THE METHODS, RULES TO PROVIDE LOANS AND ADVANCES AND RISK

MANAGEMENT AT PUNJAB NATIONAL BANK

Submitted in partial fulfillment of the
Requirements for the award of PGDM








SUBMITTED BY:
NAME: PANKHURI GUPTA
ROLL No: PGSF1222



SUBMITTED TO: Prof. SONALI SINGH








DECLARATION

I hereby declare that the Summer Training Report entitled (THE METHODS, RULES TO
PROVIDE LOANS AND ADVANCES AND RISK MANAGEMENT AT PUNJAB
NATIONAL BANK) is an authentic record of my own works as requirements of 8 weeks
Summer Training during the period from 17/04/2013 to 17/06/2013 for the award of degree of
PGDM (SERVICE MANAGEMENT), Jaipuria Institute of Management, Noida under guidance
of Prof. Sonali Singh

Dated: 5
th
August 2013 Pankhuri Gupta
(PGSF1222)



















i




ACKNOWLEDGEMENT

A journey is easier when we travel together. Interdependence is certainly more important than
independence. It will always be my pleasures to thank those who have helped me in making this
project a lifetime experience for me.
I would like to express my heartiest gratitude to Punjab National Bank, for giving me an
opportunity to work in its Loans Department, my Institute and important persons associated with
this project as without their guidance and hard work I would have never ever have got a chance to
have real life experience of working with a bank of such a great repute and learn practically about
the Credit Appraisal Process. I would also like to extend my gratitude to Mr. V.K. Sharma (Chief
Manager) for giving me an opportunity to join him to know and learn various aspects of the Loans
and Advances in the organization. It is my privilege to thank Mr. Kailash Yadav (Manager, Credit
Department) whose guidance has made me learn and understand the finer and complicated aspects
of banking, in general and of loan providing process, in particular. The help and guidance which
he has extended to me has made me feel as being an integral part of the organization.
My heartiest gratitude extends to my faculty mentor Prof. Sonali Singh who has helped me in
every aspect of my work. The greatest credit goes to the blessings bestowed upon me by Almighty
God without whose yearning; I could not have even moved a step forward and to my parents who
are always a constant source of inspiration in all my endeavors.

Pankhuri Gupta
PGSF1222






ii


CHAPTER PLAN
Table of Content Page No.


EXECUTIVE SUMMARY.iii
OBJECTIVES..iv
CHAPTER 1 COMPANY DESCRIPTION..1
Industry Overview1
Company Profile...4
CHAPTER 2 JOB DESCRIPTION.10
CHAPTER 3 ANALYSIS OF JOB DONE.12

i. Loans and advances with regard to Punjab National Bank...12
ii. Types of Lending Schemes12
Retail Lending Scheme..12
Lending to priority Sector..34
iii. Processing of loan application45
iv. Documentation...49
v. M/S Kamaraya Elecronics Proposal.......51
vi. Risk Management...53
vii. Credit Risk Rating..62

CHAPTER 4 LEARNINGS AND OUTCOMES....63
CHAPTER 5 FINDINGS AND RECOMMENDATIONS.65
BIBLIOGRAPHY.....69


iii


EXECUTIVE SUMMARY

Bank extends Loan Facilities by way of fund-based facilities and non-fund based facilities. The
fund-based facilities are usually allowed by way of term loans, cash credit, bills
discounted/purchased, demand loans, overdrafts, etc. Further the bank also provides non fund
based facilities by way of issuance of inland and foreign letters of credit, issuance of guarantees,
deferred payment guarantees, bills acceptance facility etc.
Efficient management of Loans and Advances portfolio has assumed greater
significance as it is the largest asset of the Bank having direct impact on its profitability. In the
wake of the continued tightening of norms of income recognition, asset classification and
provisioning, increased competition and emergence of new types of risks in the financial sector, it
has become imperative that the credit functions are strengthened. RBI has also been emphasizing
banks to evolve suitable guidelines for effective management and control of credit risks.
Credit risk rating is an important function of the bank. It is the process of evaluating the
credit worthiness of a loan applicant. Every bank or lending institution has its own panel of
officials for this purpose.
Banks are in the business of taking risk and getting compensated for it. Risk management
is the process by which a bank identifies, measures, monitors and controls its risk exposures. The
Bank recognizes the need to understand and manage the risk inherent in various underlying
activities. All analytical, decision-making and implementation processes should be oriented
towards prudently managing the risk before focusing on the potential reward.
I have undertaken a study at Punjab National Bank which is an international bank with
its global presence in twenty five countries. The study is on THE METHODS, RULES TO
PROVIDE LOANS AND ADVANCES AND RISK MANAGEMENT AT PUNJAB NATIONAL
BANK. The process of Credit Rating and disbursement of loans has been explained in detail in
the project.





iv

OBJECTIVES


i. To study broad contours of management of the loan and advances policy, long-
term and short-term credit facilities provided by the bank to various types of
borrowers and non-fund facilities.

ii. To study the risk philosophy of the bank.

iii. To learn about the funds for income-yielding assets the bank is deploying for
those who approach PUNJAB NATIONAL BANK for credit.











1


Chapter 1 COMPANY DESCRIPTION

INDUSRY OVERVIEW
THE INDIAN BANKING INDUSTRY
It is well recognized by the world that India is one of the fastest growing economies in the world.
Evidence from across the world suggests that a sound and evolved banking system is required for
sustained economic development. The last decade has seen many positive developments in the
Indian banking sector. The policy makers, which comprise the Reserve Bank of India (RBI),
Ministry of Finance and related government and financial sector regulatory entities, have made
several notable efforts to improve regulation in the sector. The sector now compares favorably
with banking sectors in the region on metrics like growth, profitability and non-performing assets
(NPAs). A few banks have established an outstanding track record of innovation, growth and
value creation. This is reflected in their market valuation. However, improved regulations,
innovation, growth and value creation in the sector remain limited to a small part of it. The cost of
banking intermediation in India is higher and bank penetration is far lower than in other markets.
Indias banking industry must strengthen itself significantly if it has to support the modern and
vibrant economy which India aspires to be. While the onus for this change lies mainly with bank
managements, an enabling policy and regulatory framework will also be critical to their success.
The failure to respond to changing market realities has stunted the development of the
financial sector in many developing countries. A weak banking structure has been unable to fuel
continued growth, which has harmed the long-term health of their economies. In this white
paper, we emphasize the need to act both decisively and quickly to build an enabling, rather than
a limiting, banking sector in India.
Indian banks have compared favorably on growth, asset quality and profitability with
other regional banks over the last few years. The banking index has grown at a compounded
annual rate of over 51 per cent since April 2001 as compared to a 27 per cent growth in the market
index for the same period. Policy makers have made some notable changes in policy and
regulation to help strengthen the sector. These changes include strengthening prudential norms,
enhancing the payments system and integrating regulations between commercial and co-operative
banks. However, the cost of intermediation remains high and bank penetration is limited to only a
2

few customer segments and geographies. While bank lending has been a significant driver of GDP
growth and employment, periodic instances of the failure of some weak banks have often
threatened the stability of the system. Structural weaknesses such as a fragmented industry
structure, restrictions on capital availability and deployment, lack of institutional support
infrastructure, restrictive labor laws, weak corporate governance and ineffective regulations
beyond Scheduled Commercial Banks (SCBs), unless addressed, could seriously weaken the
health of the sector. Further, the inability of bank managements (with some notable exceptions) to
improve capital allocation, increase the productivity of their service platforms and improve the
performance ethic in their organizations could seriously affect future performance. India has a
better banking system in place Vis a Vis other developing countries, but there are several issues
that need to be ironed out. Major challenges of Indian banking sector are mentioned below.

Interest rate risk
Interest rate risk can be defined as exposure of bank's net interest income to adverse movements in
interest rates. A bank's balance sheet consists mainly of rupee assets and liabilities. Any
movement in domestic interest rate is the main source of interest rate risk.
Over the last few years the treasury departments of banks have been responsible for a substantial
part of profits made by banks. Between July 1997 and Oct 2003, as interest rates fell, the yield on
10-year government bonds (a barometer for domestic interest rates) fell, from 13 per cent to 4.9
per cent. With yields falling the banks made huge profits on their bond portfolios. Now as yields
go up (with the rise in inflation, bond yields go up and bond prices fall as the debt market starts
factoring a possible interest rate hike), the banks will have to set aside funds to mark to market
their investment. This will make it difficult to show huge profits from treasury operations. This
concern becomes much stronger because a substantial percentage of bank deposits remain invested
in government bonds. Banking in the recent years had been reduced to a trading operation in
government securities. Recent months have shown a rise in the bond yields has led to the profit
from treasury operations falling. The latest quarterly reports of banks clearly show several banks
making losses on their treasury operations. If the rise in yields continues the banks might end up
posting huge losses on their trading books. Given these facts, banks will have to look at alternative
sources of investment.


3


Interest rates and non-performing assets
The best indicator of the health of the banking industry in a country is its level of NPAs. Given
this fact, Indian banks seem to be better placed than they were in the past. A few banks have even
managed to reduce their net NPAs to less than one percent (before the merger of Global Trust
Bank into Oriental Bank of Commerce OBC was a zero NPA bank). But as the bond yields start to
rise the chances are the net NPAs will also start to go up. This will happen because the banks have
been making huge provisions against the money they made on their bond portfolios in a scenario
where bond yields were falling.
Reduced NPAs generally gives the impression that banks have strengthened their credit appraisal
processes over the years. This does not seem to be the case. With increasing bond yields, treasury
income will come down and if the banks wish to make large provisions, the money will have to
come from their interest income, and this in turn, shall bring down the profitability of banks.
Competition in retail banking
The entry of new generation private sector banks has changed the entire scenario. Earlier the
household savings went into banks and the banks then lent out money to corporate. Now they need
to sell banking. The retail segment, which was earlier ignored, is now the most important of the
lot, with the banks jumping over one another to give out loans. The consumer has never been so
lucky with so many banks offering so many products to choose from. With supply far exceeding
demand it has been a race to the bottom, with the banks undercutting one another. A lot of foreign
banks have already burnt their fingers in the retail game and have now decided to get out of a few
retail segments completely. The nimble footed new generation private sector banks have taken a
lead on this front and the public sector banks are trying to play catch up. The PSBs have been
losing business to the private sector banks in this segment. PSBs need to figure out the means to
generate profitable business from this segment in the days to come.
The urge to merge
In the recent past there has been a lot of talk about Indian Banks lacking in scale and size. The
State Bank of India is the only bank from India to make it to the list of Top 100 banks, globally.
Most of the PSBs are either looking to pick up a smaller bank or waiting to be picked up by a
larger bank. The central government also seems to be game about the issue and is seen to be
encouraging PSBs to merge or acquire other banks. Global evidence seems to suggest that even
though there is great enthusiasm when companies merge or get acquired, majority of the
4

mergers/acquisitions do not really work. So in the zeal to merge with or acquire another bank the
PSBs should not let their common sense take a back seat. Before a merger is carried out cultural
issues should be looked into. A bank based primarily out of North India might want to acquire a
bank based primarily out of South India to increase its geographical presence but their cultures
might be very different. So the integration process might become very difficult. Technological
compatibility is another issue that needs to be looked into in details before any merger or
acquisition is carried out.
COMPANY PROFILE





Punjab National Bank (PNB) was set up in 1895 in Lahore - and has the distinction of being the
first Indian bank to have been started solely with Indian capital. The bank was nationalized in July
1969 along with 13 other banks. Today, PNB is a professionally managed bank with a successful
track record of over 110 years. The bank has the 2nd largest branch network in India, with 5000
branches including 764 extension counters spread throughout the country. PNB was ranked as
248th biggest bank in the world by Bankers Almanac, London. Punjab National Bank is not only
the first bank to specialize in credit rating models in India but also the first one to launch image
based cheque transaction system for collection of intra bank intercity cheques thereby providing
credits merely in 48 hrs in 13 cities.

CORPORATE VISION
To be a Leading Global Bank with Pan India footprints and become household brand in the Indo-
Genetic Plains providing entire range of financial products and services under one roof.

MISSION
Banking for the unbanked with over 56 million with over 56 million satisfied customers and 5002
offices, PNB has continued to retain its leadership position amongst the nationalized banks. From
its modest beginning; the bank has grown in size and stature to become a front-line banking
institution in India at present. Based on its sound and prudent banking experience and consistent
profit performance, PNB looks confidently to the futurethe name you can bank
upon
5


PNB has achieved significant growth in business which at the end of March 2010 amounted to Rs
4, 35,931 crores. Today, with assets of more than Rs 2, 96,633 crores, PNB is ranked as the 3rd
largest bank in the country (after SBI and ICICI Bank) and has the 2nd largest network of
branches (5002 offices including 5 overseas branches). During the FY 2009-10, with 40.85%
share of CASA deposits; the bank achieved a net profit of Rs 3905 crores. Bank has a strong
capital base with capital adequacy ratio of 14.16% as on Mar10 as per Basel II with Tier I and
Tier II capital ratio at 9.15% and 5.01% respectively. As on March10, the Bank has the Gross and
Net NPA ratio of 1.71% and 0.53% respectively. During the FY 2009-10, its ratio of Priority
Sector Credit to Adjusted Net Bank Credit at 40.5% & Agriculture Credit to Adjusted Net Bank
Credit at 19.7% was also higher than the stipulated requirement of 40% & 18%.

Bank has been a frontrunner in the industry so far as the initiatives for Financial Inclusion is
concerned. With its policy of inclusive growth and the mission Banking for Unbanked, it is a
matter of pride for the Bank that it has been able to cover all its 4588 villages allotted under the
Swabhiman Campaign of Government of India through Business Correspondents. Further, the
Bank has also adopted 118 villages across country. Under FI plan, the Bank has engaged
Technical Service Providers (TSPs) and the corporate Business Correspondents (BCs) for
providing banking services in villages using ICT based BC model. The village level BC agents
are using Hand Held Terminals/ POS machines & smartcards. Bank has extensively used
technology to reach out to those which have remained away from formal banking set up.

The Bank has been able to maintain the highest NIM at 3.60 % in Q1 FY13 amongst its peers.
Earnings per Share (EPS) improved to Rs.146.90 while the Book value per share (BVpS)
improved to Rs.814.14. Punjab National Bank continues to maintain its frontline position in the
Indian Banking industry. The performance highlights of the Bank in terms of business and profit
are shown below:





Rs. In Crore
6

Parameters Mar'10 Mar'11 Mar'12
CAGR
(3
yearly) (%)
June11 June12
YOY
Growth%
Operating Profit 7326 9056 10614 23.10 2474 2841 14.8
Net Profit 3905 4433 4884 16.47 1105 1246 12.8
Deposit 249330 312899 379588 21.86 324097 385355 18.9
Advance 186601 242107 293775 23.83 242908 294468 21.2
Total Business 435931 555005 673366 22.71 567005 679823 19.9





The Bank has always been pioneer in implementation of technology in facilitating good services
and suitable products to its customers. Bank has also opened specialized branches equipped with
all the facilities to cater to the needs of all the segments of the society.

The Bank is offering all the technology enabled services to its customers ranging from Mobile
Banking, Call Centre, Internet Banking, on line booking of rail tickets, payment of utilities bills,
booking of airline tickets to SMS alerts and Mobile Banking services to keep them updated about
their financial transactions at all time. Towards developing a cost effective alternative channels of
delivery, the Bank with more than 6050 ATMs has the largest ATM network amongst
Nationalized Banks. ATM Network of the Bank provides other value added services such as
Funds Transfer, Bill Payments and mobile registration for generation of SMS alerts; Direct Tax
Payment, request for stop payment of cheques, etc. are also provided to the cardholders.

Apart from offering banking products, the Bank has also taken up Wealth Management Services
viz. credit card/ debit card; bullion business; life/non-life insurance; Gold coins & Asset
Management, etc. Marking its foray into Life Insurance business, Bank has acquired 30% stake
in a existing profit making life insurer i.e. Metlife India Insurance Co, Ltd. With the acquisition
of 30% stake, the company has been renamed as PNB Metlife India Insuance Co. Ltd.

Bank has also institutionalised Corporate Social Responsibility system for transforming the lives
of those who are less privileged. Towards this, PNB Prerna, an Association of the wives of the
Senior Executives of the Bank, has been set up. It aims at serving the society and destitute on
behalf of the Bank by extending assistance to the poor/disabled by way of distribution of articles
7

of utility, computers, stationary, books, etc.

Backed by strong domestic performance, the Bank has its global aspirations as well. Bank has
expanded its footprint into 10 countries. Bank also has 4 overseas branches in Hong Kong, Dubai
& Afghanistan and an Offshore Banking Unit (OBU) Branch in SEEPZ, Mumbai. Bank has one
wholly owned overseas Banking subsidiary, PNB International Ltd. (UK) along with other two
overseas subsidiaries are Druk PNB Bank Ltd, Bhutan and PNB Kazakhstan besides
Representative Office in Sydney, Australia, Dubai, Almaty, China & Norway. Bank is planning
to set up its second wholly owned subsidiary in Canada. Bank is also looking to upgrade its
Representative Offices at Norway, China and Australia to full-fledged branches. Bank is also
exploring possibilities for presence in Maldives, South Africa, Bangladesh, Myanmar, Pakistan,
Singapore and Brazil.

Moving forward and achieving Business Excellence, PNB Pragati, an Organization
Transformation Programme has been initiated in a systematic and well planned manner. Under
the programme, PNB Pragati Branches at various places have been rolled out commencing 1st
August at Bhikaiji Cama Place branch at New Delhi. These branches will have all the convenient
and modern banking facilities for the customers.
Products and Services
i. Corporate banking
ii. Personal banking
iii. Industrial finance
iv. Agriculture finance
v. Financing of trade
vi. International banking
vii. Home loan
viii. Auto loan
ix. ATM/Debit card
x. Deposit interest rate
xi. Credit interest rate
xii. Other services: lockers facility, internet banking, EFT & Clearing services etc

8


ORGANIZATIONAL STRUCTURE










9

HIERARCHY






Chairman
Executive Director
General Manager (GM)
Deputy GM
Assistant GM
Chief Manager
Senior Manager
Manager
Officers
Subordinate clerks
10


Chapter 2 JOB DESCRIPTION


I was working under the credit manager of the bank. He guided me during my internship. I was
instructed about the lending operations, the terms and the conditions regarding loan sanctioning in
such a way as to minimize the risk and ensure profitable lending. My job was to monitor the
financial statements of the company and to see what loan policies and procedures should be
implemented. Monitors and reports on the implementation of loan policies and procedures. I went
with the credit manager to visit the client who had requested for the loan, to see the stock available
with the company or any purchase of the stock in the financial statements, the copy of which the
company send to the credit manager are not wrong.
I went through the financial statement of a company, Kamarya Electronics & Jewelers, to
ensure that all the data sent to us was sufficient or not to provide the loan. If not then the company
was asked for the required data.
Software is used in the bank named FINACLE to enter the files and maintain all records and
information on lending operations to the customers. Each and every detail related to the loan and
other operations are recorded in the system through this software.
The process of providing loans and advances is as follows:
i. The Borrower submits the project report and all the relevant documents of the bank.
ii. The project report was given to me for an in depth analysis.
iii. A pre-sanction appraisal and evaluation was then carried out by studying the companys
financial statement.
iv. Restructuring of the companys Balance Sheet and Profit and Loss Account in the Credit
Monitoring Arrangement (CMA) format.
v. On being assured of the credit worthiness of the borrower, the loan is disbursed.

MAXIMUM PERMISSIBLE BANKS FINANCE: MPBF is calculated when the
borrower wants loan for working capital requirement. The maximum permissible banks
finance will therefore, be working capital gap less the amount to be continued by the
borrower.
During the first 10 days of the internship I also learnt how to open an account of the customer. I
entered the data into the system with the help of the FINACLE. If any changes had to be made
11

about the customer then it was easily done with the help of the software. It was less time
consuming.
I also issued ATM cards to the customers entered their respective data, the ATM number,
all the details of them. Then I did the pass book entries also. Again all the data was recorded with
the help of the software.
I came to know about the KNOW YOUR CUSTOMER (KYC) form while working. KYC
refers to due diligence activities that financial institutions and other regulated companies must
perform to ascertain relevant information from their clients for the purpose of doing business with
them. The term is also used to refer to the bank regulation which governs these activities. Know
Your Customer processes are also employed by companies of all sizes for the purpose of ensuring
their proposed agents', consultants' or distributors' anti-bribery compliance. Banks, insurers
and export credit agencies are increasingly demanding that customers provide detailed anti-
corruption due diligence information, to verify their probity and integrity.





















12



Chapter 3 ANALYSIS OF JOB DONE


LOANS & ADVANCES WITH REGARDS TO PUNJAB NATIONAL BANK

GENERAL GUIDELINES

A key function of the Bank is deploying funds for income-yielding assets. A major part of Banks
assets are the loans and advances portfolio and investments in approved securities. Loans &
Advances refer to long-term and short-term credit facilities to various types of borrowers and non-
fund facilities like Bank Guarantees, Letters of Credit, Letters of Solvency etc. Bill facilities
represent structured commitments which are negotiable claims having a market by way of
negotiable instruments. Thus, Banks extend credit facilities by way of fund-based long-term and
short-term loans and advances as also by way of non-fund facilities, which are enumerated
hereunder.

TYPES OF LENDING SCHEMES

RETAIL LENDING SCHEMES


1. ADVANCE AGAINST GOLD JEWELLERY/ ORNAMENTS AND GOLD COINS
(RAD Cir. 14/2012 dated 12/04/2012)

Eligibility Borrowers who offer Gold Jewellery/ ornaments and Gold Coins as
security. Advance against the security of silver jewellery and ornaments
not permitted under revised provisions.
Purpose & Extent Priority & Non- priority sector (Productive or Non-productive purpose)
Productive purpose: Need base without ceiling
Non-productive : Maximum ` 10.00 lac
13

Not to be given for speculative purposes.
Nature DL or OD
Disbursement of the loan should be by way of credit in the S/B account
of the borrower.
Margin Gold 5% Silver 15%
Rate of Interest As advised by RMD, HO Currently vide L&A Cir. 57/2009 dated
30.04.2009



Valuation Rates of standard gold / pure silver to be advised by RBD, HO on
quarterly basis. (01.04.2012 to 30.06.2012) (Vide RAD Adv. Cir.
10/2012 dtd. 02/04/2012)


STANDARD GOLD

PURE SILVER

Permissible Limit per gm. After
margin of 5%

Permissible Limit per 10gm.
After margin of 15%

` 2110

` 362

Upfront fee 0.70 % of loan amount + service tax & education cess (10.30%)
Documents PNB 944 Application cum Loan Agreement
PNB 905 Brief CR for loan above ` 10000/-
Imp. Interest clause in PNB 944 and column 5, 6, and 7 of schedule may
require amendment to suit the particular case.
Documentation
charges
` 270/- up to ` 2.00 lac. ` 450/- Above ` 2.00 lac.
+ service tax and education cess
Repayment
i. Loans for Agricultural Purposes :

14

The loan may be repaid by any of the following option:
Interest required being charged/recovered at yearly/half yearly
intervals coinciding with the harvesting of crops. However, the
account to be adjusted within a maximum period of 12 months
or as and when demanded. OD facility to be renewed annually.
(Keeping in view seasonality of the crop, the Circle Head may
permit repayment within a maximum period of 18 months.)
The loan may be repaid in 12 Equated Monthly Instalments
(EMIs)
The loan may be repaid in four Quarterly instalments.
ii. Loans for Non Agricultural Purposes:

The loan may be repaid by any of the following option:
Regular servicing of interest as and when levied. Principal being
repayable within 12 months or as and when demanded. OD
facility to be renewed annually. Sufficient number of PDCs
towards repayment of interest as and when levied to be obtained.
The loan to may be repaid in 12 Equated Monthly Installments
(EMIs)
The loan may be repaid in four Quarterly installments.

iii. Repayment Capacity:

Interest repayment capacity to be ascertained and ensured at the time of
sanction, i.e., the net monthly income (after deducting all statutory and
other dues/deductions/repayments including repayment of interest on
present gold loan) of the borrower is sufficient to meet the monthly
interest obligation.
Insurance Finance Division HO has taken Bankers indemnity policy covering loss
of cash/gold/jewelry pledged with the bank to the extent of ` 2.00 crore.
The Division will obtain additional cover if required.
Security
Verification by
Metal should be got tested by government-approved shroff. However if
govt. approved shroff is not available, CH may approve the same. The
15

Approved Shroff. shroff will verify the genuineness of the metal and its market value and
record the facts in Schedule of PNB 944 under his signature.
Security
i. Gold jewellery, ornaments and gold coins issued by any schedule
bank / our bank.
ii. Safe custody of Security: Metal will be kept in a separate sealed
box in Joint custody. There should be entry in the relevant
register (PNB 313)
iii. Sale of Security: Regd. Notice for adjustment of dues and another
notice under Section 176 of Contract Act after 15 days., Fresh
valuation before sale,inform borrower and give one more chance
to clear the dues and redeem jewellery before the date fixed for
sale. Private sale / to jeweler in line with valuation, borrower be
given option to be present. The minutes of sale will be recorded
and excess amount realized will be paid to borrower.




2. PNB SARTHI
Conveyance loan (Public) for Scooter/Motor Cycle/Moped/Bicycle

Eligibility
i. Existing PNB customers with at least 6 months satisfactory
transactional record in the age group of 18 years to 60 years
holding a valid driving licence
ii. Salaried Individuals drawing salary from our Bank or under
check off facility from the employer Students 18 years &
above till gainfully employed, with salaried parents
(drawing salary from our bank) as co-borrower
iii. Business concerns (profit making for at least previous 2
years)
iv. (CH empowered to relax eligibility criteria in deserving
cases)
Purpose & Extent Purchase of new Two wheelers (which are subject to Registration
16

of vehicle with RTO)
Maximum Rupees. 100000/-. (from earlier ` 90000/-)
Max. ` 10000/- for mopeds
Margin (as percentage
of on road price)
10% where salary is disbursed through branch and/or check-off
facility 25% for Business concerns
On road price : Invoice value+Cost of one-time Road Tax + First
time comprehensive Insurance Premium for one year)
Income criteria Minimum Net Monthly Income of ` 10000/- p.m.
Income of spouse can be taken into consideration subject to
satisfactory proof of income.
Income of business concerns to be verified from IT returns files
and challans for Tax deposited..
Repayment Max. 60 EMIs for Scooter & Motor Cycle
Max. 30 EMIs for Scooter
Max. 24 EMIs for Mopeds
(Borrower may opt repayment plan on advance or arrear basis and
EMI cheques should be collected accordingly)
Security Bill & Receipt of Draft/Pay Order to be in joint names of Borrower
& Bank
Vehicle to be hypothecated to Bank and charge to be registered
with RTO (name of branch and bank must be mentioned on Joint
Registration Certificate and a duly verified copy shall be kept with
documents)
Guarantee No guarantee for loan upto ` 25000/-
Loan above ` 25000/- - Suitable guarantee acceptable to Bank,
which the Sanctioning Authority may waive if liquid collateral
security of at least 60% of loan amount or if EM of IP to the extent
of 100% of loan amount.
CH may waive guarantee.
Insurance Undertaking from borrower that he will take a comprehensive
insurance policy with agreed Bank Clause to be made as part of
Loan agreement. Copy of Insurance Policy to be provided to Bank.
If not, Bank is at liberty to get insurance by debiting borrowers
account.
17

Security Inspection
i. PNB 551 is required for the Ist time. In case account is
regular, subsequently PNB 551 is not required.
ii. In case the account is irregular/NPA Qtrly. Inspection is
must and PNB 551 to be obtained on half-yearly basis.

Upfront fee ` 275/- + Service Tax & Edu. Cess
Documentation
Charges
` 275/- + Service Tax & Edu. Cess
Other Requirements
i. Driving License is required.
ii. Statement of account for the last 6 months is required.
iii. Loan backed by 100% liquid security can be considered at
branches and shall be exempted from application of PNB
Score / RBL.

iv. Loan can be provided for Indian/Foreign make vehicles.
v. Imp. Documents Application cum appraisal cum sanction
form for Vehicle Loan, Letter of Hypothecation for Vehicle
Loan, Description of Vehicle PNB 420, Agreement of
Guarantee (PNB 58), Irrevocable Letter of Authority from
borrower to employer for remittance of salary / instalment/
term dues to bank in duplicate (PNB 1134), Authority letter
for recovery of monthly instalments from salary account,
Undertaking from concerned department for deducting
monthly instalment (in case of check off). A
vi. A minimum of 6 post-dated cheques must be compulsorily
obtained from all types of borrowers

On-line Application services started. (RBD Adv. 32/2009).

3. CAR LOAN (RAD Cir. 44/2011 dated 15/12/2011)

Conveyance Loan (Public) for Car
Eligibility For private use for customers with 6 months transactional records.
Individual & Business concerns
Purpose & Extent Car, Van & Jeep, New or Old (not older than 3 years CH
18

MUV/SUV Individual powers)
i. 25 times of net monthly salary or `
25 lac whichever is lower.
ii. RAB Incharges (Scale IV & above)
may relax the criteria with regard to
number of times subject to monthly
reporting of such cases to Circle
Office.
iii. CH & above may relax the criteria
within their and their lower
authorities vested loaning powers,
keeping in view the repayment
capacity.
iv. Income of parents/ spouse can be
considered provided he/she is a
guarantor
New clause relating to Minimum
Income Criteia for Salaried Class
Minimum net monthly salary /
pension/ income (Including income
of Parents/Spouse - ` 20000/-.
Circle Head & above may relax the
income criteria on case to case basis
considering the value of the account
and the banking relations of the
prospective borrowers

Business Corporate and non-corporate No Ceiling. One or more vehicle can be
purchased. Earning and repaying capacity
will be considered.
Car loans financed to business concerns for
personal use of their executives, i.e., other
than for use in the business, shall be outside
the purview of corporate banking and may
19

be sanctioned by officials under their
vested loaning powers, even in case where
the existing facilities have been sanctioned
by a higher authority
Agriculturists --do--
Margin (Changed
w.e.f. RBD Adv.
Cir. 29/2010
dated
14/07/2010)
For new vehicles
Tie up with manufacturer
/ dealer
Old Vehicle
15% of on-road price inclusive of one time
road tax & insurance.
10 % of on road price.
30% of the value of vehicle (Valuation of
old vehicles to be done at current invoice
price of the new vehicle less depreciation @
15% p.a. on straight line method.
Proportionate depreciation for any part of the
year to be arrived at/calculated on quarterly
basis).
CHs and above at their discretion may
reduce margin to 10% in deserving cases.
Rate of Interest
(on fixed basis)
Now Linked to
Tenor of Loan.
Repayment less than 3
years
10.5% , BR + 2%
Repayment 3 years &
above
11.00% , BR + 2% + TP

4. EDUCATION LOAN

Concept VIDYALAKSHYAPURTI Scheme is the main scheme and its variant
PNB Sarvotam Shiksha scheme stands merged with the main scheme
with effect from 20.12.2008. Now the scheme has been consolidated by
superseding all the previous circulars vide RBD Adv. Cir. No. 17/2010
dt. 24.05.2010
Courses eligible Studies in India
Graduation courses BA, B.Com, B.Sc., etc.
Teacher Training Course/Nursing Course/B.Ed. will be eligible for
education loan, provided the training institutions are approved either by
the Central Government or by State Government and such courses
20

should lead to Degree or Diploma course and not to Certificate course.

i. Post Graduation courses: Masters & PhD.

ii. Professional courses: Engineering, Medical, Agriculture,
Veterinary, Law, Dental, Management, Computer etc.

iii. Computer certificate courses of reputed institutes accredited to
Dept. of Electronics or institutes affiliated to university.

iv. Courses like ICWA, CA, CFA etc.

v. Courses conducted by IIM, IIT, IISc, XLRI. NIFT etc.
vi. Regular Degree/Diploma courses like Aeronautical, Pilot
training, and Shipping etc., approved by Director General of
Civil Aviation/Shipping, if the course is pursued in India. In case
the course is pursued abroad, the Institute should be recognized
by the competent local (abroad) Aviation/Shipping authority.
vii. Courses offered in India by reputed foreign universities
(reputation to be decided by Circle Head).
viii. Advance Diploma in Banking Technology offered by PNBIIT,
Lucknow.
ix. Evening courses of approved institutes.

x. Other courses leading to diploma/ degree etc. conducted by
colleges/ universities approved by UGC/ Govt. / AICTE/
AIBMS/ ICMR etc.
xi. Courses offered by National Institutes and other reputed private
institutions(reputation of the institutes to be decided by the
Circle Head on the basis of a) placement record, b)
campus/availability of required infrastructure, c) faculty, d) age
of the institute, e) affiliation of the institute, f) size of enrolment,
etc.).
xii. Diploma courses, Diploma Leading to Degree Courses local as
21

well as abroad and courses offered by recognized universities of
repute through distance learning etc.(To be permitted by Circle
Heads & above)

Studies Abroad
i. Graduation: For job oriented professional/technical courses
offered by reputed universities abroad.

ii. Post Graduation: MCA, MBA, MS, etc. offered by reputed
universities abroad.
iii. Courses conducted by CIMA London, CPA in USA etc.


Amount of loan ` 10.00 in India and 20.00 lac for abroad. CH can exercise higher powers
Priority Sector ` 10.00 lac in India and ` 20.00 lac for abroad.
Expenses
considered for
loan

i. Fee payable to college/ school/ hostel.
ii. Examination/ Library/ Laboratory fee.
iii. Purchase of books/ equipments/ instruments/ uniforms.
iv. Caution deposit, Building fund/refundable deposit supported by
Institution bills/receipts, subject to the condition that the amount
does not exceed 10% of the total tuition fees for the entire
course.
v. Travel expenses/ passage money for studies abroad.
vi. Purchase of computers - essential for completion of the course.
vii. Insurance premium for student borrower (for obtaining insurance
coverage under the specified scheme from specified insurance
company/ies).
viii. Any other expense required to complete the course - like study
tours, project work, thesis, etc.
22


Eligibility
i. Indian National
ii. Secured admission to professional/technical courses in India or
abroad. Branches need not to go into technicalities of the
admission process (selection through management quota) and
may consider education loan based on admission advice from the
college / institution ( RBD Adv. Cir. No. 17/2010 dt.
24.05.2010)

More than one
loan in a family
(Revised vide
RAD Cir. 41/2010
dtd. 16/11/2010)
In case of receipt of application for more than one loan for student
borrowers from a family, the loan be considered individual-wise and not
family-wise, subject to margin and repaying capacity of the
parent/student. In other words, any number of applicants belonging to
the same family may be sanctioned loans upto ` 4.00 lac individually,
without insisting for any security.
Top up Loans Top up loans may be sanctioned to students for pursuing further studies
within overall eligibility limits with appropriate rescheduling of existing
loans and required security by the CH
Age of student There is no restriction with regard to age of student for being eligible for
the loan( RBD Adv. Cir. No. 17/2010 dt. 24.05.2010)
Income Criteria No Income criteria is prescribed for the parents. However amount of
loan be decided by judging Income of the parents.
Capital
Requirement
Risk Weight as per BASEL-I = 100%
Risk Weight as per BASEL-II = 75%
Margin NIL Upto ` 4.00 lac
5% Above ` 4.00 lac in India
15% Above ` 4.00 lac abroad
(Scholarship/assistance may be included in the margin)
Margin may be brought-in on year-to-year basis as and when
23

disbursements are made on a pro-rata basis.

5. HOUSING FINANCE (PUBLIC)

Eligibility Individual & Joint Owners
Purpose &
Extent (Revised
vide RAD Cir.
41/2011 dated
04.11.2011)
Purchase of Plot
i. ` 50 lac. However, CH & above may
consider Loan upto ` 100 lacs in Metro/
State Capital & ` 50 lac. for other centres
ii. Further, it be ensured that the loan
amount for purchase of Land/Plot under
any circumstance is not more than 60%
of the eligible loan amount as per the
repayment capacity

Construction of House Need based
Loaning Powers for
financing under-
construction flats built
by private builders
(Revised as per RAD
Cir. 26/2011 dated
05/07/2011)
JM
G-I
MMG
-II

MM
G-III

SM
G-
IV

SM
G-V

D
G
M
G
M
NI
L
NIL 40 100 200 30
0
50
0

Repair & Renovation ` 20 lac
Cost of furnishing Max. 10% of the loan upto maximum of ` 2.00
lac
Pari pasu Charge CH powers up to 20 lac to Govt. Employees
Freehold &
Lease hold

i. The loan can be granted both for freehold and for leasehold
property.
ii. In case of Leasehold, loan can be granted on the basis of
P/A from original allottee where DDA/PUDA/HUDA
permit conversion of leasehold into freehold property.
24

iii. Otherwise advance is not permitted against plots purchased
on Power of Attorney basis.

Capital
Requirement

Loan limit up to 30 lac Risk Weight is 50%

Loan limit above 30 lac

Risk Weight is 75%

LTV Ratio more than 75 lac

Risk Weight is 100%

LTV in respect of Housing loan should not exceed 80%.
For small housing loans up to 20 lac, LTV should not exceed 90%.

Margin Land/Plot 40%
Construction/repair/addition
up to ` 25 lac i.e. LTV
should not exceed 80%)
20%
Construction/repair/addition
above ` 25 lac
25%
(Charges e.g. stamp duty, registration charges and other
documentation charges, if any, paid by the borrower shall NOT be
considered towards margin money. However, Acquisition cost of
Plot be considered towards Margin Money)

Rate of Interest
(RAD Cir
22/2011 dated
26/05/2011)
Rate of Interest as per LA Circulars issued from time to time.
0.50 % extra will be charged on H/L for for 3
rd
or subsequent house/flat.
[RBD-ADV 57/2009]
The interest can be fixed or floating
Option can be changed from fixed to floating and vice versa with flat
charges of 2% fee on Balance outstanding

Fixed Interest rate will be reviewed/reset after a block of 5 years in respect
of loans disbursed on or after 1.8.2006.
25

0.25% relaxation in interest rate for serving Defence Personnel. (New
cases)
The fixed rates shall be fixed at rates, higher by a fixed spread as
compared to that of floating rate of similar tenor and shall be made fixed
for 5 years. At the time of each reset after 5 years, the fixed rate shall be
fixed at a rate, which should be higher by the same spread over the
floating rate applicable on the date of reset for the original tenor. At
present, the spread has been fixed at 50 bps.
Interest Rates on Housing Loans under Fixed Rate of Interest with effect
from 01.04.2012 are as under:

Repayment
Tenor
Upto ` 30 lacs Above ` 30 lacs
to ` 75 lacs
` 75 lacs and
above
Above 5 years
& upto 15 yrs
12.00 12.25 12.45

Processing
(upfront) fee

i. For housing loans upto ` 300 lakh - 0.50% of the loan
amount (earlier 0.90%) with a cap of ` 20000/-. Both are
exclusive of service tax plus education cess.
ii. For loans above ` 300 lakh 0.90% of the loan amount
exclusive of service tax plus education cess.
iii. 50% relaxation in Processing (Upfront) Fee for serving
Defense Personnel (New cases)

Repayment
i. Maximum 25 years including Moratorium period of 18
months
ii. Maximum 10 years including moratorium period of 6
months in case of loan for
repair/renovation/addition/alteration
iii. Installment can be fixed up to maximum age of 65 years.
Circle Head/Hub Incharge in the rank of Scale IV & above
can relax the age up to 70 years (can also permit repayment
26

tenor according to the age of co-borrower who is not co-
owner of the property.)
iv. All deductions should not exceed 50% of Gross monthly
income. However where gross monthly salary is above
50000/-, the deduction can be up to 60% and if gross
monthly salary is above 100000/-, the deduction can be up
to 70% with the permission of CH. The income of earning
spouse and children can be taken into account.
v. The Income of spouse and earning children can be taken
into account provided they are made co-borrowers.
vi. Father/mother can also be made co-borrowers in cases
where property is in the single name of his/her son and also
clubbing of their income is permitted for determining
eligibility criteria.
vii. Minimum 24 advance cheques should be obtained. As and
when, 6 cheques remain, fresh lot be obtained. Out of 24,
23 cheques should be of installments and 1 cheque should
be of the amount equal to the balance amount.
viii. ECS/standing instruction may also be considered.
Wherever ECS/Standing Instructions are obtained, 2-3
PDCs are to be procured/ maintained by the
branches/Retail asset branches to keep remedy alive under
Section-138 of Negotiable Instruments Act.


Graduated EMI PNB offers benefit of graduated EMI. This means that the customer has
the option of choosing EMI that can increase or decrease during
repayment period rather than being given a fixed EMI over repayment
tenor.
Documentation
charges
`1350 + service tax
27

Security i. Equitable/Registered Mortgage of Immovable Property
ii. Tripartite agreement be executed amongst Housing
Board/Dev Authority/Coop Society/Builder, the borrower
and the bank where mortgage cannot be created
immediately. In such cases, 3
rd
party guarantee is also to be
obtained.
iii. EM of other IP or pledge of NSC etc. up to 125% of loan
amount if property is being purchased from 1
st
P/A holder
and where there is delay in execution of Tripartite
agreement or where the mortgage of property is not
possible being an ancestral property (without title deeds) or
Lal Dora Land.
iv. Verification of security is required once in 2 years In case
of NPAs accounts, security is to be verified on Half yearly
basis.

Guarantee In general, no guarantee is to be asked for. But while preparing RBL score
sheet, if score is less than 50%, then 3
rd
party guarantee can be obtained to
raise score of the applicant.
Insurance

Priority
Sector
Inclusion
In case of building at Re-construction cost
Repair and
renovation
`1.00 lac (Rural & Semi/Urban)
`2.00 lac (Urban)
Others ` 25.00 lac (RAD Cir. 19/2011 dated
14/05/2011)


Other features

i. Loan can be sanctioned by the branch/hub near to the present place
of work/posting/residence of the borrower. However, if the
property is situated at other place, services of branch/hub located
at that center may be availed for verification of Security and
NEC/Valuation etc.
ii. CH may give administrative clearance for sanction by
HUB/Branch where the property is located (RBD 26/2009)
o Loan can be granted even if property is in the name of
28

wife/parents provided that the owner is made co-borrower.

o Loan can be granted for 2
nd
house in the same city.
o Loan can be granted for purchase of house for rental
purpose.
o Cost of Car parking upto maximum extent of 5% of the
cost of house/flat can be included in the cost of project.
o For takeover, permission of higher authority is not
required.
iii. 2 Million Housing programme covering various monthly income
groups is being periodically monitored by NHB. Accordingly,
bank submits a consolidated statement to NHB on a monthly basis.
For the purpose of MIS, ITD, Head Office has now created a
special field for Monthly Income of Borrower (Free Text 2) under
the Housing Loans in the CBS system, as per details hereunder:
EWS (Economically Weaker Sections): Monthly Income
up to `5300.00 per month.
LIG : Monthly Income from `5001.00 to `10000.00 per
month.
MIG: Monthly Income from `10001.00 to `20000.00 per
month.
iv. HIG: Monthly Income above `20000.00 per month..
Important
conditions
i. Loan cannot be granted
ii. For construction in Un-authorized colonies
iii. If property is to be used for commercial purpose
iv. Without approved Map
v. ( In Compliance of Delhi High Court Orders)
vi. Pre-payment charges of 2% be recovered on account being taken
over by another bank. In case, the loan is pre-paid out of own
sources or the loan is taken over by another bank with in 30 days
from date of circular by which either the interest is raised or any
important term or condition is changed, there will be no pre-
payment charges.
vii. Flat pre-payment charges of 2% be recovered from borrowers who
pre-pay without construction on the plot before 5 years

viii. Powers of concessions in rate of interest/other charges stand
withdrawn vide RBD cir no. 52/07 dt. 13.11.07.
29


In case, the construction of house is not completed within 3 years of the
date of first disbursement or in case the plot is sold, penal interest @2%
over and above the applicable rate be charged.
In respect of builders/developers of national repute, request for down
payment in case of under construction houses/flats can be permitted by
sanctioning authority subject to availability of tangible collateral security
of the value of at least 50% of down payment to be disbursed.
On-line Application services started. (RBD Adv. 32/2009).
Sanction /
Disbursement
(RBD Adv.
26/2009)


i. Housing loan should be sanctioned at the Hub/CCPC, which is
near the present place of work/posting/residence of prospective
borrower.
ii. For security verification/NEC, the sanctioning Hub/CCPC should,
however, take the help of Hub/CCPC, which is located near the
housing property.
iii. Further, Hub/CCPC at the place of the housing property must get
the job of security verification/NEC done promptly, so that there
should be no complaint on this count.
iv. Circle Head of the area where housing property is located is,
however, empowered to give administrative clearance for
considering sanction of Housing Loan at Hub/CCPC falling in
his/her area, on merits.

Issuance of
Provisional
Interest
Certificates
(RAD 21.2011
dtd. 26/05/11)
To assist the branches in printing system generated provisional interest
certificates, functionality has been developed in MIS Server at PNBRPT
3/56a enabling printing of same, which is based on following logic:
i. The interest charged in the account from the month of April onward
to the month of last application of interest on actual basis.
ii. The interest for the remaining period of the financial year ending
next March on notional basis.
iii. The calculation of notional interest is based on monthly product.
iv. The notional interest is calculated on the outstanding balance on the
first day of the month after adding interest notionally calculated for
the previous month and deducting the installment amount (flow
amount as given in the E details)
v. The sum of interest for 12 months (actual+notional) is printed in the
certificate generated through this functionality.
30

vi) There is no credit other than the installment (flow amount) and debit
other than the interest amount.
Takeover (RBD
Adv. 37/2009) :
Investigation of
title
Original title deeds should be submitted by the intending mortgagor for
legal investigation to the Advocate and in no case, Advocate should give
opinion on the basis of photocopy/certified copy of the Title Deed.
In cases of take-over of housing loans, where the original title deed
remains in the possession of previous financer and is released only after
disbursement of loan by our branch, Law Division has suggested the
following steps :-
i. Certified copy of the title deeds be obtained from the concerned
office of Sub-Registrar/Registrar of Assurance by the counsel of
the Bank and he should give the search report as per the above-
said Circular of Law Division. The other documents like previous
electricity bill, water bill, house tax receipt etc. be also examined
to satisfy about ownership of proposed borrower.
ii. The counsel and Branch Manager should visit the site personally
and identify the property in question including sanction of the
map.
iii. The Branch Office should draw credit information report from
CIBIL data base to have information about availment from other
banks and repayment of loan status.
iv. The party should request his/her banker to allow examination of
original title deed. The other bank is obligated to allow
examination of original on the request of borrower. Under Section
60B of Transfer of Property Act, 1882, Mortgagor is entitled at all
reasonable times, at his/her request and his/her own cost and on
payment of the mortgagees costs and expenses in this behalf, to
inspect and make copies or abstracts of, or extracts from,
documents of title relating to the mortgaged property which are in
custody or power of the mortgagee. In case of reluctance on the
part of existing financer, the above provision of law can be quoted.

Expression of
Interest
It is a letter issued by the bank/branch wherein the lender expresses
intention to make advance to the intended borrower on the basis of
eligibility criteria subject to the fulfillment of terms and conditions.
Group Total
Suraksha
Scheme of
TATAAIG
(RAD Cir.
02/11 dated

i. One time premium to be borne by the customer can be financed by
the Bank.
ii. The minimum age of entry is 18 years and maximum age is 65
years. Maximum age for coverage is 70 years.
iii. Minimum term of Coverage shall not be less than 1 year or more
31

01/01/2011) than 25 years.
iv. The initial Sum Insured shall not be less than ` 1,000 and
maximum sum insured will be as per bank norms equivalent to the
loan amount disbursed.
v. A term insurance policy is purely risk cover with no saving
element. Benefit is payable only, if Death occurs during the term
of insurance, which will be as per the amortization table for a
specific sum insured for certain repayment tenor taking the rate of
interest at 10% p.a.
vi. Validity of the Tie extended on adhoc basis till further
communication (RAD 37/11, 29/09/11)

OD Facility to
existing H/L
borrowers for
personal needs
OD facility can be allowed to existing Housing Loan borrowers provided
there is satisfactory repayment of 24 installments and there is no IR
irregularity. Other features of the scheme are as under:
i. Minimum 50000/- and Maximum ` 5.00 lac.
ii. Additional limit and present o/s should not exceed 75% of current
market price of the house so as to maintain margin of 25%.
iii. Upfront fees is NIL and documentation charges are ` 500/-.
iv. Take home salary should not be less than 40% of net salary.
v. Loaning powers are SB-Nil, MB- `4.00 lac, LB, ELB & VLB

vi. ` 5.00 lac.
vii. ROI is equal to BPLR

viii. After HL is repaid, OD can be continued/ renewed provided the
sanctioning authority is satisfied about repaying capacity of the
borrower and Value of security.

ix. Facility cannot be sanctioned to the borrowers, who have availed
HL for purchase of plot, construction on which is yet to be
completed. [43/2009]

x. The condition of minimum 2 years of repayment track record has
32

been waived subject to compliance with KYC and other
conditions/parameters/guidelines. Also, this overdraft facility may
be considered by branches at their level (i.e. outside the purview of
Hub & Spoke Model) in the accounts of existing HL borrowers
[RBD/ADV/64/2009]
PNB Flexible
Housing Loan
Scheme

This is an attractive variant of Housing Loan Scheme offered by the PNB
for its custome` Under this scheme, OD facility is made available to the
HL borrower. He can deposit his savings and withdraw the same as per his
requirement. The features of the scheme are as under:


Eligibility

i. Age of the applicant must be less than
50. Existing HL borrowers can also
apply provided their loan account is
regular and no IR irregularity persists.


Purpose
ii.
iii. All purposes as per original scheme
except Purchase of Land / Plot.

Extent iv. Term Loan 80%
v. Overdraft 20%
vi. After lapse of 3 years, enhancement in
OD will be allowed equal to reduction in
Term Loan and thereafter on yearly
basis.
vii. After lapse of 5 years, 20% increase in
original limit is allowed in the shape of
TL/OD for personal needs.
viii. Market Value of Property should be
sufficient to cover the margin of 25%
ix. After attaining age of 55 years, OD
facility will be reduced on monthly basis
33

so that whole limit and T/L are adjusted
by the end of 65 years
x. Maximum OD limit should not exceed
50% of Total limit.
xi. HL can be sanctioned by the branch/hub
situated near the
workplace/posting/residence.
xii. Security verification can be done by
nearby branch.
xiii. Rate of Interest as given above in the
table in Housing Loan scheme (general)
xiv. For Overdraft portion, R/I is equal to
BPLR



The rest of the loans are:

i. Central Scheme to Provide Interest Subsidy on Education Loan
ii. (Retail Asset Divn. Cir. No. 36/2010 dated 06/10/2010 & RAD 12/11 dated 25/02/2011)
iii. PNB PRATIBHA (NEW EDUCATION LOAN SCHEME FOR STUDENTS GETTING
ADMISSION IN PREMIER INSTITUTES)
iv. HOUSING LOAN SCHEME FOR PUBLIC for extending additional loans to the members
of Army Group Insurance Fund (AGIF) on pari passu basis Tripartite Agreement (RAD
Cir. 08/2012 dated 30/03/2012
v. INTEREST SUBSIDY SCHEME FOR HOUSING THE URBAN POOR (ISHUP)
vi. RBD Adv. 62/2009 DATED 15.12.2009 Eligibility Criterion Revised vide Cir.
22/2010 dtd. 04/06/2010
vii. EARNEST MONEY DEPOSIT SCHEME (RAD Cir. No. 38/2010 dated 04/11/2010
viii. 1% Interest Subvention scheme on Housing Loan up to ` 15 lakh (RAD Cir. No. 39/2010
dated 06/11/2010 & RAD Cir. 11/11 dated 18/02/2011 & 32/11 dated 09/08/2011)
ix. PERSONAL LOAN FOR PENSIONERS (Revised vide RAD Cir. 06/11 dtd. 31/01/2011)
x. PERSONAL LOANS SCHEME FOR PUBLIC INCLUSION OF LIC AGENTS (RAD
Cir. 04/2011 dtd. 07/01/2011)
34

xi. PNB BAGHBAN SCHEME (RAD Circular 45/2011 dated 29/12/2011)
xii. MORTGAGE LOAN AGAINST IP Scheme was kept in abeyance. Now restored vide Cir.
60 dated 30.11.2009(Ref. : Cir. 7/2006, 22/2006, 44/2008 etc.)
xiii. Scheme for Financing Traders (Modified Scheme) (Now dealt by MSME Division.
Consolidated Scheme vide MSME Cir. 23 dated 20.11.2010)
FINANCING OF STOCK/RECEIVABLES/ OTHER BLOCK ASSETS
FINANCING RETAIL TRADERS-FOR PURCHASE OF SHOP / SHOW ROOM
xiv. PNB SUPER TRADE (MSME Div. Cir. 18No. 7/11 dt. 4.6.2011)
xv. SCHEME FOR FINANCING PROFESSIONALLY QUALIFIED MEDICAL
PRACTITIONERS


LENDING TO PRIORITY SECTOR



1. HISTORICAL BACKGROUND:
Origin Credit Policy for the year 1967-68 emphasized that commercial banks should
increase their involvement in the financing of agriculture, exports and small-
scale industries
Formulation of
PS as a concept
Report of Informal Study Group on Statistics relating to Advances to the
Priority Sector in the year 1972
First Target
In 1974 - 1/3
rd
of total advances
Subsequent
Target
In 1980 - 40% of Aggregate Credit. Based on the recommendations of
Krishnaswamy Committee for implementation of Priority Sector & 20 Point
Programme
Definition revised April 30, 2007. RBI Working Group constituted under the Chairmanship of
Shri CS Murthy





35

2. PRIORITY SECTOR CLASSIFICATION

1a. AGRICULTURE : DIRECT FINANCE
Finance to
individual farmers
(including Self
Help Groups
(SHGs) or Joint
Liability Groups
(JLGs), i.e. groups
of individual
farmers, provided
banks maintain
disaggregated data
on such finance for
Agriculture and
Allied Activities
(Dairy, fishery,
piggery, poultry,
bee-keeping etc.)
i. Short-term loans for raising crops (Need Based), i.e. for crop
loans. This includes traditional/non-traditional plantations and
horticulture.

ii. Advances up to ` 10 lakh against pledge/hypothecation of
agricultural produce (including warehouse receipts) for a period
not exceeding 12 months, irrespective of whether the farmers
were given crop loans for raising the produce or not.

iii. Working capital and term loans (Need Based) for financing
production and investment requirements for agriculture and
allied activities.

iv. Loans (Need Based) to small and marginal farmers for
purchase of land for agricultural purposes.

v. Loans (Need Based) to distressed farmers indebted to non-
institutional lenders, against appropriate collateral or group
security.

vi. Loans (Need Based) granted for pre-harvest and post-harvest
activities such as spraying, weeding, harvesting, grading,
sorting, processing and transporting undertaken by individuals,
SHGs and cooperatives in rural areas.
vii. Loans granted for agricultural and allied activities, irrespective
of whether the borrowing entity is engaged in export or
otherwise. The export credit granted by banks for agricultural
and allied activities may, however, be reported separately under
heading Export credit to agricultural sector.
36

Finance to others
[such as corporates,
partnership firms
and institutions] for
Agriculture and
Allied Activities

Loans (Need Based) granted for pre-harvest and post harvest activities
such as spraying, weeding, harvesting, grading, sorting and
transporting.
Finance up to an aggregate amount of ` one crore per borrower for the
purposes of all the activities for Short, Medium & Long Term loans
given for agriculture & allied activities mentioned above.
One-third of loans in excess of ` one crore in aggregate per borrower
for agriculture and allied activities.



1b. AGRICULTURE : INDIRECT FINANCE

i. Two-third of loans to entities OTHER THAN Individual
Farmers/ (including SHGs/JLGs) in excess of ` one crore in
aggregate per borrower for agriculture and allied activities.

ii. Loans to food and agro-based processing units to entities
OTHER THAN Individual Farmers/SHGs/JLGs &
Cooperatives in Rural areas with investments in plant and
machinery up to ` 10 crore irrespective of location (even if
registered as SSI/Micro Units).

iii. Credit for purchase and distribution of fertilizers, pesticides,
seeds, etc up to ` 40 lakh

iv. Loans up to ` 40 lakh granted for purchase and distribution of
inputs for the allied activities such as cattle feed, poultry feed,
etc

v. Finance upto ` 30 lakh per dealer extended to dealer in drip
irrigation/sprinkler irrigation system/agricultural
machinery, irrespective of location. The dealer should be
37

dealing exclusively in such items or if dealing in other
products, should be maintaining separate and distinct
records in respect of such items.
Agri-clinic, Agri-
business and other
services to farmers
(The extent of
finance for all these
activities for
coverage under
Indirect Finance to
agriculture would
be Need Based)

i. Loans for construction and running of storage facilities
(warehouse, market yards, godowns, and silos), including cold
storage units designed to store agriculture produce/products,
irrespective of their location. If the storage unit is registered as
SSI Unit / micro or small enterprise, the loans granted to such
unit may be classified under advances to Small Enterprises
Sector.
ii. Finance for setting up of Agri clinics and Agribusiness Centres

iii. Finance for hire-purchase schemes for distribution of
agricultural machinery and implements

iv. Advances to Custom Service Units managed by individuals,
institutions reorganizations who maintain a fleet of tractors,
bulldozers, well-boring equipment, threshers, combines, etc.,
and undertake work for farmers on contract basis.

On-lending for
Agri-purposes (The
extent of finance
for all these
activities for
coverage under
Indirect Finance to
agriculture would
be Need Based)

i. Loans to farmers through Primary Agricultural Credit Societies
(PACS), Farmers Service Societies (FSS) and Large-sized
Adivasi Multi Purpose Societies (LAMPS).

ii. Loans to cooperative societies of farmers for disposing of the
produce of members

iii. Financing the farmers indirectly through the co-operative
system (otherwise than by subscription to bonds and debenture
issues).

iv. Loans to Non-Banking Financial Companies (NBFCs) for on
38

lending to individual farmers or their SHGs/JLGs

v. Loans to Arthias (commission agents in rural/semi-urban areas
functioning in markets/mandies) for extending credit to
farmers, for supply of inputs as also for buying the output from
the individual farmers/ SHGs/ JLGs

vi. Loans granted to NGOs which are SHG Promoting Institutions
for on-lending to members of SHGs under SHG-Bank Linkage
Programme for agricultural purpose

vii. Loans granted to RRBs for on-lending to agriculture and allied
activities sector

viii. Loans to MFIs for on lending to agriculture subject to condition
that food and agro based processing units with investments in
plant and machinery upto Rs.10 crore and loans granted for
pre-harvest and post harvest activities by individuals, SHGs
and co-operatives in rural areas.
GCC / Overdraft in
no frills account

Overdrafts, up to ` 25,000 (per account), granted against no-frills
accounts in rural and semi-urban areas.
100% Credit outstanding under loans for general purposes under
General Credit Cards (GCC).

Loans not eligible
for classification as
direct / indirect
finance to
agriculture

i. Loans sanctioned w.e.f. April 1,2011 to NBFCs (other than
MFIs having investment in plant and machinery upto Rs.10
crores for agro based processing units for pre harvest and post
harvest activities) for on lending. The bank loans extended
prior to April 1,2011 to NBFCs and classified under Priority
Sector will continue to be reckoned under Priority Sector till
maturity of such loans.

39

ii. Loans sanctioned to NBFCs for on-lending to individuals or
other entities against gold jewellery, investments made by
banks in securitized assets originated by NBFCs, where the
underlying assets are loans against gold jewellery and purchase
/ assignment of gold loan portfolio from NBFCs.

iii. Loans sanctioned to Central / State Co-operative Marketing
Federations and State Civil Supplies Corporations.

iv. Loans sanctioned to corporate / private companies / sugar
companies for financing of receivables of farmers / vendors/
traders against their supplies of agricultural produce to such
corporate / private companies / sugar companies.



2a. SMALL ENTERPRISES : DIRECT FINANCE
Manufacturing
Enterprises
(Small)
Enterprises engaged in the manufacture/production, processing or
preservation of goods and whose investment in plant and machinery
[original cost excluding land and building and the items specified by the
Ministry of Small Scale Industries vide its notification no. S.O. 1722 (E)
dated October 5, 2006] is more than Rs.15 lakh but does not exceed ` 5
crore irrespective of the location of the unit.
Manufacturing
Enterprises
(Micro)
Enterprises engaged in the manufacture/production, processing or
preservation of goods and whose investment in plant and machinery
[original cost excluding land and building and the items specified by the
Ministry of Small Scale Industries vide its notification no. S.O. 1722 (E)
dated October 5, 2006] does not exceed ` 25 lakh, irrespective of the
location of the unit
Service
Enterprises
(Small)
Enterprises engaged in providing/rendering of services (including Retail
Trade) and whose investment in equipment (original cost excluding land
and building and furniture, fittings and other items not directly related to
the service rendered or as may be notified under the MSMED Act, 2006)
is more than Rs.10 lakh but does not exceed ` 2 crore irrespective of the
40

location of the unit.
Service
Enterprises
(Micro)

i. Enterprises engaged in providing/rendering of services
(including Retail Trade) and whose investment in equipment
[original cost excluding land and building and furniture, fittings
and other items not directly related to the service rendered or as
may be notified under the MSMED Act, 2006] does not exceed `
10 lakh irrespective of the location of the unit.

ii. Includes small road & water transport operators, small business,
professional & self-employed persons, and all other service
enterprises engaged in activities, viz,., consultancy services
including management services, composite broker services in
risk and insurance management, Third Party Administration
(TPA) services for medical insurance claims of policy holders,
seed grading services, training-cum-incubator centre, educational
institutions, training institutes, retail trade, practice of law i.e.
legal services, trading in medical instruments (brand new),
placement and management consultancy services, advertising
agency and training centres, etc. and which satisfy the definition
of micro and small (service) enterprises in respect of investment
in equipment (original cost excluding land and building and
furniture, fittings and other items not directly related to the
services rendered or as may be notified under the MSMED Act,
2006) (i.e. not exceeding Rs. 10 lakh and Rs. 2 crore
respectively).

iii. Loans granted by commercial banks to micro and small
enterprises (MSE) (manufacturing and services) are eligible for
classification under priority sector, provided such enterprises
satisfy the definition of MSE sector as contained in MSMED
Act, 2006, irrespective of whether the borrowing entity is
engaged in export or otherwise. The export credit granted by
41

banks to MSEs may, however, be reported separately under
heading "Export credit to micro and small enterprises sector".

Khadi & Village
Industry Sector
All advances granted to units in the KVI sector, irrespective of their size
of operations, location and amount of original investment in plant and
machinery. Such advances will be eligible for consideration under the
sub-target (60 %) of the small enterprises segment within the priority
sector
RETAIL TRADE is no longer a separate category under PS classification. It is now a part of
Small Enterprises. Advances granted to retail traders upto ` 20 lakh would form a part of
advances to Small Enterprise sector
2b. SMALL ENTERPRISES : INDIRECT FINANCE
Indirect finance to the small (manufacturing as well as service) enterprises sector will
include credit to :

i. Need based financed to persons involved in assisting the decentralized sector in the
supply of inputs to and marketing of outputs of artisans, village and cottage
industries.

ii. Advances to cooperatives of producers in the decentralized sector viz. artisans village
and cottage industries.

iii. Loans granted by banks to Micro Finance Institutions on or after 1
st
April 2011 for
on-lending to small and micro enterprises (manufacturing as well as service).

iv. Loans not eligible for classification as direct or indirect finance to MSE Sector

v. Loans sanctioned by banks to State Financial Corporations for on lending to micro
and small enterprises.

vi. Loans sanctioned w.e.f. April 1,2011 to NBFCs(other than MFIs which adhere to the
criteria for micro finance)

42

3. MICRO CREDIT

Loans of very
small amount not
exceeding `
50,000 per
borrower

Loans of very small amount provided by banks either directly
or indirectly through a SHG/JLG mechanism for on-lending up
to ` 50,000 per borrower.
(As per the RBI CLARIFICATION dated 18.12.2007, any loan upto `
50000 per borrower will be eligible to be classified under Micro Credit
within Priority Sector. However, loans otherwise covered under specific
heads under Priority Sector, such as, Agriculture, Small Enterprises,
Education, Housing etc. may be classified under the concerned category
of the Priority Sector and not under Micro Credit)
Bank credit to Micro Finance Institutions extended on, or after, April 1,
2011 for on-lending to individuals and also to members of SHGs / JLGs
will be eligible for categorisation as priority sector advance under
respective categories viz., agriculture, micro and small enterprise, and
micro credit (for other purposes), as indirect finance, provided not less
than 85% of total assets of MFI (other than cash, balances with banks
and financial institutions, government securities and money market
instruments) are in the nature of qualifying assets. In addition,
aggregate amount of loan, extended for income generating activity, is
not less than 75% of the total loans given by MFIs
A qualifying asset shall mean a loan disbursed by MFI, which satisfies
the following criteria:
i. The loan is to be extended to a borrower whose household annual
income in rural areas does not exceed Rs.60,000/- while for non-rural
areas it should not exceed Rs.1,20,000/-.
ii. Loan does not exceed Rs.35,000/- in the first cycle and Rs.50,000/- in
the subsequent cycles
iii. Total indebtedness of the borrower does not exceed Rs.50,000/-.
iv. Tenure of loan is not less than 24 months when loan amount exceeds
Rs.15,000/- with right to borrower of prepayment without penalty.
v. The loan is without collateral.
vi. Loan is repayable by weekly, fortnightly or monthly instalments at
43

the choice of the borrower.
Loans to poor
indebted to
informal sector
Loans to distressed persons (other than farmers) to prepay their debt to
non-institutional lenders, against appropriate collateral or group security.
4. EDUCATION LOANS
Educational loans
granted to
individuals
Educational loans granted to individuals for educational purposes up to `
10 lakh for studies in India and ` 20 lakh for studies abroad. Loans
granted to institutions will not be eligible to be classified as priority
sector advances.
Loans granted to
NBFCs for on-
lending
Loans granted by banks to NBFCs for on-lending to individuals for
educational purposes up to ` 10 lakh for studies in India and ` 20 lakh for
studies abroad.
5. HOUSING
Loans to
individuals

i. Loans up to ` 25 lakh, irrespective of location, to individuals for
purchase/construction of a dwelling unit per family, excluding
loans granted by banks to their own employees.
ii. Loans given for repairs to the damaged dwelling units of families
up to ` 1 lakh in rural and semi-urban areas and up to ` 2 lakh in
urban and metropolitan areas

Loans to agencies
iii. Assistance given to (a) any governmental agency or (b) a non-
governmental agency approved by the NHB for the purpose of
refinance for construction/reconstruction of dwelling units or for
slum clearance and rehabilitation of slum dwellers, subject to a
ceiling of ` 5 lakh of loan amount per dwelling unit
iv. Loans granted to Housing Finance Companies (HFCs), approved
by National Housing Bank for the purpose of refinance, for on-
44

lending to individuals for purchase/construction of dwelling
units, provided the housing loans granted by HFCs do not exceed
` 20 lakh per dwelling unit per family.

6. OTHERS
State Sponsored
Organizations for
SCs/STs
Advances sanctioned to State Sponsored Organizations for Scheduled
Castes/ Scheduled Tribes for the specific purpose of purchase and
supply of inputs to and/or the marketing of the outputs of the
beneficiaries of these organizations.
Export Credit This category will form part of priority sector for foreign banks only.
WEAKER SECTIONS UNDER PRIORITY SECTOR
A Small and marginal farmers with land holding of 5 acres and less, and
landless labourers, tenant farmers and share croppers
B Artisans, village and cottage industries with individual credit limits upto
` 50,000
C Beneficiaries of Swarnjayanti Gram Swarozgar Yojana (SGSY) now
national rural livelihood mission; SC/ST, DRI, Swarna Jayanti Shahari
Rozgar Yojana (SJSRY); Scheme for Rehabilitation of Manual
Scavengers (SRMS); SHGs
I Loans to distressed poor to prepay their debt to informal sector, against
appropriate collateral or group security.
J Loans granted under above categories to persons from minority
communities as may be notified by Government of India from time to
time.
In States, where one of the minority communities notified is, in fact, in
majority, only the other notified minorities will be covered. These
States/Union Territories are Jammu & Kashmir, Punjab, Meghalaya,
Mizoram, Nagaland and Lakshadweep.






45


PROCESSING OF LOAN APPLICATION


Completion of Application Forms

In case of Government sponsored schemes such as SGSY, the concerned project authorities like
DRDAs, DICs, etc. should arrange for completion of application forms received from borrowers. In
other areas, the bank staff should help the borrowers for this purpose.



ISSUE OF ACKNOWLEDGEMENT OF LOAN APPLICATIONS

Banks should give acknowledgement for loan applications received from weaker sections. Each
branch may affix on the main application form as well as the corresponding portion for
acknowledgement, a running serial number. The serial number given on the acknowledgement
is also recorded on the main application. The loan applications should have a check list of
documents required for guidance of the prospective borrowers.

i. Disposal of Applications

(i) All loan applications up to a credit limit of ` 25,000 should be disposed of within a fortnight
and those for over ` 25,000, within 8 to 9 weeks.
(ii) All loan applications for Micro & Small Enterprises up to a credit limit of ` 25,000 should
be disposed of within 2 weeks and those above ` 25,000 & up to ` 5 lakh within 4 weeks,
provided the loan applications are complete in all respects and are accompanied by a 'check list'.

ii. Rejection of Proposals

Branch Managers may reject applications (except in respect of SC/ST) provided the cases of
rejection are verified subsequently by the Divisional/Regional Managers. In the case of
proposals from SC/ST, rejection should be at a level higher than that of Branch Manager.

46

iii. Register of Rejected Applications

A register should be maintained at the branch, wherein the date of receipt,
sanction/rejection/disbursement with reasons therefore, etc., should be recorded. The register
should be made available to all inspecting agencies.


MODE OF DISBURSEMENT OF LOAN

With a view to providing farmers wider choice as also eliminating undesirable practices, banks
may disburse all loans for agricultural purposes in cash which will facilitate dealer choice to
borrowers and foster an environment of trust. However, banks may continue the practice of
obtaining receipts from borrowers.



REPAYMENT SCHEDULE

Repayment programme should be fixed taking into account the sustenance requirements,
surplus generating capacity, the break-even point, the life of the asset, etc., and not in an
"ad hoc" manner. In respect of composite loans, repayment schedule may be fixed for term
loan component only.
As the repaying capacity of the people affected by natural calamities gets severely
impaired due to the damage to the economic pursuits and loss of economic assets, the
benefits such as restructuring of existing loans, etc. as envisaged under our circular
RPCD.CO.PLFS.NO. BC 16/05.04.02/2006-07 dated August 9, 2006 may be extended to
the affected borrowers.



RATES OF INTEREST

The rates of interest on various categories of priority sector advances will be as per RBI
directives issued from time to time.

i. In respect of direct agricultural advances, banks should not compound the interest in the
case of current dues, i.e. crop loans and instalments not fallen due in respect of term loans,
as the agriculturists do not have any regular source of income other than sale proceeds of
47

their crops.
ii. When crop loans or instalments under term loans become overdue, banks can add interest
to the principal.
iii. Where the default is due to genuine reasons banks should extend the period of loan or
reschedule the instalments under term loan. Once such a relief has been extended, the
overdues become current dues and banks should not compound interest.
iv. Banks should charge interest on agricultural advances in respect of long duration crops, at
annual rests instead of quarterly or longer rests, and could compound the interest, if the
loan/ instalment become overdue.

PENAL INTEREST

The issue of charging penal interests that should be levied for reasons such as default in repayment,
non-submission of financial statements, etc. has been left to the Board of each bank. Banks have been
advised to formulate policy for charging such penal interest with the approval of their Boards, to be
governed by well accepted principles of transparency, fairness, incentive to service the debt and due
regard to difficulties of customers.

No penal interest should be charged by banks for loans under priority sector up to ` 25,000 as hitherto.
However, banks will be free to levy penal interest for loans exceeding ` 25,000, in terms of the above
guidelines.



SERVICE CHARGES / INSPECTION CHARGES

i. No service charges/inspection charges should be levied on priority sector loans up to `
25,000.
ii. For loans above ` 25,000/- banks will be free to prescribe service charges with the prior
approval of their Boards, in terms of circular No. DBOD.Dir.BC.86/03.01.00/99-
2000datedSeptember 7, 1999.



48

INSURANCE AGAINST FIRE AND OTHER RISKS

1. Banks may waive insurance of assets financed by bank credit in the following cases:

No. Category Type of
Risk
Type of
Assets
(a) All categories of priority sector advances up to and
inclusive of ` 10,000
Fire & other
risks
Equipment
and current
assets
(b) Advances to Small Enterprises up to and inclusive of `
25,000 by way of
1. Composite loans to artisans, village and cottage
industries
2. All term loans.
3. Working capital where these are against non-hazardous
goods

Fire
Fire
Fire
Equipment
and current
assets
Equipment
Current
Asset

Where, however, insurance of vehicle or machinery or other equipment/assets is compulsory
under the provisions of any law or where such a requirement is stipulated in the refinance scheme
of any refinancing agency or as part of a Government-sponsored programmes such as SGSY,
insurance should not be waived even if the relative credit facility does not exceed ` 10,000 or `
25,000, as the case may be.


PHOTOGRAPHS OF BORROWERS

While there is no objection to taking photographs of the borrowers for purposes of identification,
banks themselves should make arrangements for the photographs and also bear the cost of
photographs of borrowers falling in the category of Weaker Sections. It should also be ensured
that the procedure does not involve any delay in loan disbursement.



49

DISCRETIONARY POWERS

All Branch Managers of banks should be vested with discretionary powers to sanction proposals
from weaker sections without reference to any higher authority. If there are difficulties in
extending such discretionary powers to all the Branch Managers, such powers should exist at least
at the district level and arrangements be ensured that credit proposals on weaker sections are
cleared promptly.

MACHINERY TO LOOK INTO COMPLAINTS

i. There is machinery at the Circle offices to entertain complaints from the borrowers if the
branches do not follow these guidelines, and to verify periodically that these guidelines are
scrupulously implemented by the branches.
ii. The names and addresses of the officer with whom complaints can be lodged should be
displayed on the notice board of every branch.

SANCTION OF LOANS

If any advance is not availed within 6 months from the date of sanction, the sanction gets lapsed
and the sanction should be revalidated before its disbursement.

DOCUMENTATION

i. Documentation forms an important part of lending which establishes the following:
ii. Legally enforceable contractual relationship between the bank and the constituent such as
lending/borrower.
iii. The nature and description of the securities, if any, offered for the advance and the terms
and conditions of sanctioning the advance.
iv. Banks unfettered rights for crystallization of securities when necessary. When an unlikely
event of default happens, as a last resort, documents obtained by the bank form the basis
upon which the bank may file a suit, as and when found necessary, in a component Court
of Law against the defaulting borrower/guarantor.
v. Creation of Security is also an important aspect involving creation of mortgage,
assignment etc. such charges are also to be registered with component authorities in case
50

of certain type of organization say with Registrar of Companies in case the borrower is a
Limited Company.

DISBURSEMENT OF LOANS INCLUDING CHANGES IN TERMS AND
CONDITIONS

Disbursement of loans sanctioned is to be made immediately on total compliance of terms and
conditions including execution of loan documents governing such sanction.
Any change in terms and conditions, including interest rate and service charges, will be
informed individually to the borrowers.
Changes in interest rates and services charges will be effected prospectively.
Consequent upon such changes any supplemental deeds, documents or writings are required to
be executed, the same shall also be advised. Further, availability if facility will be subject to
execution of such deeds, documents or writings.




















51

M/S KAMARYA ELECTRONICS PROPOSAL


BRIEF HISTORY

M/S Kamarya Electronics was established in 2005 and dealing in Electronic items and
cloths on retail and wholesale basis. The firm is well managed by Sri Radhey Shyam Agarwal and
his family members who have very good experience in this activity and their market reputation is
also very good. This is a very reputed business man family of Jhansi and they are known as
KAMARYAS.

FINANCIAL POSITION OF THE BORROWER

(Rs. in lac)
31.3.2012 31.3.2013 31.3.2014
Audited Estimated Projected
Gross Sales 400.11 376 426
Other Income 5.25 1.25 1.00
Operating Profit/ Loss 42.34 39.98 45.34
Profit before tax 11.74 11.64 13.49
Profit after tax 7.40 7.30 8.77
Cash profit/ (Loss) 9.17 9.11 10.42
Block Assets 53.63 51.92 50.21
Depreciation 1.76 1.71 1.65
Net Assets 51.86 50.21 48.56
Secured loan 98.63 108.77 107.5
Unsecured loan 18.04
Paid up capital 35.62 41.15 56.89
Reserves and surplus
excluding revaluation
reserves

52

Misc. expenditure not
written off

Accumulated losses
Deferred tax liability/ asset
Tangible net worth 35.62 41.15 56,89
Net Working Capital 21.52 19.10 55.83
Current Ratio 1.16 1.18 1.54
Debt Equity Ratio
Operating Profit/ Sales 10.58 10.62 10.60



Comments on Financial Indicator

i. Sales of Firm is increased in year ending 31march 2012 and firm made turnover of Rs. 400
Lacs. as compare to the last year turnover of Rs. 220 Lacs. sales of the firm is also good
during financial year 2012-2013.

ii. Current ratio of the firm is not good and a reason of the same is asked from the party in
writing.

iii. Firm is making constant profit in last 3 years.

POSITION OF CC (H) ACCOUNT AS ON 10.06.2013

Nature Limit VS DP Balance Irregularity
alongwith
reasons
CC(Hypothecation) 80 114.44 80 70.04 NIL


53


CONDUCT OF THE ACCOUNT

i. Sales of the firm are good and routed its all sales through the CC (H) A/C.

ii. Stock statement and other financial reports were submitted timely by the party.

iii. The account had never become irregular since availing credit facility from the bank.

iv. Over all conduct of the account was satisfactory.


RISK MANAGEMENT

Risk Management Policy articulated by the bank contains directions to the functional committees
in the areas of credit risk, market risk and the operational risks for framing the strategies and
policies to pursue the risk philosophy of the bank.

RISK PHILOSOPHY
The objective of risk philosophy continues to be able to ensure sustained and diversified growth
of business with healthy net returns commensurate with risk taken in a controlled risk
management environment by adopting the following:
i. Support growth of Bank by efficient deployment of funds within an acceptable risk-return
Framework.
ii. Avoidance of concentration of risk in individual, group borrowers/industry/country.
iii. Leadership approach in products and segments well understood by the Bank and having
pre-determined risk standards of moderate to low risk level.
iv. Watchful approach for products and segments having substantial future potential at
moderate to low risk level, till the Bank builds a critical mass of business and capability
and establish their risk standards.
v. Innovative approach for new emerging & perceived high risk areas taking limited
exposure.
vi. An independent and dynamic risk management setup with clearly laid down procedures
and well established linkages to guide functioning of various business units.
54



CREDIT RISK
Credit risk means the possibility of loss associated with diminution in the credit quality of
borrowers. In a banks portfolio, losses stem from outright default due to inability or
unwillingness of a customer or counter party to meet, commitments in relation to lending, trading,
settlement and other financial transactions.
Effectiveness of Credit Management in the bank is highlighted by the quality of its loan portfolio.
Every Bank is striving hard to ensure that its credit portfolio is healthy and that Non Performing
Assets are kept at lowest possible level, as both of these factors have direct impact on its
profitability. In the present scenario efficient project appraisal has assumed a great importance as
it can check and prevent induction of weak accounts to our loan portfolio. All possible steps need
to be taken to strengthen pre sanction appraisal as always Prevention is better than Cure. With
the opening up of the economy rapid changes are taking place in the technology and financial
sector exposing banks to greater risks, which can be broadly classified as under:
Industry Risks
Government regulations and policies, availability of infrastructure facilities,
Industry Rating, Industry Scenario & Outlook, Technology Up gradation,
availability of inputs, product obsolescence, etc.
Business Risks
Operating efficiency, competition faced from the units engaged in similar
products, demand and supply position, cost of labor, cost of raw material
and other inputs, pricing of product, surplus available, marketing, etc.
Management Risks
Background, integrity and market standing/ reputation of promoters,
organizational set up and management hierarchy, expertise/competence of
persons holding key position in the organization, delegation and
decentralization of authority, achievement of targets, track record in
execution of project, debt repayment, industry relations etc.
Financial Risks
Financial strength/standing of the promoters, reliability and reasonableness
of projections, past financial performance, reliability of operational data and
financial ratios, adequacy of provisioning for bad debts, qualifying remarks
of auditors/inspectors etc.

55


BASEL ACCORD & RISK MANAGEMENT
The Basel accord/accords refer to the banking supervision accords namely Basel I and Basel II
issued by the Basel Committee on Banking Supervision (BCBS).

BASEL I ACCORD

The 1988 Basel Accord primarily addressed banking in the sense of deposit taking and lending.
The main focus was Credit Risk. It described the strength of the Bank as measured by the Capital
employed. Accordingly it put a minimum level of capital adequacy (Capital to Credit Risk
Weighted Assets ratio) at 8%. Basel I allocated 4 risk weights i.e. 0%, 20, 50% and 100% to
different exposure types, based on the risk perceived on the exposure types under the credit
portfolio. Basel I provided a set norm for capital allocation which helped many banks to allocate
capital to counter the risks faced by them.

CRAR = Capital
Risk Weighted Assets (Credit Risk+ Market Risk +Operational Risk)

CAPITAL
Tier I
Capital
Paid Up Equity Capital + Statutory Reserves + Other disclosed free
reserves + Capital Reserves representing surplus arising out of sale
proceeds of Assets + Innovative Perpetual Debt instruments
Tier II
Capital
Revaluation Reserves (at a discount of 55%) + General Provisions and
Loss Reserves + Subordinated Debt + Hybrid Debt Capital
Instruments

Risk Weighted Assets
Basel I introduced the concept of Risk Weighted Assets (RWA). All the assets of a bank
(advances, investments, fixed assets etc.) carry certain amount of risk. In proportion to the
quantum of this risk, bank must maintain capital. Quantification of risk is done in percentage (0%,
20%, 50% etc.). Exposure when multiplied with these percentages gives risk based value of assets.
These assets are also called Risk Weighted Assets (RWA).


56

BASEL II ACCORD
Banking has changed dramatically since the Basel I document of 1988. Advances in risk
management and the increasing complexity of financial activities / instruments prompted
international supervisors to review the appropriateness of regulatory capital standards under Basel
I. To meet this requirement, the Basel I accord was amended and refined which came out as the
Basel II document. The Basel II document is structured into three parts. Each part is called as a
pillar. Thus these three parts constitute three pillars of Basel II.

PILLAR I
This pillar is compatible with the credit risk, market risk and operational
risk. The regulatory capital will be focused on these three risks
PILLAR II
This pillar gives the bank responsibility to exercise the best ways to manage
the risk specific to that bank. It also casts responsibility on the supervisors to
review and validate banks risk measurement models.
PILLAR III
This pillar is on market discipline is used to leverage the influence that other
market players can bring


DIFFERENCE BETWEEN
BASEL I BASEL II
1 Limited role of collateral as risk mitigant 1
Recognizes wide range of Collateral &
Guarantees as risk mitigant
2 Not recognizing Operational Risk 2
Recognizes Operational Risk and prescribes
explicit capital charge for
3
Risk weights assignment on transaction
basis
3 Risk weight assignment on risk rating basis
4
Not recognizing tenure or remaining time
to maturity of exposures in risk
assessment
4
Recognizes the tenure or remaining time to
maturity of exposures in risk assessment
5
Provisions are through Asset
Classification.

5
Provisions are through Expected Loss
Estimation



57

CREDIT RISK MANAGEMENT SYSTEM IN PNB
A comprehensive credit risk management system, which is in place in the bank, encompasses the
following processes:
i. Identification of Credit Risk
ii. Measurement of Credit Risk
iii. Grading of Credit Risk
iv. Reporting and analysis of rating related data
v. Control of Credit Risk


CREDIT RISK IDENTIFICATION

In order to take informed credit decisions, it is necessary to identify the areas of credit risk in each
borrower as well as each industry. Risk Management Division HO, in coordination with other HO
divisions involved in disbursal of credit and also the risk management departments of various
zonal offices identifies these risks areas and develops necessary tools and processes to measure
and monitor the risk.

CREDIT RISK MEASUREMENT

The credit risk rating models have been developed with a view to provide a standard system for
assigning a credit risk rating to all the borrowers on the basis of the overall credit risk involved in
them. Inputs to the models are the financial, management, business and conduct of account,
industry information. The evaluation of a borrower is done by assessment on various
objective/subjective parameters. The model evaluates the credit risk rating of a borrower on a
scale of AAA to D with AAA indicating minimum risk and D indicating maximum risk.

The credit risk-rating models incorporate therein all possible risk factors, which are important for
determining the credit quality/ rating of a borrower. These risks could be:

i. Internal and specific to the company,
ii. Associated with the industry in which the company is operating or
iii. Associated with the entire economy and can influence the repayment capacity and/
or willingness of the company.
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Evaluation methodology under rating models

i. The scores are assigned to each of the parameters on a scale of 0 to 4 with 0 being very
poor and 4 being excellent. The scoring of some of these parameters is subjective while for
some others it is done on the basis of pre-defined objective criteria.

ii. The scores given to the individual parameters multiplied by allocated weights are then
aggregated and a composite score for the company is arrived at, in percentage terms.
Higher the score obtained by a company, the better is its credit rating. Weights have been
assigned to different parameters based on their importance. Weights assigned to different
parameters have been loaded in the software. After allocating/evaluating scores to all the
parameters, the aggregate score is calculated and displayed by the software.

iii. The overall percentage score obtained is then translated into a rating on a scale from AAA
to D according to a pre-defined range of scores.

iv. Wherever a particular parameter is not applicable, no score should be given and the
parameter should be made Not Applicable.

v. For multi-divisional companies, which are involved in more than one industrial activity,
evaluation should be done separately for each business. However, the management
evaluation, conduct of account and financial evaluation will be done on a common basis.
In such cases, for the business section, each business should be evaluated and scored
separately, taking into account the different industrial activity involved.


59

GRADING OF BORROWERS UNDER THE RATING SYSTEM
In order to provide a standard definition and benchmarks under the credit risk rating system,
following matrix has been adopted in all the risk rating models.

Rating category Description Score (%) obtained
Grade within the
rating Category
PNB AAA Minimum Risk Above 80.00 PNB- AAA
PNB-AA
Marginal Risk Above 77.50 up to 80.00 PNB- AA +
Above 72.50 up to 77.50 PNB- AA
Above 70.00 up to 72.50 PNB- AA -
PNB-A
Modest Risk Above 67.50 up to 70.00 PNB- A +
Above 62.50 up to 67.50 PNB- A
Above 60.00 up to 62.50 PNB- A -
PNB-BB
Average Risk Above 57.50 up to 60.00 PNB- BB +
Above 52.50 up to 57.50 PNB- BB
Above 50.00 up to 52.50 PNB- BB -
PNB-B
Marginally
Acceptable Risk
Above 47.50 up to 50.00 PNB- B +
Above 42.50 up to 47.50 PNB- B
Above 40.00 up to 42.50 PNB- B -
PNB-C High Risk Above 30.00 up to 40.00 PNB- C
PNB-D Caution Risk 30.00 and below PNB D



60

SYSTEM FOR ASSIGNMENT & APPRAISAL OF RATING
The process of rating and vetting is as under:
Loan Sanctioning
Authority
Credit Risk Rating Authority
Vetting/Confirming
Authority
Head Office
i. Zonal CRMD in consultation
with branches
ii. Large Corporate Branches
GM (RMD), HO
Zonal / Circle
Office
i. In case of Large Corporate
Model, ELB/VLB
ii. In case of other Models, branches
to rate the accounts
Zonal CRMD
Branch Office Officer/Manager, Credit Section
An official designated by the
Incumbent not connected
with Processing/
recommending/rating of the
concerned loan proposal


In order to adopt internal rating based approaches (IRB) for credit risk, Basel II has placed certain
minimum requirements which inter-alia require, validation of rating system, process and
estimation of all relevant risk components. Banks must regularly compare realized default rates
with estimated probability of default (PD) of each grade and able to demonstrate to its supervisor
(RBI), that the internal validation process enable it to assess the performance of internal rating and
risk estimation system consistently and meaningfully. In view of above fact, not only rating but
consistent practices in evaluation of credit risk rating as well as evolving and updating robust data
on various risk components is must for adopting IRB approaches.


61

CONTROLS
The Credit Risk Management process in the bank encompasses the following management
Control techniques which help in mitigating the adverse impacts of credit risk in its credit
portfolio.
i. Credit Approving Authority
Credit Committee
Linkage of loaning powers with risk rating categories
ii. Prudential Exposure limits
iii. Risk Based Pricing
iv. Portfolio Management
v. Loan Review Mechanism
vi. Legal documentation
vii. Preventive Monitoring System
viii. Others
Use of CIBIL data and RBI defaulters list
Diversification of Risks



62

CREDIT RISK RATING

TERMS AND CONDITION OF THE SANCTION

Name of the borrower: M/S Kamarya Electronics and Jewelers
Address: Tandan Road Sipri Bazar, Jhansi
Nature: CC (H)
Extent: Rs. 80 Lac
Rating: BB
Margin: 30%
Rate of Interest: BR+ 4.50% which is at present 14.75% subject to change from time to time as
per HO/ RBI guidelines.
Prime Security: Hypothecation of stock of Electronic items, Jewellery and cloths.
Collateral Security: EM of properties of borrower and Guarantors valuing Rs. 830 lac.

CONDITIONS

i. Party to deal with us exclusively.
ii. Party to submit inventory of stock as on last day of each quarter within 7 days which will
be checked by BM/ second man alternatively.
iii. Stock of the party will remain comprehensively insured against all probable risk at partys
cost.
iv. No DP will be allowed against unsalable stock, however they will remain charged to the
bank.









63

Chapter 4 LEARNINGS AND OUTCOMES


The study was a vast learning experience to meat Punjab National Bank. It has helped me in
enhancing my knowledge.

i. A detailed study relating to financial viability of the project is done; thereby ensuring that
project will generate sufficient surplus to repay the loan installment and interest.

ii. Loans and advances from banks are found to be economical for traders and businessmen,
because banks charge a reasonable rate of interest on such loans/advances. For loans from
money lenders, the rate of interest charged is very high. The interest charged by
commercial banks is regulated by the Reserve Bank of India.

iii. Bank loans and advances are found to be convenient as far as its repayment is concerned.
This facilitates planning for future and timely repayment of loans. Otherwise business
activities would have come to a halt.

iv. Loans and advances can be arranged from banks in keeping with Loans and Advances:
61the flexibility in business operations. Traders may borrow money for day to day
financial needs availing of the facility of cash credit, bank overdraft and discounting of
bills. The amount raised as loan may be repaid within a short period to suit the
convenience of the borrower. Thus business may be run efficiently with borrowed funds
from banks for financing its working capital requirements.

v. To ensure the safety of the funds lent, banks require the security of tangible assets owned
by the owner, both in the case of short-term and term loans. Unsecured loans are those
granted against the personal.

vi. The bank verifies the application and determines the creditworthiness of the applicant. If it
is feasible, the loan is sanctioned. After the sanction of loan the borrower has to enter into
an agreement with the bank regarding terms and conditions of the loan.

64

vii. To ensure asset quality, proper risk assessment right at the beginning is extremely
important. It considers the important parameters like profitability repayment capacity,
efficiency of the unit, historical/ industry comparisons etc. depending on the industry. PNB
score card is one of the best rating models present till date.

viii. Risk analysis determines the risk associated with the project this is done by performing a
Sensitivity analysis and Credit Rating
ix. Credit rating provides rating for various parameters like management, financial, market
and so, thereby determines the credit worthiness of the borrower.
x. It is on the basis of the credit risk level, collateral securities to be given by the borrower
are determined.

This shows PNB has sound system for credit appraisal. Credit risk management in todays
deregulated market is a challenge. To avoid being blindsided, banks must develop a competitive
Early Warning System which combines strategic planning, competitive intelligence and
management action.

















65

Chapter 5 FINDINGS AND RECOMMENDATIONS


FINDINGS



After completing the entire project at Punjab National Bank the following key findings as
mentioned below were observed.

i. Loans and advances granted by commercial banks are highly beneficial to
individuals, firms, companies and industrial concerns. The growth and
diversification of business activities are effected to a large extent through bank
financing. Loans and advances granted by banks help in meeting short-term and
long term financial needs of business enterprises.

ii. Credit is core activity of the banks and important source of their earnings which go
to pay interest to depositors, salaries to employees and dividend to shareholders
iii. Credit and risk go hand in hand

iv. In the business world risk arises out of:
Deficiencies /lapses on the part of the management
Uncertainties in the business environment
Uncertainties in the industrial environment
Weakness in the financial position


v. PNB loan policy contains various norms for sanction of different types of loans.

vi. These all norms do not apply to each & every case.


66

vii. PNB norms for providing loans are flexible & it may differ from case to case

viii. Different loans and advances schemes had been introduced by the bank to cater
different industries.
ix. Banks main function is to lend funds/ provide finance but it appears that norms
are taken as guidelines not as a decision making

x. A bankers task is to identify/ assess the risk factors/ parameters and manage/
mitigate them on continuous basis

xi. The Credit risk models adopted by the bank take into account all possible factors
which go into appraising the risk associated with a loan

xii. These have been categorized broadly into financial, business, industrial,
management risks & are rated separately

xiii. The assessment of financial risk involves appraisal of the financial strength of the
borrower based on performance & financial indicators

xiv. After case study, we found that in some cases, loan is sanctioned due to strong
financial parameters

xv. At Punjab National Bank, Circle Office the priority to appraise a proposal was
given to new or fresh clients over the existing clients presenting proposals for
renewal.

xvi. Ratings, as being performed at PNB, are done once a year. Therefore, the ratings do
not take into account short term drastic changes like price level changes (which are
an issue with any method based on accounting statements, since annual reports are
based on historical cost basis of accounting and other changes like sudden mishap/
of the counterparty are not readily accounted for by the rating system due to long
lag between repeat ratings on the same account.

67

xvii. Some of the parameters in Business and industry evaluation are based on the
information provided by company, which in some cases may not be sufficient. No
specific guidelines are followed in such cases. Also, some of the parameters here
may be rendered redundant in some cases and may push up/ push down the rating
needlessly in these cases.

xviii. The present risk rating model does not have any mechanism to prioritize certain
sectors of the economy. There are certain sector in the economy where risk spread
is low and certain sectors where spread of risk is high like real estate. Also, there
are certain infrastructural projects which need to be prioritized. The risk rating
model is not flexible to incorporate all these issues.



68

RECOMMENDATIONS


The Credit Department at PNB, works at its full potential and the staff is highly experienced and
has a very strong intuitive sense. So, there is no such recommendation on the entire process.
However to make the process more flexible and efficient, an electronic database should be
designed carrying all the available and important information related to the proposals accepted,
and it should be easily accessible to the Credit Department. This will help reduce paperwork and
loss of information.

After studying the credit policy of bank, we are of the opinion that the bank is required to have a
system for monitoring the overall composition and quality of the various portfolios since credit
related problems in banks are concentrated within the credit portfolio. It can take many forms and
can arise whenever a significant number of credits have similar risk characteristics.

Also the Bank will not necessarily forego booking sound credits solely on the basis of
concentration. Bank may use alternatives to reduce or mitigate concentration. Such measure
includes:

i. Pricing for additional risk.

ii. Ask borrower to increase holdings of capital to compensate for the additional risk.

iii. Making use of loan participation in order to reduce dependency on a particular sector of
economy or group of related borrowers.

iv. Fixing exposure limits for borrowers and for various industrial sectors.

v. Collateral security in addition to main securities stipulating asset coverage ratio on case to
case basis.

vi. Personal Guarantees / Corporate Guarantees having reasonable net worth.


69

BIBLIOGRAPHY


i. Material provided by Punjab National Bank

ii. www.pnbindia.in

iii. www.google.co.in

iv. www.scribd.com

v. Wikipedia