The discretionary powers of Branch Managers are fixed by Head Office and are communicated to branches from time to time. The bank has a well laid down system of delegation of powers to be exercised by field level functionaries and executives at Head office. The minimum margins to be stipulated on various credit facilities, other discretionary powers and operative guidelines governing the exercise of delegated powers are clearly laid down The lending powers have been vested with field functionaries with an objective to facilitate quick disposal and timely renewal of larger number of credit proposals at different levels. The powers delegated are reviewed at regular intervals taking into account feed back received from the field level functionaries and credit departments at Head Office, the competitive environment prevailing among the banks, accelerated credit growth envisaged in certain business segments, marketing and development of new products, risk perception of various category of advances and changes in the policy guidelines advised by Reserve Bank of India. The discretionary powers are to be exercised by the functionaries at Head Office, First and second level officials at controlling offices and Branch Manager depending upon his scale. The second level official means the official who has been designated for the purpose by the competent authority. The second level officials at branch should not exercise any credit sanctioning powers including TOD, except while officiating as Branch Manager. In case of branches where higher/lower grade officers, compared to the category of the branch are posted as Branch Managers, the powers to be exercised will be that of the grade of the incumbent Manager. For example, if an officer of MMGsIII is posted as Branch Manager of small branch, then the incumbent will exercise the powers delegated to MMGSIII cadre. Similarly, if an officer of JMGS-I is posted as Branch Manager of medium branch, then the incumbent will exercise the delegated powers to JMGS-I cadre. Discretionary powers should not be used in isolation. They should always be exercised in accordance with the existing guidelines/instructions issued by controlling authority/ Head Office. The lending policy of the bank, the credit restraint measures, if any, in operation, the overall ceiling imposed for the limits/parties should always be kept in view while exercising the discretionary powers. The scope and extent of discretionary powers should be well understood by the person exercising the powers. 50

26.2

26.3

26.4

The delegated powers shall be exercised by the authorities judiciously with due care and in good faith and in relation to the responsibilities and the duties entrusted to them. They shall ensure compliance with the instructions/guidelines laid down by the Head Office / controlling office and any rules/regulations and other instructions issued from time to time. No sanctioning authority shall sanction any credit facility or pass any other order pursuant thereto which shall be directly or indirectly to his own advantage. Such sanctions shall be ordinarily passed by the next authority or by a lower authority if the sanction falls within the powers delegated to such lower authority. Powers are not exercisable by any authority for granting loans (except against Bank deposits) for his relatives or concerns in which his relatives are interested. Such proposals should be forwarded for consideration, to higher authorities. The word relative is defined as hereunder: Spouse, Father, Mother (including step mother), Son (including step son), sons wife, Daughter (including step daughter), daughters husband, Brother (including step brother), brothers wife, Sister (including step sister), sisters husband, Brother (including step brother) of the spouse and Sister (including step sister) of the spouse.

26.5

26.6

26.7

In acting upon the orders of higher authority, the lower authority will presume that the higher authority has obtained the sanction of the appropriate authority in regard to the matter which is not within his delegated powers. Higher authority may exercise the powers of the same nature vested in lower authority, but lower authority cannot exercise the powers of the higher authority, unless it is duly authorized. The powers prescribed to various authorities in the administrative matters are specific. In other cases the powers prescribed are only the maximum that can be permitted. The powers delegated to various authorities are to be exercised separately for each category of advances subject to aggregate commitment per borrower. Aggregate commitment per borrower is inclusive of sanctions to group/associate/sister concerns.

26.8

26.9

26.10 Powers can be exercised only after receipt of appropriate application form and appraisal of the proposal as per the prescribed norms. All credit proposals shall be processed in the prescribed format only. Credit proposals falling within branch sanctioning powers also shall be processed by branches in printed process note format or process note format attached to the printed application forms. Controlling offices shall continue the existing procedure of preparing process notes and issuing of sanction letters irrespective of the amount involved. 26.11 Lending authority shall not exercise powers in the case of borrowers whose place of business or factory falls beyond the normal area of operation of the branch. Exceptions

51

may be made on justifiable grounds like borrowers exclusively dealing with the branch or in the absence of banking facilities in the neighborhood of the borrower etc. 26.12 Lending authority will not exercise without ascertaining whether the borrowing concern and/or its proprietor/partner(s) has/have any account(s) with any other branch of the Bank and, if so, only after ensuring that similar or other facilities are not granted at the other branches (This would ensure that accommodation at one branch is not used to adjust advances at the other branch). In the same way, no proposal will be entertained by one branch if a similar proposal is rejected by the other. 26.13 In case of Doubtful and Loss Assets: The permission of the next higher authority should be obtained in respect of exercise of delegated powers so far as asset classification beyond sub-standard category is concerned. Thus in the case of advances classified as doubtful assets and loss assets permission of the next higher authority shall be obtained for exercising the delegated powers. 26.14 In case of earlier difficulties in the Accounts: Wherever the Banks experience of a party/group in previous transactions/dealings had unsatisfactory features of a serious nature like fraud, filing of suits for recovery of dues, attachment / seizure of security, filing of DICGC/ECGC claims/claims under RR Act and similar recovery proceedings, settlement of dues under compromise with concessional interest/scaling down of debts, cases involved in provision for doubtful/loss assets or write off, etc., the Delegatee shall not exercise his powers for lending to the same party/group without the clearance from the next higher authority. 26.15 Discretionary powers should not be exercised in favour of a party whose application for advance was earlier declined by a higher authority. Any proposal for sanction of limits to such a party should be referred to the authority that has declined the limit(s) originally. 26.16 Sanctioning authorities, while exercising discretionary powers vested with them, should scrupulously follow the guidelines given under para nos. 10 to 13 of Chapter - 1 of this Volume of Manual of Instructions. 26.17 The Zonal Managers are empowered to keep in abeyance/restore in full or in part the discretionary powers of the Branch Managers/Chief Managers for sanctioning loans and advances keeping in view the outstanding levels, recovery, overdue, quality of advances and submission of returns etc. The powers of Zonal Manager of Scale VI can be kept in abeyance by ED or in his absence by CMD. The powers of Zonal Manager of Scale VII can be kept in abeyance by CMD. For specific withdrawal/restoration of powers of second-level official at controlling offices, the Zonal Authority shall seek the permission of the next-higher authority at Head Office with reasons in writing. All the above should be recorded in a register specifically maintained for this purpose. 26.18 The sanctioning authority is expected i) Not to give continuous accommodation, and/or allow accommodation despite continued irregularities in the account, to the same customer or allow indiscriminate excesses over the sanctioned limits/delegated powers. Not to allow indiscriminate overdrawals over and above the Sanctioned Limits.

ii)

52

iii)

Not to grant temporary overdraft in more than one account of the same party so that such funds are ultimately utilized by one and the same party for the same purpose. Not to adjust advances granted in one account by giving accommodation in another account of the same party or his sister concern. Not to adjust advances against dishonored bills by purchasing or discounting fresh bills drawn on the same drawee or by granting overdraft in the current account or by debiting cash credit account without drawing power. Not to grant accommodation or recommend renewal or additional credit, without disclosing material irregularities in the account, such as frequent return of bills /Cheques purchased, shortage in stocks, lack of turnover of stocks etc; Not to split up a transaction to avoid reference to higher authority; Not to enter into a transaction with a party who, to the delegatees knowledge, had defaulted with the bank, in the past, without the clearance from the next higher authority.

iv) v)

vi)

vii) viii)

26.19 Sanctions made, if any, in violation of the rules in force or in contravention of the prohibitions imposed or in excess of the powers delegated shall be construed as 'abuse of power' and attract disciplinary action. Similarly, splitting of transactions to avoid reference and reporting to Higher Authorities shall also be construed as 'Abuse of Power' and would attract Disciplinary action. 26.20 Abuse of authority: The following shall be construed as abuse of authority: i) Giving continuous accommodation despite continued irregularities in the accounts without proper consideration / review / sanction and/or allowing indiscriminate excess drawings over the sanctioned limits/drawing power. Granting temporary overdraft so as to help the borrowers to utilize the funds indiscriminately or for any other reason not in conformity with the Banks / Governments / Reserve Bank of Indias norms / guidelines and regulations. Adjusting advances against dishonored bills by purchasing/discounting fresh bills or by granting overdrafts in the current account or by allowing excess drawings in cash credit accounts. However, purchasing/discounting of fresh bills drawn on different parties within sanctioned limits to adjust the dishonored / returned bills shall not be considered as abuse of power. Regularizing advances granted in one account by giving accommodation in another account of the same constituent/group accounts. Allowing kite flying accommodation nature. operations and purchasing/discounting bills of

ii)

iii)

iv)

v)

53

vi)

Granting accommodation or recommending renewals for existing/additional credit limit without disclosing full material facts about the case and suppressing the irregularities in the account or connected accounts. Splitting sanctioning of limits to avoid reporting and reference to higher authorities. Accommodating credit facilities to constituents who have defaulted in payment to the Bank and failed to comply with the Rules and Regulations of the Bank in their earlier dealings, which have come to the knowledge of the sanctioning authority. Violating the directions/directives/rules/norms/ regulations, of the Bank and RBI. Violating the prohibitions imposed by the Bank from time to time. Sanctioning credit facilities when the proposal is declined by the higher authority.

vii) viii)

ix) x) xi)

27.
271

Sanction of limits
Basing on the information submitted, the recommendations of the appraising authority and the general experience gained in financing similar activities, the sanctioning authority should critically examine the proposal. If he is satisfied with the merits of the proposal, he may sanction the credit facilities recommended for, subject to the discretionary powers vested with him. While sanctioning credit proposals, the following aspects should be kept in consideration. i) ii) iii) iv) v) The credit sanctioned should be need based and purpose oriented. The applicant must be credit worthy and competent to deploy bank's funds profitably. The activity to be financed should be technically feasible, and economically viable. The proposal should conform to canons of sound lending and should be in consonance with the existing loan policy of the bank. The sanction should comply with the existing guidelines/instructions issued by Zonal/ Head Office with regard to maximum permissible bank finance, exposure limit for individual borrowers, other limitations/restrictions etc. The names of the constituent / connected promoters / accounts, other than nominee directors and professional directors, should not figure in RBI defaulters list/Willful defaulters list/ECGC Caution list/Exporters Caution list. The proposal shall conform to Loan Policy guidelines, RBI Exposure Norms and Bank Internal exposure ceilings. Credit Rating of the borrower.

vi)

vii) viii)

54

ix)

Enactment of companies (Amendment) Act 2000: Inclusion of new sections 58 AA & 58 AAA for Banking companys Precautions to safeguard banks interest: The new sections as per the amendment deal with protection of small depositors i.e., those who have kept a deposit with the company for an amount less than Rs.20,000/-. Sub-section (7) of Section 58 AA: Where a company had accepted deposits from small depositors and subsequent; to such act of acceptance of deposits, obtains funds by taking a loan for the purpose of its working capital from any bank, it shall first utilize the funds so obtained for the repayment of any deposit or any part thereof or any interest thereupon to the small depositor before applying such funds for any other purposes. Amended provisions make it mandatory for companies to give an intimation on monthly basis to the Company Law Board within 60 days of default to give details such as name and addresses of the depositors, principal and interest due etc., Section 58 AAA: Any offence connected with or arising out of the provisions of Section 58 AAA shall be cognizable offence under the code of Criminal Procedure, 1973,

x)

xi)

xii)

In view of the above the following should be complied with: i) In all corporate accounts enjoying credit facilities, branches should obtain a certificate from the Statutory Auditors of the company certifying that the company has not defaulted in payment of interest/principal to small depositors and that the company has complied with the provisions of Section 58 AA of Companys Act 1956. At the time of releasing credit facilities, fresh / renewed or enhanced to corporate borrowers branch should obtain an undertaking from the party that they have no outstanding dues towards the small depositors i.e. deposits less; than Rs.20,000/-.

ii)

27.2

The credit needs of the applicant and the nature of activity to be financed must be the basis for fixing the nature and quantum of credit limits, duration, release and repayment of credit. No advance should be made unless there is a reliable and assured source of repayment within a reasonable time. Though in the case of secured advances, the bank has a right to realize the security, advances which are likely to be repaid only by way of forced sale of the security held should be avoided. In respect of term loans, repayment should be fixed basing on the economic life of the asset, its revenue yielding capacity, the surplus available for repayment of bank credit etc. The seasonal nature of activity should also be taken into consideration while fixing repayment. Depending upon the necessity, repayment may be fixed in lumpsum, graduated, equal or equated basis. While sanctioning credit, the sanctioning authority should specify the terms and conditions of sanction and sign under the words' Sanctioned', with name, staff code,

27.3

27.4

27.5

55

designation of sanctioning authority and date of sanction, on the appraisal form/report. The sanction should, interalia, contain the following aspects. i) ii) iii) iv) v) vi) vii) viii) ix) x) xi) xii) xiii) xiv) xv) xvi) xvii) xviii) xix) 27.6 27.7 Name, full address and constitution of the party Name(s) of the proprietor/partners/directors Credit Rating Date of Sanction Due Date Purpose of Advance Nature of Facility Limit Sanctioned Rate of Interest Margin stipulations Name of the Co-obligant/Guarantor Particulars of Security - Primary and additional/collateral Details of machinery/assets to be financed with particulars of value and description. Repayment - Period - Moratorium, if any, Amount of instalment - Whether equal / equated / graduated instalments Other conditions/stipulations, if any The category of the borrower viz. priority. or non-priority and sub-classifications under priority sector like Agriculture, MSME, T.O., etc. Whether the borrower belong to SC/ST/PH/Women/Minority community category Availability of Refinance, if any BSR Code

The date and particulars of sanction should also be noted in the 'Register of Credit Applications Received and Disposed of' against the relative entry. Sanctions made by controlling/higher authorities should be intimated to the concerned branches together with full details of terms of sanction, without any delay.

56

28.

Validity Period of Limits

The limits sanctioned are generally valid for a period of one year from the date of sanction. However, overdraft facilities below Rs. 10 lacs against bank deposits, kisan vikas patras / NSCs, LIC policies, Gold jewellery, PSU Bonds can be sanctioned for a period of two years. Similarly, Retail Traders and small business establishments for limits sanctioned upto Rs. 5 lacs through trade finance centers are valid for a period of two years from the date of sanction subject to review after completion of one year. AB Laghu Udhyami Credit Card (LUCC) holders enjoying credit limits upto Rs.10 lacs and limits under Pattabhi Agri Card Scheme are valid for a period of 3 years subject to yearly review.

29.
29.1

General Terms and Conditions applicable to large borrowal accounts

Pre-disbursement Conditions i) Certificate of Compliance of sanction terms and conditions should be submitted to the controlling/sanctioning authority in the approved format and prior permission to be sought for release of limits. In case of renewal of limits, branch should get all the irregularities pointed out in Inspection report rectified before release of renewed limits and submit a compliance report to Zonal Office giving rectification/reply irregularity-wise. P&C reports from the other Banks/FIs are to be obtained and kept on record before disbursement of limits. P&C reports are to be obtained by us directly from the bank from which the account is being taken over and under no circumstances the P&C reports are to be obtained through the borrowers. Documents to be got verified by Law Officer, Zonal Office/Approved Panel Advocate before release of loan as per guidelines in force in this regard. Branch shall submit unit inspection report to Zonal Office before disbursement of loan. Sanction terms and conditions should be communicated to the borrower. The limits should be released only after the terms and conditions of the sanction are accepted / acknowledged by the borrower. Branch to obtain letter from the borrower for having accepted all terms and conditions in toto.

ii)

iii)

iv) v) vi)

29.2

Enabling conditions i) The branch to obtain consent letter from the applicants and all the guarantors for disclosure of their names in the defaulters list, in the event of default on the part of the borrowers, as per RBI guidelines. Bank reserves its right to alter/cancel and/or modify the credit limits/loans sanctioned and/or terms and conditions stipulated without notice and without assigning any reason thereof.

ii)

57

iii)

Our Bank reserves the right to rearrange the repayment schedule and to call upon the company to accelerate the payments, if the companys financial position so warrants as per the opinion of the Bank. The rate of interest and margins stipulated are subject to changes from time to time at the sole discretion of the Bank/as per the guidelines of Reserve Bank of India / Government of India/Indian Bankers Association etc. The working capital limit shall be utilized for the purpose for which it is intended and there shall not be any transfer of funds to and from among the group concerns. Working capital funds shall not be diverted for acquisition of fixed assets, investment in associated companies/subsidiaries and investment in capital market. It shall be ensured that the borrower is not operating current account with other banks / branches A certificate to this effect shall be obtained and kept on record. A declaration to the effect that the funds required over and above the assessed amount will be borne by the borrower to be obtained.

iv)

v)

vi) vi) 29.3

Insurance of Securities and liability insurance. All Securities are to be insured for full value with bank clause at borrower's cost. Depending upon the type of security appropriate policy should be obtained. The bank has obtained Group Life Insurance Policies for Education Loans, Housing Loans and Vehicle Loans to cover the life risk of the individual borrowers. This type of insurance is known as Liability Insurance. In the even of death of the borrower, the insurance company shall pay the amount due under the loan account subject to certain conditions. The insurance is optional. Since this insurance scheme is advantages borrowers, they should be pursued to join the scheme. Guidelines on insurance and availability of different types of insurance covering different types of securities and liability insurance are given in the chapter - V "Insurance" in this Volume of the Manual of Instructions.

29.4

Other Charges i) ii) Processing charges should be collected as per the extant guidelines. Branch should charge overdue interest @ 1% for the first 3 months and thereafter 2% for delayed submission of renewal proposal by the party from the due date to the date of submission of proposal by the party with full details. For non-submission/delayed submission of stock statement, book debts statement, MSOD, QIS II and QIS III etc., non-submission of audited balance sheet within six months from the date of closure of financial year - in the case of fund based limits of 1 crore and above, penal interest at applicable rates will be charged.

iii)

58

29.5

Compliance with the guidelines and terms and conditions contained in i) ii) the circulars issued by the bank from time to time. the booklets on Guidelines of the Bank on Loan Policy, Credit Assessment Methods, Credit Risk Management and Delegation of Powers released by the bank and revised from time to time.

29.6

Security conditions i) ii) Collateral Securities should be valued once in two years and the charges should be recovered from the borrower. Equitable mortgage by deposit of title deeds of the property offered as collateral security should be created as per guidelines in force. Legal opinion, valuation report, are to be obtained and branch has to satisfy about the clear and marketable title, and the worth of the security.

29.7

Post disbursement monitoring i) ii) iii) Unit inspection to be conducted as per HO guidelines. Stock and receivable audit shall be conducted once in a year as per guidelines at the cost of the company. Zonal Office has to ensure that short inspection and periodical unit inspections to be conducted within time schedule as per guidelines and review the performance. Half year review report of large borrowal accounts to be submitted to controlling office as per schedule. Borrowers in respect of large advances, say Rs. 1 crore and above, appointment of concurrent auditors shall be ensured.

iv) v) 29.8

Optional General Terms and Conditions i) Sole Banking The borrower should deal with us exclusively and all other bank accounts should be closed. Branch to ensure closure of other bank accounts of the institution before release of enhanced limits. ii) Short fall in NWC a) Unsecured loans shall not be repaid during the currency of the loan. Branch should obtain an undertaking to this effect from the borrower. Branch should obtain Auditor certificate confirming the available NWC in the system.

b)

59

iii)

In case of leased land/machinery. Branch to ensure that lease is renewed and registered for the period till our loan is liquidated.

iv)

Finer rate of Interest The finer rate of interest on limit/s is subject to annual review. If the interest or instalment(s) are not serviced in time, the finer rate of interest shall automatically get cancelled and rate of interest shall be charged, as per credit rating.

v)

Exceptional Our bank reserves the right to nominate one director on the board of directors of the company.

vi)

Letter of Credit a) Value of stocks received under LCs should be excluded while arriving at the DP for OCC/PC limits. Separate stock statements for LC stocks shall be submitted. Each LC under the limit shall be opened with specific application from the party. Branch shall obtain the P&C of the beneficiary before establishing the ILC/FLC.

b) c) 29.9

Terms and conditions applicable to OCC/SOD/KCC i) Branch should review the MSOD statements submitted by the firm at monthly intervals and forward copies of the MSOD statements to the controlling office before 10th of succeeding month to which it pertains along with the observations of the branch in the MSOD review format. Branch should ensure that the company maintains sufficient balance in the cash credit account to meet the commitment under LCs without scope for any devolvement. The borrower should submit statement of Sundry Debtors at monthly intervals along with the stock statements and the same are to be reviewed. The auditor of the firm should certify the Sundry Debtors statement along with amount of Creditors at least once in a quarter. Drawing Power against Sundry Trade Debtors shall be restricted to 50% of the OCC limit and the Drawing Power on stock is to be calculated on Cost/Market price whichever is lower. Our Banks name board must be exhibited in the premises as financiers. QIS Form II & Form III statements shall be obtained as per extant guidelines issued from time to time and submitted to controlling authority. The same shall be

ii)

iii)

iv) v)

60

reviewed by controlling authority and a copy should be marked to sanctioning authority. 29.10 Terms & conditions applicable to Term Loan i) P&C reports from the other Banks/FIs are to be obtained and kept on record before disbursement of term loan. P&C reports are to be obtained by us directly from the bank from which the account is being taken over and under no circumstances the P&C reports are to be obtained through the borrowers. Branch should disburse the loan as per cash flow statement/progress of the work. In case of pre-closure of the term loan, the bank will charge 2% premium over the amount prepaid for the un expired period of the term loan. In case of Consortium advances, the Loan is to be released only after obtaining (i) clearance from the other member/s of consortium for creation of pari passu charge on fixed assets (ii) P&C report. Upfront fee shall be collected as per guidelines. The company shall undertake to pay foreclosure charges @2% on the pre-paid amount for the remaining period of loan in the event of the company proposing to foreclose the loan. Certificate from chartered accountant is to be obtained for the amount spent till date of disbursement, while releasing the loan. The borrower shall give undertaking that they will meet term loan instalments from their own sources, in case projections are not achieved in any of the years. An undertaking letter from the borrowers shall be obtained, to pay the residual amount, if any, in the loan account on payment of stipulated equated instalments. Loan shall be released in phased manner depending on the progress of work. Post-dated cheques for minimum period of 12 months are to be obtained. The term loan should be disbursed directly to the suppliers/contractors. In case the party has already spent the amount towards disbursement of term loan, the same may be reimbursed to the party subject to the permission of sanctioning authority, provided a) b) c) Such reimbursement is within 12 months from the date of purchase / acquisition of the assets. It should be supported by satisfactory proof of investment/source of funds supported by invoice/receipt/voucher followed by auditor's certificate, Such funds should have been remitted through a Bank account.

ii) iii)

iv)

v) vi)

vii) viii) ix) x) xi) xii)

61

xiii)

Advance payments, if any to be made for the supply of furniture / fixtures / equipment are to be met out of the margin. No portion of term loan is to be released for advance payments. The amount of advance to be made is also to be paid only by way of demand draft/pay order directly to suppliers through our bank account, duly ensuring that necessary margins are brought in. All statutory approvals such as pollution control board approval, Inspector of Factories, AP Transco, Food grains Licenses etc, should be in force. Before making disbursement of term loan for payment of unsecured loans raised by the company for the implementation of expansion cum backward integration project, branch should inspect the assets acquired by the company for the present project and satisfy itself on the end use of the funds. Branch should obtain all the original invoices for the plant and machinery purchased and keep on record. Branch shall obtain receipts from the payees of the unsecured loans and keep on record as proof of payment by the company. Branch to disburse directly to the suppliers after obtaining quotations/invoices etc. within the limit prescribed in the estimated project, duly collecting the margins stipulated.

xiv) xv)

xvi)

29.11 In case of advances for import of second hand machinery Branch to ensure that all second hand machinery to be imported are to be supported by the certificate from independent and qualified technical person on suitability / condition / performance for 10-12 years or at least not less than that of the loan repayment period with us. This certificate to be obtained from technical person in India after the machinery is reached. Term Loan is to be disbursed only after obtaining this certificate. (FLC for import of machinery if requested shall be backed by 100% cash margin with the approval of Zonal Office) 29.12 Bank Guarantee i) ii) Branch shall not issue guarantee for disputed liability under the sanction. In such cases 100% cash margin shall be insisted upon. In case of BGs pertaining to Joint Ventures, branch shall submit copies of agreements between joint venture parties, P&C report on the joint venture parties and other relevant documents to Zonal Office and obtain permission before issuing such BGs. Branch shall issue bank guarantee in the approved format. Counter guarantee should be obtained as per guidelines. Progress report of performance shall be obtained periodically in case of performance guarantee.

iii) iv) v)

62

29.13 CBP/CUBD/SBP i) ii) iii) iv) Irrevocable power of attorney in favour of Bank shall be registered with the drawee for receiving payment by the bank. (For SBPs) Branch shall not purchase the cheques drawn by the sister concern / accommodation bills. Tenor of supply bill should be specified in the sanction letter. P&C report on the Drawee is to be obtained from the Banker in case of CUBD.

29.14 Foreign Currency Loan i) ii) iii) The above sanction is subject to availability of funds at the time of availment and roll over for every six months. The borrower shall cover the exchange risk for the principal amount towards the bullet payments plus interest. Interest rate would be based on LIBOR prevailing on the date of disbursement. The bank reserves the right to change the base rate to cover the cost of funds at the time of roll over. Transaction fee is to be collected upfront as per guidelines. This will be in addition to the normal processing charges that are required to be collected by the branch. Early repayment is permitted subject to a minimum lock in period of 3 months and any repayment will attract 0.5% penalty over the agreed interest rate. The foreign exchange business relating to our banks Foreign Currency Loan scheme shall necessarily be routed through our bank. Bank reserves the right to crystallize the foreign currency liability to rupee liability at any time subject to availability of funds and the conversion will be at TT selling rate prevalent on the date of crystallization and interest would be charged as per CRAS. FCL to be adjusted out of the export proceeds, advance remittances etc. (Natural hedge) or by forward cover.

iv)

v)

vi) vii)

viii)

29.15 Foreign Bank Guarantee i) The FBG shall be issued after examining MOU with joint venture partner, joint venture agreement and other related documents. Law officer shall approve the proforma. Branch shall ensure that first charge on fixed assets is ceded before issuing the FBG.

ii)

63

iii)

The advance received under the FBG should be deposited in a No Lien Account with us and the bank, in line with the cash flow statement submitted to us would regulate drawings from the account.

29.16 PC/FBP/FUBD/REBA i) P.C limit should be allowed against L.C./Confirmed orders only, and branch should ensure that P.C limit is availed only for the purpose of export. If exports are on sub contract basis, disclaimer letter through the banker of prospective exporter should be lodged with the bank. In all such cases branch to ensure that the out standings under packing credit is liquidated through export proceeds only. The export credit facilities shall be covered by the relevant ECGC cover. FDBP/FBP limits are to be allowed with ECGC buyer wise specific policy cover. Individual ECGC guarantee should be obtained for export facilities. End use of PCs is to be ensured. All RBI guidelines that are applicable to PCFC are also applicable for this sanction. FUBD/FDBP limits are to be permitted with specific ECGC Buyers policy in case they are availed with confirmed orders only.

ii)

iii) iv) v) vi)

29.17 Constituent wise Terms & Conditions i) Terms and conditions applicable to Public & Private Limited Company a) b) The company shall submit all the necessary resolutions required for approaching the bank for the credit facilities and also availing the same. The company shall file charges with Registrar of Companies within 30 days of documentation and get the same registered. During the currency of bank finance, the company shall not, without banks permission in writing (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) Effect any change in the companys capital structure. Formulate any scheme of amalgamation. Implement any scheme of expansion or acquire fixed assets. Make investments/advances or deposit amounts with any other concern. Enter into borrowing arrangements with any bank/FI/company. Undertake guarantee obligations on behalf of any other company. Declare dividends for any year except out of profits relating to that year. Change in composition of companys Board of Directors.

c)

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The sanctioning Authority should follow the restrictions on Borrowing powers of limited companies as enumerated in Para No.12.22 and 12.23 of Chapter 3 of 'Types of Constituents' of Manual of Instructions. ii) Consortium accounts a) The company shall route its transactions through proportionately. An undertaking is to be taken in this regard. our bank

b)

The company shall be allowed to avail the enhanced working capital limit only after total tie up of the assessed limits is completed. If the proposed limits are to be shared under consortium, the enhanced working capital limits shall be disbursed only after completion of joint documentation. In case where joint documentation is not immediately possible, disbursement of limits may be on individual documentation, on the basis of exchange of letters confirming Pari-passu charge after getting legal clearance subject to obtention of permission from competent authority. If this facility is being granted outside consortium and outside MPBF, NOC is to be obtained from other consortium members before release of limits. The company should restrict their operations to the members of the consortium. All other terms and conditions as stipulated by Leader Bank shall also be made applicable duly verifying that none of the terms and conditions stipulated by the leader of the consortium is detrimental to the interest of our Bank. Branch to obtain drawing power particulars from lead bank and allow drawings strictly based on drawing power. All other terms and conditions stipulated by term lender in their sanction hold good for our sanction also. Inspection of stocks and stock and receivable audit is to be undertaken as per consortium decision with regard to periodicity at borrower's cost. Branch shall exchange information with member banks and keep zonal office informed. The asset classification of member banks shall be obtained and informed to sanctioning authorities once in a year. Consortium meeting shall be held at least once in a quarter and the minutes are to be forwarded to sanctioning authority with recommendations on action to be initiated if any.

c)

d) e)

f) g) h) i)

j)

iii)

Partnership a) No partner shall withdraw his share of capital without prior consent of the bank.

65

b) c) d) e)

All the partners shall execute the loan documents in their personal capacity also. The partnership should not be reconstituted without the consent of the bank. Retirement of any partner would not absolve him from his personal liability or guarantee obligations. Interest on partners capital shall be subordinated to the payment obligation of the bank.

29.18 Communication of sanction to the party i) Wherever a credit limit is sanctioned, the sanction thereof should be communicated in writing to the concerned party. This should be done whether the limit is sanctioned by the Branch Manager himself under his discretionary powers or by a higher authority. There Should not, in any event be any delay in apprising the party of the limit sanctioned and the terms and conditions of sanction there on to him. The communication of sanction should be in the proforma given in the Annexure No XIV with the special terms and conditions, if any, suitably incorporated therein. The sanction letter should be signed by the branch manager. Sufficient number of copies should be prepared and used as follows. a) Two copies should be sent to the concerned party with an advice to return one copy, duly recording the acknowledgement of the borrower and the co-obligants/guarantors on the letter and acceptance of the terms and conditions of sanction stated therein. The limit should not be released until receipt of copy of the letter from the party, co-obligant/guarantor with his acknowledgement and acceptance recorded thereon. The copy, on its receipt, should be preserved along with the application form and other documents. b) One copy should be mailed to the concerned sanctioning authority. In respect of sanctions involving Rs. 5 lacs and above made by the Branch Managers of Scale IV & above under their discretionary powers, copy of sanction should be mailed to the respective controlling authorities along with ADA-1 (Annexure No: XV) & ADA-V (Annexure No: XVI) along with a copy of appraisal note annexed to the return 'Sanctions made during the month under the delegated powers of the Branch Manager' (BR-O7) on monthly basis. c) iii) One copy should be retained as Branch copy.

ii)

The original letters of sanction issued by the sanctioning authority or true/photo copies thereof should never be delivered to the parties as the letters of sanction

66

may contain many stipulations which are confidential in nature and are privy to the sanctioning authority and the branch alone. In case of Branch sanctions, the sanction letter should not contain any stipulations which are confidential in nature and privy to the Branch alone.

30.

Revalidation of lapsed sanctions

The sanctioned credit limit expires if not availed within a period of three months from the date of sanction, unless specified otherwise. Revalidation of such sanctions by the respective sanctioning authority is required before release of credit limits against such sanctions. In case of sanctions by the Management Committee, CMD (ED, in the absence of CMD), is empowered to revalidate such sanctions. The following conditions shall be satisfied before revalidating the sanction: i) ii) iii) iv) There is no adverse report against the borrower. Reasons for delay in availing the sanctioned facilities are genuine. No unfavorable changes have occurred in the means of the borrower. Assumptions made at the time of sanction still hold good.

31.
31.1

Cancellation/Curtailment of Limits
Cancellation/Curtailment of limits sanctioned to a borrower may have to be resorted to in pursuance of change in Bank's Loan policy or due to unfavorable signs in borrower's financial/business position, dealings etc. Cancellation/Curtailment of credit limits to a party can be done either as per the instructions of a higher authority or with specific permission from the controlling authority. Whenever a limit is cancelled/curtailed, the concerned borrower should be informed in writing with a request to immediately adjust or bring down the liability, wherever necessary. The fact of cancellation/curtailment should be noted in the computer system by changing necessary fields in the account master. It should also be noted on the relative letter of sanction under the signature of the Branch Manager with date.

31.2

31.3

31.4

32.
32.1

Change in Terms and Conditions of Sanction

After sanction of the credit limits, occasions may arise where the borrowers seek changes in the terms and conditions of sanction. Branches, whenever they receive such requests should carefully examine the need for entertaining the request. Except when there is an urgent and genuine need, request for change in terms and conditions of sanction should not be entertained.

67

32.2

The request for change in terms and conditions of sanction must be in writing, duly signed by the borrower and the co-obligant/guarantor, if any. The reasons for seeking change should be properly explained in the letter. After satisfying about the need, branches may refer the cases to the sanctioning authority through proper channel provided, i) ii) iii) There has been no adverse features in the dealings or financial position of the party concerned since the date of sanction/last renewal of the credit limits, Bank's interests are in no way jeopardized, and Basic assumptions made in the appraisal are not adversely affected.

32.3

32.4

While referring the cases to the sanctioning authority, branches should furnish information about, i) ii) iii) iv) Need for proposed change, Conduct of the account, Credit Rating of the borrower Latest liabilities in all the limits enjoyed by the party (both direct and indirect liabilities are to be given) Latest financial position of the borrower and co-obligant/guarantor, if any, Branch Managers should give their specific recommendations about the cases.

v) 32.5

Competent authority, depending upon the merits of individual cases, may consider requests for changes in terms and conditions of sanction. The guidelines/instructions issued by Head Office from time to time should be kept in view while dealing with the cases. Separate record should be maintained in this regard. On receipt of approval from the competent authority, the concerned borrower should be informed about the modified terms of sanction. Wherever necessary, the borrower should be asked to bring down/adjust the liability as per the modified terms. Similarly, depending on the necessity, suitable documents are to be obtained and other necessary formalities are to be completed to effect the modification. The modified terms of sanction should be communicated to the borrower and necessary changes should be made in the computer system. The procedure given in the above paragraph should also be followed whenever changes in terms and conditions of sanction are made consequent upon changes in loan policy or receipt of instructions from a higher authority.

32.6

32.7

33.
33.1

Sanction of Ad-hoc/Emergency Credit limits/Excess Drawals

At times, branches may receive requests for sanction of credit on ad-hoc/ emergency basis from parties.

68

i) ii)

who need a credit facility for a specific purpose without any need for regular facility, or who need new/additional limits pending sanction of regular limits

in such cases, branches may consider release of credit to deserving parties so as to enable them to meet their genuine and urgent credit requirements subject to the guidelines given in the following paras. 33.2 Emergency Powers: Sanction of Ad-hoc limits/excess drawals: Allowing Ad-hoc limits/ Excess drawals for the sanctions made by higher authorities: i) Ad-hoc limits: The powers for Ad-hoc Facility mentioned is for the sanctions made by the higher authorities to be exercised by Scale IV and above as per the powers delegated. Branch managers of Scale I, II, III have no powers to allow adhoc limits for the sanctions made by higher authorities except in case of 'A' and above rated MSME borrowers. ii) Excess Drawals: The existing powers for Excess Drawals for the sanctions made by any of the higher authorities can be exercised by all the sanctioning authorities. 33.3 Allowing Adhoc Facility/Excess drawals within the delegated powers of sanctioning authority upto and inclusive of Zonal Manager: The powers for allowing Adhoc facility/excess drawals within the delegated powers is up to 20% of the working capital facility sanctioned by field level functionaries up to and including Zonal Manager. Such Adhoc/Excess drawals shall be for a period not exceeding 3 months in respect of adhoc sanctions and 15 days in case of excess drawals. Normally such Adhoc limits shall not be allowed more than 3 times and excess drawings shall not be permitted more than 6 times during the validity period of limits. Request letter from the party specifying the purpose and time limit (should not be more than 15 days) shall be obtained. As per RBI guidelines an Adhoc limit is to be treated as NPA in case the Adhoc limit is not adjusted/not renewed within 180 days from date of Adhoc sanction. Hence, the Adhoc limit sanctioned shall be allowed strictly on merit and shall be regularized on or before due date either by adjustment or by considering the need based regular limits where the Adhoc limit is also reckoned. 33.4 Allowing Adhoc/excess drawals in excess of 20% of working capital facility Confirmation: The next level higher authority shall be the competent authority for confirmation of excess drawals/Adhoc limit allowed in excess of 20% of the working capital facility.

69

Sanctioning authority GM as Zonal Manager DGM as Zonal Manager DGM as 2nd level Official at ZO AGM/CM as 2nd level Official at ZO Branch Manager 33.5

Confirming authority Executive Director GM (Cr.) at HO GM as Zonal Manager DGM as Zonal Manager Zonal Manager

Allowing Adhoc Facility/Excess drawals within the delegated powers of General Manager (Credit) at HO & above: General Manager (Credit) at HO and above can allow Adhoc limits/excess drawals up to the delegated powers. It may be noted that the existing exposure and additional exposure by way of adhoc /excess drawals to a borrower together should not exceed the overall Aggregate Commitment per borrower delegated to the sanctioning authority and the same should be in accordance with the loan policy guidelines and other exposure norms in force. Adhoc limits and excess drawals are not permissible for SOD limits sanctioned against Real Estate. The concept of adhoc limits is also not applicable for non-funded limits. However, in case of genuine necessity, additional limits may be considered within the delegated powers by the respective sanctioning authorities. Conditions to be satisfied: i) ii) iii) iv) v) The account is standard and performing The conduct of the account is satisfactory This facility shall be given to borrowers who are already enjoying regular sanctioned limits. Excess drawals are subject to availability of Drawing Power. There shall not be any irregularity or overdues in any of the credit facilities of the borrower. There shall not be any deviation or lapse from the terms and conditions of sanction and branch should have sent the certificate of compliance of sanction terms and conditions to the sanctioning authority. Permission from the Competent Authority for release of sanctioned credit facilities should have been obtained for limits of Rs. 1 crore and above. The sanction should be current and account not overdue. The due date of ad-hoc /excess drawal should not be after the due date of the regular limits. The adhoc/excess drawal sanctions are applicable only in case of operative facilities both fund and non-fund based viz. Cash credit, overdraft, bills and not term loans / Deferred Payment Guarantee, BG and LC.

vi) vii)

70

viii)

Both adhoc and excess drawals should not be allowed simultaneously. Sanctioning authority may allow only one of the following facilities i.e. either Adhoc limit or excess drawals at any point of time. Frequent drawals above assessed limit shows deficiency in appraisal and financial indiscipline and hence should be discouraged and reappraisal done in such cases. Adhoc limits/excess drawals attract 1% additional interest and is subject to change from time to time. The adhoc credit facility/over drawings sanctioned shall be allowed strictly on merit and shall be adjusted on or before due date either by adjustment or by considering the need based regular limits where the Adhoc limit is also reckoned. The sanction of adhoc facility/over drawings within the discretionary powers of the field level functionaries does not require confirmation of higher authorities. However, these shall be reported along with monthly sanctions to higher authorities for review in ADA IX (Annexure No: XVII) & ADA X (Annexure No: XVIII). If excess drawals are allowed beyond discretionary powers of branch manager duly filled in Compliance Certificate should be kept on record. Before releasing funds, branches should obtain appropriate documents, duly executed by the applicant, co-obligant/guarantor. In respect of secured limits, the usual procedure for obtention of security should be followed. Where no sufficient security is available to cover the funds released, the drawals should be treated as clean/unsecured advances for the purpose of determination of exercisable powers.

ix)

x) xi)

xii)

xiii) xiv)

xv)

33.6

Recording, Reporting and Reviewing: i) Adhoc limits: All advances sanctioned/granted under adhoc powers at ZO/Head office, shall be recorded in a specified register called the Register of adhoc powers exercised (as per the format ADA - IX) (Annexure No: XVII) under the authentication of the official exercising the powers. The register should be maintained both at the sanctioning authoritys level as well as by the branch. At branch level, the register covering the adhoc sanctions allowed by various authorities should be maintained. The authority allowing the adhoc limit should report to the next higher authority giving the reasons thereof, in the monthly report of sanctions made, along with a copy of the appraisal note. The branch should make entries of adhoc sanctions in the Limits Sanctioned Register also.

71

ii)

Excess drawals: The excess drawings resulting from the monthly debit of interest may not be treated as excess drawings if adjusted within 7 days. The Branch Manager may exercise the delegated powers for over drawings, over and above the interest debited during this period. The excess drawals allowed should be entered into a separate Register of excess drawals allowed (as per ADA-X - Annexure No: XVIII). At controlling office and Head Office, the register will contain the excess drawals permitted by the authorities. At branch level, the register will contain all the excess drawals allowed by various authorities. Excess drawals allowed within the discretionary powers of an authority should be reported to the next higher authority for review, on a monthly basis. If not reported, the powers stand suspended and may be considered for reinstatement by the next higher authority, after review. It is the responsibility of the Branch Manager allowing the excess drawal to get the same repaid within the specified time. In case the excess drawal is not adjusted within the due date, then it should be referred to the authority who has permitted the excess drawal for further action. In case the excess drawal is permitted by the Branch Manager himself, then it should be referred to the next higher authority for further action.

34.

Oral or Telephonic Sanctions/Permissions

Oral sanctions should not be given.

35.

Sanction Commitments (In principle sanctions)

Branches should not commit themselves to sanction limits or issue 'In Principle Sanction' letter without deliberating adequately or examining all aspects of a proposal. The lending policy of the bank and the bankability of the proposal should be kept in view while issuing the letters of commitments or 'In Principle Sanctions'. Where the sanction of the proposed limits is likely to fall within the powers of higher authority, approval from the concerned authority should also be obtained before issuing the letters of commitments or "in Principle Sanction'.

36.
36.1 36.2

Rejection of Credit Proposals

A credit proposal may be rejected due to credit restrictions or as per the specific instructions of a higher authority. A credit proposal may also be rejected for the reasons such as: i) Past dealings of the party with the Bank are not satisfactory,

72

ii) iii) iv) 36.3

Project/activity not considered feasible, Party's experience in the line of activity/business does not inspire confidence, Credit rating of the party is not of required standard.

In case of credit proposals pertaining to export, Small Scale Industries and SC/ST borrowers of all categories of advances, decision to reject a proposal for any reason should be referred to the next higher authority so that a fresh look could be taken on the matter. Without obtaining approval from the next higher authority, the decision regarding rejection of the proposal should not be communicated to the concerned party. The rejected export credit proposals shall be brought to the notice of the concerned credit department at Head Office. In all other categories of credit proposals, the sanctioning authorities under whose discretionary powers the proposal falls are permitted to decline the proposals and convey the decision to the applicant immediately with reasons for such rejection. The declining of a proposal shall be communicated to the applicant in the bilingual format English and Local language. The sanctioning authorities at all levels should maintain a record of proposals received/declined. The details of such declined proposals should be reported to the next higher authority once in a month for review. The declined proposals with fund/non-fund based limit of upto Rs. 50,000/- in case of priority sector including government-sponsored scheme shall be grouped and consolidated amount is shown. The under given guidelines should be followed with regard to rejection of proposals. i) For proposals falling within the powers of a branch, the branch manager is the competent authority to take a decision to reject a proposal. When he decides to refuse a proposal, he should send the entire file to the immediate controlling authority, duly furnishing the reasons for declining the proposal. For proposals falling within the powers of Zonal Office, the Zonal Manager is the competent authority to take a decision to reject a proposal sent to him for sanction. When he decides to reject a proposal, he should write a letter to Head Office setting forth the details briefly and the reasons for rejecting the proposal. The file of the party need not be sent to Head Office. Whenever, the matter concerning rejection of a proposal is referred to the controlling authority, for its approval, the controlling authority should take a fresh look at the matter and review the decision of the forwarding branch/office. The views/comments on the decision should be conveyed to the forwarding branch /office. In respect of cases referred by branches, the files of the parties should be sent back to the concerned branches. On receipt of approval from the controlling authority, branches should advise rejection of proposal together with reasons thereof to the concerned party. Where communication of rejection is to be sent in writing, branches may send the communication in .the following proforma.

36.4

ii)

iii)

iv)

73

ANDHRA BANK __________________Branch No _______________ Place ____________ Date ____________

Dear Sir/Madam, Re: Your application dated ________________for sanction / enhancement of Credit Limit (s) of Rs _________________________

We gave full and mature consideration for your application cited above. We regret to inform you that the proposal does not suit the bank in view of (1) technical feasibility, (2) economic viability and (3) operational difficulties (state the appropriate reason as applicable to the case). Thanking you, Yours faithfully, Manager. v) vi) Where the controlling authority does not approve rejection of a proposal, the forwarding branch / office has to reconsider the proposal. Proper record of the credit proposals rejected should be maintained by branches /Zonal Offices. Branches should make use of column nos. from 11 to 20 in the 'Register of Credit Applications Received and Disposed of' for recording the particulars of credit proposals rejected. Zonal Offices may also make suitable provision in the registers maintained for entering particulars of credit proposals received, to note details of rejection of proposals.

36.5

The guidelines given under the above paragraph are applicable even for cases where proposals for enhancement of limits are rejected.

37.
37.1

Consortium advances
Entry Norms: The entry norms relating to take over advances as laid down in our Loan Policy shall be applicable to fresh advances being taken up in a consortium arrangement also.

37.2

Appraisal and the assessment of credit requirements: We may prefer for a joint appraisal of the project and assessment of credit requirements. In case it has already been done by lead Bank/Institution we shall obtain the copy of appraisal note of Lead Bank and assess the credit requirements independently. If there are large variations as per the assessment of Lead Bank and our Bank, we shall go by our assessment and keep the Leader Bank informed. 74

37.3

Regulatory Classification: As per RBI Guidelines, Asset classification of accounts under consortium should be based on the record of recovery of the individual member banks and other aspects having a bearing on the recoverability of the advances. The process notes shall throw light on the asset classification of member banks and if any bank has classified the asset as NPA, the reasons for such classifications shall be spelt out in the process note.

37.4

Details of meetings: As per the spirit of consortium, meetings among the member banks are to be conducted once in a quarter to discuss the issues involved and also on follow-up and monitoring of the advance. If there is delay in conducting meetings, the matter shall be taken up with the Leader Bank to ensure meetings are conducted regularly. The details and out come of such meetings, Joining of new member banks and leaving of existing member banks in consortium shall be discussed in the appraisal note.

37.5

Attending Consortium Meetings: With regard to the periodical meetings in respect of consortium advances, the following guidelines shall be ensured: i) In all consortium accounts where we are the leader the respective zonal office shall take initiative to conduct the meeting once in every quarter and in other cases where we are members, we should follow up with the leader of the consortium for convening the consortium meetings every quarter. All consortium accounts, where we are the leader, the consortium meetings shall be chaired by Zonal Manager/DGM/AGM of the respective zone. All other consortium accounts, wherein we are participating members, the meetings shall be attended by Zonal Manager or any other senior official viz., AGM/Chief Manager from Zonal Office along with the branch officials. In cases of consortium accounts sanctioned by HO, copies of the minutes shall be sent to the C&IF Department at Head Office, together with the view of the zonal office and action to be initiated based on consortium decisions. Zonal offices shall keep a record of the consortium meetings held and submit a half-yearly report on the date of the consortium meeting, names of the officials attended in respect of each such account.

ii) iii)

iv)

v)

37.6

Limits enjoyed by the Borrower/Group Concerns under consortium from banking system: The process note shall contain the details of funded and non funded limits enjoyed by the constituent with consortium/group concerns from Banking System, regulatory classification by member banks and details of meetings held.

75

Full details of Funded and Non funded limits enjoyed by the borrower and percentage of share of each bank under the consortium arrangement is to be obtained and recorded in process notes. Efforts should be made to obtain full information as expeditiously as possible and however the proposal shall not be delayed for want of the same. 37.7 Not to allow limits outside consortium: In this regard, it is to be ensured that no facilities are to be allowed outside the consortium without permission from the consortium. 37.8 Rate of interest: In case of consortium accounts where our Bank is leader, CRAS/CRS of our Bank should be adopted. In case of consortium accounts where we are member, interest rate shall be charged by consortium leader or as per our rating. However, in case of consortium leader or any member charges a lower rate, we may fall in line subject to sanction from competent authority. 37.9 Terms and conditions: The terms and conditions regarding margin, securities etc shall be in Line with our Loan Policy in case of all consortium advances whether as a member or as leader of the consortium. In case the terms and conditions stipulated by the Leader Bank are at a variance with our Loan Policy, impact of the same shall be reviewed in relation to the risk perception involved in the proposal. In case it is felt that some additional and / or modified terms and conditions are required to be stipulated to safe guard Banks interest it shall be stipulated in the sanction and informed to the leader bank. 37.10 Creation of second charge on fixed assets/ joint documentation: Joint documentation among participating Banks/financial institutions and documentation relating to creation of second charge shall be executed expeditiously without any delay, in the IBA approved formats, which are available with law Officers in controlling Offices and legal Department at HO. Any alteration/modifications, if need be, in the form and content of IBA approved formats can be done only in consultation with Legal Department, Head office. In case where Joint documentation is not immediately possible, disbursement of limits may be on individual documentation on the basis of exchange of letters confirming paripassu charge after getting legal clearance subject to obtention of permission from competent authority i.e. Zonal Manager. In all such cases, 1% additional interest shall be charged if the joint documentation is not executed within 3 months. The copies of documents evidencing creation of equitable mortgage, in case of collateral securities held by the consortium, should be obtained and kept on record.

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37.11 Monitoring: i) Though in case of consortium advances, the joint monitoring of the account is common and integral feature of consortium spirit, the sanctioning authority / controlling office / Branch shall not rely solely on joint monitoring only. Apart from joint inspection of Units, review of periodical statements like Stock statements / MSOD / QIS / financial statements etc., shall be done by the Bank independently so that early warning signals, if any, are picked up by us independently also and not through consortium route only. Branches should monitor the account by way of exchanging information with other member Banks and ensure that there are no adverse features in the operations of the account with us as compared to the operations of the party with other member Banks. It shall be ensured by the Branches / controlling offices that where we are the leaders as far as possible a consortium meeting is arranged at least once in a quarter to monitor and review the account.

ii)

iii)

37.12 Exit: If a consortium advance shows persisting signs of sickness, the same shall be discussed by the Branch / Controlling office in the consortium meeting to take immediate remedial action to safe guard our interest. In case there is no improvement in the affairs, the Bank may decide its own future course of action and convey the same in the consortium meeting and proceed. In case Leader Bank / other member Banks are not serious about taking remedial steps to set right things, we may proceed on our own and need not depend on the Leader Bank / member Banks consent for initiating recovery proceedings including withdrawing from the consortium. In case of accounts where consortium arrangement ceases because of borrowers preference or other circumstances, we shall prefer the modified system of assessment proposed and individual documentation would be obtained. 37.7 Lead Bank charges: As a normal Banking practice Leader Banks collect service charges whenever they act as leader bank of consortium advances. These charges are recovered in consideration of discharging the duties of lead bank functions. We shall charge lead bank charges @ 0.20% of total fund and non-fund based limits subject to a maximum of Rs 5.00 lacs per annum. However, it may be relaxed by the sanctioning authorities in case of advances falling in the powers of Head Office and by GM (credit) at Head Office in case of advances falling in the powers of branches/ZOs.

38.

Multiple Banking
Where more than one bank disburses credit to a borrower and security is charged to all the banks that have disbursed credit but separate documents are obtained by each bank.

77

38.1

Entry norms: Norms as applicable to single Banking / Consortium Banking advances shall be applicable in multiple Banking advances also.

38.2

Appraisal and assessment: The appraisal of the project and the assessment of credit requirements shall be done by us independently. The Loan shall not be released unless the entire credit requirements of the party are tied up with regular sanctions from other Banks/Institutions except with the prior permission of GM (credit) and above at HO.

38.3

Terms and conditions: i) NOC shall be obtained from other Banks. Depending upon the risk perception in each proposal, terms & conditions shall be stipulated as per our Loan Policy and delegation of powers. In the case of multiple Banking advances, there is no formal arrangement/ agreement among the participating Banks/ institutions. In the absence of a formal agreement among concerned Banks, the charge may be available in the order they are registered with ROC. Hence Branches should obtain a tripartite agreement in case of advances where the securities involved are common for all the Banks / Institutions involved.

ii)

38.4

Monitoring: The account should be monitored independently. However, information from other Banks also may be collected as a part of monitoring to ensure that there are no undesirable features in the operations / status of the borrowal account.

38.5

Exit: In case there are persisting undesirable features in an account, we may take an independent decision about the future course of action for recovery of our dues. However, we may keep other Banks informed.

39.
39.1

Line of Credit
Eligibility: Any Scheduled Commercial bank /financial institutions may be sanctioned Line of Credit.

39.2

Assessment : The requirements may be assessed based on the financial position / level of operations of the Scheduled Commercial Bank and the financial position of the foreign Bank relating to their operations in India.

78

39.3

Eligibility norms: i) ii) iii) iv) v) vi) Line of credit can be fund and/or non fund limits. It should be scheduled commercial bank/financial institution with satisfactory net worth and shall satisfy capital adequacy norms of RBI. It should have satisfactory track record and market reports. The overall financial position shall be satisfactory. The level of NPAs has to be reasonable. The performance of bank/financial institution shall be satisfactory.

39.4

Terms and Conditions: The sanctioning powers shall be at Head Office only. i) ii) iii) iv) All the terms & conditions as per Loan Policy and delegation of Powers shall be stipulated in these advances also. The credit risk management systems prevailing in the applicant Bank shall be ascertained to assess the risk perception in the proposal. The Line of credit sanctioned under this scheme shall constitute a part of our overall prudential off-Balance sheet exposure. The credit facility shall be sanctioned within the statutory / RBI guidelines, if any, applicable to the applicant Bank.

39.5

Monitoring: A condition is to be stipulated in the sanction that to ensure proper utilization of the Line of credit we may call for necessary information at the time of review /renewal.

40.
40.1

Photographs of Applicants
Individuals applying for credit under any of the following categories of advances should submit two passport size copies of their latest photographs along with the application forms. i) ii) iii) Weaker Section Advances Service Sector Advances Agricultural Term Loans

The two copies of photographs are to be used as under: One copy should be firmly pasted on the relative credit application form. The Bank's round stamp should be affixed on the photograph in such a manner that a part of the stamp appears on the photograph and the remaining part on the 79

application. Manager/Sub-Manager of the branch should sign in full on the bottom portion of the photograph with date. The other copy should be preserved carefully till sanction and disbursement of credit. Thereafter, it should be affixed in the concerned folio of Field Inspection Book. The following types of applicants, who do not fall under any of the above mentioned categories, should submit one of their latest photograph in passport size. i) ii) iii) Illiterate Persons Blind Persons Persons applying for Direct Agricultural Credit, by way of crop loans/cash credits, with limits not exceeding Rs. 5000/

The photograph should be pasted on the relative credit application with the Bank's round stamp affixed thereon in the manner described in the above paragraph. Manager/SubManager of the branch should sign in full in the bottom portion of the photograph with date. 40.2 Depending upon necessity, branches may also obtain two passport size copies of photographs from persons applying for small loans such as clean loans, personal loans etc., to help identification of parties at a future date. The photograph copies, where obtained, should be used in the same manner described under the above paragraph. Weaker section beneficiaries may be reimbursed the cost of photographs on sanction of the credit limits applied for. Branches may reimburse an amount, not exceeding Rs.5/on production of original bills by the concerned parties. The charges so reimbursed should be debited to P&L A/c. Miscellaneous and the relative details should be noted in the concerned debit voucher and in the system through Menu.

40.3

41.
41.1

General Aspects
While considering proposals for advances, preference may be given to people who are helping the Bank in mobilization of deposits or by giving deposits in their own names or in the names of their relatives, friends, allied institutions etc. Particulars of deposits received by the branch either from the applicant or through him should be furnished in the credit proposal. While giving the information, full particulars regarding the amount, nature of the deposit, due date and name of the depositor should be given. HOWEVER, BRANCHES SHOULD ENSURE THAT ALL THE PRESCRIBED NORMS ARE DULY COMPLIED WITH IN SUCH CASES. THE EAGERNESS TO SECURE OR RETAIN DEPOSITS SHOULD NOT DILUTE QUALITY OF LENDING IN ANY MANNER WHATSOEVER. While forwarding credit proposals to higher authorities for sanction, branches should submit only copies of application forms. The original application forms should be retained by branches on their record. On sanction and disbursement of credit, the original application forms should be enclosed to the relative document set. 80

41.2

41.3

While granting credit facilities, stipulations such as keeping part of the amount of advance as deposit in the bank should not be made as such a stipulation would result in under financing and may adversely affect the very viability of the project/activity financed. The applicants/borrowers and the staff members of the Bank should never be used as couriers for carrying credit proposals to controlling/ Head Office as such a practice not only results in wastage of manpower but also creates unnecessary pressure on the concerned sanctioning authority, impairing proper analysis of the proposals. Depending upon the urgency involved in individual cases, branches may utilise speed-post/courier services for despatch of proposals to the sanctioning authorities, Similarly, sanctioning authorities should never deliver letters of sanction directly to the customers on the plea of saving delays. Should there be any urgency with regard to communication of a particular sanction, sanctioning authorities should make their own arrangements to convey the sanction immediately so that the customers are not put to any inconvenience. Where an applicant writes directly to the controlling authority/ Head Office seeking sanction of any credit facility, the matter will be referred to the concerned branch for consideration on merits. However, mere reference of such proposals by the controlling authority/Head Office does not involve any definite commitment on the part of the Bank. As such. Branches should subject such proposals to normal scrutiny and credit appraisal. Cases which are found sound on relative merits, may be referred in the normal course to the sanctioning authority for consideration.

41.4

41.5

42.
42.1

Branch and Controlling Office Sanctions Reporting and Review

Branch Sanctions: For all credit limits, fund/non-fund based, irrespective of the quantum of limits sanctioned under the discretionary powers of Branch Managers except advances against bank deposits and gold ornaments and for the proposals rejected by the branch, the following procedure shall be adopted. i) A register under the title Register of advances sanctioned under the discretionary powers of the Branch Manager in the format as per ADA-I shall be maintained. Format of the Register is given as Annexure No: XV. A copy of the register shall be sent to the controlling offices on a monthly basis, along with the copies of sanction letters, appraisal notes, for review. However, for sanctions made by branches headed by of SMGS IV and above, photo copy of appraisal notes including endorsement of the sanctioning authority and sanction letter copy shall be sent for sanctions involving fund/non-fund based limits of Rs. 5 lakhs and above to Controlling Offices. Branches headed by Managers upto Scale III are exempted from submitting copies of sanction letters and appraisal notes along with the ADA-1 for sanctions involving credit limits, fund or non-fund based upto Rs.50,000/- in respect of priority sector loans and advances including Government sponsored schemes. Each sanction shall be serially numbered while reporting in ADA-I. 81

ii)

iii)

iv) v)

The serial number shall commence from No. 1 from April 1, of every year and end as at the end of March 31, next year. The serial number shall be carried forward from one month to the other such that at any point of time, the number of sanctions made during the financial year (except deposit loans and gold loans) is known. The above procedure (as mentioned in 3,4,5) shall also be followed for proposals declined by the branch and these are to be shown separately in the ADA-I The pages in the register shall be serially numbered. Every month a separate page should be started and each page is authenticated by the credit officer/senior manager.

vi) vii) viii)

Every branch shall also send a consolidated data of sanctions made by them in a month in proforma ADA-V (Annexure No: XVI) which must include all sanctions made under the discretionary powers of the Branch Manager including deposit loans and gold loans. The statement of ADA-I & ADA-V shall be submitted to controlling offices on or before 10th of succeeding month. Failure to report the sanctions before the end of the succeeding calendar month will automatically cancel the discretionary powers of the concerned and the powers may be considered for restoration by the competent authority only after the submission of the return and submitting satisfactory explanation for the delay. Such instances may attract disciplinary action. 42.2 Review of Branch Sanctions by Zonal Office: Zonal Offices have to follow the under mentioned procedure while reviewing the statements of monthly sanctions reported by branches in ADA-I & ADA V and also while reviewing the sanctions of IInd level official at Zonal Office by Ist level authority at Zonal Office. The letter communicating the observations of the reviewing authority to the sanctioning authority shall state that: i) ii) "The monthly sanctions (consolidated statement) have been reviewed subject to the observations mentioned therein." "The sanction has been reviewed subject to the observations mentioned therein" in respect of individual sanctions reported for review.

In case, if there are no observations, the letter shall state that "Statement of monthly sanctions/ the sanctions have been reviewed" 42.3 Sanctions by Controlling Offices Reporting Controlling Offices/Credit departments at Head Office should maintain the Credit Proposals received/pending/sanctioned/declined/reviewed proposals register (ADA VIIIA) and Register of Credit proposals sanctioned/reviewed/declined (ADA VIII B) 82

43.
43.1

Guidelines for sanction of Loans and advances to Charitable Trusts

Application for advance: Every application should invariably be accompanied by a Copy of the trust deed duly attested by all the trustees and a copy of the resolution, duly covering the terms and conditions on which credit is required, nature of security offered, duration of credit and persons authorized to execute the documents, etc., passed, and signed by all the trustees. The same has to be examined with reference to the Trust Deed to ensure that the resolution is passed in conformity with the provisions in the Deed. The Trust Deed shall be studied carefully to ensure that the borrowing is strictly in conformity with the Deed, the Deed expressly permits borrowings by trustees, prescribes the mode and form of borrowings, whether any limitations are imposed on the borrowing powers of trustees.

43.2

Registration of Trusts: i) ii) The Charitable Trust shall be registered under the Trust Act, 1982 or the Wakfs Act, 1954. The Trust also shall be registered as per Section 12 (A) of the Income Tax Act. Loans advances to Registered Charitable Trusts shall be extended only after clearance of dues to the IT Dept., if any.

43.3

Securities to be offered by Charitable Trusts: If moveable or Immoveable properties of Charitable Trusts are offered as security for advances, it is advisable to insist on statutory clearance. In the absence of express provisions in the Trust Deed to the contrary, trustees have no implied powers to borrow in the name of the Trust and bind the trust property. Even in cases where the trust deed permits borrowing by trustees on behalf of the Trust, no borrowing, which contravenes the provisions of the trust deed, shall bind the trust property.

43.4

Personal Guarantees of all the Trustees: In the absence of agreement to the contrary, the trustees are not personally liable for the debts of the Trust. As a matter of abundant precaution, personal guarantee of all such persons who are acting as trustees shall be insisted upon to secure the limits.

43.5

Approval: Approval fro sanction of limits to Trust Borrowers shall be obtained from Head Office.

43.6

Operational Aspects: While allowing the operations in the account, branches should be guided by the laid down procedures as per Manual of Instructions as applicable to Trust Deeds.

*****

83

Annexure No: I (Para No: 4)

Andhra Bank
______________ Branch

Register of Credit Applications Received and Disposed of

Date of Receipt 1 Sponsoring Agency 7 Serial No. 2 Initials Name and address of the applicant 3 Purpose Nature of facility required 5 Amount Rs. 6

Particulars of Disposals Sanctioned Forwarded to Higher Authority Date Amount Date Ref No. Remarks 9 10 11 12 13
If the application is declined, reasons If the application is pending, reasons Initials Remarks / Follow up

Communication from higher authorities

Date of Receipt Ref No. Whether sanctioned / declined. If sanctioned, amount

14

15

16

17

18

19

20

84

Annexure No: II (Para No: 5.1) Proforma of Acknowledgement for receipt of application pertaining to Weaker Section Advances. ANDHRA BANK ______________________Branch Date: ______________ a) b) c) Serial Number of Application: Category: Name of the Applicant:

Received Acknowledgement Date: Signature of applicant.

--------------------------------------------------Perforation----------------------------------------------------Acknowledgement for receipt of applications pertaining to "Weaker Section Advances"

Andhra Bank
________________________ Branch Date _____________ Serial Number of the application: a) b) c) Name of the Applicant: Village: Category of Weaker IRDP Section Advance: SC/ST SF/MF DRI Artisans, Village & Cottage Industries GSY/SJSRY/SLRS/SHG (including NGOs) etc. Name of the scheme, if any: Serial Number of the Application: Time frame within which the Applications shall be disposed: Loans upto Rs. 25,000 = Fortnight Loans above Rs.25,000 = 8 to 9 weeks Signature of Officer/Manager

d) e) f)

85

Annexure No: III (Para No: 5.1)

Proforma of Acknowledgement for receipt of application for advance other than Weaker Section Advance ANDHRA BANK ______________________Branch Date: ______________ Acknowledgement for receipt of Applications for' Other Advances' a) b) c) Serial Number of Application: Category: Name of the Applicant:

Received Acknowledgement. Date: _____________ Signature of applicant.

---------------------------------------------------------Perforation----------------------------------------------------Acknowledgement for receipt of Applications for' Other Advances' (other than Weaker Section Advances) Andhra Bank __________________ Branch Serial Number: To ______________________ Dear Sir, Sub: Your proposal for sanction of credit facilities. We acknowledge having received your proposal for sanction of credit facilities today. It is our endeavor to communicate a decision on your proposal within _____ days from the date of this letter. The proposal will be considered on its merits and that there is no commitment from the Bank at this stage. In case you do not receive any letter of communication regarding the fate of your application from the branch, you may contact the branch and/or Zonal Office. If the delay is more than ____ days from the date of submission and even after your contacting the Branch Manager you are free to contact Zonal Office/ Head Office. The addresses of our controlling offices are given below: Zonal Office Head Office Date ____________

Thanking you, Yours faithfully, Officer/Branch Manager.

86

ANNEXURE No: IV (Para No: 14.5(i) ANDHRA BANK ______________Branch CREDIT INFORMATION FORM 01 02 Name of the Party Constitution Individual / Proprietary / Partnership / HUF / Pvt. Ltd. Co. / Public Ltd. Co. / Trust / Association / Others.

03 04 05 06

Date of establishment Main business Other business, if any Address:Factory Tel No. OWN : Registered Office: LEASED :

Tel No Branch

Fax No.

Tel No: 07 Address of Godown where stocks stored/to be stored:

Fax No

Tel No. Own Leased

08 09 10

Sale Tax Registration No. Shop and Establishment Valid upto: License No. Importer/Exporter code No.

87

Name of the proprietor / Partners / Directors

Local Residential address & Tel. No.

Staying at Present address since

Present Accommodation Owned / Rented

Cell/Mobile No.

Passport No.

E-Mail address

Permanent address

Pin Code: Tel No.

Pin Code Tel No.

Pin Code: Tel No.

Pin Code Tel No.

Pin Code: Tel No.

Pin Code Tel No.

Pin Code: Tel No.

Pin Code Tel No.

Pin Code: Tel No.

Pin Code Tel No.

Pin Code: Tel No.

Pin Code Tel No.

88

12

Share holding pattern: Name of the Director/Partner 1) 2) 3) 4) _______% of shareholding / Capital _______% of shareholding / Capital _______% of shareholding / Capital _______% of shareholding / Capital

13

References with whom enquiries can be made: Name and Occupation Residential Address

Business address

Tel/Cell/Mobil e No.

14

Bank account details: (Give details of Bank account in respect of Partners / Directors
/ Firm / Co)

Account holder's Name

Type of account and Account Number

Name of the bank with which account is maintained

Present balance

Account since when maintained

15 16

Whether any credit facilities availed Yes If yes, details of credit facilities availed / availing: Name of Bank & Branch Nature of facility Limit Outstanding

No Brief comments on the conduct of the account

89

17

Whether any guarantee given: If yes, details of guarantee: Given for Period of individual/firm guarantee name

Yes Amount of guarantee Bank/FI to whom guarantee given

No Present status of guarantee

22

Total value of fixed assets of the company/firm Book value as on___________ Details of immovable properties in own/joint names Nature of property In the name of Area/Location of property Survey No. Village/Town/City District Pin Code Cost price Present market value Whether free from encumbrance Total Outside Liabilities: Total Contingent liabilities:

23

24

In support of information given above, I/We enclose: Balance Sheet, Profit & Loss account, Trading account, capital account (Audited / Unaudited) Copies of income tax/wealth tax return/assessment order Copies of Rent receipt/Property tax receipt etc. I/We hereby declare that: There is no litigation against me or the firm/company in which I am the proprietor / partner or a director. The name of the firm/company or the name of partner/proprietor/director of the firm/company is not on the caution/defaulters list of RBI/ECGC. I/We solemnly declare that the above information is completely true and correct to the best of my knowledge and belief and we undertake that any change therein will be informed to the bank. Date: ____________ Signature (Affix rubber stamp containing name and Designation)

90

Annexure No: V (Para No: 14.5(ii))

ANDHRA BANK
__________________ BRANCH CREDIT INVESTIGATION REPORT 1. 2. 3. 4. Name of the Borrower: Constitution: Line of activity: Address:

Individual/Proprietary/Partnership/Trust/HUF/Ltd Co.

Registered Office / Residence

Factory

Phone No: E-Mail: 5.

Phone No: E-Mail:

Details of Associate/Sister/Group concerns dealing with our Bank & Other Banks / FIs: (Rs in lacs)
Name of the Name of concern & the address Bank Outstandi Facility Limit ngs as on ____ Over dues Asset Classification /Credit Rating Sanctioning Authority

6. 7.

Other liabilities of the Individual/Proprietor/company/directors/partners: Has the borrower stood as Co-obligant/Guarantor for any loans to any bank/FI. If so, furnish full details: Net Worth:( Brief report on the means of individual/Proprietor/Partners/Directors): Business capabilities: BUSINESS ABILITY Capable Experienced Incapable Inexperienced BUSINESS CONDUCTED Prudent Steady Conservative Overtrade Speculative BUSINESS REPUTATION Shrewd Honest Tricky Dishonest CONDITION OF BUSINESS Sound Progressive Stagnant Declining

8. 9.

91

10.

Details of Fixed assets (nature of property / location / owners name / approximate value):

11.

How the borrower came to our fold?

12.

Market opinion about the borrower: (Also furnish source of information) Prime Excellent Very good Good Satisfactory Average Poor

Observations of Credit Investigation Officer: 1. 2. 3. 4. Date: _____________ CREDIT INVESTIGATION OFFICER BRANCH MANAGER

Remarks of Sanctioning Authority / Zonal Manager: 1. 2. 3. On dealings of the party; their associate /group concerns; Partners/Directors and guarantor with our bank / other banks / FIs. Remarks on the Findings of the Credit Investigation Officer. On verification of Defaulters/Willful Defaulters List of RBI, Defaulters List (Suit filed category) placed on the website of CIBIL/ECGC SAL List/Caution List of RBI. Any other remarks.

4.

Date: ________________ Sanctioning Authority / Zonal Manager ------------------------------------------------------------------------------------------------------------------NOTE: 1. In case of limited companies, Public or Private, records with the Registrar of companies to be searched and full details regarding Capital, earlier charges, names of Directors etc., to be obtained. Reports on the means of Individual/Proprietor/Partners/Directors etc., should be collected and included in this report as far as possible. BEFORE SIGNING THIS REPORT, BRANCH MANAGER / SANCTIONING AUTHORITY / ZONAL MANAGER IS EXPECTED TO SATISFY HIMSELF / HERSELF ABOUT THEIR ACCURACY FROM INDEPENDENT SOURCES.

2. 3.

92

Annexure No: VI (Para No: 22.3(i)(a)) RATING FOR MSME / RETAIL TRADE / SMALL BUSINESS CATEGORY (Applicable to loans of above Rs. 2 lacs to Rs. 5 lacs) A. BUSINESS RISK
T i c k T i c k T i c k

Parameter 1. Business acumen 2. Qualifications 3. Past record

Column A High Qualified Excellent loan repayment record > 3 years No controls from Govt / Municipal authority Systematically maintained Prompt

Column B Medium Trained Satisfactory Loan repayment record 1 to 3 yrs Some Controls exists Maintained to some extent Delay by a Fortnight

Column C Low Nil Not availed loan

4. Age of the Unit 5. Controls/Restrictions

<1 year or new Many Controls Not maintained Delay beyond a Fortnight

6. Maintenance of the books / Accounts 7. Submission of Stock Statement, Payment of interest and installments 8. Availability of Own shop / Availability of long lease 9. Stake of the Party 10. Deposit patronage / Other business support 11.Residency 12.Competition 13.Repayment period for term loan 14.Type of Assets created out of loan TOTAL Marks No. of crosses Total Marks

Own Shop business establishment available More than 50% Good

Shop/Business Establishment available on long lease Between 25 to 50% Satisfactory

Not available

Less than 25% Nil

More than 5 years Low competition Less than 48 months Fixed Assets

2 to 5 years Medium Competition 48 to 60 months Movable assets

<2 years Very High competition Above 60 months No assets

93

B.

SECURITY RISK 100% & above Available 4 25 to 100% --3 < 25% or nil Not available 1

1. Collateral security 2. Co-obligation/ Guarantors Marks Total Crosses Total Marks C.

SUMMARY OF MARKS FOR VARIOUS PARAMETERS Parameter Maximum Marks Maximum Marks for Applicable points (3) Marks secured Normalized marks For 100 Col (4) / Col (3) *100 (5)

(1) (A) Business Risk

(2) 42

(4)

(B) Security Risk

Total

50

D.

ALLOTMENT OF CREDIT RATING Grade CR --01 CR02 CR03 CR04 CR---05 CRA Rating Excellent Very Good Good Satisfactory Poor Marks Secured 90% & ABOVE 75% to < 90% 60% to < 75% 40% to < 60% 40% and below

OTHER POINTS: 1. 2. The above model is applicable to limits of Rs. 2.0 lacs & above and upto Rs.5.0 lacs (fund and non-fund based). The above model is only for arriving the credit rating. Interest rate as applicable to slab rate for type and category of advance as communicated from time to time shall be charged. New Proposals can be sanctioned only if a total score of above 40% is secured. The rating shall be done at the time of sanction and also at the time of every renewal in case of Working capital limits. The sanctioning authority shall finalize the rating basing on the above parameters. If any of the parameters are not applicable, then scoring shall be finalized for the remaining parameters excluding those parameters not applicable.

3. 4. 5. 6.

94

Annexure No: VII (Para No: 22.3(i)(b)) RATING FOR PROFESSIONAL & SELF EMPLOYED CATEGORY A. BUSINESS RISK
Parameter Column A T i c k Medium Trained Satisfactory Loan repayment record 1 to 3 yrs Some Controls exists T i c k Column C T i c k

1. Business acumen 2. Qualifications 3. Past record

4. Age of the Unit 5. Controls/Restrictions

6. Maintenance of the books / Accounts 7. Payment of interest & instalments 8. Availability of Own shop / Availability of long lease. 9. Stake of the Party 10. Deposit patronage/Other business support 11. Residency 12. Competition 13. Repayment period for term loan 14. Type of Assets created out of loan TOTAL Marks No. of crosses Total Marks

High Qualified Excellent loan Repayment record > 3 years No controls from Govt./ Municipal authority Systematically maintained Prompt

Low Nil Not availed loan <1 year or new Many Controls

Maintained to some extent Delay by a Fortnight

Not maintained Delay beyond a Fortnight Not available

Own Shop business establishment available More than 50% Good More than 5 years Low competition Less than 48 months Fixed Assets

Shop/Business Establishment available on long lease Between 25 to 50% Satisfactory 2 to 5 years Medium Competition 48 to 60 months Movable assets

Less than 25% Nil <2 years Very High competition Above 60 months No assets

95

B.

SECURITY RISK 100% & above Available 4 25 to 100% --3 < 25% or nil Not available 1

1. Collateral security 2. Co-obligation/ Guarantor Marks Total Crosses Total Marks C.

SUMMARY OF MARKS FOR VARIOUS PARAMETERS Parameter Maximum Marks Maximum Marks for Applicable points (3) Marks secured Normalized marks For 100 Col (4) / Col (3) *100 (5)

(1) (A) Business Risk

(2) 42

(4)

(B) Security Risk

Total

50

D.

ALLOTMENT OF CREDIT RATING Grade CR --01 CR02 CR03 CR04 CR05 CRA Rating Excellent Very Good Good Satisfactory Poor Marks Secured 90% & ABOVE 75% to < 90% 60% to < 75% 40% to < 60% 40% and below

OTHER POINTS: 1. 2. The above model is applicable to limits of Rs.2.0 lacs & above and upto Rs.5.0 lacs (fund and non-fund based). The above model is only for arriving the credit rating. Interest rate as applicable to slab rate for type and category of advance as communicated from time to time shall be charged. New Proposals can be sanctioned only if a total score above 40% is secured. The rating shall be done at the time of sanction and also at the time of every renewal in case of Working capital limits. The sanctioning authority shall finalize the rating basing on the above parameters. If any of the parameters are not applicable, then scoring shall be finalized for the remaining parameters excluding those parameters not applicable.

3. 4. 5. 6.

96

Annexure No: VIII (Para No: 22.3(i)(c)) RATING FOR RTO CATEGORY A. BUSINESS RISK:
Parameter Column A T i c k Column B T I c k Column C T i c k

1. Experience as RTO 2. Qualifications 3. Past record

> 5years Qualified Excellent loan Repayment record > 3 years More than 3 vehicles Systematically maintained Prompt

3 to 5 years Trained Satisfactory Loan repayment record 1 to 3 yrs 2 to 3 vehicles Maintained to some extent Delay by a Fortnight Shop / Business Establishment available on long lease Between 25 to 50% Satisfactory

< 3years Nil Not availed loan

4. Age of the Unit 5. No of vehicles owned 6. Maintenance of the books / Accounts 7. Payment of interest & instalments 8. Availability of Own shop / Availability of long lease. 9. Stake of the Party 10.Deposit patronage / Other business support 11.Residency 12.Competition 13.Repayment period for term loan 14.Staff employed

<1 year or new No vehicle Not maintained

Delay beyond a Fortnight Not available

Own Shop business establishment available More than 50% Good

Less than 25% Nil

More than 5 years Low competition Less than 48 months Adm. Office with Appointed drivers.

2 to 5 years Medium Competition 48 to 60 months Self & appointed driver

<2 years Very High competition Above 60 months Self driven

TOTAL Marks No. of crosses Total Marks 3 2 1

97

B.

SECURITY RISK 100% & above Available 4 25 to 100% --3 < 25% or nil Not available 1

1. Collateral security 2. Co-obligation/ Guarantor Marks Total Crosses Total Marks C.

SUMMARY OF MARKS FOR VARIOUS PARAMETERS Parameter Maximum Marks Maximum Marks for Applicable points (3) Marks secured Normalized marks For 100 Col (4) / Col (3) *100 (5)

(1) (A) Business Risk

(2) 42

(4)

(B) Security Risk

Total

50

D.

ALLOTMENT OF CREDIT RATING Marks Secured CR --01 CR02 CR03 CR04 CR05 CRA Rating Excellent Very Good Good Satisfactory Poor Grade 90% & ABOVE 75% to < 90% 60% to < 75% 40% to < 60% 40% and below

OTHER POINTS: 1) 2) The above model is applicable to limits of Rs.2.0 lacs & above and upto Rs.5.0 lacs (fund and non-fund based). The above model is only for arriving the credit rating. Interest rate as applicable to slab rate for type and category of advance as communicated from time to time shall be charged. New Proposals can be sanctioned only if a total score of above 40% is secured. The rating shall be done at the time of sanction and also at the time of every renewal in case of Working capital limits. The sanctioning authority shall finalize the rating basing on the above parameters. If any of the parameters are not applicable, then scoring shall be finalized for the remaining parameters excluding those parameters not applicable.

3) 4) 5) 6)

98

Annexure No: IX (Para No: 22.3(ii)(a)) CREDIT RISK ASSESSMENT OF THE BORROWAL ACCOUNT (Where audited Balance Sheet is available)
(Applicable for advances with credit limits of Rs.50.00 lacs and above) Name of borrower: (A) MANAGEMENT RISK FACTORS: COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E Poor Poor 3 years & Below Poor Poor xxxxxx 1.0 xxxxxx xxxxxx 20 0.0
COLUMN E

*Reference Year:

Cross

Cross

Cross

PARAMETER

Management/G roup reputation Management succession Dealing of the borrower/sister concerns with our bank Track Record (unit and or group accounts as a whole) Transparency

Cross

Excellent Excellent Above 10 years

Very good Very good Above 8 & upto 10 years Very Good Very good xxxxxx 4.0 xxxxxx xxxxxx 3.0

Good Good Above 5& upto 8 years Good

Average Average Above 3 & upto 5 years

Excellent

Average

Excellent

Good xxxxx xxxxx xxxxx 2.0

Average xxxxxx xxxxxx xxxxxx

Total Crosses xxxxxxxx Multiplying xxxxxxxx factor Marks xxxxxxxx obtained Total Marks obtained (Column A+B+C+D+E)

Maximum Marks

(B) INDUSTRY & UNIT RISK FACTORS:

COLUMN A COLUMN B COLUMN C COLUMN D Cross Cross Cross Cross Cross

PARAMETER

Industry Cycle Competition, forecast & Market Risk Technology (for Mfg. & Processing) and Product Characteristics (for trade

Excellent No competitio n Excellent

Very Good Less Competi tion Very Good

Good Average Competitio n Good

Satisfact ory Medium Competit ion Satisfact ory

Poor Heavy Competi tion Poor

99

Cross

advances) Regulatory Excellent position Retention of Excellent profits within the unit Total Crosses xxxxxx Multiplying xxxxxxx factor Marks xxxxxx obtained Total Marks obtained (Column A+B+C+D+E)

Very Good Very Good xxxxxx

2.0 xxxxxx 1.5

Good Good

Satisfact ory Satisfact ory xxxxxxx

1.0 xxxxxxxx 0.5

Poor Poor

xxxxxx
xxxxxx

xxxxxx
xxxxxx 0

xxxxxx

xxxxxx Maximum Marks

xxxxxxx

xxxxxx 10

(C) FINANCIAL RISK FACTORS: (a) Net Sales/contract receipts / (Rs. in gross receipts lacs) (Reference year -31.03 .____) Projection (X) Net Sales achieved (Y) Achievement (%) {(Y/X)*100} *

Parameter

Marks

Cross

Achievement above 90% 5 Achievement above 80% & upto 90% 4 Achievement above 70% & upto 80% 3 Achievement above 50% & upto 70% 2 Achievement 50% & below 0 Reference year represents the year, performance of which is taken as the base for the CRA purpose. Previous year is the preceding year with reference to the reference year. Parameter More than 8% More than 6.5% to 8% More than 5% to 6.5% More than 3.5% to 5%. Lowest Risk Score Low Risk Score Medium Risk High Risk Score Highest Risk score Caution Score Marks 7.5 6.0 4.5 3.0 2.0 0 Marks 7.5 6.0 4.5 3.0 2.0 0 Cross Cross

(b) Profit after tax to Net Sales (Mfg. Units) Indicator Reference Year 31.3. __ Net Sales Profit after tax (excluding other/Misc. income) Profitability % (PAT*100)/Net sales

More than 1% to 3.5% 1% and below.

(b) Profit after tax to Net Sales (others) Indicator Reference Year 31.3. ___ Net Sales Profit after tax (excluding other/Misc. income) Profitability % (PAT*100)/Net sales

Parameter More than 5% More than 4% to 5% More than 3% to 4% More than 2% to 3%. More than 1% to 2% 1% and below Lowest Risk Score Low Risk Score Medium Risk High Risk Score Highest Risk score Caution Score

100

(c) Solvency (TOL/TNW) Indicator Tangible Net Worth (TNW) Total Outside Liabilities (TOL) TOL/TNW 31.3.

All other borrowers 2 and below 2.01 to 4.00 4.01 to 5.00 5.01 to 6.00 6.01 to 7.00 7.01 & above Limits over Rs.6.0 crores 1.33 & above 1.25 to <1.33 1.20 to <1.25 1.15 to <1.20 Less than 1.15

Marks Cross 10 8 6 4 2 0 Marks Cross

Traders 2 and below 2.01 to 4.00 4.01 to 6.00 6.01 to 9.00 9.01 & above Limits up to Rs.6.0 crores 1.25 & above 1.15 to <1.25 1.13 to <1.15 1.10 to <1.13 less than 1.10

Marks 10 8 6 4 0 Marks

Cross

(d) Liquidity (Current Ratio) Ref. Year - 31.3. ______ Minimum acceptable Current ratio (1.15 or 1.33) Current Ratio

Cross

10 8 6 3 0 31.03.

10 8 6 3 0 Marks 7.5 6.0 4.5 2.0 0 Marks 2.50 2.00 1.50 1.00 0 Cross

(e) Interest Coverage Indicator Actual Interest Coverage Ratio: Net Profit before Interest, Tax & Depreciation Interest (f) Inventory Turnover (Others) Indicator Inventory turnover ratio Inventory *(RM+WIP+FG) x 12 Net Sales Reference Year 31.3.

Parameter 4.00 & above Above 3.00 to<4.00 Above 2.00 to<3.00 Above 1.00 to<2.00 Below 1

Parameter Upto 1.50 months above 1.50 above 2.00 above 3.00 above 6.00 upto 2 months upto 3 months upto 6 months months

Cross

*(RM=Raw Material, WIP=Work in progress FG=Finished Goods) (f) Inventory Turnover (Fabrication, Seasonal industries) Indicator Reference Year 31.3. __ Inventory turnover ratio Inventory*(RM+WIP+FG) x12 Net Sales Parameter Upto 2.00 months above 2.00 above 3.00 above 4.00 above 6.00 upto 3 months upto 4 months upto 6 months months Marks 2.50 2.00 1.50 1.00 0 Cross

*(RM=Raw Material, WIP=Work in progress FG=Finished Goods) (g) Receivables Collection Period Indicator Reference Year 31.3. Receivables Collection period Receivables x 12 Net Sales Parameter 3 months & below Above 3 upto 4 months Above 4 upto 5 months Above 5 upto 6 months Above 6 months Marks 2.50 2.00 1.50 1.00 0 Cross

101

(h) Debt Service Coverage Ratio Indicator Debt Service Coverage Ratio: (Existing TLs & where TL & working capital limits co-exists) Net Profit + Interest on TL+ Depreciation Interest on TL + TL Instalment

Reference year 31.03.

Parameter Above 2.00 Above 1.80 upto 2.00 Above 1.60 upto 1.80 Above 1.50 upto 1.60 Above 1.40 upto 1.50 Below 1.50

Marks 2.50 2.00 1.50 1.00 0.50 0

Marks

Cross

(i) Debt/Equity Ratio

(Existing TLs & where TL & working capital limits coexists)

MSME advances

Marks Cross

All other advances

Cross

<=2.00 Lowest risk 2.50 <=1.50 Lowest risk > 2.00 to 2.50 Low risk 2.00 >1.50 to 1.75 low risk > 2.50 to 3.00 Medium 1.50 >1.75 to 2.00 risk Medium risk > 3.00 to 3.50 High 1.00 >2.00 to 2.25 High Long Term Liability risk risk > 3.50 to 4.00 0.50 >2.25 to 2.50 Net worth Highest risk Highest risk > above 4.00 Caution 0 > 2.50 risk Caution score *Net worth = Share Capital + Free Reserves intangible assets like patents, good will pre-operative expenses, accumulated losses and bad & doubtful debts not provided for. i) Financial Risks not transparent (Negative Marks) Parameter The impact of auditors comments and off balance sheet items on net worth/profitability is more than 30%. The impact of auditors comments and off balance sheet items on net worth/profitability is more than 15%. The impact of auditors comments and off balance sheet items on net worth/profitability is more than 5% The impact of auditors comments and off balance sheet items on net worth/profitability is less than 5% j) Unhedged Forex Risks (Negative Marks) Parameter Unhedged forex exposure of the borrower to total forex exposure is more than 75% Unhedged forex exposure of the borrower to total forex exposure is more than 50% to 75%. Unhedged forex exposure of the borrower to total forex exposure is more than 25% to 50%. Unhedged forex exposure of the borrower to total forex exposure is more than 5% and upto 25% Unhedged forex exposure of the borrower to total forex exposure is below 5%. MAXIMUM SCORE FINANCIAL RISK FACTORS 50

2.50 2.00 1.50 1.00 0.50 0 preliminary &

Marks (-) 5 (-) 3 (-) 2 0

Cross

Marks (-) 5 (-) 4 (-) 3 (-) 2 0

Cross

MAXIMUM SCORE FOR APPLICABLE POINTS

SCORE SECURED

102

(D) OPERATIONAL EXPERIENCE: PARAMETER COLUMN - A Submission of Most regular stock statement /QIS/renewal proposal Allotted score 3 Repayment of Most regular interest and instalment Allotted score 4 PARAMETER Collateral Security coverage (incl. Govt. guarantee, surplus 2nd charge) Allotted score Personal guarantee of directors (in case of companies) Co-obligation from 3rd party (in case of proprietary/ Partnership firms) Allotted score Operational experience in Cash Credit and Non Fund accounts. (In case of divergence in operational experience between cash credit and non fund limits, lower score applicable to either of them is to be adopted. COLUMN - A Above 50%

COLUMN - B Regular with delay

COLUMN - C Irregular but submitted

COLUMN - D Highly irregular and not submitted 0 Over dues are persisting 0 COLUMN - D No collateral security

2 Regular with delay 3 COLUMN - B 25% to 50%

1 Irregular but paid 2 COLUMN - C Below 25%

5 Available ----

4 ------

0 Not available

5 Liability not exceeded DP or limit. Adhoc/excess drawals are adjusted as per sanction terms. Meeting all commitments on time and no BG/LC devolvement.

Allotted score Total Marks Maximum allotted marks

---Liability exceeded limit occasionall y but within DP. Adhoc/ excess drawals are mostly adjusted as per sanction LC/ BG devolved but paid with-in 15 days from the date. 2

----Liability exceeded frequently but regularized. Adhoc/excess drawals adjusted with some delay. LC/BG devolved but paid after 15 days.

0 Liability exceeded without DP frequently. Adhoc/excess drawals adjusted after long delay. LC/BG Devolvements not paid.

20

Total marks scored (Columns A + B + C +D)

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(E) SUMMARY OF MARKS FOR VARIOUS PARAMETERS: Parameter Maximum Maximum Marks Marks for applicable (Col.1) points (Col.2) (A) Management Risk Factors (B) Industry & Unit Risk Factors (C) Financial Risk Factors (D) Operational Experience Total 20 10 50 20 100 Applicable Spread

Marks secured (Col.3)

Normalized marks Col.3 ------- X Col.1 Col.2

(F) APPLICABLE RATE OF INTEREST: Marks secured Credit Grade Rating Acceptable Credit Rating:

Cross

Interest applicable

Above 95% A+++ Prime >90 to 95% A++ Excellent >80 to 90% A+ Very good >70 to 80% A Good >60 to 70% B Satisfactory >40 to 60% C Average Unacceptable Credit Ratings: 40% & Below D Poor Spread as NPA accounts D1 Substandard (SSA) applicable to are classified D2 Doubtful (DA) C rating shall under this rating be applied D3 Loss (LA) category Once the borrower account migrates to C grade on risk rating scale, subsequent sanction of renewal/enhancement of limits shall be by one level higher to the sanctioning authority. Similarly, once the borrower account migrates to D grade on risk rating scale, subsequent review & renewal of limits shall be done by one level higher to the sanctioning authority. On migration of C & D rated borrower accounts to B grade & above, the respective sanctioning authorities can consider renewal/enhancement of limits with in their delegated powers. Once the assets slips into NPA category, it shall be classified as SSA or DA or LA, as the case may be based on RBI guidelines on age wise classification of NPA accounts and interest applicable to C rating for the sector of credit shall be charged in shadow account. Present CRA Rating Rate of Interest Proposed Date: Date: Branch Manager/ Senior Manager (Credit), ZO

Processing Officer

ZO & HO sanctions: The Credit rating assessed/arrived by the dealing Official who processed the note is reviewed and confirmed Credit Rating of __________by the credit committee in the meeting held on___________________ and recommended the same to sanctioning authority. Date ______________ Sanctioning Authority Sanctions made by Branch & IInd level official at ZO: The Credit Rating assessed/arrived which is accepted by the sanctioning authority is reviewed and Credit Rating of _____________is confirmed. Reviewing Authority

104

APPLICABILITY OF VARIOUS PARAMETERS OTHER GENERAL GUIDELINES: 1) CRAS is applicable for accounts with aggregate fund and/or non fund credit limits of Rs. 50.00 lacs and above (other than rice mills) under industry, business /trade/ agriculture. Where the party has applied/availing limits both for agriculture and nonagricultural activities, the size of loan shall be decided separately for each category of advance. In case of agricultural advances, the size of loan shall be arrived separately for short term production credit and others (Working Capital and Term Loan). In respect of Agricultural advances Rs. 5.00 lacs & above to firms/corporate borrowers shall be credit rated and advances of Rs.25 lacs and above to individual/non-corporate borrowers shall be rated. In respect of export/import credit proposals, CRAS exercise should be done; however rate of interest as stipulated by RBI/Bank from time to time be charged. The CRAS exercise is to be undertaken along with fresh limits / renewal / enhancement / review of the accounts. A+++ and A++ Grades shall be assigned only in exceptional cases by an authority not below the rank of General Manager (Credit) at Head Office. Sanctioning authority is to decide the exact rate within the range, depending upon the market conditions. No mark should be assigned under a parameter, which is not applicable to a borrower. In such cases, the percentage of marks should be arrived at on the basis of total marks secured out of maximum marks allotted for the parameters applicable to that borrower. Marks for the various parameters should be on the perceptions of the branch manager/sanctioning authority, if actuals are not available. MANAGEMENT RISK FACTORS a. Management/Group Reputation: (Marks 4) Following parameters shall be examined: i) ii) iii) iv) Whether the proposal is from a specific group having more than Rs.100 crore turnover. Whether all units belonging to the group are profit earning during the past three years. Whether the entire group accounts are standard with their banks. Whether credit report of group concerns from their banks are satisfactory.

2)

3)

4)

5) 6) 7) 8)

9)

105

If all the answers for all the above four parameters are positive, the group shall be rated as Excellent. If all parameters are positive except that of group turnover, the group shall be rated Very Good. Some of the group concerns do not perform well and the group turnover is less than Rs.100 crores, but they are standard with satisfactory credit reports of their bankers, it shall be rated as Good. If all parameters are negative except that of Group accounts are Standard Accounts; it shall be rated as Average If all the answers for all the above four parameters are negative, it shall be rated as poor. b. Management Succession: (Marks 4) Excellent Very Good Good Average Poor c. : : : : : Professionally Managed for generations. Third generation and Professionally qualified. Second generation and Professionally qualified. First generation and Professionally qualified. Not Professionally qualified personnel.

Dealing with our bank / dealing of sister concerns with our bank (Marks 4) Defined in the format itself.

d.

Track record (Marks 4) Excellent: 1. 2. 3. 4. 5. Achieves sales projections and maintains financial discipline. Repayments to lenders are excellent. Record of meeting commitments to statutory/creditors/depositors is excellent. No defaults in group companies. The integrity and character of the management is beyond reproach, and on no occasion has any unsatisfactory feature of the management come to light.

Very Good: 1. 2. 3. 4. 5. Achieves sales projections except for unexpected external factors. Repayments to lenders are satisfactory. Record of meeting commitments to statutory/creditors/depositors some times delayed but no default occurred. Group companies are not doing well but the management is co-operating in reviving / settling them. Integrity and character of the management are reliable & adverse features about management are not noticed.

106

Good: 1. 2. 3. 4. Sales projections not achieved but this is a short-term phenomenon. Repayments delayed but account continues to be a standard asset. Payment of statutory / lenders / creditors / deposits delayed on several occasions but not Defaulted. The full history of the management is not available, but the management is reportedly reliable and is of good integrity. Features revealed by reports on conduct of accounts/stock audit / inspectors remarks etc., do not indicate doubtful integrity and there are apparently no adverse reports about the integrity of the management promoters.

Average: 1. 2. Poor: 1. 2. 3. e. Wide variations in achieving sales Projections. Accounts are frequently irregular, diversion of sales proceeds through other banks Group accounts are irregulars and their loans are treated as substandard / doubtful assets. Sales projections not achieved with 15% variation. Accounts often irregular but continue to be a standard asset.

Transparency (Marks 4): Excellent: 1. 2. 3. 4. Promptly furnishes information as required by bankers. Consistent in following key accounting norms and other standard practices as prescribed by ASCI. Prompt in finalization of balance sheet and filing of returns with all statutory Authorities. Reports about the management in the market/regulatory/industry circles are highly positive.

Very Good: 1. 2. 3. 4. Good: 1. 2. Some delay in furnishing information as required by bankers. Finalization of Balance sheet and filing of returns with statutory authorities are done with some delay. Mostly information is furnished as required by Bankers. Mostly consistent in following accounting norms as prescribed by ASCI. Finalizes balance Sheet and files returns with all statutory authorities within the stipulated time. Reports about the management in the market/regulatory/industry circles are positive.

107

f.

No adverse reports about the unit in market/regulatory/industry circles. Satisfactory: 1. 2. 3. Submits information after long delay and on insistence. Finalization of Balance sheet and filing of returns with statutory authorities are done after long delay. There could be some rumours of adverse features / reports about the unit in market/regulatory/industry circles but these are not fully substantiated.

Poor: 1. 2. Non-submission/ Prolonged delay in submission of information Adverse features/reports about the unit. B. INDUSTRY & UNIT RISK FACTORS a. Industry cycle: (Marks 2) Excellent: 1. 2. 3. Long term prospects of the industry are excellent Fairy stable industry cycles. Industry cycle on the upswing.

Very Good: 1. 2. Good: 1. 2. Long term industry outlook stable but for some critical factors. Industry cycle on the upswing. Long-term Industry & Outlook prospects stable. Modest Industry cyclicality.

Satisfactory: 1. 2. 3. Poor: 1. 2. Industry in the start up or declining phase. Long term outlook uncertain. Susceptible to unfavourable changes in the economy. High degree of cyclicality. Cycle on the down swing.

108

b.

Competition, forecast & market risk: (Marks 2) No Competition : 1. 2. 3. 4. 5. Product reserved for MSME sector or monopoly (single producer) or oligopoly (few producers). High entry barriers into the industry. Company is one of the leading players or has exclusive niche market or brand equity. Does not depend on one or few buyers. Has a range of products.

Less Competition: 1. 2. 3. 4. 5. 6. 7. Few large players in the market. There are some barriers to entry. Company is one of the top players. Has an established brand, which is well received. Has a share, which is steadily growing apace with the industry growth rate Has a large area of operation. Has adequate orders on hand.

Average Competition: 1. 2. 3. 4. Virtually no entry barriers. Company is one of the average players. Competition heating up but by and large demand exceeds supply. Adequate orders in hand.

Medium Competition: 1. 2. 3. 4. 5. Supply exceeds demand. Recession in the market. Insufficient Orders in hand. Depends on few buyers. Company / firm has a minor share but has some regional brand equity. Market share is declining. Limited area of operation.

Heavy Competition: 1. 2. 3. C. Industry has a problem of oversupply and / or low capacity utilization. Recession in the market. Depends on one or very few buyers. The company/ firm is an insignificant player with no distinguished product.

Technology (Marks 2) Excellent: 1. Company keeps updated with latest Technologies.

109

2. 3. 4.

Company has the strategic vision for technological up gradation to avoid obsolescence. Company has the necessary R&D facilities or tie up with other agencies where the technological requirements are of high order. Machinery is in Good condition.

Very Good: 1. 2. 3. Technology proven. Not subject to any vast changes in the medium term. Company can bring in the necessary technological changes as and when necessary. Maintenance of Plant & Machinery is satisfactory breakdowns have not affected production schedules.

Good: 1. 2. Technology is likely to undergo changes which could affect the company/ firm. Plant & Machinery requires repairs frequently which may effect production schedules.

Satisfactory: 1. 2. 3. Poor: 1. 2. c. Technology is outdated or technology subject to very fast obsolescence or technology is as yet untried and untested. Severe threat of substitute products. Product innovations are changing the face of the industry. There are improved versions of the technology available. Capacity utilization is not satisfactory/low.

Product characteristics (in case of trade advances) (marks 2) Excellent: Long term prospects of the goods in trade are excellent Very Good: Long term outlook of the products traded is good. Good: Long term outlook of the products traded is stable but there are critical factors. Satisfactory: The products traded in are susceptible to unfavourable changes in the economy.

110

Poor: Products traded in belong to industries in the start up or declining phase. d. Regulatory position: (marks 2) Excellent: 1. 2. No restrictions on export of products and expansion of capacity. Business not affected by the regulatory framework. All environment/pollution related clearance has been obtained.

Very Good: 1. 2. Good: 1. 2. 3. Demanding environment, labour and regulatory scenario. Regulatory environment can be problematic if company does not take care. Profitability has not been affected by the regulatory scenario. Regulatory and legislative issues create some vulnerability but potential impact on the company is not significant. The issues can be tackled appropriately.

Satisfactory: Legal, labour or regulatory environment problematic. Can deliver shocks affecting the viability of the company. Poor: Not able to cope up with the labour/regulatory/legal environment. e. Retention of profits: (marks 2) PARAMETER More than 75% of profit retention More than 50% and upto 75% retained More than 25% and upto 50% Retention upto 25% of profit In case of loss making and not retaining profits FOR AGRICULTURAL PROPOSALS Industrial cycle is to be substituted by Industry prospects (Comments on cropping pattern, monsoon pattern, drought/flood situation) Excellent: Long-term prospects of the industry are excellent RATING Excellent Very Good Good Satisfactory Poor

111

Very Good: Long term sector/industry, outlook stable. Good: Long term out look stable but for some critical factors. Satisfactory: Susceptible to unfavourable changes in the economy. Poor: Long term outlook uncertain. C. FINANCIAL RISK FACTORS a. Net Sales/Contract Receipts/Gross Receipts Achievement with reference to projection is stipulated here. In the case of accounts being taken over from some other bank or for fresh entering into consortium, projected figures can be ascertained from copies of MSOD, QIS returns submitted to the applicants bankers. S. No. 1. 2. 3. 4. 5. b. Parameter Achievement above 90% Achievement above 80% & upto 90% Achievement above 70% & upto 80% Achievement above 50% & upto 70% Achievement 50% & below Marks 5 4 3 2 0

Profit after tax to net sales It establishes the relationship between net profit after tax and net sales. Net profit is taken after excluding other income/miscellaneous income. It indicates the management efficiency in manufacturing, administering and selling the products. It represents overall profitability of the firm/company. Separate parameters are laid down for manufacturing units and others based on which score has to be awarded. MANURACTURING UNITS Parameter Profit after tax to net sales is more than 8% Profit after tax to net sales is more than 6.5% to 8% Profit after tax to net sales is more than 5% to 6.5% Profit after tax to net sales is more than 3.5% to 5% Profit after tax to net sales is more than 1% to 3.5% Profit after tax to net sales is 1% and below.

S.No. 1. 2. 3. 4. 5. 6.

Marks 7.5 6.0 4.5 3.0 2.0 0

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S.No. 1. 2. 3. 4. 5. 6. c.

OTHERS Parameter Profit after tax to net sales is More than 5% Profit after tax to net sales is More than 4% to 5% Profit after tax to net sales is More than 3% to 4% Profit after tax to net sales is More than 2% to 3%. Profit after tax to net sales is More than 1% to 2% Profit after tax to net sales is 1% and below.

Marks 7.5 6.0 4.5 3.0 2.0 0

Solvency Ratio (TOL/TNW) Total outside liabilities (TOL) comprises term liabilities and current liabilities. Tangible Net Worth (TNW) includes Paid up Capital plus Free Reserves minus Intangible Assets like patents, good will, preliminary & preoperative expenses, accumulated losses and bad & doubt full debts not provided for. Higher the total debt equity ratio higher the risk and lower ratio indicates less dependence on out side borrowings. All other Borrowers 2 and below 2.01 to 4.00 4.01 to 5.00 5.01 to 6.00 6.01 to 7.00 7.01 and above Marks 10 8 6 4 2 0 Traders 2 and below 2.01 to 4.00 4.01 to 6.00 6.01 to 9.00 9.01 & above Marks 10 8 6 4 0

d.

Liquidity Ratio (Current Ratio) Current Ratio is the indicator of the short term liquidity. It helps in measuring the liquidity and solvency of a company. It is indicated as ratio of current assets to current liabilities. Norms for limits of over Rs.6.00 Crores. 1.33 & above 1.25 to <1.33 1.20 to <1.25 1.15 to <1.20 Less than 1.15 Marks 10 8 6 3 0 Norms for limits upto Rs.6.0 crore. 1.25 & above 1.15 to <1.25 1.13 to <1.15 1.10 to <1.13 less than 1.10 Marks 10 8 6 3 0

e.

Interest Coverage Ratio The ratio indicates the number of times the gross earnings cover the interest payable. It is an indicator of the measure of comfort provided by the cash accruals generated from the operations of the company. Higher the ratio, more the cushion available. Lower the ratio more risk in meeting the interest commitments.

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S.No. 1. 2. 3. 4. 5. f)

Parameter 4.00 & above Above 3.00 to < 4.00 Above 2.00 to < 3.00 Above 1.00 to < 2.00 Below 1

Marks 7.5 6.0 4.5 2.0 0

Inventory Turnover Ratio Inventory constitutes raw material, work in process, finished goods etc. The ratio is arrived by dividing Inventory by average monthly Net sales to arrive at inventory levels in number of months. Lower the ratio, the faster the movement of inventories and Higher the ratio slower the movement of inventories. It also indicates the time taken to replenish the inventories. Separate parameters are laid down for fabrication units & seasonal industries (maintaining peak level inventories as at March) where operating cycle is longer compared to other businesses and others as under:

S.No. 1. 2. 3. 4. 5.

OTHERS Parameters Upto 1.50 months above 1.50 months upto 2.00 months above 2.00 months upto 3.00 months above 3.00 months upto 6.00 months. above 6.00 months.

Marks 2.50 2.00 1.50 1.00 0

S.No. 1. 2. 3. 4. 5. g)

FABRICATION & SEASONAL INDUSTRIES Parameters Upto 2.00 months above 2.00 months upto 3.00 months above 3.00 months upto 4.00 months above 4.00 months upto 6.00 months above 6.00 months

Marks 2.50 2.00 1.50 1.00 0

Receivables Collection Period: The Receivables collection period is expressed in number of months. Lower the collection period indicates efficiency in realization of receivables. Higher the collection period the more is the risk in realization of receivables.

S.No. 1. 2. 3. 4. 5.

Parameter 3 months & below Above 3 upto 4 months Above 4 upto 5 months Above 5 upto 6 months Above 6 months

Marks 2.50 2.00 1.50 1.00 0

114

h)

Debt Service Coverage Ratio Debt Service Coverage Ratio indicates the company ability to service the interest and instalments for the term loans. Higher ratio indicates, the ability of the company to service the debt. Lower the DSCR, higher the risk in servicing the debt. This ratio is applicable for existing term loans and where term loan & working capital co-exist. S.No. 1. 2. 3. 4. 5. 6. Parameter Above 2.00 Above 1.80 upto 2.00 Above 1.60 upto 1.80 Above 1.50 upto 1.60 Above 1.40 upto 1.50 Below 1.50 Marks 2.50 2.00 1.50 1.00 0.50 0

i)

Long Term Debt Equity Ratio Long Term Debt equity ratio is arrived by dividing Long Term Debt by Net Worth. The ratio is applicable for existing term loans and where TL & working capital limits co-exists. Higher the Long Term Debt Equity Ratio higher the risk and lower ratio indicates less dependence on Long Term borrowings. MSME advances <=2.00 Lowest risk > 2.00 to 2.50 Low risk > 2.50 to 3.00 Medium risk > 3.00 to 3.50 High risk > 3.50 to 4.00 Highest risk > above 4.00 Caution risk Marks 2.50 2.00 1.50 1.00 0.50 0 All other advances <=1.50 Lowest risk >1.50 to 1.75 low risk >1.75 to 2.00 Medium risk >2.00 to 2.25 High risk >2.25 to 2.50 Highest risk > 2.50 Caution score Marks 2.50 2.00 1.50 1.00 0.50 0

i)

Financial Risks non transparent: There are certain risk factors, which may not be transparent from the figures provided in the financial statements. These risks can be visualized from the off balance sheet items in the form of court cases, contingent liabilities (corporate guarantees given, claims against the company not acknowledged as debt, claims against liabilities under sales tax, excise duty/disputes) etc. Besides, Auditors Report also point out qualifications and adverse features on the operations like non provision of expenses, recognizing income which is not accrued and on accounting policies in respect of valuation of inventories, capitalization, depreciation, revaluation etc. The above risks forming part of off balance sheet items and qualification of the auditors on the financial statements will have impact on the net worth and profitability of the company on crystallization/invocation of the liabilities. Therefore, negative marks shall be assigned based on the impact on profitability / financials of the company in Risk Gradation.

115

Parameter The impact of auditors comments and off on net worth/profitability is more than 30%. The impact of auditors comments and off on net worth/profitability is more than 15%. The impact of auditors comments and off on net worth/profitability is more than 5%. The impact of auditors comments and off on net worth/profitability is less than 5%. j) Unhedged Forex Risks

Marks balance sheet items balance sheet items balance sheet items balance sheet items (-) 5 (-) 3 (-) 2 0

Unhedged Forex exposure will have a risk exposure due to exchange risk fluctuations, which will have impact on the financials/profitability of the company. Therefore negative marks have been assigned based on the unhedged forex exposure to the total forex exposure of the company. Unhedged Forex exposure as a % to total forex exposure Unhedged forex exposure of the borrower to total forex exposure is more than 75% Unhedged forex exposure of the borrower to total forex exposure is more than 50% to 75%. Unhedged forex exposure of the borrower to total forex exposure is more than 25% to 50%. Unhedged forex exposure of the borrower to total forex exposure is more than 5% and upto 25% Unhedged forex exposure of the borrower to total forex exposure is below 5%. D. ASSESSMENT OF OPERATIONAL PARAMETERS The assessment of operational aspects is to be done on the following points and the scoring is to be awarded at four levels as explained below:
S. No Parameter Maximum Marks Medium Marks Low Marks No Marks

Marks (-) 5 (-) 4 (-) 3 (-) 2 0

1.

2. 3. 4. 5.

Submission of Stock Statement / QIS / Renewal proposal Repayment of Interest and Instalment Collateral Security coverage Personal guarantee or co obligation Operational experience in Cash Credit and non-fund accounts.

3 4 5 5 3

2 3 4 2

1 2 3 1

0 0 0 0 0

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Annexure No: X (Para No: 22.3(ii)(b)) CREDIT RATING SYSTEM (CRS) (Applicable for Fund based limits of Rs.5.00 lacs and above but below Rs. 50.00 lacs.) Sl. 1) Current Ratio Parameter
1.15 and above 1.13 below 1.15 1.10 below 1.13 Below 1.10 2.5 and Below 2.6 to 3.50 3.6 to 5.00 5.01 to 6.00 Above 6.01 Timely repayment on due date Delayed payment:upto 30 days 31to 90 days Over 90 days Complied promptly With delay Not complied Above 4 times Above 3 to 4 times Above 2 to 3 times 2 times and below Timely submission Submission within reasonable time Delayed /irregular submission Achievement above 85% above 75% upto 85% above 50% upto 75% 50% & below Security coverage 50% and above 25% to 49% Below 25 % Liability not exceeded DP/limit. Adhoc / excess drawals adjusted in time Liability exceeded limit occasionally but within DP. Adhoc / excess drawals are adjusted in time. Liability exceeded frequently and adjusted with some delay

Score
10 08 06 0 05 04 03 02 1 5 3 2 0 5 3 0 5 4 2 0 5 3 1 5 4 3 0 5 4 1 5 3

Marks secured

2)

Total Ratio

Debt

equity

3)

DPG/TL/LC/BG/ interest commitments

4)

5)

6)

7)

Compliance with terms & conditions of sanction, including documentation and creation of charge Total Sales ----------------------Inventory + Sundry debtors Submission of MSOD /Stock statements /Renewal Data Achievement of projected sales

8)

9)

Supported by collateral security including II nd charge on Fixed Assets Operational Experience in cash credit

117

10) Financial Risks not transparent (Negative Marks) Parameter The impact of auditors comments and off balance sheet on net worth/profitability is more than 30%. The impact of auditors comments and off balance sheet on net worth/profitability is more than 15%. The impact of auditors comments and off balance sheet on net worth/profitability is more than 5%. The impact of auditors comments and off balance sheet on net worth/profitability is less than 5%. 11) Unhedged Forex Risks (Negative Marks) Parameter Unhedged forex exposure of the borrower exposure is more than 75% Unhedged forex exposure of the borrower exposure is more than 50% to 75%. Unhedged forex exposure of the borrower exposure is more than 25% to 50%. Unhedged forex exposure of the borrower exposure is more than 5% and upto 25% Unhedged forex exposure of the borrower exposure is below 5%. Total Score Acceptable Credit Rating: 95% & above (to be decided by HO) 95% & above (to be decided by HO) 90% & above 80% to 89% 70% to 79% >40% to <70% Unacceptable Credit Ratings: 40% and below NPA accounts shall be classified under this rating category. Credit rating A+++ A++ A+ A B C D D1 D2 D3

Marks items items items items (-) 5 (-) 3 (-) 2 0

Cross

to total forex to total forex to total forex to total forex to total forex

Marks (-) 5 (-) 4 (-) 3 (-) 2 0

Cross

Grade

Prime Excellent Very Good Good Satisfactory Average Poor Substandard (SSA) Doubtful (DA) Loss (LA) Spread as applicable to C rating shall be applied.

Once the borrower account migrates to C grade on risk rating scale, subsequent sanction of renewal/enhancement of limits shall be by one level higher to the sanctioning authority. Similarly, once the borrower account migrates to D grade on risk rating scale, subsequent review & renewal of limits shall be done by one level higher to the sanctioning authority. On migration of C & D rated borrower accounts to B grade & above, the respective sanctioning authorities can consider renewal / enhancement of limits with in their delegated powers. Once the assets slips into NPA category, it shall be classified as SSA or DA or LA, as the case may be based on RBI guidelines on age wise classification of NPA accounts and interest applicable to C rating for the sector of credit shall be charged in shadow account.

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Present CRA Rating Rate of Interest ZO & HO sanctions:

Proposed

Date:

Date: Branch Manager / Senior Manager (Credit), ZO

Processing Officer

The Credit rating assessed/arrived by the dealing Official who processed the note is reviewed and confirmed Credit Rating of __________by the credit committee in the meeting held on___________________ and recommended the same to sanctioning authority. Date Sanctions made by Branch & IInd level official at ZO: The Credit Rating assessed/arrived which is accepted by the sanctioning authority is reviewed and Credit Rating of _____________is confirmed. Reviewing Authority Other Guidelines on CRS:
1. CRS is now extended for all fund based limits of Rs.5.0 lacs & above but less than Rs.50.0 lacs. Interest as per Credit Rating finalized by the sanctioning authority shall be charged for all advances of above Rs.10.00 lacs. For advances between Rs.5.00 lacs to Rs.10.00 lacs the fixed slab interest rate as specified for the type/category of advance will continue to be charged. For CRS Fund based limits only shall be clubbed together In case of rice mills, a seasonal industry, peak season may not coincide with the financial year ending of the firms. Hence, audited balance sheet in such cases will not depict the true picture of the financial position. In view of the foregoing, CRS and the relevant rates of interest are to be applied for rice mill accounts with limits of Rs. 5.0 lacs & above irrespective of upper limits. In case of Agricultural segment credit rating has to be done in case of advances Rs. 5.0 & above lacs to firms and corporate borrowers and Rs. 25 lacs and above in case of individual and non-corporate Borrowers. CRS is applicable for the borrowal accounts with both working capital and term loan limits under industry/business/ trade/ agricultural segments. In respect of export and import proposals CRS exercise should be done. However, the rate of interest stipulated by RBI/Bank from time to time should be charged. Applicable guidelines for both CRS as specified in policy guidelines shall be ensured.

Sanctioning Authority

2. 3.

4.

5.

6.

7.

119

Annexure No: XI (Para No: 22.3(iii)(a)) CREDIT RATING MODEL FOR NEW UNITS WITHOUT AUDITED BALANCE SHEET (APPLICABLE FOR Rs.50.00 LACS & ABOVE ACCOUNTS)
I. MANAGEMENT & INDUSTRY RISKS Column Column A B Tick Group Reputation Managerial Competence Competition Industry Prospects Technology/ Product Characteristics Regulatory Position Personal Guarantee of rd Directors/3 party guarantee in case of partnership/pro prietary concern Integrity Total Crosses Multiplying factor Marks obtained Maximum Marks Most reputed Very Good Less Very bright Excellent Reputed Good Medium Bright Good Column C No negative reputation Satisfactory Heavy Satisfactory Satisfactory Column D Unsatisfactory reputation Not good Very Heavy Not satisfactory Outdated

Tick

Tick

Free from regulatory Controls

Negligible regulatory controls

Some Regulatory controls

Heavy regulatory Controls

Available

-----

----

Not available

Very Good 5

Good 4

Satisfactory 3

Not satisfactory 0

40

32

24

II. RISK GRADATION IN SECURITIES (A) Primary Security i) ii) iii) iv) v) vi) Stocks Stocks & Receivables Receivables Real Estate Any other security Nil primary security

Maximum Marks Allotted 5 4 3 2 1 0

Tick

120

Tick

(B) Collateral Security Coverage 60% & above 40 to <60% 25 to < 40% 10% to < 25% 5 to <10% <5%

Marks 10 8 6 4 2 0

Tick

III FINANCIAL RISK FACTORS A. GROUP RISK Marks All group units are standard assets, profit making with no adverse 5 financial features. All group units are standard assets with no adverse financial features and most of them are making profits except those units, which have commenced commercial operations recently. All group units are standard assets with no adverse financial features. Though one or more of them have made losses for latest financial year, due to temporary reasons, their long term viability is not in doubt. All group units are standard assets but one or more them have made losses for latest financial year resulting in adverse financial position for which the promoters are taking sufficient steps to improve. All group units are standard assets but one or more of them are making losses for more than one year with/without adverse financial position. B. TERM LOAN REPAYMENT RISK (FOR TERM LOAN RISK ONLY) < 36 months >=36 & <48 months >=48 & < 60 months >= 60 & <84 months >=84 & <120 months >= 120 months C. PROJECTED DSCR (FOR TERM LOANS ONLY) >=1.75 >=1.50 <1.75 >=1.40 <1.50 >=1.30 <1.40 >=1.20 <1.30 <1.20 Marks Allotted 5 4 3 2 1 0 Marks Allotted 5 4 3 2 1 0 4

Tick

Tick

Tick

121

D. PROJECTED DEBT EQUITY RATIO < 1.75 <2 to >=1.75 <2.25 to >=2.00 <2.50 to >=2.25 <3.00 to >=2.50 >3.00 IV OTHER RISKS A. CONSTITUTION RISK Widely held Company/PSU Public Limited Company Private Sector Company Partnership firm Proprietary B. RISK IN BANKING ARRANGEMENT i) Dealing under Sole Banking with us ii) Dealing under Consortium Banking iii) Dealing under Multiple Banking C. RISK VALUATION IN CHARGES 1ST charge Pari Passu Charge Second Charge Negative Lien No Charge D. SEGMENT VALUATION Priority Sector (Agrl., MSME, Industry, Business, Service, Exports etc.,) Restricted Category (Real Estate, Educational Loans, Hotels, Nursing Homes, Shares & Securities) Low Priority (Cinema Theatres, IMFL etc) TABULATION OF SCORES Risk Factor I. II. III. IV. Management/Industry Risk Factors Financial Risk Factors Risk gradation in securities Other Risks

Marks Allotted 10 9 8 7 6 0

Tick

Marks Allotted 5 4 3 2 1 Marks Allotted 5 3 2 Marks Allotted 5 4 3 1 0 Marks Allotted 5

Tick

Tick

Tick

Tick

3 0

Marks Allotted 40 25 15 20

Marks Scored

122

(F) APPLICABLE RATING Marks Secured Acceptable Credit Rating. Above 95% >90 to 95% >80 to 90% >70 to 80% >60 to 70% >40 to 60% Unacceptable Credit Rating 40% & below ZO & HO sanctions:

CRA rating A+++ Prime A++ Excellent A+ Very Good A Good B Satisfactory C Average D Poor

Tick

Spread (PLR+)

xxxxxxxxxxxxxxxx

The Credit rating assessed/arrived by the dealing Official who processed the note is reviewed and confirmed Credit Rating of __________by the credit committee in the meeting held on___________________ and recommended the same to sanctioning authority. Date: _______________ Sanctions made by Branch & IInd level official at ZO: The Credit Rating assessed/arrived which is accepted by the sanctioning authority is reviewed and Credit Rating of _____________ is confirmed. Reviewing Authority Other terms and conditions: 1. The above model is applicable for fund/non-fund based limits of Rs.50.00 lacs & above which are established recently or in the process of establishment for which no immediate audited balance sheet is available. To become eligible for taking an exposure, the new unit shall secure overall score of above 40 marks while securing above 40% score under each parameter i.e Industry & Management Risks, Financial Risk Factors, Risk Gradation in securities. In case exclusive working capital proposals, the parameters applicable for term loan i.e. TL repayment period and DSCR may be excluded and the score thus arrived may be normalized for 100 for arriving at the overall score for deciding the rating. While awarding scores under Industry & Management Risks, a more realistic assessment of the relevant factors with particular reference to the borrower may be made and appropriate scores may be allotted. Efforts should be to avoid allotting high scores without reflecting true position of the borrower. Sanctioning Authority

2.

3.

4.

123

Annexure No: XII (Para No: 22.3(iii)(b)) CREDIT RATING MODEL FOR NEW UNITS WITHOUT AUDITED BALANCE SHEET APPLICABLE FOR Rs.5.00 LACS & ABOVE BUT LESS THAN Rs.50.00 LACS
I MANAGEMENT & INDUSTRY RISKS Column A Tick Group Reputation Most reputed Very Good Column B Reputed Column C No negative reputation Satisfactor y Column D Unsatisfactory reputation Not good

Tick

Tick

Managerial Competence Personal Guarantee of rd Directors/3 party guarantee in case of partnership/proprietary concern Integrity Total Crosses Multiplying factor Marks obtained Maximum Marks

Good

Available

-----

----

Not available

Very Good 5 20

Good

Satisfactor y 3 12

Not satisfactory 0 0 Marks 5 4 3 2 2 1 Tick

4 16

II. COLLATERAL SECURITY COVERAGE 60% & above 40 to <60% 25 to < 40% 10 to < 25% 5 to <10% <5% III FINANCIAL RISK FACTORS A. GROUP RISK All group units are standard assets, profit making with no adverse financial features. All group units are standard assets with no adverse financial features and most of them are making profits except those units, which have commenced commercial operations recently. All group units are standard assets with no adverse financial features. Though one or more of them have made losses for latest financial year, due to temporary reasons, their long term viability is not in doubt. All group units are standard assets but one or more them have made losses for latest financial year resulting in adverse financial position for which the promoters are taking sufficient steps to improve. All group units are standard assets but one or more of them are making losses for more than one year with/without adverse financial position.

Marks Allotted 5

Tick

1 0

124

Tick

B. TERM LOAN REPAYMENT RISK (FOR TERM LOAN RISK ONLY) < 36 months >=36 & <48 months >=48 & < 60 months >=60 & <84 months >=84 & <120 months >= 120 months C. PROJECTED DSCR (FOR TERM LOANS ONLY) >=1.75 >=1.50 <1.75 >=1.40 <1.50 >=1.30 <1.40 >=1.20 <1.30 <1.20 D. PROJECTED DEBT EQUITY RATIO < 1.75 <2 to >=1.75 <2.25 to >=2.00 <2.50 to >=2.25 <3.00 to >=2.50 >3.00

Marks Allotted 5 4 3 2 1 0 Marks Allotted 5 4 3 2 1 0 Marks Allotted 5 4 3 2 1 0

Tick

Tick

Tick

IV OTHER RISKS CONSTITUTION RISK Widely held Company/PSU Public Limited Company Private Sector Company Partnership firm Proprietary Marks Allotted 5 4 3 2 1 Tick

TABULATION OF SCORES Risk Factor Marks Allotted Management/Industry Risk Factors 20 Collateral Security 05 Financial Risk Factors 20 Others 05 Total 50 (F) APPLICABLE RATING Marks Secured Acceptable Credit Rating 95% & Above (to be decided by HO) 95% & Above (to be decided by HO)

Marks Scored

CRA rating A+++ Prime A++ Excellent

Tick

Spread (PLR+)

125

90% & above 80 to 89% 70 to 79% >40 to 70% Unacceptable Credit Rating 40% & below ZO & HO sanctions:

A+ A B C D

Very Good Good Satisfactory Average Poor xxxxxxxxxxx

The Credit rating assessed/arrived by the dealing Official who processed the note is reviewed and confirmed Credit Rating of __________by the credit committee in the meeting held on___________________ and recommended the same to sanctioning authority. Date Sanctions made by Branch & IInd level official at ZO: The Credit Rating assessed/arrived which is accepted by the sanctioning authority is reviewed and Credit Rating of _____________is confirmed. Sanctioning Authority

Reviewing Authority Other terms and conditions: 1. The above model is applicable for fund/non-fund based limits of Rs.50.00 lacs & above which are established recently or in the process of establishment for which no immediate audited balance sheet is available. To become eligible taking exposure, the new unit shall secure overall score of above 40 marks while securing at least above 40% score under each parameter i.e. Industry & Management Risks, Financial Risk Factors, Risk Gradation in securities. In case exclusive working capital proposals, the parameters applicable for term loan i.e. TL repayment period and DSCR may be excluded and the score thus arrived may be normalized for 100 for arriving at the overall score for deciding the rating. While awarding scores under Industry & Management Risks, a more realistic assessment of the relevant factors with particular reference to the borrower may be made and appropriate scores may be allotted. Efforts should be to avoid allotting high scores without reflecting true position of the borrower.

2.

3.

4.

126

Annexure No: XIII (Para No: 22.4) EXPLANATORY NOTES ON VARIOUS PARAMETERS IN INDUSTRY & MANAGEMENT RISKS FOR NEW UNITS WITHOUT AUDITED BALANCE SHEET APPLICABLE FOR BOTH CREDIT RATING MODELS Group Reputation: . i. Where all units belonging to the group are profit earning during the past three years ii. iii. Whether the entire accounts are standard assets with their bankers Whether the credit report of group companies from their banks are satisfactory.

If all the answers for all the above three parameters are positive, the group shall be rated as most reputed. If some of the group concerns do not perform well, but satisfactory credit reports are given by heir bankers, it shall be treated as reputed. Rest of the category shall be treated as no negative reputation. If there are specific adverse reports from any quarter on any group concern, then the group reputation shall be treated unsatisfactory reputation. Managerial Competence: Very Good: 1. 2. The Promoters mostly consist of professionals. In case of non-professional management, they are in business/manufacturing activity for more than 10 years and are highly successful in previous ventures. The project planning is completed in all respects and execution of project is proceeding smoothly and the same is expected to be completed on time. The company has put in place suitable structures & systems for efficient decision making.

3. 4. Good: 1. 2. 3.

The organization is having professionals in key areas who function independently under the overall control of owners. In case of non-professional management, they are in business/manufacturing activity for nearly 7-10 years and are successful in previous ventures. The project is expected to be completed mostly on time.

127

Satisfactory: 1. The unit has a very few professionals and is mostly managed by nonprofessional owners who are in business/manufacturing activity for 3-7 years and their past track record is good. There is some delay in completion of the project but there is not much impact on the company in terms of cost or in the schedule for commencement of commercial production.

2.

Not Good: 1. The unit has no professionals and entirely managed by non-professionals owners who are either new to business or having experience less than 3 years. There is in ordinate delay in completion of project.

2.

INDUSTRY PROSPECSTS Very Bright: 1. 2. 3. Long term prospects of the industry are excellent. Fairy stable industry cycles. Industry cycle on the upswing.

Bright: 1. 2. Long-term prospects of the industry are good. Industry cycle is mostly stable.

Satisfactory 1. 2. Long term prospects of the industry are by and large satisfactory. Industry cycle is not on the down swing.

Not Satisfactory 1. 2. Industry in the start-up or declining phase Long-term outlook uncertain.

COMPETITION Less: 1. Product reserved for MSME sector or monopoly or oligopoly situation.

128

2. 3. 4. 5.

High entry barriers into the industry Company is one of the lead players or has exclusive niche market or brand equity. Does not depend on one or few buyers Has a range of products

Medium: 1. 2. 3. 4. 5. 6. 7. Heavy 1. 2. 3. 4. Virtually no entry barriers Company is one of the average players Depends on one or few buyers. Recession in the market Few large players in the market There are some barriers to entry Company is one of the top players Has an established brand, which is well received. Has a share, which is steadily growing apace with the industry growth rate. Has a large area of operation. Has adequate orders on hand

Very Heavy: 1. 2. 3. Un-organized sector and heavy competition from local players. Stiff competition from Cheaper substitutes. Product belongs to lower end market which is prone to substantial volatility.

TECHNOLOGY Excellent: 1. Company keeps updated with latest Technologies.

129

2. 3. Good: 1. 2.

Company has the strategic vision for technological up gradation to avoid obsolescence Company has the necessary R&D facilities or tie up with other agencies where the technological requirements are of high order.

Technology proven. Not subject to any vast changes in the medium term. Company can bring in the necessary technological changes as and when necessary.

Satisfactory: 1. 2. Technology is not susceptible to fast changes. There is no severe threat of substitute products

Outdated: The technology is outdated and up gradation is not economically not viable. PRODUCT CHARACTERISTICS (IN CASE OF TRADE ADVANCES) Excellent Long term prospects of the goods in trade are excellent Good: Long term outlook of the products traded is good. Satisfactory: Long term outlook of the products traded is stable. Unsatisfactory: Long term outlook of the products traded cannot be assessed and uncertain. REGULATORY POSITION: 1. 2. Free from regulatory Controls No restrictions on export of products and expansion of capacity. Business not affected by the regulatory framework. All environment/pollution related clearance have been obtained.

3.

130

Negligible regulatory controls 1. 2. Regulatory and legislative issues create some vulnerability but potential impact on the company is not significant. The issues can be tackled appropriately.

Some Regulatory controls 1. 2. 3. Demanding environment, labour and regulatory scenario. Regulatory environment can be problematic if company does not take care. Profitability has not been affected by the regulatory scenario.

Heavy regulatory Controls 1. 2. 3. There are heavy regulatory controls from various statutory authorities. Frequent stoppages on account of labour unrest. The company/firm/unit is unable to cope with the labour/regulatory/legal scenario.

INTEGRITY Very Good 1. 2. 3. Good The full history of the management not available but the management is reportedly reliable and is of good integrity. Satisfactory There are no apparently no adverse reports about the integrity of the management /promoters. Not satisfactory There are some rumours and reasons to doubt the integrity of the promoters/ management. No fraudulent deals/connection. On no occasion has any unsatisfactory feature of the management has come to light. The integrity and character of the management is beyond reproach.

131

Annexure No: XIV (Para No: 29.18(ii)) PROFORMA OF COMMUNICATION OF SANCTION ANDHRA BANK (A Government of India Undertaking) ____________________ Branch Letter No ______________ M/s ____________________ _______________________ Dear Sir /s, Ref: Your Application dated: ________________ We are pleased to advise you that the following limit/s has/have been sanctioned / renewed in your favour, as per the terms and conditions detailed below, for a period of _________________. Sl No 1 Nature of Facility 2 Limit 3 Purpose 4 Security 5 Margin 6 Date: ____________ CONFIDENTIAL

Repayment 7

Rate of Interest % p.a. with _______ rests 8

Other Terms & Conditions 9

We shall be pleased if you will signify your acceptance of the terms and conditions of the above limit(s) by signing the attached duplicate copy of the letter and return it to us. The limit will be effective only after receipt of your acceptance and after completion of necessary formalities. We, however, reserve the right to revoke in part or in full or withdraw/stop financial assistance or to amend any of the terms of sanction including rate of interest at any stage without any notice or giving any reasons for any purpose whatsoever, at our absolute discretion. Further, this sanction does not vest in anyone, the right to claim any damage against the Bank for any reason whatsoever. Thanking you, Yours faithfully, MANAGER

132

Annexure No: XV (Para No: 29.18(ii b)) ANDHRA BANK HEAD OFFICE :: HYDERABAD Name of the Branch: Zone: ADA - I

Register showing particulars of sanctions/rejections made under the discretionary powers of Branch Manager except advances against Bank deposits and gold ornaments - (All sanctions/rejections in all other categories of accounts irrespective of limit should be entered in this register). 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. Sl.no. Date of receipt of the proposal Name & address of the applicant Net worth of the applicant State whether the proposal is new / renewal / enhancement / reduction / review / adhoc. Name and address of the co-obligant/guarantor and his/her net worth Sector of the credit (MSME, RPDD etc) Purpose of advance Nature of business BSR code Nature of facility Limit applied Existing limit Limit sanctioned Date of sanction In case declined, date and reasons Rate of interest (BMPLR + Spread + Term Premia) Due date of limits Mode of repayment Security - primary - collateral Initials of the Branch Manager

Certificate: We certify that all the sanctions, (fund/non-fund based limits) except advances against Bank Deposits and Gold Ornaments irrespective of the quantum of limits, made during the month of ______________have been entered in this register. The sanctions are within the laid down guidelines of the Bank.

Credit Officer

Senior/Dy./Asst.Manager (credit)

Branch Manager

133

Note: 1) 2) 3) Each sanction shall be serially numbered while reporting in ADA-I. The serial number shall commence from No. 1 from April, 1 of every year and end as at the end of March 31, next year. The serial number shall be carried forward from one month to the other such that at any point of time, the number of sanctions made during the financial year (except deposit loans & gold loans) is known. The above procedure (as mentioned in 1,2,3) shall be followed for proposals declined by the branch and these are to be shown separately in the ADA-I The pages in the register shall be serially numbered. Every month a separate page should be started and each page is authenticated by the credit officer/senior/Dy./Asst. manager (Credit) Responsibility & accountability: Branch Manager in case of small/medium/large branches will be responsible for reporting. In the case of Very Large/ Extra Large Branches, Manager (credit) will be responsible for reporting. However, the overall responsibility rests with the Branch Manager. 8) Monitoring responsibility: ZM or his designated officers on visit, concurrent auditor, Inspector of branches wherever applicable, should monitor. They must sign the register for having verified/checked. If register is not maintained/not produced for checking, they shall report the same to the next higher authority, duly indicating the accountability aspects, for initiating appropriate action. They shall also ensure that the sanctions made are in tune with the Banks guidelines. All deviations found must be promptly informed to the branch for rectification and reported to higher authorities for initiating action as deemed fit. 9) In case of transfer of Managers, the incoming Manager must mention the shortcomings / deficiencies found in all areas of credit in the Relieving Officers Certificate.

4)

5) 6) 7)

All shortcomings/deficiencies found by the incoming Manager are also to be reported in writing to the concerned ZM/HO failing which it will be presumed that the incoming Manager assumes responsibility/ accountability for all such shortcomings/deficiencies.

134

Annexure No: XVI (Para No: 29.18 (ii b)) ADA - V ANDHRA BANK HEAD OFFICE :: HYDERABAD Name of the Branch___________________ (Zone____________) Consolidated data on sanctions made under the discretionary powers of the Branch Manager during the month of _____________ (Rs.in Lacs) Renewal portion Enhanced portion Fresh sanction Fund Non-Fund Fund Non-Fund Fund Non-Fund Based Based Based Based Based Based Category Limits Limits Limits Limits Limits Limits No Amt No Amt No Amt No Amt No Amt No Amt of of of of of of A/c A/c A/c A/c A/c A/c (A) Sanctions under priority sector and upto Rs.50,000 SSID RPDD DGSS Total A (B) Other sanctions C&IF IRD EICC SME CPCD RPDD DGSS Deposit Loans Gold Loans Total - B Grand total-A+B CERTIFICATE: We certify that we have reported all the sanctions made under the discretionary powers of the Branch Manager during the month. We confirm that the laid down guidelines have been followed in case of above sanctions. Credit Officer Sr./Dy./Asst. Manager (credit) Branch Manager

135

Note: 1) 2) No of accounts should not be repeated when fund based and non-fund based limits are sanctioned to the same party. In case of renewal with enhancement, renewed portion should be shown under renewal and the enhancement under enhanced portion of the limit (Example. Renewal-cum-Enhancement of Rs.150 Lacs is sanctioned to a party enjoying a limit of Rs.100 Lacs (existing limit), Rs.100 Lacs should be shown under renewal and Rs.50 Lacs under enhanced portion and only one account be noted in the renewal column. Responsibility & accountability: (a) Branch Manager in case of small/ medium/large branches (b) Manager (credit) in the case of Very Large/ Extra Large Branches will be responsible for reporting. The overall responsibility rests with the Branch Manager. Monitoring responsibility: ZM or his designated officers on visit, concurrent auditor, Inspector of branches wherever applicable, should monitor. They must sign the register for having verified/checked. If register is not maintained/not produced for checking, they shall report the same to the next higher authority, duly indicating the accountability aspects, for initiating appropriate action. They shall also ensure that the sanctions made are in tune with the Banks guidelines. All deviations found must be promptly informed to the branch for rectification and reported to higher authorities for initiating action as deemed fit. 5) In case of transfer of Managers, the incoming Manager must mention the shortcomings/deficiencies found in all areas of credit in the Relieving Officers Certificate. All shortcomings/deficiencies found by the incoming Manager are also to be reported in writing to the concerned ZM/HO failing which it will be presumed that the incoming Manager assumes responsibility/accountability for all such shortcomings/deficiencies.

3)

4)

136

Annexure No: XVII (Para No: 33.5 and 33.6) ANDHRA BANK HEAD OFFICE :: HYDERABAD Format of register of adhoc sanctions made 1. 2. 3. 4. 5. 6. 7. 8. Sl No Name of the branch Name of borrower Sanctioning authority Due date of limits Credit Rating (wherever applicable) Particulars of existing credit facilities nature of facility limit outstanding (on the date before allowing adhoc) Outstanding (after allowing adhoc) Overdue, if any Drawing Power. Particulars of adhoc sanctions made: Date of allowing adhoc Nature of facility Adhoc limit sanctioned Reasons for adhoc limit authority who has permitted adhoc limit with letter reference Due date for adjustment of adhoc facility. Date of adjustment of adhoc facility. If not adjusted on due date, action taken. How many times adhoc facility has been extended to this borrower under various fund/non-fund based facilities during the current review period. ADA IX

9. 10. 11. Note:-

Responsibility and accountability: Branch Manager in case of small/medium/large branches and Manager (credit) in the case of Very Large / Exceptionally Large Branches will be responsible for maintenance of this register with overall responsibility of the Branch Manger/ these officials should sign the register. Senior Manager (Credit) / Chief Manager will be responsible for maintenance of the register at controlling office level, with over all responsibility of the Zonal Manger. The Credit Officer / chief manger are responsible for maintenance of the register at HO. Monitoring responsibility: ZM or his designated officers on visits, concurrent auditor, inspector of branches wherever applicable will monitor the maintenance of the register at branches. They must sign the register for having verified/checked. If not maintained/ not produced for checki9ng, they shall report the same to the next higher authro8itym, duly indicating the accountability aspects, for initiating appropriate action. In case of transfer of Mangers, the incoming Manager must mention the shortcomings, deficiencies found in all areas of credit in the Relieving Officers Certificate. The shortcomings/deficiencies found by him are also to be reported in writing to the concerned ZM/HO falling, which it will be presumed that the incoming manager assumes responsibility for the shortcomings/deficiencies.

137

Annexure No: XVIII (Para No: 33.5 and 33.6) ANDHRA BANK HEAD OFFICE :: HYDERABAD Format of register of excess drawals allowed 1. 2. 3. 4. 5. 6. 7. 8. Sl No Name of the branch Name of borrower Sanctioning authority Due date of limits Credit Rating (wherever applicable) Particulars of existing credit facilities nature of facility limit outstanding (on the date before allowing excess drawals) Outstanding (after allowing excess drawals) Overdue, if any Drawing Power. Particulars of excess drawal permitted: Date of allowing excess drawal. Nature of facility Limit of excess drawal permitted. Reasons for allowing excess drawal authority who has permitted excess drawal along with letter reference Due date for adjustment of excess drawal. Date of adjustment of excess drawal. If not adjusted on due date, action taken. How many times excess drawings has been extended to this borrower under various fund/non-fund based facilities during the current review period. ADA X

9. 10. 11. Note:-

Responsibility and accountability: Branch Manager in case of small/medium/large branches and Manager (credit) in the case of Very Large / Exceptionally Large Branches will be responsible for maintenance of this register with overall responsibility of the Branch Manger/ these officials should sign the register. Senior Manager (Credit) / Chief Manager will be responsible for maintenance of the register at controlling office level, with over all responsibility of the Zonal Manger. The Credit Officer / chief manger are responsible for maintenance of the register at HO. Monitoring responsibility: ZM or his designated officers on visits, concurrent auditor, inspector of branches wherever applicable will monitor the maintenance of the register at branches. They must sign the register for having verified/checked. If not maintained/ not produced for checki9ng, they shall report the same to the next higher authro8itym, duly indicating the accountability aspects, for initiating appropriate action. In case of transfer of Mangers, the incoming Manager must mention the shortcomings, deficiencies found in all areas of credit in the Relieving Officers Certificate. The shortcomings/deficiencies found by him are also to be reported in writing to the concerned ZM/HO falling, which it will be presumed that the incoming manager assumes responsibility for the shortcomings/deficiencies.

138

Annexure No: XIX (Para No: 42.3) ANDHRA BANK HEAD OFFICE :: HYDERABAD ADA VIII A

REGISTERS TO BE MAINTAINED BY ALL CREDIT DEPARTMENTS FOR MAINTAINING DATA BASE OF CREDIT PROPOSALS RECEIVED/PENDING/SANCTIONED/DECLINED/ REVIEWED PROPOSAL REGISTER

(RS IN LACS)
SL No Receive Date File No Zone Branch Account BSR Code Existing / New a/c Purpose Renewal/ Enhancement / Reduction/ ADHOC 9 Remarks Facility

1 Existing Limit

2 Limit applied

6 Sanctioned by

7 Sanction date

8 Declined by/date

10 Chief manager' s initial 19 Officer's initials 18

Recommended Limit

11 Please note 1. 2. 3. 4.

12

13

14

15

16

17

Review proposals are also to be entered in the above register For new proposals file no. shall be indicated as NEW Once an account is sanctioned/reviewed/declined, the item should be rounded off in this register. Credit proposals falling in the powers of various authorities at Head Office, including MC/Board should also be entered in the register.

Responsibility Centre: 1. Departmental Officer/Chief Manager of the department are jointly responsible for maintenance of the register. The register must be placed before the next higher authority once in a month. It is obligatory on the Chief Manager to ensure that they are placed and got checked. The higher authority shall check the statement and make needful observations failing which it will be considered that the higher authority has checked and has no observations to make. The departmental Officer/Manager (credit)/Senior Manager (credit)/Chief Manager will be responsible for maintenance of the register at Controlling offices, with overall responsibility of the Zonal Manager. Departmental Officer/Chief Manager of the department at HO are jointly responsible for maintenance of the register. The register must be placed before the next higher authority once in a month. It is incumbent on the Chief Manager to ensure that they are placed and got checked. The higher authority shall check the statement and make needful observations failing which it will be considered that the higher authority has checked and has no observations to make.

2.

3.

4.

5.

139

Annexure No: XX (Para No: 42.3) ANDHRA BANK HEAD OFFICE :: HYDERABAD ADA VIII B REGISTER OF CREDIT PROPOSALS SANCTIONED/REVIEWED/DECLINED (Rs. in Lacs)
Sl No 1 File No 2 Zone Branch Account Activity BSR Code 6 Powers Sanction Date 8 Officer's initials Due Date 9 Chief Manager' s initials Facility Existing Limit 11

3 Credit rating

5 BMPLR+ Spread

7 Review Date by next higher authority 16

10

Sanctioned limit

Sanction letter No

Date of first disbursement

12

13

14

15

17

18

19

*IN CASE OF NON BMPLR BASED ACCOUNTS, ROI IS TO BE MENTIONED AS INTEREST Note: (1) (2) Credit sanctions/reviews/declining coming under the powers of various authorities at Head Office, including MC/Board should also be entered in the register. Departmental Officer/Chief Manager of the department is jointly responsible for maintenance of the register. The register must be placed before the next higher authority once in a month. It is obligatory on the Chief Manager to ensure that they are placed and got checked. The higher authority shall check the statement and make needful observations failing which it will be considered that the higher authority has checked the same and has no observations to make.

Responsibility Centre: (3) Departmental Officer/Chief Manager of the department is jointly responsible for maintenance of the register. The register must be placed before the next higher authority once in a month. It is incumbent on the Chief Manager to ensure that they are placed and got checked. The higher authority shall check the statement and make needful observations failing which it will be considered that the higher authority has checked and has no observations to make. The departmental Officer/Manager (credit)/Senior Manager (credit)/Chief Manager will be responsible for maintenance of the register at Controlling offices, with overall responsibility of Zonal Manager. Departmental Officer/Chief Manager of the department at HO are jointly responsible for maintenance of the register. The register must be placed before the next higher authority once in a month. It is incumbent on the Chief Manager to ensure that they are placed and got checked. The higher authority shall check the statement and make needful observations failing which it will be considered that the higher authority has checked the same and has no observations to make.

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