Updated Loan Policy To Board 31.03.2012 Sent To Ro & Zo

Central Bank of India
________________________________________________________________ Loan Policy

1
LOAN POLICY

1.1. Preamble

1.1.1. In the wake of ongoing trends towards globalization and liberalization, the market
environment in the country has undergone a major change. The opening of the
economy has resulted in entry of multinationals and participation of foreign
institutional investors in the Indian Corporate market. The business entities
operating in India, to emerge successful, have to perceive and manage risks from a
wider perspective of happenings in the world market. Any risk that overtakes the
business entity automatically reflects on the lending banks balance sheet. The
Indian Banking scenario has witnessed progressive deregulation, introduction of
prudential norms and adoption of international best practices. The financial sector
reforms and entry of private and foreign banks have changed the face of Indian
Banking sector. In the present scenario, when spreads are thinning and competition
is acute, managing credit risk has become crucial.

1.1.2. Extending credit is a basic function of banking which involves risks. It is likely that
some of the credit decisions may result in loss. The Bank should aim at Managing
risk in such a way that a healthy credit portfolio is built and returns are maximized.

1.1.3. The policy at the holistic level is an embodiment of the Banks approach to
sanctioning, managing credit risk and aims at making the systems and control
effective.

1.1.4. The Loan Policy is reviewed every year to keep sync with the market realities,
business priorities, Govt. policies and regulatory requirements. On the threshold of
the new financial year 2012-13, the Loan Policy is being reviewed/fine tuned in line
with the developments in the financial sector, regulatory and Govt. policies, while
keeping intact its basic tenets. This updated version of the credit policy shall make
it possible for the Bank to show a steady and healthy growth in its credit portfolio,
resulting in overall improved performance. This Policy shall remain valid till next
revision.
________________________________________________________________ Loan Policy
2

1.2. Objective

1.2.1. The basic objectives of the Loan Policy are: -

1.2.1.1. To broadly outline major parameters governing loaning functions;

1.2.1.2. To properly appraise and evaluate advances proposals;

1.2.1.3. To delegate appropriate authority to ensure speedy disposal of proposals and to
ensure effective monitoring and follow up.

1.2.1.4. To channelise the flow of funds for productive use.

1.2.1.5. Optimum utilization of Banks resources.

1.2.1.6. The policy seeks to enlarge client base of Corporate and NonCorporate segments
through aggressive credit marketing.

1.2.1.7. The policy document addresses the genuine credit needs of the existing clients to
ensure quicker and prompt credit decision.

1.2.1.8. The policy establishes a commonality of approach regarding credit basics,
appraisal skills and strategies, while leaving enough room for flexibility and
innovation.

The policy aims to seize market opportunities by revamping our products and
delivery mechanism through product innovation and restructuring with a view to
maximizing profit.

1.2.1.9. The policy strives to ensure that the socio economic obligations cast on the bank
are fully met.

1.2.1.10. The Banks general approach to Export Credit and Priority Sector Advances are
set out in the Policy.

1.2.1.11. The policy seeks to ensure continuous growth of loan assets while endeavoring
that they remain secure, performing and standard.

1.2.1.12. The policy endeavors to mitigate and reduce risk associated with the lending by
fine tuning the systems and controls.

1.2.1.13. The policy sets out optimum exposure levels to different sectors in order to ensure
growth of assets in an orderly manner.

1.2.1.14. The policy lays down norms for take-over of advances from other banks/FIs.

1.2.1.15. Banks stand on granting credit facilities to companies whose Directors are in the
defaulters list of RBI is covered in the Policy.
________________________________________________________________ Loan Policy
3
1.2.1.16. The policy seeks to ensure profitable deployment of resources keeping in view the
ALM requirements.

1.2.1.17. The policy document ensures compliance of all the directives/guidelines issued by
the Government/RBI and all other regulatory requirements on credit matters. With
regard to guidelines issued from time to time by the authorities, the Bank would
follow them in all their aspects. However, if these permit varying interpretations,
the Bank will adopt a reasonable interpretation, as determined by the Credit Risk
Management Committee without deviating from the spirit behind the guidelines.

1.3. Scope
1.3.1. This policy would govern all credit and credit related exposures, Fund Based as
well as Non-Fund based and prescribe acceptance criteria for all forms of credit
dispensation. These would include Short term, Medium term and Long term
based facilities, as also Letters of Credit, Guarantees, Acceptances etc.

1.3.2. The policy will encompass exposure borrower wise i.e. exposure to all types of
customers such as individuals, proprietorship firms, partnerships, association of
persons, Companies registered under Indian companies Act, PSUs & others and
also industry / activity wise.

1.3.3. Any exception or deviation from these policies and criteria shall be referred to
Credit Department, Central Office which shall place such matters to the
ED/CMD/ CACB for approval. Normally, deviations from the policies, norms
and criteria will be approved by CACB /CMD / ED depending upon their
delegated authority concerning lending. However, where Sanctions have been
earlier approved by MCB/ CACB, deviations should be placed before MCB/
CACB for their view/approval. In case of need, CACB can approve / modify /
sanction subject to reporting to MCB.

It is also made clear that the deviations if any, beyond the permitted level of the
sanctioning authority, on reference to Central Office, CACB shall approve such
deviations on case to case basis, subject to merit. However, actual sanction of
the loan would be done by the concerned sanctioning authority within their
delegated lending powers.

1.3.4. The Loan Policy of the Bank deals with various important parameters in order to
ensure safety, profitability and liquidity of Banks assets and deals on various
matters as under:

i) Credit Deployment
a) Directed Credit
b) Thrust Areas
c) Other Areas

ii) Categorization of Borrowers
a) Priority Sector
b) Non Priority Sector.

________________________________________________________________ Loan Policy
4
iii) Credit Sanctions
a) Prudential Exposure Limits
b) Credit Rating
c) Price Mechanism
d) Procedures.

iv) Security

a) Approved Securities
b) Negative List of Securities
c) Norms for obtaining Guarantees as Security.

v) Delegation of Authority

a) General Rules
b) Lending Authority
c) Lending Powers
d) Discretionary Powers
e) Ad-hoc facilities
f) Prohibitions
g) Miscellaneous

vi) Sanctioning Authority

a) Individual Executives / Officials
b) Regional/ Zonal Credit Approval Committee RCAC/ ZCAC
c) Credit Approval Committee of the Board (CACB)
d) Management Committee of the Board
e) Board of Directors.

vii) Monitoring and Control

a) Review of Procedures
b) Control Returns
c) Monitoring
d) Quality Control

1.4. Modification and Review / Revision

1.4.1. The Policy shall be modified to give effect to the changes in the extant
guidelines/directives/instructions that may be advised by the Reserve Bank of
India/Government of India from time to time, subject to reporting and approval of
the Board.

1.4.2. The policy shall also be reviewed/ revised from time to time, at least once in a year
to adapt to the changing environmental demands to incorporate and implement any
changes in the credit strategy of the Bank, with the approval of the Board.

________________________________________________________________ Loan Policy
5
1.5. Compliance
All the field functionaries are expected to comply with the policy guidelines laid
down in this document. In case of any doubt about the applicability of any aspect
of these policies to any situation, clarification/approval shall first be sought from
Credit Department, Central Office prior to committing the bank.
2. Credit Deployment

2.1. Strategy
2.1.1. The following strategies shall be adopted.
i) Wherever the lending is done, it shall be directed with the emphasis on viability,
and profitability prospects.
ii) Keeping in view the guidelines of RBI and the profitability of the Bank, the
branches shall be advised from time to time about the thrust areas and non-thrust
areas of lending.

2.2. Directed Credit
2.2.1. The Banks role in the priority sector lending shall be in tune with the national
objectives. Bank will continue to lend funds to priority sector viz. Agriculture,
Small (Mfg.) Enterprises, Housing Finance and other sectors keeping in view the
RBI Guidelines from time to time. The Bank will endeavor to surpass the overall
share of 40% of Adjusted Net Credit under Priority Sector advances with sub-sector
targets.

2.2.2. RBI, vide Circular No.RBI/2006-2007/358 RPCD.No.Plan.BC.84/04.09.01/2006-
07 dated 30.04.2007 has issued revised guidelines on Lending to Priority Sector.
The targets and sub-targets under priority sector lending would be linked to
Adjusted Net Bank Credit (ANBC) (Net Bank Credit plus investments made by
banks in non-SLR bonds held in HTM category) or Credit Equivalent amount of
Off-Balance Sheet Exposure (OBE), whichever is higher, as on March 31 of the
previous year.

In terms of RBIs Master Circular on Priority Sector Lending, RBI/2011-12/107
RPCD. CO. Plan. BC 10 /04.09.01/2011-12 July 1, 2011, the targets and sub-targets
set under priority sector lending for domestic banks are furnished below:
Total Priority Sector
advances
40 per cent of #Adjusted Net Bank Credit (ANBC) or credit equivalent amount of
Off-Balance Sheet Exposure, whichever is higher.
#[ANBC or credit equivalent of Off-Balance Sheet Exposures (as defined by
Department of Banking Operations and Development of Reserve Bank of India from
time to time) will be computed with reference to the outstanding as on March 31 of
the previous year. For this purpose, outstanding FCNR (B) and NRNR deposits
balances will no longer be deducted for computation of ANBC for priority sector
lending purposes. For the purpose of priority sector lending, ANBC denotes NBC
plus investments made by banks in non-SLR bonds held in HTM category.
Investments made by banks in the Recapitalization Bonds floated by Government of
India will not be taken into account for the purpose of calculation of ANBC. Existing
and fresh investments, by banks in non-SLR bonds held in HTM category will be
taken into account for the purpose. Deposits placed by banks with NABARD/SIDBI,
as the case may be, in lieu of non-achievement of priority sector lending targets/sub-
targets, though shown under Schedule 8 'Investments' in the Balance Sheet at item I
(vi) 'Others', will not be treated as investment in non-SLR bonds held under HTM
category. For the purpose of calculation of credit equivalent of off-balance sheet
exposures, banks may use current exposure method. Inter-bank exposures will not be
taken into account for the purpose of priority sector lending targets/sub-targets.]
________________________________________________________________ Loan Policy
6
Total agricultural
advances
18 per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure,
whichever is higher. Of this, indirect lending in excess of 4.5% of ANBC or credit
equivalent amount of Off-Balance Sheet Exposure, whichever is higher, will not be
reckoned for computing performance under 18% target. However, all agricultural
advances under the categories 'direct' and 'indirect' will be reckoned in computing
performance under the overall priority sector target of 40% of ANBC or credit
equivalent amount of Off-Balance Sheet Exposure, whichever is higher.
Micro & Small
Enterprise advances
(MSE)
Advances to micro and small enterprises sector will be reckoned in computing
performance under the overall priority sector target of 40 per cent of ANBC or credit
equivalent amount of Off-Balance Sheet Exposure, whichever is higher.
Micro enterprises
within Micro and
Small Enterprises
sector

(i) 40% of total advances to micro and small enterprises sector should go to micro
(manufacturing) enterprises having investment in plant and machinery up to Rs 5 lakh
and micro (service) enterprises having investment in equipment up to Rs. 2 lakh;
(ii) 20% of total advances to micro and small enterprises sector should go to micro
(manufacturing) enterprises with investment in plant and machinery above Rs. 5 lakh
and up to Rs. 25 lakh, and micro (service) enterprises with investment in equipment
above Rs. 2 lakh and up to Rs. 10 lakh. (Thus, 60 per cent of micro and small
enterprises advances should go to the micro enterprises).
(iii) The increase in share of micro enterprises in MSE lending to 60 per cent
should be achieved in stages, viz. 50 per cent in the year 2010-11, 55% in the year
2011-12 and 60% in the year 2012-13.
Export Credit Export Credit is not a part of Priority Sector for domestic commercial Banks
Advances to weaker
sections
10 per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure,
whichever is higher.
Differential Rate of
Interest Scheme
1 per cent of total advances outstanding as at the end of the previous year. It should
be ensured that not less than 40 per cent of the total advances granted under DRI
scheme go to scheduled caste/scheduled tribes. At least two third of DRI advances
should be granted through rural and semi-urban branches.
Women Entrepreneurs
5% of Net Bank Credit

2.2.2 (I) AGRICULTURE

(A) DIRECT FINANCE

1.1 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.)
1.1.1 Short-term loans for raising crops, i.e. for crop loans. This will include
traditional/non-traditional plantations and horticulture.
1.1.2 Advances up to Rs. 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.
1.1.3 Working capital and term loans for financing production and
investment requirements for agriculture and allied activities.
1.1.4 Loans to small and marginal farmers for purchase of land for
agricultural purposes.
1.1.5 Loans to distressed farmers indebted to non-institutional lenders,
against appropriate collateral or group security.
________________________________________________________________ Loan Policy
7
1.1.6 Loans granted for pre-harvest and post-harvest activities such as
spraying, weeding, sting, grading, sorting, processing and transporting
undertaken by individuals, SHGs co-operatives in rural areas.
1.1.7 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".
1.2 Finance to others [such as corporates, partnership firms and
institutions] for Agriculture and Allied Activities (dairy, fishery,
piggery, poultry, bee-keeping, etc.)
1.2.1 Loans granted for pre-harvest and post harvest activities such as
spraying, weeding, harvesting, grading, sorting and transporting.
1.2.2 Finance up to an aggregate amount of Rs. one crore per borrower for
the purposes listed at 1.1.1, 1.1.2, 1.1.3 and 1.2.1 above.

1.2.3 One-third of loans in excess of Rs. one crore in aggregate per borrower
for agriculture and allied activities.

(B) INDIRECT FINANCE

1.3 Finance for Agriculture and Allied Activities
1.3.1 Two-third of loans to entities covered under 1.2 above in excess of Rs.
one crore in aggregate per borrower for agriculture and allied activities.
1.3.2 Loans to food and agro-based processing units with investments in plant
and machinery up to Rs. 10 crore, undertaken by those other than 1.1.6
above.
1.3.3 (i) Credit for purchase and distribution of fertilizers, pesticides,
seeds, etc.
(ii) Loans up to Rs. 40 lakh granted for purchase and distribution of
inputs for the allied activities such as cattle feed, poultry feed, etc.
1.3.4 Finance for setting up of Agri. clinics and Agribusiness Centers.
1.3.5 Finance for hire-purchase schemes for distribution of agricultural
machinery and implements.
1.3.6 Loans to farmers through Primary Agricultural Credit Societies
(PACS), Farmers Service Societies (FSS) and Large-sized Adivasi
Multi Purpose Societies (LAMPS).
1.3.7 Loans to cooperative societies of farmers for disposing of the
produce of members.
1.3.8 Financing the farmers indirectly through the co-operative system
(otherwise than by subscription to bonds and debenture issues).
1.3.9 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.
________________________________________________________________ Loan Policy
8
If the storage unit is registered as SSI unit/micro or small
enterprise, the loans granted to such units may be classified
under advances to Micro and Small Enterprises sector.
1.3.10 Advances to Custom Service Units managed by individuals,
institutions or organizations who maintain a fleet of tractors,
bulldozers, well-boring equipment, threshers, combines, etc., and
undertake work for farmers on contract basis.

1.3.11 Finance extended to dealers in drip irrigation/sprinkler irrigation
system/agricultural machinery, irrespective of their location, subject
to the following conditions:
(a) The dealer should be dealing exclusively in such items or if dealing in
other products, should be maintaining separate and distinct records
in respect of such items.
(b) A ceiling of up to Rs. 30 lakh per dealer should be observed.
1.3.12 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.
1.3.13 Credit outstanding under loans for general purposes under General
Credit Cards (GCC).
1.3.14 Loans to MFIs for on-lending to agriculture as per the conditions
specified in paragraph 3.2.
1.3.15
1.3.16
1.3.17
Loans sanctioned to NGOs which are SHG Promoting Institutions,
for on-lending to members of SHGs under SHG-Bank Linkage
Programme for agricultural purposes.
Loans granted to RRBs for on-lending to agriculture and allied
activities sector.
Overdrafts, up to Rs. 25,000 (per account), granted against 'no-frills'
accounts in rural and semi-urban areas.
1.4
1.4.1
1.4.2
1.4.3
1.4.4
Loans not eligible for classification as direct/indirect finance to
agriculture
Loans sanctioned w.e.f. April 1, 2011 to NBFCs (other than MFIs
which adhere to the criteria specified in paragraph 3.2) 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.
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.
Loans sanctioned to Central/ State Co-operative Marketing
Federations and State Civil Supplies Corporations.
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.

________________________________________________________________ Loan Policy
9
2.2.3. Direct Finance in the micro and small enterprises sector will include credit to:
(1) Manufacturing Enterprises.
(a) Micro (Manufacturing) Enterprises
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 Rs. 25 lakh, irrespective of the
location of the unit.

(b) Small (Manufacturing) Enterprises
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 such items as in 2.2.3(1)(a)] is more than Rs.25 lakh but does not exceed
Rs.5 Crore, irrespective of the location of the unit.

(2) Service Enterprises.
(a) Micro (Service) Enterprises
Enterprises engaged in providing/rendering of services 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 Rs.10 Lakh, irrespective of the location of the
unit.

(b) Small (Service) Enterprises
Enterprises engaged in providing / rendering of services and whose investment in
equipment (original cost excluding land and building and furniture, fittings and such
items as in 2.2.3.2(a) above) is more than Rs.10 Lakh but does not exceed Rs.2.00
Crore, irrespective of the location of the unit.

(c) The small and micro (service) enterprises shall include small road & water transport
operators, small business, professional & self-employed persons, and all other service
enterprises engaged in activities 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)

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

(3) Khadi and Village Industries Sector (KVI)
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.
________________________________________________________________ Loan Policy
10

The achievements of these limits would be monitored by the Priority Sector department
who would also apprise the Board periodically.

2.3. Thrust Areas
2.3.1. Thrust areas explained.
2.3.1.1. The deployment of credit shall be made by the Bank selectively with the twin
objectives to increase profitability and avoid / restrict or reduce exposure to
unnecessary risks. Concentration should be shifted to the upcoming and
prospering sectors and would have to be in tune with the changing economic
needs / scenario and high-tech scenario emerging in the country.

2.3.1.2. To build sizeable markets share in each of the thrust areas of business through
effective strategies in terms of pricing, product packaging and promoting the
product in the market, we will endeavour to be market movers in these initiatives.

2.3.1.3. To sustain the mission objective through harnessing technology driven banking
and delivery channels.

2.3.1.4. To promote confidence and commitment among the staff members to address the
expectations of the customers efficiently and to handle technology banking with
ease.

2.3.1.5. Bank will also adopt the following strategy to increase its market share in thrust
areas.

2.3.1.5.1.Branches to maintain continuous contact with the top borrowers of their branch to
know their business activity/expansion plans. A diary containing profile of such
borrowers should be maintained at every branch which will include information
not only about their business but also give information about the facilities availed
by them from our bank or from other banks. Information regarding
facilities/services availed from other banks should be used for bringing them into
our fold.

2.3.1.5.2.Branches to obtain references from top borrowers and use them for increasing
customer base at every branch. References may be obtained from other customers
also.

2.3.1.5.3.The profile of the borrowers as mentioned above may also be used for cross
selling our products to them.

2.3.1.5.4.To obtain references from Industrial/Merchants/traders association and establish
contact with them.

2.3.1.5.5.Acquisition of new customers/accounts will be an ongoing activity for business
development. To this end, a list of top borrowers (who are not our customers) in
the center may be prepared and contacted for bringing them in to our fold after
making due diligence /enquiries.

________________________________________________________________ Loan Policy
11
2.3.1.5.6.Technology should be leveraged for acquisition of new business by providing
internet banking, Structured Financial Messaging Solution (SFMS), Real Time
Gross Settlement (RTGS), Special Electronic Funds Transfer (SEFT), National
Electronic Funds Transfer (NEFT), Electronic Funds Transfer (EFT) facilities.

2.3.2. The thrust areas for deployment of credit during the year 2012-13 would be
as under :-

2.3.2.1 Priority Sector, with emphasis on High Tech Agriculture and Micro & Small
Enterprises under SME (Medium Enterprises will not come under Priority
Sector).
2.3.2.2 Export Credit.
2.3.2.3 Retail Banking including Housing loans (up to Rs.30 lakhs) and Educational
Loans. However, Housing Loans up to Rs.25 lakhs only shall be considered
under Priority Sector.
2.3.2.4 Information Technology ( I. T. Industries) & I.T.Consultancy & allied services.
2.3.2.5 Pharmaceuticals, Life Sciences & Multi Clinical diagnostic Centre
2.3.2.6 Fast Moving Consumer Goods (FMCGs)
2.3.2.7. Trading Advances (Deleted). [Trading Advances forming part of Priority sector
including advances to MSE shall continue to remain under thrust area. All the
delegates can consider the proposals of trading advances within their respective
delegated lending powers as provided in Annexure-3 of the Loan Policy.]

2.3.2.8 Food Processing Industries.
2.3.2.9 SMEs with thrust on Medium Enterprise.
2.3.2.10 Agri-Export Zone (AEZ)
2.3.2.11. Service Sectors like Travel Tourism & Allied services.
2.3.2.12 Gems & Jewellery (Deleted)
2.3.2.13 Bio-Tech
2.3.2.14 Automobile & Auto Ancillaries.
2.3.2.15 Channel Financing.
2.3.2.16 New & Renewable Energy.
2.3.2.17 Capital Goods.

2.3.3. Priority Sector Lending with emphasis on Agriculture
2.3.3.1.a Priority Sector lending shall continue to be our thrust area and our endeavor shall
be to exceed overall share of 40% of net bank credit with sub sector
achievement as shown in para 2.2.2 above. Concerted efforts shall be made to
further improve flow of credit to Small (Mfg.) Enterprises.
2.3.3.1.b Agriculture: Within the Priority Sector advances, agriculture shall also continue to
be the thrust area and for improving performance under this sector the focus
shall be on Kisan Credit Card.
2.3.3.1.1 Advance to Self Help Groups (SHG).
2.3.3.1.2 Gold Loans.
2.3.3.1.3 Farm Mechanisation Programme.
2.3.3.1.4 Advances against Warehouse and Cold Storage receipts.
2.3.3.1.5 Advances to dealers of other inputs like fertilizers, pesticides, insecticides etc.
2.3.3.1.6 Long-term investments like Minor Irrigation, Land Development, Construction of
Rural Godowns, Cold Storages etc.
2.3.3.1.7 Hi- Tech Agricultural Financing.
2.3.3.1.8 Financing to Agri Clinics & Agri Business centers.
________________________________________________________________ Loan Policy
12

2.3.4 Credit flow to Women Entrepreneurs
The process of accelerating credit to women for upliftment and economic
development shall be continued.

2.3.5 Export Credit
2.3.5.1 In view of the importance of Export Credit and in tune with the Government
guidelines, the Bank shall lay thrust upon credit to the Export sector especially
from the SME sector.
2.3.5.2 In order to ensure prudent decision making in the case of Export credit proposals
and also to make sure that no worthwhile credit proposals suffer for want of need
based credit, it is stipulated that while the sanctioning authority may within his
powers sanction Export Credit Proposals, the authority to decline any such
proposal shall be vested with the immediate next higher authority.
2.3.5.3 Our endeavor will be to achieve an export credit target of 12% of net bank credit.
2.3.5.4 In line with RBI guidelines, the Bank has framed a scheme for issue of Gold Card
to exporters with good track record for easy availability of export credit on more
liberal terms. The highlights of the scheme are as under:
2.3.5.4.1Gold Card holder exporters, depending on their track record and credit worthiness,
will be granted better terms of credit including rates of interest than those
extended to other exporters.
2.3.5.4.2 Applications for credit will be processed at simpler and faster processing norms.
2.3.5.4.3 In principle credit limits will be sanctioned for a period of 3 years with a
provision for automatic renewal subject to fulfillment of the terms and conditions
of sanction.
2.3.5.4.4 A standby limit of 20% of the sanctioned limit will be additionally provided to
facilitate urgent credit needs for executing sudden orders in all the well conducted
accounts.
2.3.5.4.5 In case of unanticipated export orders beyond the projections, additional export
finance shall be provided as quickly as possible taking in to account the size and
nature of order and the conduct of the account.
2.3.5.4.6 The performance of the exporters shall be reviewed on yearly basis.
2.3.5.4.7 Gold Cardholders will be given preference for grant of packing credit in foreign
currency (PCFC) subject to availability of foreign currency resources.
2.3.5.4.8 Collateral security / Buyer wise ECGC cover for post-shipment credit
may not be insisted upon for Gold Card holders where
i) Exporter has a satisfactory track record for the past 3 years.
ii) Items of export fall within the products normally dealt by the Exporter in its
usual course of business.
iii) Minimum credit risk rating should be CBI - 4.
iv) Bank is having satisfactory status report of the overseas buyer.
v) Overseas buyer is of a country whose country risk rating as per ECGC
categorisation should not be below B1.

Authority to allow such waiver of collateral security / buyer wise ECGC
guarantee shall rest with:

a) For accounts falling under the power of AGM/RM/CM and below by Zonal
Managers as per non fund based lending powers.
________________________________________________________________ Loan Policy
13
b) For Accounts falling under the power of Zonal Manager at Central Office as
per respective non-fund based lending powers.

Information Technology / Computer Software Industries and BPO / Call Centres.
Software developers and service providers have a great potential in the long term. In
view of the tremendous scope, the Bank will continue to finance good bankable
proposals from entrepreneurs of proven track record. The over all exposure to
Software Industry shall be restricted to 0.5% of the total credit as per Industry
Exposure Norms for the year 2012-13 However, any credit proposal of Compute
Software Industry involving fresh or additional exposure to be assessed with extra
care. In view of tremendous scope, the proposals of BPOs / Call Centers may be
taken up on merits. Detailed guidelines are given in Annexure 5.

2.3.8.1 Agri -Export Zones (AEZ).
2.3.8.2.AEZs are expected to play a pivotal role in the development of Infrastructure of the
country and hence have been accorded special benefits by the Government of India.
2.3.8.3. There are several AEZs coming up in the near future and the scope for financing as
part of Infrastructure lending exists.

2.3.9. SMEs with thrust on Medium Enterprises.

With the alternative means of financing, for both short term and long term
requirements, such as Commercial Paper, External Commercial Borrowing, Foreign
Currency Loans, Public Deposits, Private Placement of Debentures and Bonds etc.,
the top corporate borrowers having good credit rating have reduced their
dependence on bank finance and large limits sanctioned to them remain unutilized
to a great extent. It is, therefore, necessary for us to improve off-take of credit by
focusing on medium sized units with investment in plant and machinery in excess
of Small (Mfg.) Enterprises limit and up to Rs. 10 crore. In case of service
enterprises, Companys/trading firms/Business Enterprises/ Service units requiring
credit facilities above Rs. 5 crores and upto Rs. 25 crores are covered.

2.3.10. Infrastructure Finance

2.3.10.1. In view of the national importance attached to infrastructure development, its
criticality to economic development of the country, the potential for large volume
business, the Bank attaches utmost importance to financing infrastructure projects.
For financing large infrastructure projects, the Bank will rely on appraisal notes/due
diligence carried out by FIs/recognized technical consultants/large banks as also
carry out its own due diligence of the projects wherever feasible.

2.3.10.2. Financing of infrastructure projects is characterized by large capital costs, long
gestation period and high leverage ratios. In order to facilitate free flow of credit to
infrastructure projects, Banks can now sanction term loans to infrastructure projects
within the overall ceiling of the prudential exposure norms. Further, subject to
certain safeguards, banks are also permitted to exceed the single borrower /group
exposure norm to the extent of 5% / 10% respectively provided the additional
exposure is for the purpose of financing infrastructure projects.

________________________________________________________________ Loan Policy
14
2.3.10.3. RBI has put in place guidelines to accelerate credit disbursement to infrastructure.
These guidelines cover criteria for financing, types of financing, appraisal,
regulatory compliance/concerns, asset liability management, administrative
arrangements and inter-institutional guarantees.

2.3.10.4. The overall exposure will be up to 35% of the gross credit outstanding as on last
Reporting Friday of the quarter ending March, June, September and December
(as per Industry Exposure Norms for the year 2012-13). The guidelines on
financing of Infrastructure Projects have been given in Annexure-7.

2.3.10.5. Definition of Infrastructure
Infrastructure would include sectors as may be notified by CBDT in the Gazette
from time to time. As per RBI /2011-12/59 DBOD.No.Dir.BC. 6 /13.03.00/2011-12 July 1, 2011, any
credit facility in whatever form extended by lenders to an infrastructure facility as specified
below falls within the definition of Infrastructure financing. In other words, a credit
facility provided to a borrower company engaged in:
Developing or
Operating and maintaining, or
Developing, operating & maintaining
i. A road, including toll road, a bridge or a rail system.
ii. A highway project including other activities being an integral part of the
highway project.
iii. Port, airport, inland waterway or inland port.
iv. A water supply project, irrigation project, water treatment system, sanitation
and sewerage system or solid waste management system.
v. A telecommunication services whether basic or cellular including radio
paging, domestic satellite service (i.e. a satellite owned and operated by an
Indian company for providing telecommunication service), Telecom Towers
network of trunking, broadband and internet services.
vi. An industrial park or special economic Zone.
vii. Generation or generation and distribution of power including power
projects based on all the renewable energy sources such as wind, biomass,
small hydro, solar etc.
viii. Transmission or distribution of power by laying a network of new
transmission or distribution lines
ix. Construction relating to projects involving agro-processing and supply of
inputs to Agriculture.
x. Construction for preservation and storage of processed Agro products,
perishable goods such as fruits, vegetables and flowers including test
facilities for quality.
xi. Construction of Educational institutions and Hospitals
xii. Laying down and/or maintenance of pipelines for gas, crude oil and
petroleum pipelines.
xiii. Any other infrastructure facility of similar nature

2.3.10.6. In the Budget of 2006-07, the Government has abolished Section 10 (23G) of
the IT Act. Hence, tax breaks/benefits which were available to the
Infrastructure companies as also to Banks are no longer available.

________________________________________________________________ Loan Policy
15
2.3.10.7. On a Selective basis, exposure may be taken in respect of technically feasible,
financially viable and bankable projects, undertaken both by Public Sector as
well as Private Sector undertakings either directly or through Special Purpose
Vehicles (SPVs).

2.3.10.8. The exposure would be taken jointly with leading Term Lending
Institutions/Banks in infrastructure projects.

2.3.10.9. Timely and adequate availability of credit is the pre-requisite for successful
implementation of infrastructure projects. In view of the delay due to
multiplicity of appraisals by every institution involved in financing, the Bank
would broadly accept the technical parameters laid down by the Lead Financial
Institution.

2.3.10.10. The finance would normally be extended by way of term loan. The Bank would
not consider any Term Loan in lieu of or to substitute budgetary allocation.
However, Term Loan to supplement the budgetary resources would be
considered if such supplementing is contemplated in the project design.

2.3.10.11. Infrastructure financing should conform to prudential norms and Asset/Liability
Management guidelines. Wherever possible, the facility of Take-out finance
through IDFC/IIFCL or similar organizations would be availed.

2.3.10.12. The Bank may also avail of the refinance facility provided by IDFC/IIFCL as
an alternative to Take-out finance whenever deemed fit by ALCO.

2.3.10.13. Hitherto, the promoters of infrastructure projects were required to bring in the
Equity component from their own resources and the Banks were not permitted
to extend finance for the purpose. However, as per the revised guidelines issued
by RBI the Bank would consider extending finance for the acquisition of
promoters share in an existing company which is engaged in implementing or
operating an infrastructure project in India.

2.3.10.14. Normally in case of Toll based / Annuity based Road Projects or Sea Port
Projects or Projects for construction of Airports, SEZs and other infrastructure
projects of similar nature, security creation and charge creation usually takes a
longer time. However, the lending banks obtain an assignment of all rights or
interest in the project and project receivables / annuity etc. by virtue of
Concessionaire Agreement and hence, such advance should be treated as
Secured Advance.

2.3.11. Gems & Jewellery [Deleted from Thrust Area and shifted to Watch List.]

2.3.12. Food Processing
Considering that the Government is giving emphasis on increasing investments in
the Agriculture sector to give boost to the economy, the ancillary activity of Food
Processing has also been encouraged. The industry is expected to grow in the near
future driven by exports. The sector is slowly evolving to compete in the
international markets with technology up gradation by several players. The
________________________________________________________________ Loan Policy
16
Government has given a fillip to the sector in the budget of 2006-07 by giving Food
Processing industry, a status of priority sector advance (earlier this was limited to
the units with investment in Plant and Machinery up to Rs.1 crore in SSI sector).
Considering the potential scope for financing in the said sector, since this industry
will form part of our priority sector portfolio, the same has been retained as part of
thrust area.

2.3.13. Biotech
Biotech is another emerging sunrise industry, which is attracting fresh investments.
In view of the scope and potential of the industry, the same has been continued in
the thrust area.

2.3.14. Fast Moving Consumer Goods (FMCGs)

The expected rise in the disposable income of consumers is expected to induce
consumer durable demand. In view of the expected demand and the change in
habits of the Indian consumers, which will drive the said sector, it has been
included under thrust area.

2.3.15. Auto Ancillary

2.3.15.1. India is clearly emerging as one of the key auto component centers in Asia and is
expected to play a significant role in the global automotive supply chain in the
near future. Indias automotive component industry manufactures the entire range
of parts required by the domestic automobile industry. To meet international
quality requirement and for tapping the global markets, the Indian auto ancillary
units have entered into joint ventures with foreign companies.

2.3.15.2. In the budget for 2006-07, the Government has announced peak level duty
reduction on components which is likely to result in a moderate pricing pressure
on domestic manufacturers for OEM supplies (OEM demand accounts for 65
percent of the industry). Imports in the replacement market (accounts for about
18 percent of the industry) are unlikely to increase due to the levy of 4 per cent
CVD. The expected increase in demand for cars, on account of the cut in excise
on small cars will have positive impact on auto ancillary demand.

2.3.15.3. As there are opportunities to finance units in the said sector and in view of the
industry positives it has been retained under thrust area.

2.3.16. Channel Financing / Vendor Financing / Dealer Financing
2.3.16.1. This is a concept of supply chain with the chain having three perceptibly distinct
links - the pre-production, production and post production. There is a proper
continuity and coordination of all related issues like delivery channels of goods,
services and finances. The finances required for the organization transfused
across the business cycles will have to be healthily circulated and supported,
sustaining the supply chain of activities. This process of infusing the financial
life blood across the supply chain is normally the gist of channel financing. Thus
the focus of channel finance is to extend an integrated financial and commercial
solution to the supply and distribution channels of a business unit.

________________________________________________________________ Loan Policy
17
2.3.16.2. Channel financing is a refinement upon the conventional financial support
services for a Business Concern and adds value to the transaction for all the
parties concerned.

2.3.16.3. The significant concept of channel financing is that the manufacturing business
concern, who is the principal customer for a Bank identifies and suggests the
names of his suppliers and dealers to the Bank and Bank makes a due diligence
assessment of the suppliers/dealers standing and credit worthiness.

2.3.16.4. For the Bank, the benefits arising out of Channel financing are manifold. The
Banks gets tailor made customers. Customer base is enlarged as the relationship
banking gets bolstered. The lending activity and the loan origination process are
greatly simplified. Working capital assessment would be easier and more of bill
finance and less of traditional cash credit facilities would ensure better credit
discipline. As the risk gets diversified and credit exposure norms are better
observed, Bank will have convenient tool in managing its assets portfolio.

2.3.16.5. The Channel Financing opportunities lie mainly in the Steel belt cluster and the
automobile manufacturing cluster. Bank will tap its existing corporate clients for
business opportunities under the said segment.

2.3.17. In addition to the above, Bank will also endeavor to expand the credit portfolio
through acquisition of assets by way of assignment of debts/Inter-Bank
participatory Certificates (IBPCs), Novation, Securitized assets & Buyout of loans
from other Banks etc.. This will be more desirable when the Bank is having
surplus liquidity.
a) Portfolio Buyout gives the Bank an opportunity to acquire quality assets, if
decision is taken after proper due diligence.
b) Some of the Private/ Foreign Banks, due to de-risking certain segments of their
credit portfolio, paucity of funds & ALM mismatches/ issues etc., interested to
securitize some of their assets as on date of Balance Sheet, for outright sale or
by way of Inter Bank Participation Certificates.
c) To deploy any surplus funds profitably and optimize loan books, Bank can
undertake exposure by way of IBPC/ Assignment/ Novation of loans etc.
d) The exposure under the IBPC/ Assignment/ Novation is to be undertaken only
after due study of their past working results, financials and credit appraisal.
e) In case of outright purchases of any loan asset eligible to be categorized under
priority sector, shall be eligible for classification under the respective category
of priority sector(direct or indirect), provided the loans purchased are eligible to
be categorized under priority sector; the loan assets are purchased (after due
diligence and at fair value) from banks and financial institutions, without any
recourse to the seller; and the eligible loan assets are not disposed of, other than
by way of repayment, within a period of six months from the date of purchase.
f) Authority to approve the buyout is CACB/MCB.
g) In the matter of Portfolio Buyouts, the guidelines issued by Retail Lending
Department from time to time, shall be complied with.

2.3.18. Industries under Core Sector: 1.Steel 2. Cement & 3. Coal
2.3.19. Micro Finance Companies (As per Annexure-23)
________________________________________________________________ Loan Policy
18

2.3.20 Financing Subsidiaries of our Bank:

a. Extending credits to the subsidiaries, engaged in onward lending, shall be at par with our
lending to any other corporate. All the lending norms which are normally applicable to
any corporate borrower shall also be applicable to lending to subsidiaries.

b. Regarding interest rate, it shall be as per the Credit Risk Rating. However, reduction up
to 200 basis points from applicable rate of interest shall be at the discretion of Credit
Approval Committee of the Board (CACB).

c. Further, the MCB has authority to decide any rate of interest, not less than Base Rate
and permit any other deviations subject to compliance of RBI/ Statutory norms etc.

2.4. Watch List Areas
2.4.1. Considering the present economic scenario, certain industries are presently kept
under watch list. The list of such industries is given hereunder.
i. N.B.F.Cs.
ii. Textiles (other than Cotton Textiles, 100% export oriented textile units and
units exclusively engaged in Embroidery work)
iii. Commercial Real Estate.
iv. Gems, Jewellery & Diamond
Regional Managers/ Zonal Managers may sanction proposals falling within their delegated
powers without reference to Central Office in case of industries falling under Watch List
except N.B.F.C., & Capital Market Exposures up to 31.03.2013 or till next revision of the
policy. In case of Gems, Jewellery & Diamond accounts, Regional Managers/ Zonal
Manages can renew existing limits; regarding fresh/ additional exposure, the same shall
be considered upto their delegated lending powers, subject to availability of ECGC cover
only.

In case of Cotton textile units and 100 per cent Export Oriented Textile unit delegatees can
exercise their delegated power. In synthetic textiles, Regional Manager, Kota; Regional
Manager, Surat; Regional Manager, Coimbatore and Chief Managers of Surat Main, S.D.
Textile Market, Coimbatore, Peelamedu, Tirupur and Kovilpatti Branches are also permitted
to consider proposals up to their delegated lending powers.

2.4.2.3. In case of Tiny / Village Industries / Small (Mfg.) Enterprises, a limit up to Rs.10
lakhs may be sanctioned by the respective Delegatees even though activity may fall
under watch list.

2.4.2.4. In the case of NBFC Accounts the Zonal Managers/Regional Managers in the rank
of DGM may review the existing limits falling within their powers including those
accounts which fall within the powers of Regional Managers (in scale V) / Branch
Managers in Standard accounts only, under intimation to Central Office. Fresh
proposals and enhancement of limits in existing accounts can be considered only
after obtaining in principle approval from Chairman and Managing Director /
Executive Director.
________________________________________________________________ Loan Policy
19

2.4.2.5. Leasing Companies:
Advances to Leasing companies would be considered only on selective basis. The
sanctioning powers in respect of such proposals shall rest with the Central Office.
The bank finance for lease rentals could be either by discounting of bills or on the
basis of declarations of the receivables (subject to 25% margin) furnished by the
borrowing leasing companies. As banks can only support lease rental receivables
arising out of lease of equipment / machinery owned by the borrowers, lease rentals
receivables arising out of sub-lease of an asset by a Non-Banking Non Financial
Company (undertaking nominal leasing activity) or by a Non-Banking Financial
Company would be excluded for the purpose of computation of bank finance for
such company. Though there is no maximum overall limit for lending, the lending
by the Bank to individual Leasing borrower should not exceed 4 times its TNW. It
should also be ensured that the total borrowing of the Leasing Company is not more
than 10 times of their net owned funds.

2.5. Low Priority Areas

2.5.1 The concentration of the bank finance is to be decided in the Context of domestic,
international, industrial, economic and technological development / trends.
Keeping these aspects in view, as well as the overall objectives of the Bank, it
would be necessary to decide the list of low priority loans. This list is to be revised
from time to time. For the present the low priority loans are as under.

i. Manufacturing of Cigarettes
ii. New Jute Mills
iii. Plywood, Commercial and decorative Veneers.
iv. Block Boards and Flush Doors.
v. All Types of Rubber Based Beltings, PVC conveyer Belts and Fans
and V-Belts.

2.5.2 In Principle Approvals from Central Office for enhancement of limits in existing
accounts or for considering New Accounts falling under the industries / activities
referred to in para 2.5.1 should be obtained from Chairman & Managing Director /
Executive Director.

2.5.3 A quarterly review of the progress in different areas viz., Thrust area, retail credit,
watch list and low priority category will be made by Zones and the same to be
forwarded to Central Office for overall assessment of progress in the desired sector
and for taking proactive measures. For this, a reporting statement is devised which
should be submitted by all Zonal Offices to Central Office.

3. Restrictions on Lending (General Prohibitions)

3.1. In conformity with the statutory restrictions imposed by RBI, the bank would
ensure that the following stipulations with regard to lending activities are adhered
to:-
3.1.1. No loans/advances shall be granted against the security of Banks own shares.
3.1.2. No loans/advances shall be granted against gold/silver bullions.
________________________________________________________________ Loan Policy
20
3.1.3. No loans/advances shall be granted to companies for buy-back of their own
securities.
3.1.4. No loans/advances shall be granted against Certificate of Deposits.
3.1.5. No loans/advances shall be granted against the security of partly paid shares.
3.1.6. No loans/advances shall be granted:-
3.1.6.1.To partnership firms/Sole proprietor concerns against the primary security of
shares/debentures.
3.1.6.2.For financing badla transactions.
3.1.6.3.Against FDRs / term deposits of other banks.

3.1.7. The bank shall not hold shares in any company whether as a pledgee / mortgagee or
absolute owner, of an amount exceeding 30% of the paid up share capital of the
company or 30% Banks paid-up share capital and reserves whichever is less.
3.1.8. The Bank shall not hold shares whether as pledgee, mortgagee or absolute owner, in
any company in the management of which any Managing Director or Manager of
the Bank in any manner concerned or interested.
3.1.9. No loans/advances shall be granted for setting up new units consuming /producing
Ozone Depleting Substances (ODS).
3.1.10. Restrictions imposed by RBI on granting of loans and advances and issue of
guarantees on behalf of its Directors or other banks Directors including Scheduled
Co-operative Banks or their relatives, any firm/company in which any of other
banks directors is interested as partner/director, manager, employee or guarantor
shall be strictly adhered to as detailed in Annexure - 2.
3.1.11. Letter of Credit and Purchase/Discount/Negotiation of bills under LCs shall be
considered only in respect of genuine commercial trade transactions of the borrower
constituents, who have been sanctioned regular credit facilities by the Bank.

3.2. On the basis of past practice financing of certain activities are restricted /
regulated.
3.2.1. Lending for liquor trade shall be sanctioned only at Regional/Zonal Office.

3.2.2. Lending to Transport Operators shall be allowed by Regional Offices selectively at
branches which have a good track record of recovery after getting the approval of
such branches from the Zonal Office.

4. Credit Administration
4.1. Time norms for disposal of credit proposals and Credit refusal: Bank has laid
down a transparent Fair Practices Code approved by the Board as envisaged by
RBI. The Bank shall comply with the guidelines relating to issue of
acknowledgement for receipt of proposals and time norms for processing and
disposals as contained in the Fair Practices Code formulated by the Bank, which is
in force.
4.1.1. All Loan Application Forms should contain information about the fees/charges, if
any, payable for processing, the amount of such fees refundable in case of non-
acceptance of application and pre-payment option, if any.
4.1.2. Reasons for rejection of loan applications for all categories of borrowers, irrespective
of any threshold limit to be conveyed.
________________________________________________________________ Loan Policy
21

4.2. The time frame for disposal of the proposals at each level is given below:
4.2.1. As per RBI instructions all loan applications up to Rs.25,000/- should be disposed
within two weeks of receipt of application complete in all respect.
4.2.2. Similarly, application in respect of loans above Rs.25, 000/- and up to Rs.5 lakhs
should be disposed off within a period of 4 weeks of receipt of application complete
in all respects.
4.2.3. All applications in respect of loans above Rs.5 lakhs should be disposed off as per
the time frame given hereunder:
i. Branch Office Level: Credit proposals received at branch shall be disposed of/
recommended to the higher authority by the Branch Manager within 15 days
maximum from the date of receipt of proposals complete in all respects.
ii. Regional Office Level: Credit proposals received at ROs shall be disposed of/
recommended to next higher authority by the Regional Manager within 15 days
from the receipt of proposal at Regional Office.
iii. Zonal Office Level: Credit proposals received at Zonal Office shall be disposed
of/recommended to next higher authority by the Zonal Manager within 15 days
from the receipt of proposal at Zonal Office.
iv. Central Office Level: Proposals falling within the powers of GM/ED/CMD should
be disposed of within 15 days and in case of proposals falling under the powers of
Management Committee (MC) should be cleared with in a period of one month
(depending upon the schedules of M.C. meetings.)
v. Monitoring of Credit proposals received for approval/ sanction:
(a) All Loan proposals which are to be approved at Central office level may be reviewed on
a fixed day by the CMD and EDs together in order to ensure that there is no pendency of
proposals above the stipulated period. While reviewing, the CMD and EDs may discuss
the same with the field functionaries/officers through video conference for instant
feedback.
(b) All loan proposals which are to be approved at the Zonal office level may be reviewed
by the Zonal Managers on a fixed day in a week so that there is no pendency over the
stipulated period of days.
All loan proposals which are to be approved at the Regional Office or Branch level may
be reviewed by the Regional Managers on a fixed day in a week so that there is no
pendency of proposals over the stipulated period in the case of Regional Office/Branch as
the case may be.
(d) The loan applications which are pending for want of response /information from
different State Governments, whether to be approved at Central Office level or Zonal
Office/Regional Office level, may be followed up by the concerned Zonal/Regional Office
with the respective departments of the State Governments for expeditious clearance.
Matters relating to applications to be disposed of by Branch Managers, may be taken up by
the Branch Managers in District Coordination Committees on a monthly basis.
(e) Zonal Office, where there is no Zonal Office Regional Office in a state may take up
with State level Bankers Committee to get requested the Chief Secretaries of the respective
states for expeditious clearance of the projects coming up in the State where bank has
sanctioned the projects but disbursement is pending for want of clearance.`

4.2.4. Export Credit Proposals Normal Gold Card Holder
i) Fresh / Enhancement Proposals 45 days 25 days
ii) Renewal Proposals 30 days 15 days
iii) Adhoc facility 15 days 7 days
________________________________________________________________ Loan Policy
22
iv) The export credit proposals shall be disposed of within the time frame as above
or within the time norms stated in para 4.2.1 to 4.2.3 which ever is earlier.

4.3. In case of large borrowal accounts, the proposals as far as possible be jointly
processed by Branch / Regional Office / Zonal Office so as to reduce response time.

4.4. The Branch/recommending authority may send the proposals directly to sanctioning
authority under copy to immediate controlling office for their comments and further
recommendation. Every proposal must have a flow chart, clearly indicating the date
of receipt of proposal, date of forwarding the proposal to higher authority, date of
disposal of the proposal. Proposal received without flow chart should be returned
to the forwarding office. Delay in processing and disposal of proposals must be
avoided at all levels.

4.5. In case of rejection of proposals relating to Exports, Educational Loans & proposals
of SC/ST applicants it shall be referred to the next Higher Authority.

4.6. Proper sanction registers have to be maintained giving clear indications of the
movement of proposal till final decision / disposal.

4.7. All sanctions and rejections are to be reported every month to the next Higher
Authority. All rejections should be reviewed by the next higher authority with full
details.

4.8. In case of rejection, applicants should be intimated reasons for rejection.

5. Credit Sanction Procedures
Following shall be the procedure for Processing, Sanctioning, disbursing of a credit
proposal.

5.1.Pre-Sanction:

To obtain an application for credit facilities from the borrower on the prescribed format
along with photograph of borrower/guarantor/promoter in terms of KYC norms.

To obtain and satisfy about status report from the present bankers (for new
accounts) preferably before sanction or at least before disbursement.

To obtain statements of assets and liabilities, of the firm / company / directors, partners
etc. and to verify the same with evidence namely Income Tax Returns, Wealth Tax
Returns, Sales Tax Returns etc.

To conduct preliminary investigations as to the borrowers antecedents, standing,
integrity, knowledge and experience in the field of activity.

Scrutiny of the financial statement and other information, submitted by the
borrower to ascertain the feasibility, technical, financial and economic viability of the
proposal.
________________________________________________________________ Loan Policy
23

To ascertain whether proposal is within the banks lending policy.

To ascertain whether the security offered is on the Banks approved list and its
marketability, transferability, storage etc.

Pre-sanction inspection of the project preferably before sanction / recommendation to
the sanctioning authority or at least before disbursement wherever required.

To discuss with the party to obtain additional information.

All proposals should contain Turnaround Time Tracker (i.e., Flow Chart).

5.2. Process of Due Diligence

5.2.1. Interview/discussion with the applicant :
The Bank shall carry out discussion with the applicant borrower and ascertain the
past track record, activities presently undertaken, associate/group concerns, details
about the proposed project such as infrastructure arrangements, forward and
backward linkages, sources of margin arrangement for financial tie-up, procurement
of raw material, selling and marketing arrangement etc. The inputs through the
process of discussion should help the Bank in taking a decision whether or not to
take up the case for evaluation.

5.2.2. Industry Prospects: The Bank shall ascertain information like present state and
future prospects of the particular industrial activity in which the constituent is
engaged duly taking into account the market environment demand-supply
position/major competitors/market share/position of the constituent in the respective
industry.

5.2.3. Financial Statements: The Bank shall analyse the financial statements of the
constituent/ income/wealth tax returns/assessment orders of the
constituent/guarantors. These statement/documents shall throw light on growth in
sales, profitability, cash accruals, tangible net worth position, investment in
associates, term liabilities, repayment commitment under term loans in relation to
cash accruals etc. The auditors notes to the account shall reveal the accounting
practices followed by the business entity, details of contingent liabilities including
guarantee obligation, claims relating to income tax/sales tax/excise duty/custom
duty pending in the courts/tribunals. The information gathered as above shall
enable the Bank to get an idea on the business ethics adopted by the constituent and
to take a decision whether or not to have dealings with the constituent. Information
on the associates may also be ascertained.

5.2.4. Market Information

5.2.4.1 Opinion about the applicant/associate shall be collected by making market enquiries
with people in similar line of business / buyers / suppliers / competitors / employees
etc. Where the Bank has fully functional Credit Information Dept., market opinion
________________________________________________________________ Loan Policy
24
reports should be called from the said department besides making independent
market enquiries.

5.2.4.2 Even in the case of existing information on the constituent through market
information reports appearing in the local press/newspapers/business
magazines/contacts with Government officials / Businessmen / Banker-colleagues /
credit rating agencies, the Bank shall keep abreast with the market.

5.2.4.3 In the case of small borrowers, the Bank shall ensure that the individual resides/
undertakes activity within the command area of the branch and his address shall be
got confirmed. Further discreet enquiries shall be made with nearby
residents/business establishments/employer/colleagues on the standing/credit-
worthiness of the borrower.

5.2.4.4 The due diligence certificate which should include the reference from whom
discreet enquiries about the company/promoters were made will form part of the
appraisal note.

5.2.5. Confidential Opinion from existing Banker

Efforts to be made to obtain Confidential Opinion from the existing banker in all
new connections. Efforts shall also be made to gather full information on the credit
facilities sanctioned, conduct of account, submission of data/ information etc. The
Bank may also examine the account statements of the previous banker to confirm
satisfactory past dealings and operations.

5.2.6. Pre-sanction visit to the applicants place

Pre-sanction visit to the applicants place shall be undertaken to confirm the
existence of the unit as well as the assets offered as prime/collateral security and
their acceptability. The visit shall also be used to understand the trade practices /
manufacturing process of the unit / interact with the employees / other relevant
persons to collect purposeful information.

5.2.7 It will be the primary responsibility of the recommending authority / authorities to
verify the antecedents / credit information of the borrower, acceptability of security
and proper analysis of the financial indicators and correctness of information given
in the proposal based on which sanctioning authority will take final decision after
ensuring / examining policy compliance and conformity with overall Corporate
Policy.

5.3. Appraisal (Appraisal Standards)

5.3.1. All credit proposals received from the parties shall be properly appraised at the
branch level and also at respective delegatees level taking into consideration the
credit worthiness of the borrowers, their business experience and activities, the
financial ratios of the borrowers, the purpose and need for the credit and giving
justification for the credit.

________________________________________________________________ Loan Policy
25
5.3.2. While considering fresh / new credit proposals the following Financials shall be kept
in view.
a. Current Ratio 1.33
b. Debt-Equity Ratio (TL) 3:1
c. Debt Service
Coverage Ratio (Average) 1.5
d. Interest Coverage Ratio 2:1
e. Asset Coverage Ratio 1.5:1

- Normally the Current Ratio should be 1.33. However, in case of borrowers having
satisfactory track record and other financials, CR up to 1.17 shall be acceptable.
However, authority to consider proposals with CR of below 1.33 will be as under:
- Up to 1.25 Zonal Managers / DGM of CFBs / RMs.
- Less than 1.25 at Central Office.
- In case of accounts where MPBF is ascertained on the basis of Turnover Method or
Ist Method of lending, Current Ratio up to 1.17 and in case of seasonal industries
like sugar, Tea, Coffee etc. Current Ratio up to 1.00 may be accepted.
- In case of export finance where Packing Credit is sanctioned at 10% Margin and
Bills Discounting (EBD/EBP) facility at Nil Margin, we may accept Current Ratio
not below 1.00.
- Minimum D:E Ratio for a company should be 2:1. However, for Infrastructure finance to
SPVs the minimum DER shall be 70:30 or such other ratio as may be prescribed by IIFCL
in case of refinance availed of from them or as per Govt./RBI advice.

- In case of Consortium or Syndication financing, we may accept DE Ratio as accepted by all
other lenders.

- For other projects & non project related capex: DER up to 4:1 can be allowed subject to
condition that DER for the company as whole, taking in to account the proposed loan, does
not exceed 3:1.

In case of Infrastructure and Capital Intensive projects like Road, Port, Airport,
Power sector, SEZ etc. Debt: Equity ratio up to 5:1 may be accepted.

Powers to consider proposals with D:E ratio in excess of 3:1 shall rest with Central
Office.

TNW: Bank Credit should be reckoned with all borrowings from the banking system
and not only our Banks loan/Financial Assistance.

In case of Housing Finance Companies TNW: Bank Credit ratio will be quite high,
looking to the nature of their business and Financial Pattern, such cases may be
referred to CACB/MCB for consideration.

Normally Net Worth to Bank Borrowings ratio shall be 1:4. However, deviation up to 1:6 can
be allowed by next higher authority not below the rank of Zonal Manager in case of
Manufacturing & Trading accounts. In case of NBFCs/Micro Finance Cos, normally
acceptable ratio will be 1:6. However, Deviation beyond 1:6 may be allowed by
CACB/MCB.

________________________________________________________________ Loan Policy
26
For arriving at asset coverage ratio, value of all tangible assets i.e. Primary &
Collaterals charged to the Bank shall be taken into account.

The ratios mentioned above shall normally be observed. However, in case of
Syndication, Consortium or Multiple Banking arrangement, ratios accepted by the
consortium or by major banks under syndication / multiple banking shall be accepted
by the bank and such cases shall not be construed as deviation from the Loan Policy.

D.S.C.R: Though ideal ratio would be 1.5, a proposal with average DSCR of 1.40 may be
accepted if other financials of the project are found to be satisfactory and it stands the test of
sensitivity analysis with minimum average DSCR of 1.20. However, proposals with DSCR of
below 1.5 shall be considered at Central Office level only.

Asset Coverage Ratio: Normally ACR should be 1.5. However, in exceptional cases,
ACR up to 1.20 will be acceptable. Authority to consider proposals with ACR of
below 1.5:1 will be:

Up to 1.33:1 Zonal Manager/DGM, CFBs & RMs.
Less than 1.33% - at Central Office only

5.3.3 (i) In exceptional cases, the sanctioning authority can deviate from the above norms
with proper justification. While reporting to the Controlling authorities, specific
mention should be made in the Control Return - Annexure II, Statement of
sanctions done by the concerned delegated authority within the lending powers,
about such deviation/s.
(ii) In respect of sanctions by Credit Approval Committee of the Board (CACB), it can
deviate from the above norms of Appraisal Standards with proper justification.

5.3.4 In the case of New Accounts where no past financials are available, the spirit of the
above ratios should be kept in mind and it should be ensured that the Debt-Equity
and Asset coverage ratios are complied with. The other ratios projected are also
strictly as per the ratios given herein above.

5.3.5 Credit Information Bureau (India) Ltd. - (CIBIL)

5.3.5.1 Credit Information Bureau (I) Ltd. has been set up in January 2001 and is
established with the primary purpose of information sharing between Banks and
Financial Institutions for curbing the un-desired growth of NPA.
5.3.5.2 Banks are required to provide periodical information on suit filed accounts of Rs.1
crore and above, list of suit filed and willful defaulters of Rs. 25 lacs and above.
5.3.5.3 Banks/FIS/SFCs are also to submit information of non-suit filed accounts also to
CIBIL in the prescribed format, so as to make CIBIL fully operational.
5.3.5.4 The necessary information along with the formats has been sent to the branches for
furnishing information on ongoing basis. The branches shall take necessary steps to
quickly and regularly furnish the information in the prescribed format to DIT,
Central Office for onward submission to CIBIL.
5.3.5.5 It is mandatory to obtain consent letter from all the borrowers to submit
information to CIBIL as stated in para 5.3.5.2 & 5.3.5.3.
________________________________________________________________ Loan Policy
27
5.3.5.6 The Bank shall obtain reports from Credit Information Bureau (India) Ltd. (after
the latter is fully operationalised) on the credit facilities enjoyed by the constituents
as well as the status of the accounts.

5.3.6 RBI Defaulters List: Reference to defaulters list/willful defaulters list/Caution
list/Exporters Caution List, Specific Approval List (SAL) of ECGC to be made part
of the Process Note at all levels. Defaulters List /willful Defaulters List/Caution
List are being made available to the branches by way of Circulars. Exporters
Caution List/Specific Approval List is being made available by circulars to
controlling offices and Foreign Exchange dealing branches. Branches/Offices are
required to ensure that the above lists are referred to while submitting credit
proposals. In case the names of Directors appear in the said list, the following
policy is to be adopted.

5.3.6.1 Credit facilities to companies whose directors are in the defaulters list of
RBI or appearing in CIBIL data as defaulter.
The Directors of the Company may be classified as promoters/elected
professionals/nominees/honorary directors. RBI has been collecting and circulating
information on defaulting companies. Though RBIs defaulters list is given due
cognizance in the appraisal process, a general policy on the issues relating to
sanction/continuation of credit facilities to such companies whose directors are in
the RBIs defaulters list or appearing as defaulter in CIBIL data, needs to be put in
place. Accordingly, it has been decided to adopt the following approach. Delegates
as per the lending power delegated to them may take appropriate decision on the
basis of the guidelines given.

Director of applicant company if Our Approach
a. Promoter Director of a defaulting
company
b. Director of a defaulting company
having a role in the day-to-day affairs
of its management

No adhoc/ enhancement/ additional new
credit facilities to be sanctioned to the
applicant company till the names are
removed from the defaulters list by RBI
In case the performance and conduct of
the accounts of the applicant company
are otherwise satisfactory, renewal/
continuation of the limit at the existing
levels may be considered.

c. Promoter Director of a defaulting
company or director of a defaulting
company having a role in day to-day
affairs of its management, but who has
resigned from the Board to circumvent
any obstacle in getting credit.
No adhoc / enhancement / additional /
new credit facilities to be sanctioned till
the names are removed from the
defaulters list by RBI.
In case the performance and conduct of
the accounts of the applicant company
are otherwise satisfactory, renewal/
continuation of the limit at existing
levels may be considered.
d. Director in a defaulting company, but
not connected in any way with its day-
to-day management.
Proposals to be considered on merits. If
the defaulting company is an associate/
subsidiary of the applicant company or a
________________________________________________________________ Loan Policy
28
group company, approach mentioned in
a & b above may be followed.
Nominee / professional / honorary director
of a defaulting company, including
associate/group/ subsidiary company.
Proposal to be considered on usual
parameters as these directors are in their
professional/honorary capacity
Promoter / nominee / professional
honorary director as in a to d above but
whose names are yet to be included in
RBIs defaulters list (as the list is
published by RBI only once in three
months).
The above approach may be followed in
such cases also, if information is
available.

5.3.6.2 Management Committee of the Board may consider the proposals in cases where
the names of proprietors / partners /etc are appearing on RBI defaulters list taking
an overall view of the case.

5.3.6.3 As regards credit facilities to companies, whose directors are in the willful
defaulters list of RBI, Bank would follow guidelines issued by RBI from time to
time.

5.3.6.4 The above policy on defaulters will be broad framework for sanction/continuation
of credit facilities to companies whose directors are in the RBIs list of defaulting
borrowers /FIs with dues of Rs.1.00 crore and above. CIBIL is presently displaying
the updated list of Willful defaulters (suit filed) on its website, which is updated
from time to time. RBI circulates to banks list of Willful Defaulters (non- suit
filed) on a quarterly basis.

5.3.6.5 Willful default & action there against: - Bank would endeavour to fully comply
with RBI guidelines on willful defaulters and action there against in terms of RBIs
definitions of willful default, diversion & siphoning of funds and end use of
funds. The penal measures would be made applicable to all borrowers identified as
willful defaulters or the promoters involved in diversion/siphoning of funds with
outstanding balance of Rs.25.00 lacs or more without any exception. Similarly, the
limit of Rs.25.00 lacs will also be applied for the purpose of taking cognizance of
instances of siphoning and diversion of funds.

5.3.6.6 Where a letter of Comfort or guarantee furnished by the companies within a Group
in favour of a willful defaulting unit is not paid when invoked by the Bank, such
Group companies also may be reckoned as willful defaulters.

5.3.6.7 In cases of project financing, Bank would endeavour to ensure end use of funds by,
inter-alia, obtaining certification from Chartered Accountants. In case of short term
corporate/clean loans, such an approach would be supplemented by due diligence
on the part of the Bank. It shall be endeavour of the Bank to ensure that such loans
are limited to borrowers whose integrity and reliability are above board. The Bank
shall also endeavour to comply with the measures advised by RBI for monitoring
and ensuring end use of funds. Bank will also retain the right to get investigative
audit conducted whenever it is prima facie satisfied that there is a case for such
investigative audit to detect siphoning /diversion of funds or other malfeasance.
________________________________________________________________ Loan Policy
29
5.3.6.8 No additional facilities shall be granted by the bank to the listed willful
defaulters. Further, entrepreneurs/promoters of companies where the Bank has
identified siphoning/diversion of funds, misrepresentation, falsification of accounts
and fraudulent transactions shall be debarred from Bank finance for floating new
ventures for a period of 5 years from the date the name of the willful defaulter is
published by RBI/CIBIL.

5.3.6.9 The legal process, wherever warranted, against the borrowers/guarantors and
foreclosure of recovery of dues should be initiated expeditiously. The Bank may
also initiate criminal action against willful defaulters, wherever deemed necessary.

5.3.6.10 Where FIs have significant stake and where the FIs take effective steps for
removal from the Board of a borrowing unit, a person identified as willful
defaulter, the Bank shall also proactively support such steps.
5.4. Proposal should clearly indicate the need-based requirement of the borrower for
Bank finance and the rationale for recommendations.

6. Credit Rating
6.1 As the Risk Management Department has since developed Credit Rating Tool to
facilitate credit rating of all types of accounts, all eligible borrowal accounts are to be
rated on the rating tool developed for that purpose. Details of rating tools applicable
for each type of account has been furnished under para 17.3.
6.2 The credit facilities meant for export would also be subjected to credit rating.
However, the rate of interest for export account would be governed by the RBI / ID
guidelines from time to time. CACB/CMD and ED shall have discretion to consider
ROI lower than relevant rate as per RBI / ID guidelines on case to case basis. The
Rating, however, shall be used for charging interest on overdue Pre & Post shipment
finance.
6.3 The periodicity of Credit Ratings covered under para 6.1 would be on yearly basis.
However, the accounts may be re-rated on the basis of latest financial statements /
data or developments in other material facts.
6.4 The accounts falling under the powers of Central Office authorities would be
subjected to independent re-rating by Credit Risk Management Department (CRMD)
at Central Office.
6.5 The Rating as arrived at by the CRMD would be final. However in case of any
dispute about rating given by CRMD, the issue would be resolved by Credit
Committee which will be headed by Executive Director and GM Credit & GM
CRMD would be the other members of the committee.
6.6 The Risk grades allocated to various ratings are as under:
CREDIT RATING RISK RATIONALE
CBI 1 Highest safety
CBI 2 Very High Safety
CBI 3 High safety
CBI 4 Adequate Safety
CBI 5 Moderate Safety
CBI 6 Sub-Moderate Safety
CBI 7 Inadequate Safety
CBI 8 High Risk Prone
CBI 9 Vulnerable to Default
CBI 10 Default /Grade
________________________________________________________________ Loan Policy
30

6.7 The Risk hurdle rate is as under:

6.7.1 In case of new accounts the financial and overall rating should be minimum
CBI-6. (in respect of Take over, it should be minimum CBI-5)

6.7.2 In case of enhancement in limits in existing accounts, the Financial rating should
be Minimum CBI-6 and overall rating should be minimum CBI-7

6.7.3 In case of any deviation the proposal can be approved by a delegatee not below
the rank of Zonal Manager/Regional Manager in Scale VI up to one notch below
the stipulated hurdle rate for the proposals falling within the powers of Regional
Manager (Scale V) and below. In case of proposals falling within the delegated
lending powers of Zonal Managers/ Regional Manager in Scale VI, they can
approve such deviation. However, while giving clearance/approval it should be
ensured that the proposal carries intrinsic strength to indicate that it will be able to
attain the hurdle rate within a reasonable time.

6.8 All SME accounts to be credit rated and to be given weightage based on the
prescribed criteria and assigned Credit Rating as per the system given under para
6.8.1 below.

6.8.1 Credit Rating: For rating of SMEs in the manufacturing and services sectors and
also for Micro & Small (MSE) accounts with limits over Rs.2 crore, SME model to
be used. For MSE accounts with limits up to Rs.2.00 crore, manual scoring model
viz, MSE-I & MSE-II, circulated vide RMDs Circular No.583 dated 10.12.2009
should be used.

6.8.2 The total number of weightage marks obtained by the concerned borrower, the
borrowers would be rated as under:

Weightage Category
Those who are above 90% CBI - 1
Those who are between 85% to 90% CBI - 2
Those who are between 60% to 69% CBI - 5 & 6**
Those who are below 45% CBI - 10
** The differentiation of weightage separately for CBI 5 & 6 shall be communicated by CRMD.

6.8.3 The credit rating as per the system is to be done by the Branch on yearly basis based
on the parameters given in Rating System. The Rating as arrived at by the Branch is
to be confirmed by a Competent Authority as mentioned below on yearly basis:

________________________________________________________________ Loan Policy
31
Sanctioning Authority Confirming Authority
Branch Managers up to Scale III &CM Regional Manager (in Scale V)
Asst. Gen. Manager, Dy.General Manager Regional Manager (Scale VI)/
Zonal Manager/ZM in Scale VII

6.8.4 Credit rating is made compulsory as per the risk management framework being
adopted by the Bank, all the borrowers would have to be rated. In other words the
following segments which were previously not covered under the rating system will
also have to be credit rated in terms of the guidelines given in the preceding para:
6.8.4.1. Advances against securities falling under the purview of Selective Credit Control.
Advances to public procurement distribution agencies.
Finance for lease and Hire Purchase Business and NBFCs.
Trading and other non-manufacturing companies.
All new borrowal accounts.
6.8.4.2. Advance against SV of LIP, Trustee Securities like NSCs, KVPs, Govt. Pro-Notes
etc. need not be credit rated.
6.8.4.3. Similarly advances against Banks time deposit (domestic as well as Non-resident
deposits) including third party deposits for personal needs (other than business
requirements) need not be credit rated.

6.9 Pricing
6.9.1
In respect of pricing, Base Rate System is introduced w.e.f. 01.07.2010 which
replaces the existing Bench Mark Prime Lending Rate.
Circulars issued by our Risk Management Deptt., on BASE RATE & subsequent
changes as advised by them as per decision taken in ALCO meetings from time to
time will be followed for pricing of credit facilities linked to Base Rate
(w.e.f. 1-7-2010)
During the transition period upto December 2010 or such other extended period
as may be permitted by RBI, breach of ROI as per the Base Rate model
computations may be permitted in such cases where there is need to confirm to
other members of the Consortium/Multiple Banking & Loss of business feared
and other relevant factors in terms of norms approved by ALCO.

6.9.2 Authority to modify the rate of interest and other charges in respect of
consortium/ syndicated loans shall rest with CACB. However, decision will be
based on Credit Rating of the borrower, Risk perception, prevalent market
conditions, availability of collaterals etc.

6.9.3 CACB shall consider short term loans at interest rates lower than Working Capital
rates in respect of clients rated minimum B+ (Adequate safety) even though
working capital limits are not fully utilized However, decision will be based on
Credit Rating of the borrower, Risk perception, Prevalent market conditions,
availability of collaterals etc.

6.9.4 CACB shall waive/ reduce additional interest for non compliance of Terms and
conditions including External, Risk Rating, Due Diligence Report on case to case
basis.
________________________________________________________________ Loan Policy
32

6.9.5 CACB shall modify the following in respect of debts underwritten and also on
hold on position:

a) To modify Rate of Interest
b) To modify underwriting fee
c) To modify other terms and conditions except security subject to reporting of
the same to MC of the Board by monthly statements.

6.10 Customer Profitability Analysis.

6.10.1. The Bank shall evaluate the overall customer relationship taking into account the
ancillary business passed on to the Bank viz. bills lodged for collection,
remittances routed, float funds/deposit provided, salary accounts of workers/office
staff, Debit/Credit/Prepaid cards sold, Gold Coins purchased by borrower, ATM/Br.
Premises offered, Vendor Financing & Dealer Financing opportunities available
etc.

6.10.2. Deleted

7. Policy Compliance

The appraisal memorandum shall also contain a confirmation to the effect that the
proposal conforms to the extant policy guidelines. In case of any deviations, the
exact nature of the deviations vis--vis the policy guidelines, justifications for
recommending the proposal despite deviations and approval powers of
sanctioning authority in such cases shall be clearly spelt out.

8. Exposure Norms

8.1. Prudential Exposure Limits.
One of the tenets of Prudential Risk Management is to diversify the exposure both
in respect of borrowers and industry business sectors.

8.1.1. In line with RBI directive the exposure norm for single and group borrowers is as
under.

Ceiling as % to Banks Capital Funds Category of Borrower
Other than Infrastructure For Infrastructure Projects
Single Party 15% 20%
Group 40% 50%

8.1.2. In respect of Oil Companies who have been issued Oil Bonds (which do not have
SLR status) by Govt. of India, the exposure limit will be 25% of Capital Funds. In
addition to this, in terms of paragraph 2.1.3 of RBIs Master Circular dated
29.05.2008, we may, in exceptional circumstances, as hitherto, consider
enhancement in the exposure to Oil Companies by a further 5% of Capital Funds.

________________________________________________________________ Loan Policy
33

8.1.3. The capital funds represent total capital i.e. Tier-I and Tier-II capital as defined
under Capital Adequacy Standards.

8.1.4. Reserve Bank of India has discontinued the practice of case-to-case basis approval
for exceeding the single and group borrower risk exposure ceiling as detailed in
8.1.1. However, in exceptional circumstances, with the approval of the Board, Bank
may consider enhancement of the exposure to a borrower up to a further 5% of
capital funds subject to the borrower consenting to the Bank for making appropriate
disclosure in Banks annual reports.

8.1.5. EXEMPTIONS under Exposure to Single / Group Borrower:

a) The ceilings on single / group exposure limits would not be applicable to
existing / additional credit facilities (including funding of interest and
irregularities) granted to weak / sick industrial units under rehabilitation
packages.

b) Borrowers to whom limits are allocated directly by the Reserve Bank of India
for food credit would be exempted from the ceiling.

8.2. Exposure on Other Banks

The exposure limits are being reviewed on yearly basis based on changes in
financial parameters of banks/FIs. As per guidelines, the risk exposure on banks in
respect of credit sanctions and the ceilings for the same have been determined
within the overall umbrella limits fixed for individual Banks. The aggregate
exposure to such institutions is monitored at the corporate level. Loans to Banks /
FIs should be selective, based on their fundamentals and minimum risk rating
CBI-4 for a period not exceeding 12 months with a provision of roll over depending
on case to case basis.
________________________________________________________________ Loan Policy
34

For arriving at the quantum of loan the following module approaches to be adopted.

Note: Management committee of the Board will have full powers to exceed the limits.

8.2.1. Exposure on Issuing of Guarantees favouring other Banks / FIs and Other Lending
Agencies:

Rs in Crore
Parameters Weightage Score
% 5 4 3 2 1
CAPITAL
Net Owned Fund (Rs Cr) 10 >4001 3001-4000 2001-3000 1001-2000 <1000
Capital Adequacy Ratio (%) 10 >12 11.-12 10.-11 10.-9 <9

ASSET(ADVANCES)
Size (Rs in Cr) 10 >30000 25001-30000 20001-25000 15001-20000 <15000
Growth (%) 5 >25 18-25 15-18 12.-15 <12

MANAGEMENT
Ownership 10 Govt. New private Foreign Old Private Co-op Bk.
EARNING
ROA(%) 10 >1 0.75-1.0 0.50-0.75 0.30-0.50 <0.30
LIQUIDITY
Outflow in 1-14 days as %
of Total Assets
5
<10 15.-10 15-20 20-25 >25
NPA
Gross NPA to Net
Advances 5 <5 7.-5 7.-8 8.-9 >9
Net NPA to Net Advances 10 <3 3.-- 4 4.-- 5 5. - 6 >6
Net NPA to Capital &
Reserve 10 <15 15 - 20 20 - 25 25 - 30 > 30
Deposits
Size (Rs in Cr) 10 >50000 40001-50000 30001-40000 20001-30000 <20000
Growth (%) 5 >20 15.-20 10.- 15 5. - 10 <5

Mechanism for arriving at the Loan Amount

Step 1 Scores as per the individual parameter to be assigned.

Step 2 Scores thus arrived has to be multiplied by corresponding weightage factor
and thereafter added together.

Step 3
Net amount thus arrived has to be divided by total of weightage factors I.e.,
100.

The figure thus arrived can be considered as multiplying factor of Rs.100
Crore for arriving at the loan amount.
________________________________________________________________ Loan Policy
35

Prudential Limits:

8.2.1.1. Prudential limits for Guarantees in favour of other Banks/FIs and other Lending
Agencies, on behalf of the borrower are to be linked to Tier-I Capital of the Bank.

8.2.1.2. Exposure limit per borrower for issue of guarantee favouring other
Banks/FIs/Other Lending Agencies shall be 10% of Tier I capital of the Bank.

8.2.1.3. The aggregate exposure for such guarantees shall not exceed 50% of Tier I capital
of the Bank.

8.2.2. Lending Against Guarantees of other Banks / FIs / Other Lending Agencies.

8.2.2.1. The exposure limit per Bank/FIs/Other Lending Agency assumed by way of credit
facility extended against guarantees shall not exceed 10% of the Tier-I Capital of
the Bank.

8.3 Credit Exposure

8.3.1 The idea of determining the exposure limits is to ensure that the bank does not get
over exposed to a particular borrower / group of borrowers or in a particular
activity or industry.

For the purpose of deciding the maximum exposure, the limits are fixed in the
following categories:

i) Borrower-wise
ii) Industry and activity wise
iii) Zone wise

8.3.2 Borrower-wise

8.3.2.1. The banks exposure to various types of borrowers will also relate to the net
worth of the borrowers. The ratio for the net worth to the bank credit of the borrower shall
not normally exceed 1:4 except in consortium accounts where the norms will be as decided
by consortium. However, deviation to the extent of 1:6 can be allowed by the next higher
authority not below the rank of Zonal Manager in case of Manufacturing & Trading
accounts. In case of NBFCs / Micro Finance Companies, normally acceptable ratio will be
1:6. However, Deviation beyond 1:6 may be allowed by CACB/MCB.
In respect of sanctions by Credit Approval Committee of the Board (CACB), deviations beyond
1:6 may be admitted by itself.

8.3.2.2. Unsecured borrowings from proprietors / partners / directors and their relatives /
friends with an undertaking not to withdraw the same during the currency of bank
loan may be treated as quasi-capital, provided such borrowings are non-interest
bearing. If it is interest bearing the borrowings may be treated as Quasi Capital,
provided borrower gives an Undertaking to retain such unsecured loans in the
________________________________________________________________ Loan Policy
36
business till currency of our bank advance and no interest shall be paid if any of
our dues remain unpaid.

8.3.2.3. Borrower constitution wise credit exposure: In addition to above, the exposure
limits for the different categories of borrowers are decided by Central Office,
keeping in mind the credit deployment policy of the bank. The borrower exposure
caps are as under:
[Rs.in crore]
Borrower category Exposure at entry
level (New A/Cs)

Existing Accounts

(i) Trusts Rs. 50.00 Rs.100.00
(ii) Proprietorship Concerns Rs. 30.00 Rs. 50.00
(iii) Partnership concerns / Societies /
Association of individuals
Rs. 50.00 Rs. 100.00
(iv) Private Ltd. Co. (excluding
SPVs.)
Rs.200.00 Rs.300.00

8.3.2.3.i In case of existing accounts having satisfactory dealings for the last five (5) years
and having minimum credit rating of CBI5, Zonal Managers / Regional
Managers in the rank of DGM /DGM of CFBs and above are authorised to take
additional exposure to the extent of 25% of above mentioned limits.

a) The above will be as per the lending powers of various delegatees.
b) Exposure beyond above mentioned levels at (i), (ii), (iii) & (iv), with exception to
provision contained in para 8.3.2.3.i above, are to be treated as deviation, which
shall be approved by CACB & Managing Committee of the Board have full powers.
However CACB is permitted to sanction credit proposals beyond the above mentioned
exposure levels depending upon merit on case to case basis.

c) The above exposures are subject to norms on individual borrower, group of
borrowers and industry / activity-wise exposures etc. as directed by RBI/ Govt. /Other
Statutory Authorities from time to time.
.
8.3.2.3 ii. Eligibility of Trusts: For the purpose of availing loan facility;

i) Trust must be registered with Charity Commissioner.
ii) Trust Deed must provide for adequate borrowing authority to the Trustee/s and
also permit him / them to stand as personal guarantor/s, incase of need.
iii) The Trust Deed provision should be thoroughly vetted by Panel Advocate /
Law Officer to ensure the above.
iv) Purpose of loan for which the Trust requires financial assistance from the
Bank must be in conformity with the Trust Deed, it should be non- speculative
/lawful.
v) Trust must obtain necessary approvals from concerned regulatory authorities
such as AICTE / MCI/ concerned University etc. [Applicable for Educational
Institutions and Hospitals set up by Trust.]
vi) If the Bank feels necessary, the Trustees must be ready to offer their personal
guarantees.

________________________________________________________________ Loan Policy
37

8.3.2.4. Wherever the above cap has been breached in existing advances, borrower may
be advised to go for consortium arrangement /Multiple bank finance for their
requirement.

8.3.2.5 For considering credit proposals in case of new accounts & also in existing
accounts where the rating is not complying with stipulated hurdle rates, a delegatee
not below the rank of Regional Manager (in the rank of DGM)/Zonal Manager can
approve the deviation up to one notch below the hurdle rate for proposals falling
with in the powers of lower delegatees. In case of proposals falling within the
delegated lending powers of Regional Manager (in scale VI) /Zonal Manager, they
can approve such deviation. However, while giving clearance/approval it should be
ensured that the proposal carries intrinsic strength to indicate that it will be able to
attain the hurdle rate within a reasonable time.

In case of existing account where the rating has deteriorated and chances of revival
appear to be bleak no enhancement should be considered and should explore the
possibility of exiting from the account.

8.3.3. Exposure limits in relation to various Activities and Industries
Besides fixing total exposure limits for different categories of Borrowers, it is
necessary that the total exposure limits be prescribed activity-wise and industry-
wise also. There shall be a maximum indicative exposure limits for financing a
particular activity and / or industry by the Bank. Indicative Exposure limits,
Industry / Activity wise is given in Annexure-4.

8.3.4. In respect of the exposure limits for the Regions/Zones following aspects will have to
be kept in mind:
a) The credit targets are decided for each Region/Zone based on the credit
deployment policy of the Bank. These targets will be informed to the respective
Regional/Zonal Offices. The targets will be treated as indicative credit
exposure limits for the Regions/ Zones.
b) The exposure limits will depend on the credit deployment policy of the Bank
from time to time and will be reviewed from time to time.
8.3.5 For the purpose of Credit Exposure, the following facilities will be taken into account.
a. all types of funded and non-funded credit limits;
b. facilities extended by way of equipment leasing, hire purchase finance and
factoring services;
c. advances against shares, debentures, bonds, units of mutual funds, etc. to stock
brokers, market makers;
d. bank loan for financing promoters contributions;
e. bridge loans against equity flows / issues;
f. financing of Initial Public Offer (IPO);
g. Forward Rate Agreements (FRA) and Interest Rate Swaps (IRS);
h. Forward Contracts in foreign exchange and other derivative products like
currency swaps, options etc. at their replacement cost value should be included
from 01.04.2003 in determining individual / group exposure. RBI has specified
bank may adopt i) Original Exposure Method or ii) Current Exposure Method.
In this regard, bank will adopt Current Exposure Method. Under the current
________________________________________________________________ Loan Policy
38
exposure method, bank would sum: i) the total replacement cost obtained by
marking to market of all its contracts with positive value i.e., when the bank
has to receive money from the counter party and ii) an amount for potential
future changes in credit exposure calculated on the basis of the total notional
principal amount of the contract multiplied by the following credit conversion
factors according to the residual maturity.

Residual maturity Conversion factor to be applied on Notional principal
amount

Interest rate contract Exchange rate contract
Less than 1 year Nil 2.00%
1 year and above 0.50% 10.00%

i. Direct investments in securities including Shares and Debentures.

Note: However, loans and advances granted against the security of banks own
term deposits including LG & LC issued against 100% / 115% of Time Deposits /
Cash Margin kept under lien, may be excluded from the purview of the exposure
ceiling.
8.4. Unsecured Exposure
8.4.1.In terms of RBI circular dated June 17, 2004 unsecured exposure is defined as an
exposure where the realisable value of the security, as assessed by the bank/approved
valuers/Reserve Banks inspecting officers, is not more than 10%, ab-initio, of the
outstanding exposure. Exposure shall include all funded and non-funded exposures
(including underwriting and similar commitments). Security will mean tangible
security properly charged to the bank and will not include intangible securities like
guarantees, comfort letters etc. In respect of exposure to Infrastructure Projects,
especially, Road Projects and Port Projects where assets are going to be created in
future will not be treated as unsecured exposure if Charges created by way of
Assignment and Hypothecation of Assets, Rights, Interest etc. as available under the
Concessionaire Agreement.
As per RBI Circular PBOD No. BP.BC.96/08.12.014/2009-10, April 23, 2010,
Annuities under build-operate-transfer (BOT) model in respect of road/highway
projects and toll collection rights, where there are provisions to compensate the
project sponsor if a certain level of traffic is not achieved, shall be treated as tangible
securities subject to the condition that the banks right to receive annuities and toll
collection rights is legally enforceable and irrevocable. Such advances to be
considered as secured advance.
Similarly assignment of receivables from reputed counter parties will be treated as
secured advance. Further, in respect of unsecured infrastructure loan accounts which
are classified as Sub-Standard Assets, the applicable % of provision shall be as
communicated by the Bank from time to time.

8.4.2 Banks unsecured exposure shall not exceed 30 % of gross advances. Exposure cap
specified herein shall be worked out as a percentage of gross credit outstanding as on
the last reporting Friday of the Quarter ending March, June, September and
December.

________________________________________________________________ Loan Policy
39
8.4.3 Banks Unhedged Foreign Currency Exposure: All Advances involving foreign
currency loans above US$ 5 million may be allowed only after getting the same
suitably hedged. However hedging need not be insisted in the cases as below:

i. Where Forex loans are extended to finance exports, hedging need not be
insisted. However it should be ensured that such customers have uncovered
receivables to cover the loan amount.
ii. Where Forex loans are extended for meeting forex expenditure.

8.4.3.1 In case of corporates who are rated A and above, Executive Director / Chairman
& Managing Director/CACB may permit allowing advances involving foreign
currency loans without insisting for hedging.

8.5. Substantial Exposure Limit
8.5.1. In its guidelines on Risk Management Systems, Reserve Bank of India advised the
banks to lay down Substantial Exposure Limits i.e. the sum total of exposures
assumed in respect of those single borrowers enjoying credit facilities in excess of
the threshold limit say, 10% or 15% of capital funds. The Substantial Exposure
Limit may be fixed at 600% to 800% of capital funds depending upon degree of
concentration of risk the Bank is exposed to. Taking a lead from the aforesaid
guidance of RBI, the Bank has set the following Substantial Exposure Limits
(SEL).
8.5.2. The Aggregate SEL shall be 600% of the Banks capital funds as per previous
years balance sheet.
8.5.3. For the purpose of aggregating single borrower exposure of SEL, 10% of Capital
Funds (single Borrower Substantial Exposure Limit) shall continue despite the fact
that Single Borrower Cap is 15% of capital funds as stated above. The 10%
threshold is considered appropriate by the Bank for keeping a tab on the quantum of
exposure to such borrowers.
8.5.4. Bank may exceed the aforesaid 10% (Single Borrower SEL) up to the mandatory
ceiling of 15% prescribed by RBI, but shall not exceed the overall SEL of 600%.

8.6. Exposure to Capital Markets

Limits on Banks exposure to Capital Markets:
Solo/Consolidated basis The aggregate exposure of a bank to the capital markets
in all forms (both fund based and non-fund based) should not exceed 40 per cent of
its net worth as on March 31 of the previous year. Within this overall ceiling, the
banks direct investment in shares, convertible bonds/debentures, units of equity-
oriented mutual funds and all exposures to Venture Capital Funds (VCFs) (both
registered and unregistered) should not exceed 20 per cent of its net worth.
Computation of exposure:
For computing the exposure to the capital markets, loans/advances sanctioned and
guarantees issued for capital market operations would be reckoned with reference to
sanctioned limits or outstanding, whichever is higher. However, in the case of fully
drawn term loans, where there is no scope for re-drawal of any portion of the
sanctioned limit, the outstanding amount to be reckoned as the exposure.
________________________________________________________________ Loan Policy
40
Advances for any other purpose to the extent secured by the collateral security of
Shares or Convertible Bonds or Convertible Debentures or Units of equity oriented
Mutual Funds, i.e. where the primary security other than Shares / Convertible
Bonds / Convertible Debentures / Units of equity oriented Mutual Funds does not
fully cover the advances also to be reckoned to the exposure.

Banks exposure to Venture Capital fund will be deemed to be on par with equity
and hence will be reckoned for compliance with the capital market exposure
ceiling.

Further, banks direct investment in shares, convertible bonds, convertible
debentures and units of equity-oriented mutual funds would be calculated at their
cost price.

9. Categorisation of Borrowers
9.1. As a part of the lending policy, while extending need based facility to various types of
borrowers there should not be over exposure to any segment of the borrowers /
industries. With this in view borrowers will be classified into two broad categories
i.e. Priority Sector borrowers and non-Priority Sector borrowers and the general
exposure limits have been fixed for these categories. Further the borrowers are
categorized under following heads.
Corporate Borrowers (both Public and Private Limited companies and PSUs)
Non-Corporate Borrowers
Individuals

9.2. Group Approach

9.2.1. The concept of Group and the task of identification of borrowers belonging to
specific industrial groups have been left to the perception of Banks by Reserve
Bank of India and the guiding principle is Commonality of Management and
Effective Control.

9.2.2. In order to assess the credit risk involved in lending, it would be necessary not to
overexpose ourselves to a particular borrower/s or a group of borrowers.

9.2.3. Two or more enterprises is said to belong to the same group, if at any time during
the reporting period or during the period under review, the financial or operating
decisions of the said enterprises are Controlled or Significantly Influenced by
the same enterprises / persons.

9.2.4. Two or more Enterprises are deemed to be Controlled by the same
Enterprise/Person when:

a. Controlling/substantial Interest, i.e. holding of shares, conferring voting rights
of 20% and above, is by the same enterprise or by the same individual himself
or jointly with his/her close relatives
b. More than 50% of the directors/partners (excluding the ones nominated by
Government of India/Reserve Bank of India/ Financial Institutions/Banks/
________________________________________________________________ Loan Policy
41
Debenture Trustees) in one enterprise are the same and/or closely related to
each other to those in another enterprise(s); and/or
c. Two or more enterprises have a contractual arrangement to share the power to
govern the financial and/or operating policies of the said enterprises; and/or
d. One company is subsidiary company (as defined under Companies Act) of
another company either by itself or through one or more subsidiaries.
e. If holding company of two or more company is the same company.

9.2.4. A Two or more Enterprises are said to be under Significant Influence by the
same Enterprise/Person when:

a. Substantial Interest i.e. holding of shares, conferring voting rights of 20% or
more, is by the same enterprise or by the same individual himself or jointly with
his/her close relatives

b. Two or more enterprises employ the same key management personnel/s or their
close relatives having authority and responsibility for planning, directing and
controlling the operational and financial activities of the said enterprises; and/or

c. Two or more enterprises have entered into a Joint Venture to undertake a
common economic subject with joint control/planning

9.2.5. In Companies/SPVs where equity investments of multiple groups are present, the
company with the maximum shareholding will be considered for the purpose of
group exposure.

9.2.6. Industrial units in Public Sector are to be kept out of the purview of Group
Approach.

9.2.7. Professional Directors on the Board may be excluded for the purpose of arriving at
the concept of a group.

9.2.8. Advances under retail Lending schemes to Directors of our Corporate clients and
Proprietor / Partners of borrowing firms may be kept out of the purview of Group
Approach, provided that the loan is granted in individual names and the assets
created out of the said loan (wherever applicable) is registered in the name of such
individuals or advance under Retail Lending Schemes is allowed against distinct
security.

9.3 Group Concept will include:
i. Two or more associations of individuals, firms, trusts, Limited Companies
where one or more individual partner, trustee or Director of one guarantees the
facilities in the other one(s);

ii. All business concerns having same promoters, directors, partners, proprietor;

iii. Sole Proprietary firm, Partnership firms, Limited Companies or any
combination thereof, their Proprietor, one or more Partners or Directors
thereof being liable for the limits of other firms.
________________________________________________________________ Loan Policy
42

10. Methods for Assessment of Working Capital Requirements

As part of financial sector reforms, operational freedom in the area of credit
dispensation was bestowed upon banks by Reserve Bank of India in its Monetary
and Credit Policy for the first half of 1997-98. The prescription in regard to
assessment of working capital needs based on the concept of Maximum Permissible
Bank Finance (MPBF) enunciated by Tandon / Chore Committees was withdrawn
and banks were advised to evolve appropriate system for assessing the working
capital needs of borrowers subject to observance of prudential guidelines and
exposure already prescribed.

10.1. In tune with the liberalized environment, our Bank has adopted the following
system for assessment of working capital requirements of the borrower.

Turnover Method: This method should be used for assessing fund based working
capital requirements enjoyed from the banking system upto Rs.5.00 crore.

10.1.1. Traditional Method: Fund based working capital requirements under this method
should be assessed under Method II of Tandon Committee for borrowers enjoying
fund based working capital limits of above Rs.5.00 crore but less than Rs.50.00
crore.

10.1.2. Cash Budget Method
This method would be applicable to borrowers who are

i. Falling under Cyclical Industries like Tea, Sugar etc.
ii. Borrowers availing Fund Based Working Capital limits of Rs.50 crore and
above from the banking system.

10.2. Term Loan Assessment

10.2.1 A term Loan is an advance given for a fixed period with provision for repayment
according to agreed term. In the case of Infrastructure Projects, the repayment
period may be for more than 7 years. A term loan may be required to finance the
following purposes:
i) For Financing Specific Asset;
ii) For Financing modernization programme;
iii) For Financing expansion programme;
iv) For Financing diversification programme;
v) For Financing New Project;
vi) For Financing Rehabilitation Project.

10.2.2. Term loans can be classified as under:
(i) Short term loan where repayment period does not exceed 3 years
(ii) Medium term loan where repayment period is over 3 year and up to 5
years and
(iii) Long term loan - where repayment period exceeds 5 years.

________________________________________________________________ Loan Policy
43
10.2.3. Whatever be the purpose of term loan, it is to be always ensured that the
activity/asset financed must be capable of generating adequate cash profit so that it
is sufficient to repay the term loan installments. In case of business necessity, if
required to provide Security Deposit in lieu of Bank Guarantee, the request for
Term Loan for funding the same may also be considered for sanction.

10.2.4. While assessing a term loan proposal the following may be taken into account:
a. Technical Feasibility
b.Commercial Viability
c. Managerial Competence
d.Economic Feasibility
e. Financial Feasibility
f. Cost of Project and Means of Finance
g.Break-even Analysis
h.Debt-service Coverage Ratio
i. Pay-back period on discounted cash flow consideration
j. Internal Rate of Return.

The appraisal of a term loan proposal needs consideration of all or some of the
above parameters.

10.2.4.a Techno Economic Viability study: Independent TEV study should be carried out
in respect all the Term Loan Proposals.

For proposals up to Rs.5.00 crore TEV report from an outside agency may not be
insisted upon. However, sanctioning authority should ensure viability of the proposal
and proper recording to be made in the process note to that effect.

In case of proposals over Rs.5.00 crore TEV report from a reputed outside agency be
insisted and the same should be studied independently before making any
commitment.

Empanelment of External Consultants:
Empanelment of external consultants for the Techno-Economic study would be
carried out by Credit Policy Department at Central Office as per the procedure
approved by the Board.

However, TEV study from an outside agency may not be insisted in case of

1. Expansion/up gradation/modernization of existing unit where the borrowers have
gained adequate in-house experience / expertise
2. Project is appraised by reputed PSUs like Power Finance Corporation, IDBI, SBI
and also have taken some exposure in the project
3. In case of Syndicated Loans if a TEV study has already been arranged by the
Leader/Syndicator
4. Equivalent studies to TEV have been done such as a Demand/Supply study
and/or Technical feasibility study etc.
& the bank is satisfied with the viability of the project and concurs with the views
expressed in the report.
________________________________________________________________ Loan Policy
44

A report submitted for the project with other nomenclature i.e., other than TEV
study also shall be accepted subject to such report containing adequate study on the
project fundamentals which indicates viability of the project satisfactorily. CMD /
CACB / MC will be authorized to take a view in such cases.

10.2.5 The IRR approach is being introduced for assessment of Term Loans of Rs. 10.00
crore and above with repayment period of 5 years or more. This assessment will be
in addition to satisfying norms under DSCR.

10.2.5.1 Generally the cutoff rate under Indian conditions is taken as 15%. In other
words, a project is generally accepted if its IRR is higher than 15%.

10.2.5.2 Accordingly the following norms are prescribed for IRR approach
For other than infrastructure projects, the Internal rate of return (Post Tax)
should be 3% and above from estimated cost of funds
For Infrastructure projects Internal Rate of return (Post Tax) should be 2%
and above from estimated cost of Funds.

10.2.6. Methodology for working out Working Capital Limits and Term Loan is given in
Annexure 16.

10.3 Non Fund based Facilities / Off Balance Sheet Exposures.
(For detailed guidelines refer Annexure 21)

10.4 Bill Finance

As a part of working capital the finance may also be extended in the form of Bill
Finance. Detailed guidelines on Bill finance is given in Annexure 6.

10.5 Corporate Loan

Looking to the credit needs of the corporate clientele, non-corporate clientele the
bank has formulated a new product General Purpose Corporate Loan/ Short Term
Loan. The detailed guidelines on corporate loans are given in Annexure 13.

10.6 Loan Syndication

Loan Syndication is an arrangement between 2 or more lending institutions to
provide credit facility. We may consider such financing arrangements. We would
allow such syndication wherever the finance limit is Rs.5 crore or more. Under loan
syndication the Bank shall take up a reasonable share subject to compliance of
prudential exposure ceilings. Delegatees in the rank of Deputy General Manager and
above only shall allow Loan Syndication facility. All usual precautions to be taken
while sanctioning / disbursing the credit facilities.
________________________________________________________________ Loan Policy
45

10.7 Multiple Banking

It is an arrangement in which borrower avails working capital facilities from more
than one Bank without a formal consortium arrangement. Whenever a customer
desires to have multiple banking we may agree for the same subject to conditions as
under:

10.7.1. We may normally agree for multiple banking only in cases where the facilities
enjoyed by the borrower is Rs.5 crore or more.

10.7.2. Where we are the sole bankers and the borrower desires to avail of working capital
limits from other bank /s without a formal consortium arrangement, the reasons for
the borrower wanting to deal with another bank should be ascertained and the
borrower may be permitted to go for multiple banking if reasons are genuine.

10.7.3.A borrower may be permitted to bank elsewhere provided the borrowers agree to
furnish from time to time details of the various facilities availed from other bank/s
and also the total working capital limits availed by the borrowers are within a 10%
tolerance level of the working capital limits assessed by us.

10.7.4. The security charged to our bank should be properly identifiable.

10.7.5.Where the borrower is availing working capital limits from other bank/s and desires
to avail working capital limits from our bank without a formal consortium
arrangement, the reasons for the borrower wanting to deal with our bank should be
ascertained and we may permit the multiple banking arrangement if the reasons are
genuine and only in cases where the working capital limits enjoyed by the borrower
is Rs. 5 crore or more and the account is being treated as STANDARD ASSET by
the existing banker for the last three consecutive years.

10.7.6. No objection certificate and confidential credit report to be obtained from the
existing bankers.

10.7.7. Group exposure and net worth of the party to be taken into account.

10.7.8. The account should qualify for a credit rating of at least CBI-4 rating on the basis
of the compliance of parameters laid down by our bank.

10.7.9. The security to be charged to the bank should be properly identifiable.

10.7.10 Delegatees in the rank of Deputy General Manager and above only shall allow
Multiple Banking facility.
________________________________________________________________ Loan Policy
46

10.8. Consortium Arrangement

The Bank shall take a reasonable share initially. The Bank, as far as possible, may
accept the asset classification and assessment method adopted by the Lead Bank in
assessment of credit needs of the borrower and also shall stipulate terms and
conditions on par with those stipulated by the lead bank. The Bank shall endeavor
to secure pro-rata share in both fund based and non-fund based business from the
borrower / Lead Bank.

10.8.1. Any deviation can be considered by the sanctioning authority on merits on case to
case basis.

10.9 Financing of Equities

Bank has laid down policy for financing equities. The detailed guidelines have been
given in Annexure 8.

10.10. Financing Construction Industry.

Bank has laid down policy for Financing Construction Industry. The detailed
guidelines have been given in Annexure 9.

10.11. Bridge Loans

As per the present policy, bridge loans / interim finance can be extended

a. Against commitments made by a Financial Institution and / or another Bank in
cases where the Lending Institution face temporary liquidity constraints
b. Against Public Issue of Equity Shares in India or abroad and
c. Against other forms of Equity viz. Foreign Equity other than Public Issue.

The guidelines in this respect are provided in Annexure- 10

10.12. Financing NBFCs.

Bank has laid down policy for Financing NBFCs. The detailed guidelines have been
given in Annexure 11.

10.13. Financing Entertainment Industry.

Bank has laid down policy for Financing Entertainment Industry. The detailed
guidelines have been given in Annexure 12.
________________________________________________________________ Loan Policy
47

10.14 Line of Credit

Line of credit is a facility to offer flexibility to highly rated corporate clients so that
unexpected working capital and business requirements can be taken care of. This
will facilitate in meeting the immediate requirements and also reduce the response
time in meeting demands of the customers. It will also enhance the operational
flexibility.
10.14.1. While providing such facility, following factors are to be taken into account:
10.14.2. Credit rating of the corporate customer (minimum rating must be CBI-4).
10.14.3. It should only be for working capital facility and business requirement for
period less than one year.
10.14.4. It is subject to over all caps fixed for respective delegates.
10.14.5. Reporting to be done in respective control return.

10.15 Guidelines on Advances to Commercial Real Estate (CRE).

Definition of Commercial Real Estate:

a) Real Estate is generally defined as an immovable asset land (earth space) and the
permanently attached improvements to it.

Income-producing real estate (IPRE) has been defined as under:

Income-producing real estate (IPRE) refers to a method of providing funding to real
estate (such as, office buildings to let, retail space, multifamily residential buildings,
industrial or warehouse space, and hotels) where the prospects for repayment and
recovery on the exposure depend primarily on the cash flows generated by the asset. The
primary source of these cash flows would generally be lease or rental payments or the
sale of the asset. The borrower may be, but is not required to be, a Special Purpose
Entity (SPE), an operating company focused on real estate construction or holdings, or
an operating company with sources of revenue other than real estate. The distinguishing
characteristic of IPRE versus other corporate exposures that are collateralized by real
estate is the strong positive correlation between the prospects for repayment of the
exposure and the prospects for recovery in the event of default, with both depending
primarily on the cash flows generated by a property.

Opening of Escrow account for CRE project funding shall be mandatory any exception
shall be approved by MC/CACB.

b) Investments in Mortgage Backed Securities (MBS) and other securitized exposures
backed by exposures as at (a) above.

10.15.1. The exposure ceiling on Commercial Real Estate Sector for the bank as a
whole shall not exceed 10% of the banks Gross Credit as at the end of previous
quarter. The exposure cap shall be worked out as a percentage of gross credit
outstanding as on the last reporting Friday of the quarter ending March, June,
September and December.

________________________________________________________________ Loan Policy
48
10.15.2. The Real Estate Property offered as security shall be free hold property with clear
marketable title. Based on the need felt, in addition to/or in lieu of equitable
mortgage of land proposed to be developed, other property/properties in the name
of the developer may also be obtained. It is to be ensured that the estimates are
reasonable and realistic. In case of lease hold land on which construction takes
place, mortgage assignment of all rights under the lease agreement should be
stipulated as security in addition to EM of land. In case the project is being
constructed on the land acquired on developmental right basis, assignment of all
rights under the developmental agreement should be stipulated.

10.15.3. All necessary permission, clearance, approvals from statutory/competent
authorities for taking up the project and construction of the building shall be
obtained and copies shall be held on record before disbursal.

10.15.4. Overall Margin on the project should not be below 25%. However, proposals
with overall margin of less than 25% and up to 10% may be considered by
CACB/ Management Committee of the Board.

10.15.5. Advance money/Partial sale consideration expected to be received during
construction period should be taken into consideration for arriving at the need-
based finance.

10.15.6. As per RBI guidelines vide DBOD.No.DIR (HSG).B.C.02/08.12.01/2007-08 dated
02.07.2007, bank may extend finance to public agencies and not private builders
for acquisition and development of land, provided it is a part of the complete
project, including development of infrastructure such as water systems,
drainage, roads, provision of electricity etc. Such credit may be extended by
way of term loans. The project should be completed as early as possible and, in
any case, within three years from the date of advance. Further, banks may
consider extending Fund Based and Non Fund based facilities to the builders if
there is a composite proposal for acquisition of land and construction of
residential / commercial complex thereof as part of the entire project. Financing
for acquisition of land only shall not be considered as it may amount to
speculative activity.
10.15.7. Door to door maturity up to 10 years, subject to provision that in specific cases
based on merits Management Committee/CACB may extend the repayment
period beyond 10 years up to 20 years.

10.15.8. Exposure in respect of single and group borrowers may be restricted to Rs.300
crore and Rs.1000 crore respectively. However, MCB/CACB may exceed this
limit on a case to case basis for any borrower/ group of borrowers subject to
compliance with Prudential Exposure norms of RBI.

10.15.9. Promoters should generally have minimum experience of 3 (three) years in
similar line of business line of business. Where a separate SPV is formed for the
project, condition of completion of earlier projects will not apply but the
promoters should have sufficient experience in real estate projects.

10.15.10. Proposals envisaging repayment through future rental incomes should be
screened thoroughly to ensure that the promoters have the necessary expertise
________________________________________________________________ Loan Policy
49
and the means to build the project as also it is to be ensured that the agreement
/lease with tenants is entered into on long term basis (without exit clause) for
qualifying under Cent-Rental Scheme. Proposals with mere assurance from
promoter that tenants would be available after construction activity may be
avoided.
10.15.11. Land should be valued at purchase price or market value whichever is lower for
the purpose of taking it as a part of project cost. However, value of land may be
reckoned in the overall financing scheme to shore up the margin or for
reckoning the ACR.
10.15.12. DSCR should be calculated taking into account a realistic net profit projection
on cash flow basis and not on cash accrual basis. Profitability statement should
be properly studied to arrive at a realistic net profit for the relevant years.
Advance Money received/Booking advance/Partial Sale consideration shall be
treated as source of fund. Quantum of Bank Finance shall be after taking into
account the advance money received/booking advance/partial sale consideration
and after the promoters contribution (minimum 25%).
DSCR is calculated as under:
Net Profit after tax+Depreciation+Interest on T/L
Installment on term loan +Interest on term loan

A minimum of average DSCR of 1.5:1 is acceptable. Where DSCR is low,
repayment period can be extended. Conversely, if DSCR is high, the repayment
period can be reduced. In case DSCR is very low, even after extending the
repayment period, the proposal should not be considered for finance.

[Though ideal ratio would be 1.5, a proposal with average DSCR of 1.40 may be
accepted if other financials of the project are found to be satisfactory and it stands the
test of sensitivity analysis with minimum average DSCR of 1.20. However, proposals
with DSCR of below 1.5 shall be considered at Central Office level only].

10.15.13. Certificate by Chartered Engineer / Architect that the construction plan is as per
National Building Code 2005 of Bureau of Indian Standards (or its updated
version) followed by a Compliance Certificate on completion of the project
issued by a Chartered Engineer/Architect should be obtained from the borrower
and held on record.

10.15.14 Mezzanine Debt: (Deleted) Refer New Loan Product As per Annexure 30

10.15.15 Provision for considering the proposals of borrowers incurring Losses

Keeping in view the satisfactory projections showing positive signs of
turnaround, bank may consider proposals of companies incurring losses.
However, the TNW of the company should be positive. Delegatees not below
the rank of General Manager can consider such proposals within their respective
delegated lending powers.

Need based Working Capital can be extended against confirmed orders / Letter
of Credits / fresh contracts etc.

________________________________________________________________ Loan Policy
50
10.15.16 Special provision for financing of PSUs.

While considering the proposals of Public Sector Undertaking following guidelines
shall be followed:

Ratios: - D: E & TOL: TNW ratios shall be 4:1. However, further relaxation may
be permitted by CACB/MCB.

Net Worth to Bank Borrowing: The ratio up to 8:1 can be accepted

Current Ratio: Current Ratio up to 1:1 shall be accepted.

DSCR: In place of DSCR, cash flows to be taken into account for fixing up
repayment period.

Hurdle Rates: Hurdle Rates stipulated for other advances shall not be applicable.

In case of PSUs incurring loss, it should be ensured that there should not be any
cash loss during the year.

In case of Project Loans, if project reports are prepared by PSUs like PFC and
Power Generation Companies etc, engaged in the line of activity for not less than 3
years, TEV report from external agency may not be insisted.

Security: In case of availability of escrow cover, if the average balance in such
account is more than 10% of banks loan, the same shall be treated as secured
advance.

Audited Financials: In case of PSUs it takes time to get audited financials
because they have to take approval from CAG and in certain cases it has to
be cleared by respective State Govts. Therefore, delay in getting Audited
Financials shall not be construed as deviation from the Loan Policy.

11. Applicability of Methods to various Sectors

11.1. Small (Manufacturing) Enterprises sector

i. Working Capital requirements of borrowers availing limit up to Rs.2 crore from
Banking System by borrowers in village and tiny Sectors are to be assessed as per
TURN OVER Method.

ii. Working capital requirements of Small (Mfg.) Enterprise units to be assessed at
20% of the Projected Annual Turn Over up to a limit of Rs.5.00 crore. If the
credit requirement based on production / processing cycle is higher than the one
assessed on the basis of turnover method, the same may be sanctioned.

11.2. Trade Sector

11.2.1. Small Borrowers

Working Capital requirements of Small borrowers in the trade sector availing limits
up to Rs.5.00 crore are to be assessed on the basis of turnover method.
________________________________________________________________ Loan Policy
51

11.2.2. Large Borrowers

Large Borrowers in Trade sector fall under 2 broad categories:

Commission Agents
The commission agents merely indent stocks and arrange for distribution without
owning the inventory. Hence, while their turnover would be large, the requirement of
working capital would be limited to meet the operating expenses. The advance to this
category of borrowers is clean in nature. The sanctioning authorities may assess the
credit requirements of the individual borrowers based on the financial projections and
subject to availability of collaterals to the extent of 100% of loan amount and Debt-
Equity Ratio of about 2:1.

General Traders including Stockiest
The stockiest procure stocks against payment, for resale. The inventory would be
owned by them and their working capital requirements are large. While the past
trends of holding levels can be taken as indicators, flexibility in lending norms will be
required as the trading activity is subject to fluctuations depending up on the volatility
in the market. The credit requirements will be assessed on the basis of past indicators
and future projections as at present. The current ratio should normally be 1.33, but
deviations up to 1.20 may be allowed during the peak trading periods.

The entire exposure should be covered by collaterals to the extent of 50% minimum
subject to the borrower maintaining adequate paid stocks to cover the limit.

In case of Trading accounts normally there will not be any long term debts and
therefore, TOL/TNW ratio to be considered. TOL/TNW ratio up to 4:1 shall be
accepted. However, in deserving cases relaxation up to 6:1 may be permitted by
Zonal Managers/Regional Managers (in the rank of DGM) and above.

11.3. Manufacturing Sector
The large borrowers under the Manufacturing Sector fall under two broad categories
viz., Cyclical Industries and Non Cyclical Industries.

11.3.1. Cyclical Industries: Borrowers from seasonal industries like sugar and tea are
already availing working capital on the basis of the Cash Budget. Their overall
requirement is determined by the maximum deficit as per Cash Budget and
disbursal of facilities is allowed on the basis of cash flow projections. Other
industries like cotton / kapas, fruits and vegetables processing, Soya processing,
Rice Milling, Turnkey Projects may also be brought within the system for financing
of seasonal industries.

11.3.2. Non Cyclical Industries: Borrowers availing limits can be divided into
i) Those availing limits up to Rs. 50 crore and
ii) Those availing limits more than Rs.50 crore. The borrowers availing total fund
based working capital limits up to Rs.50 crores would be assessed under MPBF
and the borrowers availing total fund based limits of Rs.50 crore and above
would be assessed as per Cash Budget method.
________________________________________________________________ Loan Policy
52

11.4. Working Capital Finance to Information Technology and software industry:
In the case of borrowers with working capital limits up to Rs.2 crore, assessments
may be made at 20% of the projected turnover. In other cases the requirements
would be assessed on the basis of monthly cash budget system. Loan delivery
system would be applicable in the case of borrowers enjoying working capital limits
of Rs.10 crore and above.

12. Post Sanction: (By operating Branch / Office)
12.1. Sanction letter is to be sent through respective branch to the borrower conveying the
terms and conditions of sanction and obtaining his acceptance thereof.

12.2. Documents: Execution of proper documents as per sanction and as prescribed and
approved by bank from time to time, its certification and vetting as per existing
system.

12.2.1. Branches shall ensure Registration of Charge with the Registrar of Companies in
case of Companies.

12.2.2. It shall be ensured that the documents are kept in force from time to time and proper
revival letters/AOD/Balance confirmation etc. is obtained periodically.

12.2.3. Vetting of Documents: Normally, the document are to be vetted by the Banks
Law Officer at RO/ZO for the accounts with limits of Rs.1.00 crore and above up to
10.00 crore. But if for any reason law officer is not available then the documents
are to be vetted by the banks empanelled advocate. In other cases of higher limits
above Rs.10.00 crore, the Zonal Manager/ Regional Manager will nominate the
advocate from its panel. For this purpose Zones/ Regions should keep a panel of
Advocates/ reputed firms of legal consultants based upon their experience,
exposure etc. for handling vetting of loan documents executed in branches,
including documents pertaining to consortium, in which our bank is leader of
consortium arrangement. In case of Consortium where we are members, Lead
Bank will take care of Documentation formalities. However, Lead Banks
Certificate to the effect that they are holding the documents and title deeds, if any,
on behalf of Consortium should be held on record.

12.3. Creation of equitable mortgage and obtaining the personal guarantee wherever the
terms specify.

12.4. Compliance of terms of sanction. Compliance Certificate for having complied with
all the terms of sanction shall be submitted by disbursal authorities within 10 days
from the date of release of credit limits, to the respective sanctioning authority.

12.5. To obtain no dues certificate, wherever necessary from the earlier bankers.

12.6. Disbursement strictly as per terms of sanction and in prescribed manner.

12.7. Recording the sanction in the Sanction Register for reporting to Controlling Offices.

________________________________________________________________ Loan Policy
53
12.8. Recording the details of securities charged to the Bank in the Securities Register.

12.9. Post disbursement inspection to ascertain end use of Bank credit.

12.10. Recording in Confidential Limit Register.

12.11. Borrowers enjoying working capital limits of Rs.2.00 crore and above from the
banking system where we are the leaders in Consortium, Sole Banker or under
Multiple Banking should have to submit QIS Statements. In the case of other
accounts where we are members in consortium we may follow the practice / system
adopted by the Lead Bank.

12.12. Maintenance of registers for incorporating information such as stock statement,
QIS, QMS, MSOD, etc to be obtained from / provided by the borrower.

12.13. Monitoring of advance to ensure end use, safety, and security of the loan by way of
periodical inspections of unit and stock, scrutiny of operations in the account.

12.14 End Use of Funds: The operating branch should ensure that there are no diversions of
fund. It is the primary responsibility of branches to be vigilant and ensure proper end use
of bank funds /monitor the cash/funds flow. It is, therefore, necessary for branches to
ensure that drawals from cash credit / overdraft accounts are strictly for the purpose for
which the credit limits are sanctioned. There should be no diversion of working capital
finance for acquisition of fixed assets, investments in associate companies/subsidiaries
and other investments. This has to be so, even if there is sufficient drawing
power/undrawn limit for the purpose of effecting drawals from the cash credit account. In
case of large borrowal accounts branches shall scrutinize fund flow / cash flow
statements to ensure proper use of funds. Stock auditor to examine books of accounts and
other records to ascertain proper end use of funds as per sanction terms. The Branches /
Controlling Offices should stipulate conditions in the sanctions for effective control and
monitoring of the accounts.

12.15 After disbursement of loan within 30 days, the disbursing authority has to submit a
Certificate on End Use of funds disbursed (as per the format enclosed as Annexure-32)
to the sanctioning authority.

13. Security
13.1. Approved Securities

To treat a particular commodity as security, the requisites shall be that the bank should be in a
position to realize its dues by disposing of the security in case of failure on the part of the
debtor to repay the debt. Such a security should have easy marketability, storability, stability
in price, easy transferability of title, easy handling and valuation of security etc. The
realization of the security should be without much lengthy legal formalities.

13.1 (a) Post Dated Cheques to be obtained from the borrower towards repayment of
Principal & Interest and not to be taken as security. PDCs so obtained to be presented on
dues dates, in case of default by the borrower, irrespective of any request by the borrower,
others. In case of dishonor of the instrument on presentment, appropriate action under NI
Act, to be initiated against the borrower immediately within the stipulated time period.

________________________________________________________________ Loan Policy
54
13.2. Recommended Margin:
Approved Securities Minimum Margin (%)
i) Fixed Deposits held in the name of the borrower 10
ii) Fixed deposits in the name of the third party 25
iii) Gilt edged securities viz., bonds / stocks issued by Central / State Government /
Statutory / quasi-Government Corporation or Body repayment of which is
guaranteed by the Central / State Government (including Post office)
25
iv) National Saving Certificates with accrued value 20
v) Surrender value of LIC Policies 10
vi) Shares and debentures (on Banks approved list):In Dematerialized form 50
vii) Stocks of tradable commodities / goods having realizable value (RM, SIP, FG) 25
viii) Book Debts.
- For Book debts Up to 90days
- For Book debts beyond 90 days and up to 180 days #

25
35
ix) Plant and Machinery (New) 25
x) Plant and Machinery (Secondhand) 40 **
xi) Bills of Exchange with Documents / acceptances Nil
xii) Gold Ornaments 50
xiii) Vehicles 25
xiv) Furniture / Fixtures 25
xv) Consumer durables 25
xvi) Live Stocks 25
xvii) Land and Buildings / Free Hold Plots 40
Xviii) Land & building forming part of project 25
xix) Commodities falling under Selective Credit Control. As directed by RBI from
time to time
xx) Any other Securities so approved by Central Office. Margin will be notified by
Central Office

# Advance against Book Debts beyond 90 days and up to 180 days may be sanctioned by a
delegatee in the rank of DGM and above and receivables must be from Govt.
Departments, PSUs and reputed Corporates having minimum existence of 3 years with
satisfactory track record.

** 40% Margin of residual value of second hand machinery.

For exporters, lower margin up to 10% may be allowed for export receivables backed by
L/C or firm orders placed on companies having satisfactory track record, subject to
approval by the authority not below the rank of Dy. General Manager.

13.2.1. The above mentioned minimum margins shall be subject to RBI guidelines
wherever applicable and in deserving cases the margin may be relaxed by the next
sanctioning authority not below the rank of Dy. General Manager for proposals
falling within their delegated lending powers and in other cases by the Executive
Director or the Chairman & Managing Director subject to RBI directives.

13.2.2. The drawing Power is available only on business/trade book debts which are not
older than 90 / 180 days as the case may be. The Drawing Power should be arrived
at on the basis of monthly book debt statements. At least once in every quarter such
statement must be certified by Chartered Accountant.

13.2.2. a For Working Capital limit up to Rs.15.00 crore, a combined limit against inventory
and receivables may be allowed. There shall be a common margin of 25% upto
Rs.5.00 crore and balance of Rs.10.00 crore with usual/ applicable margin for
________________________________________________________________ Loan Policy
55
receivables and inventory as the case may, subject to the condition that it is not a
Take over loan. However, delegatees having powers to sanction advance against
Book Debts only can consider such proposals. Moreover, DP against Book Debt
should not be more than 50% of the overall limit. For calculation of DP,
guidelines given in the Annexure 16 of Loan Policy should be followed.

13.2.3. Promoters Margin on Project Finance Portfolio:

1) For Infrastructure Projects:
40% of the sanctioned Margin should be brought by the Promoters upfront and the
remaining 60% of the Margin to be brought in stages along with the disbursement of
bank finance.

2) For other Projects:
50% of the sanctioned Margin should be brought by the Promoters upfront and the
remaining 50% of the Margin to be brought in stages along with the disbursement of
bank finance.

3) However, for financing under consortium / syndication the Bank will normally follow
the decision of the consortium/syndicate as regards bringing in of promoters margin on
project finance and shall fall in line with other lenders.

13.2.4 Bank shall explore the possibility of obtaining collateral securities apart from primary
security or in case where no primary security is available.

- Collaterals at least to the extent of 50% of loan amount to be insisted in case where the
nature of primary security is of perishable nature, slow moving products, high volatility in
prices etc. In case where no primary security is available, minimum collaterals to the extent
of 60% of loan amount to be insisted. CACB/CMD / ED shall have the powers to consider
any deviation in this regard.

- (Collaterals may not be insisted for Short Term Loans up to 1 year sanctioned for
augmenting short term mismatches, augmenting working capital margin and for general
business purposes. However, such facilities shall be considered at Central Office only).

- In the case of Trading Account, Consortium/Multiple Banking/syndication Finances,
we may accept collateral security to the extent of even less than 50% of the loan
amount at par with other banks/FIs., on case to case basis. (such cases shall be
considered only at CO level by CACB/CMD and/or MC of the Board)

- In case of non-consortium trading accounts, the minimum collateral coverage
should be 50% of the total credit facilities. However, Zonal Managers/Regional
Manager (in the rank of DGM) may consider proposals within their delegated
powers with a Collateral coverage between 25% to 50%. Such proposals with less
than 25% coverage may be considered at Central Office by CACB/CMD / ED and
MC depending upon the merit of the case. This is subject to the following
stipulations that:
a. Rating of the account should be minimum B+ [CBI-4 and above].
b. Key Financial Ratios should not be lower than the benchmark level.
c. Operational dealings with our Bank / with other Banks should be satisfactory.
________________________________________________________________ Loan Policy
56

13.3. Negative List of Securities.
13.3.1. All those securities which will not be legally enforceable in case of default by the
borrowers are classified as securities under Negative List. List of some such items
are as under:
i) Commodities possession of which is unlawful.
ii) In case of certain controlled sensitive commodities like rubber, fertilizer etc,
where the required license is not obtained and
iii) Securities on which a valid charge cannot be created such as LIC Policies under
Married Womens Property Act.

13.3.2. Parameters for inclusion of borrowers in Negative List
While considering the eligibility of a borrower we have to ensure that the borrowers are
not in the negative list which normally includes borrowers as under:
a. Borrowers who have defrauded our bank / other banks.
b. Guarantors who have defrauded our bank / other banks if known.
c. Guarantors who have not fulfilled their commitments to the Bank and Borrowers
against whom suit/s are / were filed by the bank. However, in exceptional
circumstances authorities at the level of Executive Director/Chairman & Managing
Director may take a view in such matters.
d. All black listed persons as advised by Government of India / RBI etc.
e. Borrowers approaching the Bank for Finance through Finance Brokers.
f. Borrowers whose line of activity is included in the Negative List by the Government of
India / RBI / IBA.
g. No additional facilities should be granted to the borrowers whose name appears in the
list of Willful Defaulters being circulated by Reserve Bank of India. In addition, the
entrepreneurs/ promoters of companies where banks have identified siphoning /
diversion of funds, misrepresentation, falsification of accounts and fraudulent
transactions, should not be granted any finance at any level for floating new ventures
for a period of 5 years from the date the name of the willful defaulter is published in the
list of willful defaulters by RBI.
h. Whenever Bank had entered into compromise settlements in sacrificing its dues either
by way of write-off of principal / interest charged or interest not charged, the borrower
should not have opportunity to avail fresh credit facilities from Bank either in his
individual capacity or in the name of any other firm / company. However, in case Bank
feels that the facilities allowed in the existing Group accounts of the Company are to
be continued/enhanced or if any fresh facilities are to be considered in any other
accounts connected with the individual/Group, the proposals can be considered by
Central Office with proper justifications, taking into account the following parameters
on case to case basis:
a) Circumstances for which party was compelled to go for OTS route
b) Integrity of the borrower
c) Business relations and potential for revenue earning
d) Viability of the Unit.
e) Any material change in parameters which calls for due weightage

However, before entertaining any such proposals, Offices should ensure:
i) Proposals in the name of Units/Firms/Companies in which Bank has entered
into one time Compromise involving sacrifice, must not be considered.
________________________________________________________________ Loan Policy
57
ii) In the case of existing Group Accounts already enjoying credit facilities with
our Bank in which promoters of previously compromised units are stake
holders, clearance be obtained from the Chairman & Managing
Director/Executive Director for continuing need based credit facilities in such
accounts.
iii) For extending facilities to a new account of the Group in which
Promoters of previously compromised units are stake holders, clearance
in principle be obtained from the Management Committee of the Board.
iv) For proposals falling within delegated powers of upto AGM level,
DGM/Zonal Manager of the Zone (Not below the rank of DGM) may consider
the same on merits, after obtaining clearance from competent authority at
Central Office.
v) Proposals of such parties falling within the powers of DGM/Zonal Manager and
above be forwarded with suitable comments/recommendations to Central
Office for consideration of the concerned delegated authority. However,
General Managers working in the Zones may consider such proposal after
clearance from Central Office, on merits within their delegated powers.
vi) The borrowers/Group Companies have not committed any fraudulent act on the
Bank/s.
vii) Bank not having settled dues under OTS in more than one account of the Group.
viii) Since OTS involves sacrifice, Bank must explore compensating for sacrifice at
least partly through additional interest, management fee, cross selling benefits
etc.
ix) The Borrowing Company is still under CDR:
a) Bank may consider financing such Company outside the purview of
CDR with higher rate of interest and with explicit permission of CDR-
EG. Bank may explore the possibility of getting priority charge on the
cash flows of the Company.
b) In case the Company having been referred to CDR earlier and exited
out of CDR, Bank may consider financing such Company on merits
after a cooling period of 3 months.
c) One of the Group Companies is under CDR, based on the performance
of the Borrower Company; Bank will take an independent view for
financing such Companies.

The above said parameters need not be made applicable in respect of the following
categories of borrowal accounts, where the guidelines/instructions given by the
respective Operating/Government Agencies have to be considered.
- for B.I.F.R Accounts
- for lending to farmers under Schematic advances
- any other special schemes formulated by the Government.
i. But Fresh loans can be sanctioned to the agricultural borrowers who had earlier settled
their dues under One Time Settlement / Compromise settlement scheme by the Branch
Managers within their delegated lending powers. However, the Branch Managers who
had earlier recommended or sanctioned the compromise proposal should seek
administrative clearance from their Regional Office for consideration of fresh limits.
j. In the case of Group accounts where one of the accounts is a Non-Performing account,
then the facilities for other Standard accounts in the Group can be reviewed / revised by
the next higher authority not below the rank of General Manager.
________________________________________________________________ Loan Policy
58
k. RBI Defaulters List: In case the name of the proprietor, partner/s, director/s, etc appear
on the RBI Defaulters List for reason other than being a Professional / Nominee
Director in the defaulting company.

13.3.3. The above aspects to decide the negative list of securities and the borrowers is only
illustrative and not exhaustive. Based on the experience of the bank these aspects
will be reviewed from time to time.

13.3.4. Norms for obtaining guarantees as security:

13.3.4.1 Whenever a guarantee is to be obtained as collateral security in a borrowal
account, it is necessary to take into account the total number of guarantees given
by such proposed guarantors in other accounts.

13.3.4.2. It is also advisable to correlate with the total guarantee commitments of the
proposed guarantors with their net worth.

14. Delegation of Authority

14.1. General Rules

14.1.1. The delegated authority will be exercised by the delegatee judiciously, with due
care and in good faith, having regard to the duties entrusted to him or to the
responsibility devolving on him. In exercising his authority, the delegatee will
comply with the general or specific instructions or guidelines given or prescribed by
the Central Office or other controlling authority from time to time.

14.1.2. The delegatee will not exercise any authority in favour of himself or any member of
his family or knowingly grant or authorize the grant of any advance facilities to or
enter into or authorize entering into by or on behalf of the bank any contract,
agreement or proposal in any matter or sanction any contract or loan to any
undertaking or person if any member of his family is employed in that undertaking
other than a public company or under that any person if he or any member of his
family is employed in that undertaking or under that person or if he or any member
of his family has interest in such matters or contract in any other manner.

Explanation: A person is not deemed to have any interest in an undertaking for the
purpose of this regulation if he is only a shareholder having not more than
2% of the paid-up capital of the undertaking in his name.

14.1.3. In this context, family means:-

i) In the case of male officer employee his wife, whether residing with him or not, but
does not include a legally separated wife and in the case of woman officer
employee her husband, whether residing with her or not, but does not include a
legally separated husband.

ii) Children or stepchildren of the officer employee whether residing with the officer
employee or not and wholly dependent on such officer employee but does not
________________________________________________________________ Loan Policy
59
include children or step children of whose custody the officer employee has been
deprived of by or under any law, and

iii) Any other person related by blood or marriage to the officer employee or to his
spouse and wholly dependent upon such officer employee.

14.1.4. In this context, the terms relatives mean:-
a. Spouse
b. Father
c. Mother (including Step Mother)
d. Son (including Step Son)
e. Sons Wife
f. Daughter (including Step Daughter)
g. Daughters husband.
h. Brother (including Step brother)
i. Brothers wife
j. Sister (including Step Sister)
k. Sisters husband.
l. Brother (including Step Brother) of the spouse.
m. Sister (including Step Sister) of the spouse.

14.1.5. Advances to Relatives of Staff Members

14.1.5.1. All proposals for credit facilities to the relatives of the staff members shall be
referred for sanction to the appropriate delegatee under whose powers the
proposal fall but not below the rank of Regional Manager / Chief Manager and
that such delegatee is at least one scale above in rank over the concerned staff
member whose relative has applied for loan.

14.1.5.2. Where the other party to a transaction, or the proprietor/partner/director of such
opposite party / concern, is related to the delegatee the proposal / transaction will
be referred to the next higher authority even though the proposal / transaction is
within the powers of the delegatee. In such cases, the fact of the relationship with
the delegatee will be brought out clearly while recommending to the higher
authority.

14.1.5.3. Exception

The facility against Term Deposits, approved Shares, LIP, NSCs, KVPs, Units of
approved Mutual Funds can be sanctioned by the Competent Authority within
their respective delegated powers as per the guidelines issued from time to time.
LIP includes Life Insurance Policies issued by other Insurance Companies also,
which can be assigned in favour of the bank.

14.1.6. Advances to staff members / Ex-staff members and their relatives on
commercial terms.

14.1.6.1. Advance to staff members
14.1.6.1.A. Requests for Loans may normally be received from Staff Members for
considering on the terms and conditions applicable for general public. Such
request will be considered as under:
________________________________________________________________ Loan Policy
60
14.1.6.1.A i. Matters relating to staff and officers up to scale III working in the region and
regional office will be sanctioned by Regional Manager.
14.1.6.1.A ii.Matters relating to staff and officers up to scale III in ELBs / VLBs / Zonal
Office will be sanctioned by respective Chief Manager/Assistant General
Manager.
14.1.6.1.A iii.Matters relating to officers in scale IV & V in Zone (including Assistant
General Managers posted at Zonal Office, Regional Office, Branches, and
RRBs) and staff and officers in Training Colleges and other Administrative
Offices will be sanctioned by Zonal Managers.
14.1.6.1.A.iv.Matters relating to staff and officers in scale up to III posted at Central
Office, will be sanctioned by CM (HRD-CSD) and for officers in scale IV and
above, the sanctioning authority will be one scale higher than the concerned
staff but not below DGM (HRD).
14.1.6.1.B. Matters relating to Officers of Scale VI and VII in the Zone will be sanctioned
at Central Office by General Manager (Cr.) and Executive Director
respectively.
14.1.6.1.C. Matters relating to Zonal Offices headed by AGM/DGM/GM as Zonal
managers should invariably be forwarded to Central office as per existing
practice / norms.
14.1.6.1.D. Any credit facility sanctioned to a relative of any officer in Scale IV and
above should be reported to the Board. Further, when a credit facility is
sanctioned by an authority, other than Board to:
any firm in which any of the relative of any senior officer (Officers in
Scale IV and above) of financing bank holds substantial interest, or is
interested as a partner or guarantor; or
any company in which any of the relative of any senior officer (Officers in
Scale IV and above) of the financing bank holds substantial interest or is
interested as a director or as a guarantor. Such transaction should also be
reported to the Board.
14.1.6.2. No loan except against Banks Deposit Receipts and other usual loans as has
been permitted by the personnel department will be granted to a member of
the staff by an authority lower than Chief Manager / Regional Manager.
Advance Salary beyond prescribed rules would be deemed to be a Loan
for the purpose of these rules.

14.1.6.3. Chief Managers of very large branches may sanction advances to staff within
their delegated powers and as per laid down policy of the bank subject to
advice to the concerned Regional Manager.

14.1.6.4. Advances to Ex-Staff and their relatives:
The clause 14.1.6.1. will remain applicable to the Ex-staff for a period of 2
years from the date he / she ceases to be in service of the Bank
The provisions of clause 14.1.5. shall not apply to the relatives of Ex-Staff
members and they will be treated as any other borrower.

14.1.7. Guidelines for granting of Loans and Advances and award of Contracts to
Directors of bank (any other Bank) and their relatives as also granting of loans
to Chairman and Managing Director, Executive Director or other Directors of
our Bank are given in Annexure No. II.
________________________________________________________________ Loan Policy
61
14.1.8. Sanctioning advances through oral or telephonic instructions should not
normally be done. However, in the event of urgent and demanding business
requirements, such instructions should immediately be recorded and confirmed
in writing. It is obligatory on the part of lower authority to seek on the same
day and obtain confirmation in writing when acting upon the oral / telephonic
instruction of the higher authority. It is equally obligatory on the part of the
higher authority to confirm in writing on the same day any oral instructions
given by him to a lower authority.

14.1.9 Advances to staff and staff relatives under Direct Housing Finance Scheme to
be considered strictly as per the provisions contained in the scheme.
Sanctioning authority for such loans shall be as per the powers delegated
specifically under the scheme.
a) Loans to Staff Members Loans to Staff Members under DHFS would be
sanctioned by the same sanctioning authority who would be sanctioning the
loan under Staff Housing Loan Scheme.
b) Loans to relative of a Staff Member jointly with the staff member as principal
borrower or co-borrower Normal Sanctioning Authority.
c) Loans to Staff Relatives Normal Sanctioning Authority.

14.2. Lending Authority

To regulate the deployment of credit as well as sanction of credit, the Board of
Directors of the Bank will determine the lending and discretionary powers of
various authorities.

14.2.1. The lending authorities in the bank shall be:-
i. Branch Manager in different categories of branches.
ii. Regional Manager in the Regional Offices.
iii. Asst. General Manager in Zonal Office / Branch.
iv. Dy. General Manager in Central Office /Zonal Office / Branch.
v. General Manager in Zonal Office / Central Office.
vi. Any official of the bank duly designated by the Chairman and Managing
Director.
vii. Regional/Zonal Credit Approval Committees RCAC/ZCAC
viii. Executive Director.
ix. The Chairman and Managing Director.
x. Credit Approval Committee of the Board (CACB)
xi. Management Committee of the Board: The Management Committee is
constituted by the Board of Directors to consider credit proposals up to the
levels determined by the Board.
xii. Board of Directors. The Board of Directors is the apex level authority of the
Bank to decide the overall policy of the bank with regard to credit.

14.2.1.1 In a set up where delegatees at the level of Scale IV and above co-exist, each of
them will exercise the powers delegated to them. This power can also be
exercised by ARM in the grade Scale III posted in Regional Offices. However,
the relative sanction advices to be put up to the next sanctioning authority
immediately for information.
________________________________________________________________ Loan Policy
62

14.2.1.2 In emergent circumstances, the Chairman & Managing Director shall have the
discretion to take decision, subject to ratification by the CACB/Management
Committee in respect of proposals which fall beyond his lending powers. In the
absence of Chairman & Managing Director, Executive Director shall have the
discretion to take a decision and put up for ratification by CACB/Management
Committee.

14.2.2 All Loans (whether temporary or on a regular basis) granted in exercise of lending
powers will be made strictly in conformity with the Managements Policy
regarding the Banks lending activity and will always be in line with the shift in
emphasis that may be advised from time to time.

14.2.3 In exercising his/her lending authority, the delegatee will observe following pre-
requisites: The borrower should be a customer of the bank, known to the bank or
in case of a new customer properly introduced to the bank by a person well
known to the bank and the branch should have reasonable knowledge and / or
experience in his line of dealings. Normally, discretionary accommodation will
not be granted immediately on opening an Account.

14.2.4 The authority vested in the delegatee shall be exercised after having the proposals
duly evaluated on the basis of :
i. Application in the prescribed format.
ii. Proposal in the prescribed format.
iii. Financial statements (latest being not older than one year and key
financial parameters not older than 6 months)
iv. Credit report from other banks.
v. Credit report prepared by the bank.
vi. Market reports wherever required.
vii. Particulars and state of related accounts dealing with the bank.
viii. Particulars of credit limits enjoyed with other bank, and
ix. Process note.

14.2.5 Every proposal / sanction will be justified by the borrowers past performance, or
record of his dealings with the Bank and / or supported by a good status / credit
report on him. A status / credit report on the party will be normally compiled
before granting any facility. All credit facilities will be granted strictly in
conformity with the terms as to margin, rate of interest etc. as prescribed from
time to time by the Central Office or RBI and against approved securities (i.e.
securities / assets on the banks approved list).

14.2.6 Lending powers will not, normally be exercised for granting any facility to a
customer in whose favour a regular limit is already sanctioned ( or declined), by
the higher authority.

14.2.7 Total of the facilities granted to two or more concerns, which form a group, will
not exceed the lending powers of the delegatee. In other words, all associate
concerns will be treated as one borrower for the purpose of determining the
maximum advance that can be granted by the delegatee except in specific cases
where the Board of Directors delegate the powers subject to ensuring that the
________________________________________________________________ Loan Policy
63
overall exposures fixed for the group by the Management Committee and / or RBI
is adhered to. While fixing Credit limits, Limit already sanctioned or being
sanctioned against uncleared effects should also be taken into consideration to
ensure that overall limit sanctioned by the delegatee is within his lending
authority.

14.3 Lending Powers
Lending Powers delegated by the Board to authorities at various levels are given in
Annexure - 3.

14.3.1.1 Maximum lending power inclusive of bills negotiated under L/C [opened by First
Class Bank (only for borrowers with limits, both Inland/Export)] will not exceed
Rs.400 Crore, Rs.100.00 Crore and Rs.75.00 Crore in case of CACB, CMD & ED
respectively. For other delegatees, the powers are as mentioned in item 6 of
Annexure 3.
14.3.1.2 Chairman and Managing Director is authorized to enhance, abridge, amend or
suspend the delegated power or any part thereof of any of the delegatee whenever
need arises and on such occasions he may inform the Board / M.C. of
Board/Credit Approval Committee of the Board.
14.3.1.3 Exercise of discretionary powers / ad hoc sanctions on emergent basis may be
exercised as per prudential norms and as detailed in para No.14.4.
14.3.1.4 Proper registers of ad hoc sanctions / discretionary powers utilized by various
authorities should be maintained along with the adjustment.
14.3.1.5 The delegated powers shall be exercised in accordance with the Reserve Bank of
Indias directives / instructions / guidelines and also the Banks lending policy
and instructions on the subject.
14.3.1.6 In case where the Chairman and Managing Director / Executive Director
exercises powers in excess of his delegated authority, then such cases should be
put up to the Board/ Management Committee for ratification / information
mentioning the reasons for the urgency for the sanction.
14.3.1.7 In Group cases, the delegatee will exercise only the authority vested as per the
Lending Powers as above i.e. after taking the total limits of all the group accounts
put together.
14.3.2 All delegatees can consider term loans within their delegated powers.
14.3.3 Lending Powers will not be exercised without ascertaining whether the borrowing
concern and / or its proprietor / partner (s) has any account (s) with any other
branch of the bank and if so, only after ensuring that similar or other facilities are
not granted at the other branch (this would ensure the accommodation at one
branch is not used to adjust advances at the other branch). In the same way, no
proposal should be entertained by one branch, if they are aware that a similar one
is rejected by any other Branch.
14.3.4 While exercising lending powers, the delegatee will strictly observe the following
procedure.
14.3.4.1 Appropriate Loan Application / request on standard format and the prescribed
credit information will be obtained in writing from the borrower.

14.3.4.2 Even where the proposal is not required to be submitted to a higher authority, a
process note will be completed in all respects (in the same manner in which a
proposal is forwarded to higher authority for sanction) and appropriate comments
________________________________________________________________ Loan Policy
64
on the proposal will be made on the Loan Application Form and the sanction will
be accorded under the delegatees full signature.
14.3.4.3 Sanction Advice (on the prescribed manifold set) will be prepared and
various conditions and security documents as prescribed and advised by
Central Office from time to time for different types of limits will be correctly
stipulated as part of the terms of sanction.

14.3.4.4. Revalidation of Sanction Limits

Sanctions in respect of working capital and term loan facilities shall be valid for 6
months, from the date of sanction. Facilities not availed within the above period
should be treated as lapsed and borrower be advised accordingly. Unless a lapsed
sanction is revalidated by the competent authority within a maximum period of 12
months from the date of sanction, no facility should be released. In case of lapsed
sanctions falling under the power of officials up to the level of GM, the same
shall be revalidated by the sanctioning authority and in respect of sanctions under
the power of ED / CMD/ CACB and MC revalidation of lapsed sanctions can be
considered by ED/CMD/CACB. However, to safeguard banks interest, while
permitting revalidation, the competent authority shall obtain and study the latest
financials of the borrowers /units and also ensure that the projections submitted at
the time of original sanction continue to hold good.

14.3.4.5. Sanctioning Authority for Miscellaneous Requests

Very often requests are received for issuance of No Objection Certificates for
different purposes such as:

a. For raising of funds through equity/debentures/ other instruments, through
IPO/ private placement.
b. For availing of finance from other Banks/FIs by giving exclusive first
charge in favour of such lenders.
c. For sharing of security on pari passu basis with other bankers
d. Deleted.
e. For the purpose of merger/ demerger/amalgamation/ hiving off of another
company with the borrowing company, etc.
f. For raising finance outside MPBF through other sources available to the
borrower.
g. For investment in subsidiaries/associate companies.
h. For issuance of corporate guarantees in favour of others, etc.
i. For release of securities.
j. For ceding 2
nd
charge on assets (on which we have 1
st
charge), in favour of
other lenders provided reciprocal charge is available.

When request for NOC is affecting the security pattern and security coverage, the
revised Asset Coverage Ratio will be worked out and a decision for issuance of
NOC will be taken as under:
(i) For accounts sanctioned at Central Office: The respective delegated authority.
CACB can exercise such powers for accounts falling within the purview of
MCB also.

________________________________________________________________ Loan Policy
65
(ii) For accounts sanctioned at other than Central Office: The respective delegated
authority not below the rank of CM.

14.3.4.6. Quoting of Rate of interest for Credit Facilities

CMD / ED are empowered to permit quoting of Interest Rates on credit facilities
where quotes are invited by PSUs / Large Corporates. In case of acceptance of
quoted rates by such Corporates, the same shall be placed before CACB/MCB for
ratification.
If the sanction of credit facilities is falling within the powers of CACB, the
committee is empowered to permit quoting of interest rates on credit facilities
where quotes are invited by PSUs/Large Corporates.
However, such approvals shall not be treated as sanctions for the purpose of
reporting to higher authorities.

14.3.5. Guidelines on Lending to Selective Credit Control Commodities
Branch Managers will not sanction any credit facilities against the security of
commodities falling under the Selective Credit Control directives of the RBI.
Parties dealing in such commodities will not be sanctioned facility even against
Government Securities, shares and Debentures, if such facility enables them to by
pass the Reserve Bank of India Directives. Presently, the following commodities
are covered under stipulations of Selective Credit Control:
i) Buffer stock of sugar with Sugar Mills
ii) Unreleased stocks of sugar with Sugar Mills representing
levy sugar, and
free sale sugar
The proposals for grant of advances against commodities covered under Selective
Credit Control shall be referred to the Regional/Zonal / Central Office for sanction.

14.3.6. No delegatee below the rank of General Manager shall exercise his lending powers
for purchasing / discounting of bills drawn on the associate / sister concern of the
borrower and that too on being satisfied that there is an underlying genuine trade
transaction. As a matter of precaution, branches along with usual documents should
obtain from the borrowers an undertaking that they will not avail any advance
against bills drawn on / book debts due from associate / sister concerns without
specific limits from the bank.

14.3.7 Powers to approve extension of PC

All Zonal Managers/ Regional Managers (in the rank of DGM) and DGM of
CFBs shall have the power to allow extension of PC up to 360 days in case of
working capital subject to compliance with the RBI guidelines issued from time to
time. Such extensions shall be allowed keeping in view the genuineness of the
request and subject to reporting to next higher authority.

Request for extension beyond above mentioned period shall be referred to Central
Office and at Central Office, ED and above shall have powers to take a decision,
subject to obtaining permission from RBI wherever required.

________________________________________________________________ Loan Policy
66
14.3.8 Powers to approve Letters of Comfort for availing Buyers Credit

(i) Any request for issuance of Comfort Letters to enable the borrowers to avail Buyers Credit
shall be considered by the delegatees not below the rank of Dy. General Manager within their
respective delegated lending powers. Any request falling beyond the delegated powers of DGM
(ZM) shall be approved by GM/CGM (Credit) at CO and in respect of GM (ZM), ED and
above shall have the powers to approve the same at CO.
(ii) Letters of Comfort are to be issued only after verifying that the same has factored while
assessing total Working Capital requirements based on over all operating business cycle of the
borrower.
(iii)
Working Capital requirements are to be assessed duly considering the overall operating
business cycle after reducing credit availability and mode of source of funds such as Net
Working Capital (NWC), fund based and non fund based credit facility from the Bank (s) etc.
(iv) If Buyers Credit is factored at the time of assessment of WC, then LOC can be issued after due
sanction by the Competent Authority.

(v) The letters of Comfort issued, on behalf of the domestic and importer customer, is in the nature
of Guarantee in favour of the lending institution & it will also be a part of the Letter of
Guarantee limits of the borrowers.

(vi) Where the availment of Buyers Credit has not factored at the time of assessment of WC, but
borrower/ corporate, still seeks issuance of LOC for availing Buyers Credit, then the WC
requirements are either re-assessed or the WCL are proportionately earmarked from the total
working capital facilities availed.

(vii) As applicable to NFB limits, in case of LoCs also, necessary Contra to be passed for keeping
effective control.

(viii) Bank should disclose full particulars of all the Letters of Comfort (LoCs) issued during the year
in the Balance sheet as part of the Notes to Accounts.

(ix) Operating cycle will be the maximum tenure of the LOC.

(x) Commission and other charges as applicable in the case of Financial Bank Guarantee.

(xi) Any extension of LOC on due date shall depend upon operating cycle.

14.3.9 Interim Disbursement of Term Loans pending creation of security

It will be our endeavour to effect disbursement only after stipulated security is
created. However, in case disbursement is required urgently for project
implementation, interim disbursement may be considered subject to compliance
with the following conditions:

1. Disbursement will be restricted to 75% of the loan amount and will carry an
additional interest rate of minimum 0.50% p.a.
2. NOCs from their existing charge holders, in exceptional cases at least NOCs of
the Lead Bank should be in place.
3. In exceptional cases disbursement can be considered without NOCs subject to a
higher interest rate of 1% p.a. and against stamped undertaking (including a
________________________________________________________________ Loan Policy
67
Power of Attorney) to create charge within 6 months. This will need to be approved by
the sanctioning authority.
4. Disbursement will be effected against stamped undertaking to create securities which
include a Power of Attorney clause within a maximum period of 6 months failing
which the Bank has the right to charge higher rate of interest of up to 2% p.a.
5. All cases where security is not created as per undertaking will be reported to ACB of
Board.
6. CACB is authorised to approve above deviations.
7. In respect of credits sanctioned by CACB, it can approve deviations listed 1 to 5,
subject to merit on case to case basis.

14.3.9. A CACB is authorized to release sanctioned facilities pending financial
closure/ full tie up in case of Underwritten Debt.

14.3.9. B For giving permission to release part of primary/collateral security:
Normally, the Bank will not permit release of any security, which involves
dilution of FACR. However under exceptional circumstances, such request may
be considered provided the following conditions are satisfied.

a. The remaining security securities are valued afresh by two independent
valuers. Moreover, these securities must be marketable.
b. After the release, the FACR should be above 1.5
c. Accounts have been satisfactorily operated for a minimum period of
three consecutive years without any adverse remarks
d. CACB shall have the powers to consider such requests.
e. Amount of loan sanctioned to the borrower is above Rs. 5 Crore.

14.3.10
Special Discretionary Powers to Credit Approval Committee of the Board (CACB)
In respect of credit facilities which are falling within its powers, the committee is
empowered to:
1. Reduce rate of interest by 200 basis points in any account from the approved rate of
interest.
2. To convert fixed rate to floating rate by linking it to current Base Rate or vice-a-versa.
3. To vary the reset clause for one year.
4. To increase the tenor of the loan/ moratorium as per RBI guidelines.
5. To grant concessions in service charges.

On exercise of above delegated powers in respect of accounts which are falling under powers
of MCB, the matter shall be reported to MCB for information.

MCB/ CACB (Credit Approval Committee of the Board).
In respect of advances upto Rs.400 Cr., the CACB is empowered to exercise the powers which are
hitherto rest with MCB.

Further what are all the deviation & other related approval powers presently exercised by CMD/
EDs on MCB sanctions, shall stand shifted to CACB.

14.3.11. Reporting of Sanctions
An appropriate entry will be made in the Sanction Reporting Register by the Delegatee to
record the sanctions given by him under the powers vested in him/ her. A summary report
on exercise of lending powers will be submitted to the controlling office, in the prescribed
form within a week of the following calendar
________________________________________________________________ Loan Policy
68
month. A similar Reporting Register will be maintained at Central Office also by
the delegatee and submitted to the next higher authority, in the prescribed form.
However, the sanctions made by the Executive Director will be reported to the
Management Committee of the Board.

14.3.12. All such reports shall be scrutinized by the Controlling Office and comments, if
any will be intimated to the sanctioning authority for appropriate action.

14.4 Discretionary Powers / Ad hoc Sanctions - Deleted
[Paras 14.4 to 14.4.15 have been deleted]
Refer Annexure 24 A for revised guidelines on Adhoc Sanctions.

14.5. Review and renewal of Limits

All the working capital limits should be reviewed after appropriate period.

14.5.1. The Bank shall adopt discriminatory time schedule for renewal and review of
credit limits of Rs.100 lakhs and above based on the credit rating assigned, as
under:

Credit Risk Rating Periodicity of review / renewal
CBI-1 to CBI-7 12 Months (Annual)
CBI-8 and below 6 months (biannual)

14.5.2 However advances where credit rating is not applicable and advances below
Rs.100.00 lakhs will continue to be reviewed / renewed once in a year i.e. 12
months.

14.5.3. Concept of Short Review

14.5.3.1. In case, the Regular Review/Renewal of limits gets delayed for some genuine
reasons like non-availability of provisional/audited financial statements, a system
of conducting short review to take a view on continuation of facilities, stipulating
a dead line for conducting regular review of limits, the borrowal accounts may
be reviewed for a short period of not more than 6 months based on:
- Provisional figures submitted by Borrower.
- Statistical availment data of the limit and
- Past performance of the account.

14.5.3.2. Regional offices are required to maintain and monitor the calendar of
Review/Renewal of accounts of the branches under their jurisdiction.

14.5.3.3. If due to unavoidable circumstances and due to genuine reasons the party is not
able to furnish the required particulars and the renewal exercise cannot be
completed by the due date, any extension of tenability of limits thereof can be
done only through a short review by the respective sanctioning authority.

14.5.3.4. Any proposal for extension of limits beyond 6 months in very exceptional cases
shall be taken up with Central Office only.

14.5.3.5. While permitting extension, the respective authority who permits such extension
may permit continuation of ROI and concessions permitted at the time of
sanction/renewal unless otherwise warranted.
________________________________________________________________ Loan Policy
69
14.5.3.6. Normally in expired limits, exposures beyond the sanctioned limits cannot be
permitted.

14.5.3.7. The time schedule herein above specified is the maximum permissible time. The
extension of the tenability of the limit should not be permitted as a matter of
routine. In other words, while extending the tenability of limits the respective
sanctioning authority shall review the borrowal account in its entirety covering
conduct of the account, pending issues relating to documentation, sanction terms,
financial position of the borrower/borrowing unit, etc., the recommending
authority shall place their specific recommendations before the appropriate
authority.

14.5.3.8. If credit limits are not renewed or extended as stated above, the branches/offices
shall examine and recommend further course of action to the appropriate
sanctioning authority.

14.5.3.9. If the branches submit the full renewal credit proposal of a borrower before the
expiry of the existing credit limits or before the expiry of the extended period of
the credit limits recommending renewal based on merits thereof, they shall be in
order in continuing to make available the existing credit facility till such time a
decision thereon is received from the sanctioning authority. Also, if the
sanctioning authority permits renewal thereof (including with enhancement, if
any), the action of the branch concerned in making available the expired limits
shall be deemed to have been approved.

14.5.3.10. In respect of consortium accounts where we are only a member, if the process
of limits is not likely to be completed by the leader even within the extended
period of tenability permitted by our Bank, our branches/offices shall take steps at
least to independently renew the limits either at the existing level or at lower level
after obtaining the latest audited /provisional balance sheet /figures relating to key
financial indicators etc, from the borrower within a period of 45 days thereof.
This is however, subject to ensuring that there is no deterioration in the financial
position of such borrowers.

14.6. Loan system for Delivery of Bank Credit

As directed by RBI, all borrowal accounts enjoying working capital (Fund based)
limits of Rs.10 crores and above will be brought under Loan System for delivery
of bank credit, i.e. Working Capital Limits will be disbursed by way of Working
Capital Demand Loan to the extent of 80% of sanctioned limit and remaining
20% by way of cash credit (running account) except in following cases which are
exempted from the provision of the Loan System for Delivery of Bank Credit:-

- Sugar - Tea
- Tobacco - Fertilizer
- Vegetable Oil Industry - Petroleum (Oil Industry)
- Full fledged Money Changers
- Parties mainly engaged in activities of Laying Transmission Lines, supply of
equipments for the same, erection of sub stations and other Engineering,
Design, erection / Fabrication including projects undertaken on Turnkey Basis.
- Beverages Industry manufacturing soft drinks, aerated water (Soda / flavored
or sweetened etc.)
________________________________________________________________ Loan Policy
70

14.6.1. However, the sanctioning authority in the rank of GM and above has the discretion
to increase the cash credit component beyond 20%.

14.7. Prohibitions on Exercise of Delegated Lending Powers and Discretionary
Powers / Ad hoc Sanctions

14.7.1. Where a higher authority has already declined a proposal or an ad-hoc limit, the
lower authority shall not exercise his delegated / discretionary authority.
14.7.2. Giving continuous accommodation and / or allowing accommodation despite
continued irregularities in the account, to the same customer or allowing
indiscriminate excesses over the sanctioned limits.
14.7.3. Granting temporary overdrafts in more than one account of the same party so that
such funds are ultimately utilized by one and the same party.
14.7.4. Adjusting advances granted in one account by giving accommodation in another
account of the same party or its sister concern.
14.7.5. Purchasing accommodation bills.
14.7.6. Granting accommodation or recommending renewal or additional credit, without
disclosing material irregularities in the account, such as large return of bills /
cheques purchased shortages in stocks, lack of turnover of stocks etc.
14.7.7. Splitting up a transaction to avoid reference to higher authority.
14.7.8. Sanctioning a fresh proposal or a part there of which actually falls within the
powers of higher authority.

14.8. Restrictions on Use of Delegated Powers / Discretionary Powers / Ad hoc

14.8.1. No Officer or any committee comprising, inter-alia, an officer as member, shall,
while exercising powers of sanction of any credit facility, sanction any credit
facility to his/ her relative. Such facility shall be sanctioned by the next higher
sanctioning authority only.

14.8.2. Frequent sanctioning of temporary overdraft to the same party in one or more
accounts shall be avoided.

14.8.3. Lending for Liquor Trade shall be sanctioned only at Regional Office/ Zonal Office
and above.

14.8.4. The proposal for credit / facilities to industries under watch list and Low Priority
list will be referred to Central Office for in principle approval except where
discretion is allowed to the Regional Manager/ Zonal Manager and to certain
Regional Managers specifically in case of Textile industries.
14.8.5. Lending to transport operators should be allowed by the Regional Offices,
selectively at branches which have a good track record of recovery and inform
Zonal Office.
14.9. Miscellaneous

14.9.1. Full discretion is allowed to all delegatee to grant overdrafts / loans against banks
own deposit receipts subject to :
i) Usual margin requirement.
ii) Prior approval of RBI wherever applicable.
________________________________________________________________ Loan Policy
71
14.9.2. In case of any specific scheme which are sanctioned by Central Office the
individual loan amount may sometime exceed the powers delegated to Branch
Managers for the specific purpose. In such cases, Managers of the Branches within
whose jurisdiction, the specified schemes are to be implemented, are authorized as a
special case to sanction loans to the extent of the maximum individual limit
indicated in such schemes, although the unit cost would exceed the normal
delegated powers, or it may relate to an item for which they may not enjoy any
powers.
14.9.3. Where an Officer is appointed to officiate in a higher post, he shall exercise the
powers attached to the higher post.
14.9.4. The advances made to Directors of corporate borrowers under retail lending
schemes in their personal capacity, may be excluded while calculating total
exposure to the corporates / companies. It should be ensured that the said directors
are otherwise independently eligible for loan under the schemes complying with all
the terms of the scheme. The advances to directors of corporate clients under retail
lending schemes under above circumstances may be sanctioned by authority not
below the rank of Regional Manager / Chief Manager in charge of Branch.

14.9.5. Delegated Powers in case of Officials due for Retirement

14.9.5.1 A delegatee who is about to retire within next 3 months, or has submitted
resignation/voluntary retirement shall not exercise his delegated / discretionary
powers independently.

14.9.5.2. All the field level officials BM/RM/ZM who are due to retire within 3 months
shall be withdrawn from the present posting wherever possible.

14.9.5.3. In case of there being no possibility of withdrawing them from such assignment
due to exigencies in the concerned Scale / Grade or for any other reasons then the
delegated powers shall be exercised through committee as explained in Central
Office circular CO:94-95:134 dated 20.07.1994 and CO:PRS:2000-01:56 dated
16.06.2000. The gist of these circulars is as under:

(A) At Central Office level:
DGM, GM, ED and CMD at Central Office level are permitted to exercise the
sanctioning powers (lending & non-lending delegated to them), during the period
of three months prior to their retirement. However, the proposals sanctioned by
them during the said period should be put up immediately to the next higher
authority and in case of CMD to MC of the Board.

(B) Zonal Office level:
Retirement of Zonal Manager A three member Committee comprising of ZM
(retiring), DGM / AGM and CM/s (preferably not connected with the Proposal for
which the discretionary powers are being exercised) may be formed to exercise
the sanctioning / discretionary powers of the retiring ZM during last 3 months of
his tenure.

(C) Regional Office level:
Retirement of RM A three member Committee comprising the RM (retiring),
ARM and Manager (preferably not connected with the proposal for which the
________________________________________________________________ Loan Policy
72
discretionary powers are being exercised) will be formed to exercise the powers
of the retiring RM during last three months of his tenure.

(D) Branch level:
i) Branch headed by CM & above
a) At branch headed by AGM A three member committee to be formed
comprising of AGM (retiring), CM &/or Senior Manager &/or Manager/s.
b) At branch headed by CM A three member committee to be formed
comprising of CM (retiring), Senior Manager and/or Manager/s.
ii) Retirement of BM other than (a) & (b) above It may be practically difficult to
have committee approach for exercise of sanctioning powers during the last 3
months before the branch in-charges are due to retire. Therefore, the existing
procedure of reporting their sanctions to the next higher authority will continue.
The controlling offices are required to keep a special watch on the exercise of
powers by the branch functionaries during 6 months prior to their retirement. The
names of BMs should be furnished to the Controlling Offices as well as
Inspection / Vigilance Department 6 months prior to their retirement.

14.9.5.4 The authorities posted at Central Office in the rank of Deputy General Manager,
General Manager, Executive Director, and Chairman and Managing Director will
continue to exercise the sanctioning powers (lending & non-lending delegated to
them) during the period of three months prior to their retirement. However the
proposals sanctioned by them during the said period should be put up
immediately to the next higher authority and in case of Chairman & Managing
Director, to the Management Committee of the Board.

14.10. Committee Approach
14.10.1. As per RBI guidelines our Bank has put in place system of
approval/recommendation of credit proposals by Loan Advisory Committee.
14.10.2. All the proposals falling with in the powers of Executive Director and above will
be approved / recommended by Loan Advisory Committee.
14.10.3. (A) The Loan Advisory Committee at Central Office for the credit proposals
which are falling under powers of delegatees EDs and above except CACB, is
as under:

a. Chief General Manager (Cr. Monitoring)
b. Chief General Manager (Credit)
c. General Manager (Credit)
d. General Manager (Risk Management)
e. General Manager (Priority Sector)
f. Dy. General Manager (Treasury)

(B) The Loan Advisory Committee for credit proposals which are falling under
powers of CACB:
a. Chief General Manager (Cr. Monitoring)
b. General Manager (Retail Lending)
c. General Manager (Priority Sector)
d. General Manager (HRD)
e. Dy. General Manager (Treasury)
f. Dy. General Manager (Risk Management)
________________________________________________________________ Loan Policy
73

LAC for credit proposals which are falling under powers of CGM/ GM at CO:
a. Dy. General Manager (Credit)
b. Dy. General Manager (Risk Management)
c. Dy. General Manager (Priority Sector)
d. Dy. General Manager (Credit Monitoring)
e. Dy. General Manager (Treasury)
f. Dy. General Manager (ID)

14.10.4. The quorum shall comprise of any Three members in all LACs.
14.10.5. However all other miscellaneous proposals such as modification in sanction
terms, interest rate modifications, NOCs, FCL conversions etc is to be continued
as per present set up i.e. recommended by the Credit Department to the
sanctioning authorities.
14.10.6.It is also laid down that all the ROs and ZOs shall also constitute LAC at their
levels to examine/approve/recommend all the credit proposals over Rs. One Crore
before the same is put up to the Sanctioning Authority.
14.11. Take Over Of Advances: (Deleted) {Paras 14.11 to 14.11.8 deleted}

Refer Annexure 24 B for revised guidelines on Take over of advances.

15. (15.1 to 15.6)Deleted.
15.7. Deleted

15.8. EXIT POLICY

15.8.1. It is desirable for the Bank to contemplate exiting from the account

a. When the concentration is at higher level, which exposes the Bank to adverse
changes in that sector in which credits are concentrated.
b. Where the borrowers profile emits warning signals of probable slippage in asset
quality / probable default / operating under stress.

c. When the borrowers rating is consistently goes down and reaches the rating of
CBI-7.

15.8.2. Wherever we are sole bankers, our approach will be not to increase exposure but to
share limits with other banks. In case of multiple / consortium banking
arrangements, our approach would be, to reduce the share / exposure and in
extreme cases, our exposure may be unloaded to other participating banks or a new
entrant, even at discount, to be determined by Central Office or exit through OTS.

15.8.3. The possibilities of exiting from the standard accounts emitting warning signals of
probable slippage in asset quality / probable default / operating under stress, may be
explored with a small sacrifice to be decided by Central Office on case to case
basis, to avoid larger sacrifice from a potential NPA / CDR a/c.

________________________________________________________________ Loan Policy
74
15.8.4. In borrowal accounts with total limits of Rs.5.00 crore and above which have any of
the characteristics as detailed in 15.5.10 or which are declared as SMAs,
possibilities of reducing concentration through exit route should be explored with
least sacrifice and matter may be referred to Central Office.

15.9. Management Information System

15.9.1. Accuracy and timely availability of information on the exposure that Bank assumes,
is one of the pre-requisite for effective management of credit risk. To ensure that
credit portfolio of the Bank is managed effectively, the officers involved in the
credit process should carefully verify for accuracy of the information entered in
their records and also monitor the submission of all requisite returns in a timely
manner.

15.9.2. Recognizing the importance of a strong and accurate MIS System, the Bank is in
the process of putting up a robust technology driven MIS package, which after
implementation will enable efficient dissemination of data management on a bank-
wide basis, will enable quicker compliance of statutory and regulatory returns and
would enable the top management to take appropriate decisions based on accurate
MIS data.

15.9.3. Bank has laid out various returns to be submitted ranging from weekly, fortnightly,
monthly and quarterly rests. It is the responsibility of the Officers submitting the
return to ensure that the data furnished accurately reflects the information on
record.

16. Important Guidelines

16.1. Fund Based Finance

16.1.1. Working Capital : It includes the facilities as under:
a) Cash Credits and Packing Credits (including Trust Receipts and Working Capital
Term Loan) against Pledge / Hypothecation of stock-in-trade and / or standing
crops (plantations).
b) Discount / Purchase of Inland / Foreign Demand Documentary (D.P.) Bills and
Usance Documentary (D.A).Bills under Letters of Credit.
c) Overdrafts against approved securities with prescribed margin.
d) Discount of Inland Usance D.A.Bills with Bankers Co-Acceptance / Guarantee
(Under Re-discounting Scheme of IDBI (MMDP) / RBI (NBMS).
e) Import Loans against imported consignments received under L/Cs opened by our
Bank.
f) Overdrafts against book debts / Government Supply Bills.
g) Discount of Inland / Foreign Usance (DA) bills not covered under L/Cs.
h) Advance against Demand Documentary Bills for collection.
i) Advance against Warehouse Receipts.
j) Advance against un-drawn balance.
k) Channel Financing.

16.2. Term Loans / Demand Loans / DPG: This includes:
________________________________________________________________ Loan Policy
75
a) Fully secured Term Loans and Demand Loans as well as Term Loans partly
secured with collateral security.
b) Deferred Payment Guarantee secured with exclusive / pari-pasu charge on the
assets.

16.3. Unsecured (Clean) Finance: This includes:

a. Loan / Overdraft where realisable value of security is not more than 10% of the
limit ab-initio.
b. Withdrawal allowed against uncleared / unrealised local or outstation cheques
for collection.
c. Advance against Cash incentives, Export Subsidy and IPRS (outside DDS-1976
scheme.

16.4. Non-Fund Based Finance: (Off Balance Sheet Exposure) - deleted
(For detailed guidelines refer Annexure 21)

17. CREDIT RISK MANAGEMENT

17.1. Credit risk is defined as the possibility of losses associated with diminution in the
credit quality of borrowers or counter parties. 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.

17.1.1. In the above backdrop, it is imperative to have a robust credit risk management
system, which is sensitive and responsive to these factors. The effective
management of credit risk is a critical component of comprehensive risk
management and is essential for the long-term success of the organization.

17.1.2. The management of risk involves the following:
a. Identification
b. Measurement
c. Monitoring
d. Controls

17.2. The bank has introduced a comprehensive Credit Risk Policy. Some of the salient
features of the Credit Risk Policy are incorporated to address credit risk.

17.2.1. Strategies to avoid concentration of risk

17.2.1.1. Exposure norms
Fixing of Credit Exposure norms would be one of the important strategies of
Credit Risk Management. The idea of determining the exposure limits is to
ensure that the bank does not get over exposed to a particular borrower/group of
borrowers or in a particular activity or industry.
17.2.1.2. For the purpose of deciding the maximum exposure, the limits are fixed in the
loan policy as under: -
i. Borrower - wise
ii. Industry and activity wise
________________________________________________________________ Loan Policy
76
iii. Exposure limits Borrower wise/Group wise
iv. Exposure limits in relation to various activities and industries: -
The broad guidelines given in loan policy shall be scrupulously followed.

17.2.1.3. Level of Diversification

Loan policy of Bank stipulates maximum exposure across various industries to
avoid concentration of risk. With diversification of portfolio Bank will be able to
address the non-systemic risk. Hence, it would be endeavor of the Bank to keep
diversified loan portfolio, which would be periodically monitored through credit
monitoring.

17.3. & 17.4 Deleted

17.5. Frequency of review

17.5.1. The frequency of review by loan review cell would be 3 months for high-risk
accounts and 6 months for average risk accounts and 1 year for low risk accounts.
However at present the frequency of loan review is half yearly in case of accounts
having limits of Rs.10 Crore & above and in case of high risk accounts. In the
respect of other accounts the exercise will be carried out once in a year.

17.5.2. For the purpose of frequency of Credit Review, the classification of various Risk
Grades will be as under:

RISK GRADES INDICATION
CBI-1, CBI-2 , CBI-3, CBI-4 LOW RISK
CBI-5 & 6, CBI-7 AVERAGE RISK
CBI-8 , CBI-9, CBI-10 HIGH RISK

17.5.3. Procedure to be followed in credit review:
Credit review is to be conducted on site at the branch, which has appraised the
advance and where the main operative credit limits are made available. Reports
on conduct of accounts of allocated limits are to be called from corresponding
branches.

17.5.4. Credit Review team members are not required to visit borrowers factory/office
premises.

17.6. Management of problem accounts

17.6.1. Credit Risk Ratings would be used to flag potential problems in the individual
loan accounts and early corrective action will be initiated based on the credit risk
rating of a loan account. The borrowal accounts which have an overall credit risk
rating of CBI-7 and/or securing individual rating of CBI-7 or below under any
individual parameter viz, Financial, Business or Management should be subjected
to stringent monitoring by initiating prompt corrective action.

17.6.2. Whenever the risk rating of a borrowal account slips below CBI-6 the following
actions should be initiated at every level.

________________________________________________________________ Loan Policy
77
a) The branch and the controlling offices should begin stringent monitoring and the
branches should submit the strategy proposed for improving the quality of the
account so that the account will not slip to NPA.
b) Sharing of the exposure with another bank under consortium may be proposed so
that the credit risk will be diversified.
c) Reduction of the existing limits may be proposed in order to minimize the probable
loss by selling surplus assets. Possibility of exit option may also be explored.
d) Additional collateral security may be insisted upon as a risk mitigation exercise.

17.6.3. Zonal Offices will submit quarterly statement on the above line to Credit
Monitoring Department with action taken thereof. Credit Risk Management
Department will place a consolidated report to Credit Policy Committee along with
their comments.

17.6.4. Close Monitoring is required in respect of parameters with low score.

17.6.5. The credit risk policy may be referred to for further information.

<><><><>
________________________________________________________________ Loan Policy
78
Annexure 1 (Deleted)

Annexure - 2

Guidelines for granting of Loans and Advances and Award of Contracts
to Directors of our Bank and any other Bank and their Relatives

(I) In terms of Section 20 of the Banking Regulation Act, 1949, no Banking Company shall:
a) Grant any loans or advances on security of its own shares, or
b) Enter into any commitment for granting any loan or advances to or on behalf of
i) Any of its Directors;
ii) Any firm in which any of its Directors is interested as Partner, Manager,
Employee or Guarantor;
iii) Any company (not being a subsidiary of banking company or a company
registered under Section 25 of Companies Act, 1956 (1 of 1956) or a
government company, of which (or the subsidiary or holding company of
which) any of the Directors of the Banking Company is a Director, Managing
Agent, Manager, Employee or Guarantor or in which he holds substantial
interest, or
iv) Any individual in respect of whom any of its directors is a partner or
guarantor.

If branches receive any request of such proposal, they should refer it to Central
Office.

(II) Reserve Bank of India has given guidelines for loans and advances and award of
contract to Directors of Banks and their relatives as under:

1. Unless sanctioned by the Board of Directors, banks should not grant loans and
advances aggregating Rs.25 lakh and above to:
a) Directors (including the Chairman / Managing Director) of other Banks.
b) Any firm in which any of the directors of other banks is interested as a partner or
Guarantor; and
c) Any company in which any of the directors of other banks holds substantial
interest or is interested as director or as a guarantor.

2. Unless sanctioned by the Board of Directors, banks should not also grant loans and
advances aggregating Rs.25 lakh and above to:

a) Any relatives of the Chairman / Managing Director or other directors.
b) Any relatives of the CMD or other Directors of other Banks
c) Any firm in which any of the relative as mentioned in (a) and (b) above hold
substantial interest or is interested as a Director or as a Guarantor.

3. Proposals for credit facilities of an amount less than Rs.25 lakh to these borrowers may
be sanctioned by appropriate authority within the powers vested in each authority but
should be reported to the Board. The Chairman / Managing Director or other Directors
interested in the proposal shall not, however, take part in the relative proceedings.
________________________________________________________________ Loan Policy
79
4. The above norms related to grant of loans and advances will also equally apply to
awarding of contracts.

a) The term loans and advances will not include loans or advances against
(i) Government Securities, (ii) Life Insurance Policies, (iii) Fixed or other
deposits, (iv) Stocks and shares, (v) Temporary Overdrafts for small amount i.e. up to
Rs.25000/- and (vi) Casual purchase of cheques up to Rs.5000/- at a time.

b) Loans and advances shall not include a credit limit granted under the credit card facility
provided by the Bank to its directors to the extant the credit limit so granted as
determined by the bank by applying the same criteria as applied by it in the normal
conduct of the credit card business.

c) Loans and advances will not also include loans and advances such as housing loans, car
advances etc. granted to an employee of the bank under any scheme applicable
generally to employees.

d) The term substantial interest shall have the same meaning assigned to it in Section 5
(ne) of the Banking Regulation Act, 1949, i.e.

(i) In relation to a company means, the holding of beneficial interest by an individual
or his spouse or minor child whether singly or taken together in the shares thereof,
the amount paid up on which exceeds five lakh of rupees or ten percent of the paid
up capital of the company, whichever is less;
(ii) In relation to a firm means the beneficial interest held therein by an individual or his
spouse or his minor child, whether singly or taken together, which represents more
than ten percent of the total capital subscribed by all the partners of the firm.

(III) In this context, every borrower should furnish a declaration to the Bank that -

Where the borrower is an individual, that he / she is not a Director or specified
near relation of Directors of Banking Company.
Where the borrower is a Partnership firm, that none of the Partners is a Director
or near specified relation of a Director of a Banking Company;
Where the borrower is a joint stock company, that none of its Directors, is a
Director or specified near relation of a Director of a Banking Company;
In the light of the above, branches are advised to take a suitable declaration
from the borrower / s. In case the borrower/s is / are related to the Directors
then they should furnish full details of the relationship of the borrower/s with
the Director.

Besides this, the borrower/s also should give an undertaking that, where it transpires
that the borrower has given a false declaration the Bank shall forthwith recall the loan.

________________________________________________________________ Loan Policy
80

ANNEXURE - 3
Lending Powers Delegated by the Board to various Authorities
( Rs. In Lakhs)
Sr.#. Nature of facility CACB CMD ED GM DGM AGM RM
/CM
SM
Scale III
BM
Scale
II
BM
Scal
e I
Total lending
powers (Funded &
Non-Funded) of
which -

40000
6000 4500 2500 1200 600 300 100 50 10
Group Accounts 40000 12000 9000 5000 2400 1200 600 100 50 10
PSU (Class I) 40000 10000 7500 4000 Nil Nil Nil Nil Nil Nil
Clean Limit* not to
exceed

40000
1500 1000 500 100 20 5 Nil Nil Nil
Ad hoc and
discretionary limits

40000

6000 4500 375 180 90 45 10 5 1
Advance Against
cheques in clearing

40000
1200 800 200 20 10 6 5 3 Nil
1

a)
b)

c)

d)

e)

f)

Advance against
DDs/ BCs in clearing
or on collection.

40000 2200 1600 400 200 100 50 30 20 5
2 Advances against
Book Debts.
40000 6000 4500 *1500 *720 *360 *180 *60 Nil Nil
Advances against
Shares:
in De-mat form
- to Individuals

20

20

20

20

20

10

10

5

2

Nil
3.
- to Other Eligible
Categories
40000 6000 4500 2500 40 20 20 15 5 Nil
4. Advance against
NSC / KVP / LIP &
Govt. Approved
securities on which
assignment in favour
of Bank can be
recorded in the
instrument by the
issuers.

40000 6000 4500 400 40 20 10 6 3 2
Advance against
Relief Bonds:
a) in the form of
Promissory Notes

40000
6000 4500 400 40 20 10 2 1

Nil
5
b) in the form of
Bond Ledger A/c.

40000 6000 4500 400 40 20 10 6 3

Nil

6 Aggregate limit
inclusive of
Negotiation of Bills
against LC opened by
First Class Bank.
(only for borrowers
with limits, both
Inland / Export)

40000

10000

7500

5000

2400

1200

600

200

50

10

Note: Fig. in bold italics is newly modified.
Clean Limit means: Any Loan or TOD not backed by any tangible / intangible security. It also
includes TOD allowed in current accounts.
*60% of the Fund Based Working Capital Limits can be sanctioned in the form of Book Debts
with the maximum limit as indicated above.

CACB: CREDIT APPROVAL COMMITTEE OF THE BOARD
CACB CAN EXERCISE MAXIMUM LENDING POWER OF Rs.400 Cr.
(Any Single Credit Proposal not exceeding Rs.400 Cr. irrespective of any group exposure)

________________________________________________________________ Loan Policy
81
(ANNEXURE -3A in Loan Policy)

CREDIT APPROVAL COMMITTEE OF THE BOARD (CACB)

Name of the Credit
Committee
Credit Approval Committee of the Board (CACB)
(CONSTITUTED AS PER NOTIFICATION DT.05.12.2011 UNDER
NATIONALIZED BANKS (MANAGEMENT AND MISCELLANEOUS
PROVISIONS) AMENDMENT SCHEME, 2011.)

TOTAL CREDIT
(FB + NFB) SANCTION BY
COMMITTEE
Above Rs.60 Cr.
Up to Rs.400 Cr.
Caps for Categorization
of Borrowers

Corporate > Rs.60Cr.
& = Rs.400 Cr.
Non Corporate > Rs.50 Cr.
& = Rs.400 Cr.
Individual Borrowers > Rs.25 Cr.
& = Rs.400`Cr.
Group Exposure As above
Exercise of Sanction
w.r.t. Risk Rating of
the A/c.

CBI 1 to CBI 6
(Both Fin. & Overall)
and
(Min.CBI-5 in respect
of Take Over)

100% as above

Fin. CBI-6 & Overall
CBI-7

Renewal with enhancements
CBI 7 & above
Only Renewal
Composition of the
Credit Committee.
The Committee shall consists of 7 Executives as under:
Chairman: CMD
Members:
i. All EDs.
ii. CGM (Cr.)
iii. GM (Cr.)
iv. GM(RMD)
v. GM (Accounts/ In-charge, Finance)

Quorum Committee
Meeting
Minimum 3
(inclusive of Chairman, atleast 1ED )
Outside the purview of
the Credit Committee
1. Credit facilities against Banks own TDR.
2. Any other credit facilities as may be decided by the Board
from time to time.

Governing Rules of
the Committee
1. No Veto Power shall be exercisable.
2. Any dissent from any of the member should be
deliberated and addressed to arrive at consensus.
________________________________________________________________ Loan Policy
82
3. Sanction should be unanimous.
4. In case of decline of any proposal, the reasons for such
rejections should be recorded in variably.
5. A proposal rejected by the Committee may be re-admitted
by the Chairman for review of decision by the Committee
once reasons for rejections have been addressed within a
period of 3 months.

Convener of the
committee
Secretary to the Board shall be Convener of this committee and he shall
place the minutes before the Board soon as may be after the end of the
meeting.

NOTE under CACB:

i. Credit Approval Committee of the Board - CACB is CONSTITUTED AS PER
NOTIFICATION DT.05.12.2011 UNDER NATIONALIZED BANKS
(MANAGEMENT AND MISCELLANEOUS PROVISIONS) AMENDMENT SCHEME, 2011.

ii. Credit Proposals beyond Rs.400 Cr., shall go to the Management Committee.

iii. THE MAXIMUM LENDING POWER IS Rs.400 Cr. (Any Single Credit Proposal not exceeding Rs.400
Cr. irrespective of any group exposure). Even though the Committee has to dispose
credits exceeding Rs.60 Cr. and upto Rs.400 Cr., in respect of Non Corporate &
Individual Borrowers, the minimum limits are respectively exceeding Rs.50 Cr.
& Rs.25 Cr. However the maximum limit is continued to be Rs.400 Cr. in
respect of all the 3 types of classification of Borrowers.

iv. Definitions:
Corporate = Pvt. Ltd & Ltd. Companies,
Non-Corporate = Partnership & LLC and Registered Trusts, viz.
Educational/ Medical/Other Institutions &
Individual = Individual Borrower/ Proprietorship/ HUF/Trusts etc.

________________________________________________________________ Loan Policy
83
( ANNEXURE- 3B in Loan Policy)
REGIONAL CREDIT APPROVAL COMMITTEE (RCAC)/
ZONAL CREDIT APPROVAL COMMITTEE (ZCAC)
Name of the
Credit
Committee
Regional Credit Approval
Committee (RCAC)

(TO BE CONSTITUTED AS PER
DIRECTIVES OF DEPARTMENT OF
FINANCIAL SERVICES, MINISTRY OF
FINANCE, GOI, VIDE F.NO.13/1/2006-
BO.1 DT.17.02.2012)
Zonal Credit Approval
Committee
(ZCAC)
(TO BE CONSTITUTED AS PER
DIRECTIVES OF DEPARTMENT OF
FINANCIAL SERVICES, MINISTRY OF
FINANCE, GOI, VIDE F.NO.13/1/2006-
BO.1 DT.17.02.2012)

RM (AGM) RM (DGM) ZM(DGM) ZM (GM)
TOTAL CREDIT
(FB + NFB)
SANCTION BY
COMMITTEE
Above
Rs.5 Cr. &
Up to Rs.12 Cr.
Above
Rs.5 Cr. &
Up to Rs. 24
Cr.
Above
Rs.12 Cr. &
Up to Rs.24 Cr.
Above
Rs.12 Cr. &
Up to Rs. 30 Cr.
Caps for
Categorization
of Borrowers

Corporate > Rs.5 Cr.
& = Rs.12 Cr.
> Rs.5 Cr.
& = Rs.24 Cr.
> Rs.12 Cr.
& = Rs.24 Cr.
> Rs.12Cr.
& = Rs.30 Cr.
Non
Corporate
> Rs.5 Cr.
& = Rs.10 Cr.
> Rs.5 Cr.
& = Rs.15 Cr.
> Rs.10 Cr.
& = Rs.15 Cr.
> Rs.10 Cr.
& = Rs.25 Cr.
Individual
Borrowers
> Rs.5 Cr.
& = Rs.6 Cr.
> Rs.5 Cr.
& = Rs.10 Cr.
> Rs.6 Cr.
& = Rs.10 Cr.
> Rs.6 Cr.
& = Rs.15 Cr.
Group
Exposure
As above
Exercise of
Sanction
w.r.t. Risk
Rating of the
A/c.

CBI 1 to CBI
6 (Both Fin.
& Overall)
(In respect of
Take Over,
Min.CBI-5)

100% as above

100% as above

100% as above

100% as above
Fin. CBI-6 &
Overall CBI-7
Renewal with
enhancements
Renewal with
enhancements
Renewal with
enhancements
Renewal with
enhancements
CBI 7 &
Above
Only Renewal Only Renewal Only Renewal Only Renewal
Composition
of the Credit
Committee.
The Committee shall consist of 5
delegatees as under:
Chairman: Regional Manager
Members:
i. Asst. Regional
Manager
ii. CM/ SM (Other than
Credit Dept. in
The Committee shall consist of 5
delegatees as under:
Chairman: Zonal Manager
Members:
i. AGM/ DGM, Zonal
Office.
ii. CM/ AGM (Risk
Management), ZO
________________________________________________________________ Loan Policy
84
Regional Office)
iii. Two Branch Incumbent
in the Scale of V/IV/III
of local Branches.

iii. RM of local Regional
Office.
iv. Local Branch Manager
in the scale of IV and
above.
Quorum
Committee
Meeting
Minimum 3
(inclusive of Chairman with at least
one member from Branch)
Minimum 3
(inclusive of Chairman with at least
one member, out side of Zonal
Office.)
Outside the
purview of the
Credit
Committee
1. Credit facilities against Banks own TDR.
2. Any other credit facilities as may be decided by the Board from time to
time.
Note:
Other than above exemptions, any credit sanctions at Regional/ Zonal Levels,
including Retail Lending, beyond Rs. 5Cr. shall be thro Credit Committee
only.
Governing
Rules of the
Committee
1. No Veto Power shall be exercisable.
2. Any dissent from any of the members should be deliberated and
addressed to arrive at consensus.
3. Sanction should be unanimous.
4. In case of decline of any proposal, the reasons for such rejections
should be recorded in variably.
5. A proposal rejected by the Committee may be re-admitted by the
Chairman for review of decision by the Committee once reasons for
rejection have been addressed within a period of 3 months.
6. The decision of the Committee shall be reported by the Credit
Department concerned, to the next higher committee/authority for
review by way of control return on specified format within 10 days
from the date of the meeting.
Convener of
the committee
CM/ SM (Credit) of Regional Office
shall be the Convener.
AGM/ CM (Credit) of Zonal Office
shall be the Convener.
Note:
i. RCAC & ZCAC are to be CONSTITUTED AS PER DIRECTIVES OF DEPARTMENT OF
FINANCIAL SERVICES, MINISTRY OF FINANCE, GOI, VIDE F.NO.13/1/2006-BO.1
DT.17.02.2012. The Committees shall be made operational w.e.f. 01.04.2012.
ii. Regional Managers and Zonal Managers are presently having various/ different
powers with reference to taking decision of lending, which can now be utilized thro
Committee in respect of advances exceeding Rs.5.00 Cr. subject to max. cap of
lending allowed to the committees.

iii. Credit Proposals beyond Rs.24 Cr./Rs.30 Cr., shall go to concerned
sanctioning authority at Central Office.

iv. Regarding Non Corporate & Individual Borrowers also, the proposal shall
move to the concerned sanctioning authority at Central Office.

v. Definitions: Corporate = Pvt. Ltd & Ltd. Companies,
Non-Corporate = Partnership & LLC and Registered Trusts, viz.
Educational/ Medical/ Other Institutions &
Individual = Individual Borrower/ Proprietorship/ HUF/Trusts etc.

________________________________________________________________ Loan Policy
85
NOTE:
1. Maximum lending power inclusive of bills negotiated under LC will not exceed
Rs.400 Cr., R.100 Cr. and Rs.75 Cr. in case of CACB /CMD & ED respectively and
for other delegatees as mentioned in 6 above.

2. In case of borrowings of PSU (Class I) additional lending powers are provided for
CACB, CMD, EDs. & GMs. Regarding other delegatees, such lending will fall
under overall total lending powers.

3. Chairman & Managing Director is authorized to enhance, abridge, amend or
suspend the delegated power or any part thereof of any delegatee except CACB,
whenever need arises and on such occasions the same may be informed to Board /
M.C of Board.

4. Exercise of discretionary powers/ adhoc sanctions on emergent basis may be
exercised as indicated in Annexure 24.

5. The delegated powers shall be exercised in accordance with the Banks lending
policy and instructions on the subject.

6. In case of Group accounts, delegatees in the rank of CM/RM and above can consider
proposals up to 200% of their normal lending powers, but the delegatee shall not
exceed his delegated lending powers in respect of single borrowal account within
the group. In case the limit sought by individual borrower, within the group,
exceeds the power delegated to the authority, all the accounts in the group shall be
referred to next higher authority in whose power the proposal falls. The
enhancement of lending powers up to 200% of normal powers shall also be
applicable in respect of Retail Loans wherever applicable. In respect of CACB, the
maximum lending power shall not exceed Rs.400 Cr. (Any Single Credit Proposal not
exceeding Rs.400 Cr. irrespective of any group exposure)

7. In case CMD / ED exercises powers in excess of his delegated authority, then such
cases should be put up to the Board / Management Committee for ratification /
information mentioning the reasons for the urgency for the sanction. In group
cases, the delegatee will exercise only the authority vested as per the Lending
Powers at above i.e., after taking the total limits of all group accounts put together.
However, CACB shall not exercise powers in excess of its delegated authority.

8. Life Insurance policy includes Life Insurance Policy issued by the Life Insurance
Corporation of India and also LIP issued by other insurance Companies
recognized/Regulated by Insurance Regulatory and Development Authority (IRDA)
and which can be assigned in favour of the bank.

9. In order to enable the field functionaries for taking expeditious decisions and also
to attract quality accounts, higher lending powers have been vested with the
sanctioning officials in the rank of AGMs/ DGMs /GMs incase of borrowers with
credit risk rating A & above. In case of AAA & AA rated borrowers, 125%
and incase of A rated borrowers, 110% of their normal lending powers shall be
exercised.

________________________________________________________________ Loan Policy
86
10. CACB/CMD is authorized to extend the Terminal Date of Disbursement in case of
Term Loans.

11. CMD and in absence of CMD, ED, will be authorized to consider full two way
interchangeability between Fund Based and Non Fund Based limits and also within
Fund Based and Non Fund Based limits for accounts falling within the power of
Central Office/CACB/ MCB. However, the above will be subject to availability of
Security/Collateral/ Drawing Power.

Powers to approve extension of PC
All Zonal Managers/Regional Managers (in the rank of DGM) and DGM, CFBs shall
have the powers to allow extension of PC up to 360 days in case of working capital
subject to compliance with the RBI guidelines issued from time to time. Such extensions
shall be allowed keeping in view the genuineness of the request and subject to reporting
to next higher authority. Request for extension beyond above mentioned period shall be
referred to Central Office and at Central Office ED and above, shall have powers to take
a decision subject to obtaining permission from RBI wherever required.

Powers to approve issuance of Letters of Comfort for availing Buyers Credit
Any request for issuance of Comfort Letters to enable the borrowers to avail Buyers
Credit shall be considered by the delegatees not below the rank of Dy. General Manager
within their respective delegated lending powers. Any request falling beyond the
delegated powers of DGM/GM (ZM) shall be referred to Central Office. CACB/MCB
shall have the powers to sanction at CO. Further issuance of Letters of Comfort shall be
subject to compliance of guidelines on issuance of letter of credit - (refer 14.3.8 &
14.3.9).

BM-Scale: II
In case of Branch Manager-Scale II, if the loan is sanctioned with Guarantee cover of
CGTMSE, then the lending power can be exercised to the extent of 200% of Normal
Lending i.e. Rs.100 Lakhs.

PSU (Class I): Should have minimum rating of A+ (CBI-2, Very High Safety) and earned
consistent profits during the past 3 years & satisfactory market reputation.

________________________________________________________________ Loan Policy
87
Annexure- 4
Indicative Exposure Limits Industry / Activity-Wise
Exposure limits Industry-wise.
Industry
Max.
Cap as % to total Adv.
Coal 0.20
Mining 0.10
Iron & Steel 4.00
Other Metal & Metal products 1.00
All Engineering 2.00
Electricity (other than Infrastructure) 1.00
Cotton Textiles 1.50
Jute Textiles 0.10
Other Textiles 2.00
Sugar 1.50
Tea 0.10
Food Processing 1.00
Vegetable Oil & Vanaspati 1.00
Tobacco & Tobacco Products 0.10
Paper & Paper Products 0.50
Rubber & Rubber Products 0.50
Chemical, Dyes, Paints etc. 2.00
Cement 1.00
Leather & Leather Products 0.50
Gems, Jewellery 1.00
Construction 1.50
Petroleum 2.50
Automobiles including trucks. 1.00
Computer Software 0.50
Infrastructure
Power
Solar Power
21.00%
1.00%
Telecom 4.00%
Road/Port/Air Port 6.50%
Others 2.50%
35.00
Other Industries: 11.50
Residual Advance
Housing Loan Direct 8.00
Housing Loan Indirect 7.00
Commercial Real Estate** 10%
Others $
Capital market (*)
NBFC (#)

**Sub Limits for major sectors within Comm. Real Estate will be as under: Multi Tenanted Residential
Complex: 5.5% Mall 2.5% and Others 2%.
$ Balancing figure
(*) Regulatory Cap fixed by RBI at 40% of Net worth of Bank including
Investment in Shares, Debentures and Bonds. (#) Regulatory Cap fixed by RBI.

________________________________________________________________ Loan Policy
88
1. The exposure (both lending and investment, including off-balance sheet exposure) of a
bank to a single NBFC / NBFC-AFC should not exceed 10% / 15% respectively, of
banks Capital Fund as per its last audited Balance Sheet.

2. Bank may, however, assume exposure on a single NBFC / NBFC-AFC up to 15% /
20% respectively of its Capital Fund, provided the exposure in excess of 10% or 15%
respectively is on account of funds on-lent to infrastructure sector.

3. Overall exposure to all NBFCs put together - 200% of Banks Capital Fund.

4. Deleted (Included in the table above)

Note:
1. In respect of Agriculture and other Priority Sector, no maximum cap is fixed.

2. In respect of food credit, allocation is made by RBI based on the business of each bank and
as such, no maximum cap is fixed. Industries (including Commercial Real Estate)
which are not specifically included in the format will be reported under Residual
Advances.

3. ED / CMD / CACB/ MCB shall have discretion to exceed the activity-wise cap
stated above, in emergent cases, subject to reporting to Board and till the time the
cap is revised.

4. Exposure caps specified above shall be worked out as a percentage of gross credit
outstanding as at the end of Previous Quarter ending March, June, September and
December.

5. Exposure to any industry other than listed above should be shown under Other Industries.

6. Exposure to any activity not falling under industry should be shown under Residual
Advances.

______________

________________________________________________________________ Loan Policy
89
Annexure - 5
Guidelines for Financing Computer Software industry

1. Brief Background

1.1. The software industry in the country is showing an exponential growth. Further the
potential for these activities has been increasing, both within the country and abroad,
in tandem with the continuous growth in the I.T. Industry world-wide.

1.2. Software Development business has its peculiar characteristics like critical
dependence on manpower skills, rapid technological obsolescence, high manpower
turnover, vast potential for introducing new products, intense competition within the
industry etc. The sector also offers enormous scope for expansion and development.
Software Development is one industry in which our country is regarded as having
potential to become global leader.

2. Banks Policy

2.1. Recognising the potential for this industry, Reserve Bank of India and Indian Banks
Association have come out with the guidelines for financing this industry. Based on
these guidelines our Bank has formulated the policy for lending to computer software
industry.
The salient features are as under:-

2.2. Terminology

2.2.1. I.T. Software means any representation of instructions, data, sound or image,
including Source Code and Object Code, recorded in a machine readable form, and
capable of being made use of by the client as per choice or providing interactivity to
a user, by means of an automatic data processing machine falling under the heading
I.T.Products but does not include Non - I.T. Products
2.2.2. I.T. Service is any service which results from the use of any I.T. Software over a
system of I.T. Products for realizing value addition.
2.2.3. I.T Industry shall cover any development, production and services related to I.T.
Products.
2.2.4. I.T. Product: would connote computer, digital / data communication and digital /
data broad casting products.

2.3. Segments of Software Industry and Their Requirements:

2.3.1. Software Services

2.3.1. (A) Staffing Services and Programming Services:
These services, which are also known as Manpower Exports, involve deputation
of professionals for delivering programming services at customers locations within
the country, as well as abroad, under different contracts.

(B) The Working Capital requirements for these types of services would be in the
form of initial Travel Costs for order canvassing and mobilization expenses, as also
travel cost and living expenses of the personnel deputed for executing orders. The
borrower may, in few cases, receive some amount by way of advance payment from
________________________________________________________________ Loan Policy
90
their clients which would be mentioned in the contract. The contract would also
indicate the mode of payment i.e. whether by way of monthly / periodical payments
or payment in lump sum after execution of the contract. Thus, the working capital
requirements of the borrower would, inter alia, depend upon the gap in cash flows.

2.3.2. Project Services

2.3.2. (A) Customised Software Development:
These services comprise providing solutions to specific problems of the customer
which would be utilized by corporate mainframe and mini computer users. These
services could be rendered either at customers location or delivered on physical
magnetic media like floppies or through satellite communication networks. This
service is normally offered under special contracts which provide for milestone
payments.
In these cases also, working capital requirements would be for meeting the gaps as
disclosed by the cash flow statements.

2.3.2 (B) Systems Solution and Integration:
This involves providing a complete business solution using information
Technology. In this, integrator addresses a business problem of the client and
offers an I.T. based business solution. The work involves Feasibility Study,
System analysis, System Design, Programming, Testing, Documenting
customized software solution for clients and integration of the programme with
the clients existing I.T. system as well as with the systems of the clients parties /
associates. The working capital requirement would arise normally on account of
expenditure on professionals, purchase of software packages / tools.

2.3.2 (C) Maintenance of Software:
A complete responsibility for maintenance of the clients software is undertaken
which includes trouble shooting operations as well as updation of the software.
Working capital for this activity would be needed mainly for meeting
expenditure on professionals.

2.3.3. Software Products and Packages:
2.3.3 (A) These services comprise of -
(i) Systems software i.e. Operating system Software, conversion of programmes
and utilities which enhance the computers capabilities; and
(ii) Application Software which lets the computer perform specific functions,
packages like word processing, graphic design, financial analysis etc.

2.3.3. (B) These products are prepared to meet standard requirements of the end users and
are sold as packaged units comprising Software Manual and other user aids
(tutorials).

2.3.3. (C) The development of these products involve fairly large scale investments,
the return on which can be realized only after the product is fully developed
and sufficient demand is generated therefore. By and large, no payment by the
buyers would be involved at any stage of the development and payments would
be received by the developer only on completion and purchase of the product
by interested buyers. In such cases, working capital requirements would be
________________________________________________________________ Loan Policy
91
mainly towards salaries and expenses of the professionals associated with the
development of the product. The requirement for development would vary and
in some cases, may extend up to 24 months. As regards the financing of this
category, it would have to be funded as a Venture at considerable risk.

2.3.4. Information Technology related Services (I.T. Services)
2.3.4. (A) I.T. Services such as Call Centers, Mentoring, Teleconferencing, Tele Medicine
etc. result from the use of any I.T. Software over a system of I.T. Products for
realising value additions.

2.3.4. (B) Working capital requirements may also arise for meeting the expenditure
incurred in providing these services. However, these may not be of a
significant scale.

3. Operational Guidelines for extending Working Capital Finance
3.1. Eligibility
3.1.1. The units requiring assistance from the bank should have completed a
minimum successful running of one year.

3.1.2. However, in order to ensure that start up units is not denied financial
assistance, the credit requirement of these units may be considered on the
following parameters:

a. Track record of promoters
b. Their group affiliation
c. Management team
d. Academic/professional qualifications
e. Work experience in software development, implementation, marketing etc.
f. In such cases, the constitution of the Venture should be as far as possible a
limited company.
3.2. Methodology for Assessment of Working Capital Requirements
3.2.1 Borrowers with credit limits up to Rs.2 crores may be assessed under Turnover
Method. Assessment of Permissible Bank Finance (PBF) on Cash Budget basis
may be confined to borrowers having working capital limits of over Rs.2.00 crore.

The following documents from the borrowers are to be obtained:
i) Operating Statement - Form A
ii) Balance Sheet - Form B
iii) Cash Budget - Form C (Only in those cases where the working
capital gaps are to be financed on the basis of Cash Budget)
iv) Statement of Economics - Form D
v) Note on assumptions underlying the operating statement.

3.2.2. In addition to the above, every proposal for financial assistance must be
accompanied by Project Report and a Business Plan. The documents must clearly
describe the short-term and long-term goals of the unit / project, the strategies
proposed to develop, implement and market software, the stage-wise financial
outlay and revenue / cost projections. In case of Projects which are normally
offered under special contracts which provide for mile stone payments, the details
________________________________________________________________ Loan Policy
92
of the same should also be mentioned in the Project Report. The basis for seeking
the proposed limits from the bank also needs to be clearly spelt out.

3.3. Nature of Credit Facilities
3.3.1. The credit facilities such as Cash Credit, Packing Credit, Overdraft, Bills
Finance or Term Loans as per the assessment and requirements of the
borrower.
3.3.2. In case of limits over Rs.10.00 crore from the Banking System, the existing
guidelines of Loan System for Delivery of Bank Credit shall have to be
complied with i.e. Cash Credit Component shall be restricted to 20% of the
aggregate credit limits sanctioned, after excluding Export Credit Limits.

3.4. Margin
3.4.1. (A) Under Turnover Method: 5% of the Projected Turnover.
3.4.1. (B) Under Cash Budget Method: 25% of Current Assets.

3.5. Security
3.5.1. The process of development of Software does not generate tangible assets as in the
case of other manufacturing activities and the value of the end product depends upon
its acceptability to the user client. Further, the success of the activity depends upon
the skills of the Professionals / Promoters. As the working capital finance provided
to this industry is clean in nature for all practical purposes, it is proposed as under:

- 50% of the limits (FB & NFB) should be covered by collateral securities.
- We shall also explore the possibilities for assignment of Source Codes of the
Software Projects by the borrowers in favour of the Bank.

3.5.2. Relaxation in collateral securities may be allowed by sanctioning authorities at the
level of General Manager and above, on case to case basis, depending upon the
merits.
3.6. Rate of Interest
3.6.1. In case of Export Finance i.e. Pre-shipment and Post-shipment finance, as per the
guidelines of RBI.
3.6.2. In case of other types of advances, the rates should be in line with the general
category borrowers.

3.7 Disbursement
3.7.1. The limits sanctioned either under Turnover Method or Cash Budget method
depending upon the requirements of the borrower, should be released in stages,
taking into account the monthly / quarterly cash gaps based on the Cash Flow
Statements submitted by the borrowers and after completion of post-sanction
inspection of the units.
3.7.2. In case of units falling under Loan System for Delivery of Bank Credit, the
guidelines issued on the subject from time to time should be adhered to.

3.8. Sanction of Term Loans
3.8.1. The units sometimes may require Term Loans for acquisition of Fixed Assets,
Computer Systems etc. These units normally start up on small scale basis. Hence,
the requirements of Term Loans may be considered by the bank up to a maximum
________________________________________________________________ Loan Policy
93
limit of Rs.3.00 crores to a single borrower. However, sanctioning authorities at the
level of General Manager and above may consider higher need based limits within
the powers delegated to such authorities.
3.8.2. The appraisal of term loans shall be as per the procedure adopted for processing
term loan applications. However, each proposal should be given In-Principle
Clearance by the Screening Committee.
3.8.3. The security for the Term Loan will be first charge on the assets that are purchased
/ created out of bank finance.
3.8.4. Disbursement of the loan will be in accordance with the requirements of the project
as stated in the Project Report and in stages.

3.9. Sanctioning Authority
3.9.1. The delegated powers to consider the software proposals are vested with the
authorities not below the rank of Regional Managers (in Scale VI)/
Zonal Managers.
3.9.2. The sanctioning authorities should take in to account market report of the software
company and should consider the proposals on merits.
3.9.3. Regional Manager (in Scale VI)/Zonal Manager should ensure that the advance is
adequately secured by collateral security and the overall credit risk rating is CBI-4
and above.
3.9.4. In case of proposals with credit risk rating below CBI-4, the same should be
referred to Central Office for clearance by a screening committee consisting of GM
(Credit) as Chairman and DGM (Credit) and AGM (IT Dept) as other members.
Looking to the potentials available at various centers for this type of business it has
been decided to initially permit only the following branches to handle such type of
new advances. (fresh advances)

Name of the Centers Branch.
1. Mumbai Nariman Point.
2. Delhi Parliament Street.
3. Hyderabad Hyderabad Main Office
4. Chennai Chennai Main Office
5. Bangalore K.G.Road
6. Ahmedabad Lal Darwaja, Ahmedabad
7. Pune Pune Camp Branch.
(Zonal Offices may identify additional branches either in these centers or at other
centers depending up on the business potential and obtain approval of Central
Office).

3.10 Periodical Reporting System
3.10.1. In case of assessment made under Cash Budget Method, Cash Flow Statements are
to be obtained from the borrowers once in a quarter so that mid-course corrections
can be made in respect of further Cash Budget.
3.10.2. In our Bank, Q.I.S. system is in vogue. The borrowers under this category also shall
submit the same whether they are assessed under Turnover method or by Cash
Budget Method.
________________________________________________________________ Loan Policy
94

3.11. Follow- Up
3.11.1. Considering the fact that financing Computer Software industry is a new area for
banks, it has been decided that we should adopt the existing system of follow up for
advances of Rs.3 crore and above. A copy of the format is enclosed herewith as
Annexure and the branches should submit the same i.e. Part A on monthly basis and
Part B on half yearly basis, in case of all the borrowal accounts irrespective of the
limits sanctioned to them

4. General
4.1. Branches /Regional Offices/ Zonal Offices should not give appraisal note to any of
the outside agencies / borrowers. The request for appraisal note, if received from
borrower / outside agencies, should be forwarded to the concerned CMD sections at
Central Office for their approval. The approval for such request may be considered
by CGM/G.M (Credit).

4.2. No Company will be authorized to use our Banks name as financing / appraising
bank in any of their documents for raising money from public / other institutions
without the consent of authorities at Central Office not below the rank of GM. Such
authorizations may be granted only at Central Office by CGM/G.M (Credit).

4.3. Any proposal for acting as Merchant Bankers to issues of Software companies for
raising funds from outside sources shall be cleared by GM (Treasury), provided the
project is appraised and financed by our bank.

Zonal Offices are advised to ensure that proper care and precautions are taken while
assessing the credit needs of the borrowers and also ensure that the need based credit
support is extended to this sector by our Bank.
______________

________________________________________________________________ Loan Policy
95
Annexure-6
1. Discounting / Rediscounting of Bills.

Reserve Bank of India vide their circular DBOD.Dir.BC.62/13.07.09/2002-03 dated
January 24, 2003 advised that the banks should clearly lay down a bills discounting
policy approved by the Board which should include banks core operating process from
the time the bills are tendered till these are realized. Accordingly, our Board at the
meeting held on 02.05.2003 approved the following Policy in respect of Bills Purchased
/ Discounted by the Bank.

2. Purchasing / Discounting / Re-discounting of Bills

2.1. Bills purchased and bills discounted facilities are to be allowed to the customers as a
part of their working capital requirements after proper appraisal of the working capital
needs based on the well established credit norms and the same are of self-liquidating
nature.

2.2. The bills Purchased facility / bills discounting facility should be granted based on the
assessment of working capital facilities and the usance period should be decided on
the basis of the holding of receivables projected by the customer. Normally, the
usance period should not exceed 90 days in the case of domestic sales.

2.3. Only bills covering purchase of raw material / inventory for production purpose and
sale of goods should be discounted by the branches. Bills covering payments of
electricity charges, customs duty, hire purchase / lease rental instalments, sale of
securities and other types of financial accommodation should not be discounted by
the branches.

2.4. Accommodation Bills should not be discounted by the Branches. The underlying trade
transactions should be clearly identified and a proper record thereof should be
maintained at the branches discounting bills.

2.5. Branches should be circumspect while discounting bills drawn by front finance
companies set up by large industrial groups on other group companies.

2.6. Opening of Letters of Credit (LCs) and purchase / discount / negotiation of bills under
LCs would be done only in respect of genuine commercial and trade transactions of
the borrower constituents who have been sanctioned regular credit facilities by the
bank, except in case of negotiation of bills under LC restricted to our bank branches.
Branches should not, therefore, extend fund based (including bills financing ) or non-
fund based facilities like opening of LCs, providing guarantees and acceptances to
non-constituent borrower or/and non-constituent member of a consortium / multiple
banking arrangement, except that in cases where negotiation of bills drawn under LC
is restricted to a particular bank and the beneficiary of the LC is not a constituent of
our bank, our branches may negotiate such an LC, subject to the condition that the
proceeds will be remitted to the regular banker of the beneficiary. However, the
prohibition regarding negotiation of unrestricted LCs of non-constituents will continue
to be in force.
________________________________________________________________ Loan Policy
96
2.7 While purchasing / discounting / negotiating bills under LCs or otherwise, branches
should satisfy about the genuineness of underlying transactions / documents.

2.7.1 Advance against demand documentary bills for collection:
Bank may consider allowing advance against export bills sent on collection basis
where the export documents are sent by the Bank directly to overseas buyer (as against
the normal practice of sending the documents to our correspondent bank or agent bank
abroad) in exporters account after taking into consideration the following factors :-
Exporters satisfactory track record in timely realization of export proceeds.
Exporter should be enjoying Credit Rating not below B+ and account must be
Standard Asset.
Overdue Export bills should not be more than 5% of the export realizations of
previous financial year.
Credit Report from Rating Agency such as M/s ECGC, M/s Dun & Bradstreet,
M/s Mira Inform Pvt. Ltd., our correspondent bank on the overseas buyer and
past performance in dealings with such an overseas buyer.
Availability of adequate collateral security.
Close monitoring of such export bills with regard to timely repayment, action
taken by exporter in case of bill not getting realized on time.
Advance allowed against export bills sent on collection should be subjected to
crystallization within 30 days from the date overdue.
Obtaining ECGCs Buyerwise Shipments Comprehensive Risk Policy by
exporter.
Complying with ECGC and RBI guidelines as stipulated from time to time.
Notifying the limit to ECGC in terms of laid down guidelines.
Bank to reserve right to cancel facility forthwith in case of any adverse
experience in realization of such export bills.
Such advance against export bills sent for collection should not exceed 50% of
the post shipment finance limit.

2.8 Branches may negotiate bills drawn under LCs, on with recourse or without
recourse basis, as per their discretion and based on their perception about the credit
worthiness of the LC issuing bank. The existing restriction on purchase/discount of other
bills (the bills drawn otherwise than under LC) on without recourse basis will continue to
be in force. However, in the case of Vendor Financing Schemes the invoice drawn by
Vendors on the Company and duly accepted by them will be discounted without recourse
to the Vendors but with recourse to the company only, provided the finance is extended
to:
(a) Reputed Companies having B+ and above rating &
(b) Such companies provide to the Bank, the list of their vendors whose
Invoices will be discounted.

2.9 Bills rediscounting would be restricted to usance bills held by other banks. Bills
earlier discounted by NBFCs except in respect of bills arising from sale of light
commercial vehicles and two / three wheelers are not to be re-discounted.

2.10 In order to promote payment discipline which would to a certain extent encourage
acceptance of bills, all corporates and other constituent borrowers having turnover
________________________________________________________________ Loan Policy
97
above Rs.10 crores should disclose aging schedule of their overdue payables in
their monthly statement of book-debts submitted by them.

2.11 No Repo transactions using bills discounted / re-discounted as collateral would be
entered into by the bank.

2.12. Advance against supply bills will be allowed only in respect of genuine transactions
with the government departments and that too in cases where proper irrevocable
power of attorney is registered in favour of the bank. The Supply Bills will
invariably accompanied by Inspection Note / Delivery Note or Receipted Challan
which should be not older than two weeks and the same must show unqualified
acceptance of goods by the drawee concerned.

2.13. Branches should exercise their commercial judgment in discounting of bills of
services sector. However, while discounting such bills, it should be ensured that
actual services are rendered and accommodation bills are not discounted.

2.14. While arriving at MPBF, current assets in the form of stock of Raw material, Finished
goods, Receivables etc. are taken into consideration. Holding period of different types
of current assets are fixed based on past trend, industry level comparison and also
other specific condition pertaining to borrowing units.

For arriving at Receivables level, total expected sales are bifurcated into cash sales
and credit sales. The assumption made for such bifurcations, in reality, varies from
the actuals due to changes in market conditions, competition, bunching of orders etc.

Further, average period of Receivables also varies from what has been assumed at the
time of arriving at MPBF. As a result, borrowers face liquidity crisis due to blockage
of funds in Receivables.

In such a situation where actual Receivables level exceeds the accepted level for
assessment of MPBF, financing of Bills backed by LC may be permitted outside
MPBF after recording proper justification for the same.

In case of Consortium accounts, such decision preferably should be taken in
Consortium to avoid multiple finance. In case of multiple bank finance (not under
Consortium), it is to be ensured that any facility against bills discounted by us has not
been extended by other banks.

Such excess limit should be restricted to 10% of Working Capital Limit. However,
borrowers should declare that they will disclose the information of bills discounted
with the Bank including the bills covered under the LC in their financial statements.

3. Delegation of Powers

3.1. The delegatees would purchase / discount bills of the customers who are having
regular working capital limits. In other words no bill could be purchased / discounted
or Negotiated under L.C. for customers who are not enjoying regular working capital
limits and having only current account.
________________________________________________________________ Loan Policy
98

3.2. The delegatees would purchase / discount bills of the customers within their delegated
powers as laid down in the Loan Policy.
3.3. No delegatee below the rank of General Manager shall exercise his lending powers for
purchasing / discounting of bills drawn on the associate / sister concern of the
borrower and that too on being satisfied that there is an underlying genuine trade
transaction. However, discretionary powers / ad-hoc powers for purchasing /
discounting of bills drawn on sister / associate concerns can be exercised only by
Executive Director / Managing Director / CACB/Management Committee of the
Board.

3.4. No authority could purchase / discount Accommodation Bills.

4. Core Operating Procedure

4.1. The bills for purchasing or discounting should be received by a responsible member
of staff in the credit department who should satisfy himself about all details and
particulars.

4.2. The Branch should ensure that the terms and conditions of sanction with regard to
purchase / discount of bills are strictly complied with.

4.3. The bill should be properly entered in the B.P. Register cum Forwarding Schedule with
full particulars especially as regards documents attached thereto and instructions
given by the party. Clear Instructions should be given in the forwarding schedules
regarding the handing over of documents (whether against payment or acceptance),
the period up to which the same can be detained, the commission / interest etc. to be
collected and action to be taken in case of non-payment such as noting and protesting
etc. Further, all instructions of the drawer such as collection of C Form, overdue
interest etc. should be clearly and explicitly given in the forwarding schedules.

4.4. The bills should be dispatched on the same day or at least on the second day of
purchase / discount by the forwarding branch. The Officer-in-Charge of Credit
Department / Accountant of the Branch should ensure that this aspect is complied
with.

4.5. The collecting branch should detain the bill only for the period mentioned and
thereafter it should be returned forthwith to the forwarding branch after complying
with the instructions. The dishonour / non-payment of the bills should be
communicated on the same day. The payment when received should be remitted to
the forwarding branch on the day of receipt of the payment subject to the clearing
rules. In the collecting Branch the Officer-in-Charge of the Bills Department /
Accountant should ensure that the above is complied with.

4.6. The Bills should be forwarded only by registered post or by authorized courier and
the forwarding branch should obtain the acknowledgement for the same from the
collecting branch. The payments received should be remitted by TTs if the amount is
more than rupees one lakh and in other cases by manifolds which should be
________________________________________________________________ Loan Policy
99
dispatched by Registered Post or through authorized courier on the date of the
manifold.
4.7. In case the bills are accompanied by Railway Receipts, the following conditions
should be complied with:
a) The Railway Receipt is issued by the station from where the bill originates;
b) The Railway Receipt or such similar document of title is made out in the name of
Bank only;
c) The Railway Receipt is clear, i.e., free from any prejudicial remarks thereon;
d) The Railway Receipt contains a clean description of the goods consigned;
e) The Railway Receipt does not bear the rubber stamp of any other Bank;
f) If the goods are not consigned at Railway Risk, the same should be adequately
insured. Even when the goods are consigned at Railways Risk it is advisable to
insist for insurance as the ceiling limits for compensation stipulated by the
Railway Authority is meager.
g) Proper Freight is pre-paid.

4.8. In the case of bills accompanied by Motor Transport Receipts, similar care as
mentioned in 4.7. above should be exercised. In addition, it should be ensured that
the Motor Transport Company is in the approved list and the Lorry Receipt is issued
in the Special Form prescribed under the IBA Scheme with the name of the Bank as
Consignee.

4.9. Usance bills are adequately stamped as per Indian Stamp Act.

4.10. Bills with round amounts should be handled with due care after making proper
enquiries.

4.11. Wherever Margins are stipulated it should be ensured that the stipulated margin is
maintained.

4.12. Branches should balance the Bills Purchased / Discounted including the Margin
maintained party wise / bills wise (Register and Ledger) every month.

4.13. The above are only indicative list of steps taken in the purchase or discounting of
Bills. All other Instructions given in the Manual of Instructions and Circulars issued
from time to time should be scrupulously followed.

4.14. In order to address the oft-cited problem of delay in realization of bills, branches
may take advantage of improved computer / communication net work like Structured
Financial Messaging System (SFMS) and adopt the system of Value Dating of
their Clients accounts.

4.15 Providing finance against discounting of services sector bills is to be treated as
unsecured advances.

4.16. Diary for due dates should be maintained for proper follow up.

4.17. Over due bills should be marked and proper follow up of the same should be made.
Fate Cards should be sent every week till the realization.

________________________________________________________________ Loan Policy
100
4.18. Bills returned unpaid should be properly entered in a register. The documents
should be returned only after collecting the bill amount along with overdue interest
from the party. The bill amount along with the interest should not be debited to
partys cash credit account in the absence of limit and drawing power as by doing
that we would be losing our rights under bills.

4.19. In case of returned bills, wherever necessary it should be got noted and protested.

4.20. The position of overdue bills and returned bills should be properly reported in the
Control Returns every Month.

5. Risk Management

5.1. A bills purchase limit can be used to purchase sight bills only and cannot be utilized
to purchase usance bills unless specifically authorized by the terms of sanction.

5.2. Bills should not be purchased with instructions for indefinite detention at destination
or for their detention for unusually long period. Such instructions are the warning
signals towards unhealthy conditions of business of the party and therefore such like
warning signals should not remain un-noticed / ignored.

5.3. If a customer is sanctioned bills limits but his secured Cash Credit limit for working
capital requirement remains unutilized, discreet enquiries for non-utilisation of Cash
Credit limits should be made.

5.4. In the case of discounting of usance bills, branches should obtain credit reports on
drawees which should be revised at least once in a year.

5.5. The Railway Receipt or Motor Transport Receipt accompanying bills should not be
stale. Normally such documents should not be older than one week.

5.6. Normally Bills accompanying Railway Receipts indicating private railway siding as
destination should be purchased / discounted only for reputed parties with the
approval of sanctioning authority not less than the Zonal Manager.

5.7. Bills should not normally be drawn in round sums.

5.8. Bills and accompanying documents should not be handed over to the party or his
representatives. Similarly, the payments should be received through the normal
channel. Whenever the borrower pays the amount of the bill, proper enquiries
should be made.

5.9. In case bills are drawn on one party only, then suitable limit for purchase /
discounting of bills drawn on such party should be fixed taking into account the
credit report on the drawee on whom the bills are drawn. It is suggested that where
large portion of Bills are drawn on few drawees only, it should be reported to the
next higher authority.

________________________________________________________________ Loan Policy
101
5.10. If frequent requests are received from the borrower to deliver documents either free
of payment or against lesser payments, proper caution should be exercised.

5.11. No fresh bills should be purchased on those drawees who are not paying / retiring the
bills in time. In the alternative suitable sub-limits may be fixed for purchasing bills
drawn on each of such drawees.

5.12. Normally, bills purchased / discounted and returned unpaid should not be re-
purchased / discounted.

6. Branches are advised to take note of the above guidelines and are advised to comply
with them strictly. In addition, Branches are advised to refer to the Manual of
Instructions and ensure that all procedures laid down as above and also in Manuals
are adhered to.

______________
________________________________________________________________ Loan Policy
102
Annexure 7

Guidelines for Financing of Infrastructure Projects

1. In view of the critical importance and high priority being accorded for development of
various infrastructure projects, our Board has, taking into account the guidelines issued
by Reserve Bank of India, approved the following Policy at its meeting held on
02.05.2003.

2. Definition of Infrastructure lending

Any credit facility in whatever form extended by Bank for:
Developing or
Operating and maintaining or
Developing, operating and maintaining any infrastructure facility that is a project
in any of the following sectors:

i. A road, including toll road, a bridge or a rail system.
ii. A highway project including other activities being an integral part of the
highway project.
iii. Port, airport, inland waterway or inland port.
iv. A water supply project, irrigation project, water treatment system, sanitation
and sewerage system or solid waste management system.
v. A telecommunication services whether basic or cellular including radio paging,
domestic satellite service (i.e. a satellite owned and operated by an Indian
company for providing telecommunication service) Telecom Towers, network
of trunking, broadband and Internet services.
vi. An industrial park or special economic Zone.
vii. Generation or generation and distribution of power including the power
projects based on all the renewable energy sources such as wind, bio mass,
small hydro, solar etc.
viii. Transmission or distribution of power by laying a network of new transmission
or distribution lines.
ix. Construction relating to projects involving agro-processing and supply of inputs
to Agriculture.
x. Construction for preservation and storage of processed Agro products,
perishable goods such as fruits, vegetables and flowers including test facilities
for quality.
xi. Construction of Educational institutions and Hospitals.
xii. Laying down and/or maintenance of pipelines for gas, crude oil and petroleum
pipelines.
xiii. Any other infrastructure facility of similar nature.

3. Criteria for Financing

Bank will finance technically feasible, financially viable and bankable projects
undertaken by both public sector and private sector undertakings subject to the
following conditions:

________________________________________________________________ Loan Policy
103
i. The Fund based exposure and/or Non-fund based exposure to any individual project
shall be restricted to Rs.400.00 crore.

ii. The total exposure to infrastructure projects for the Bank as a whole under both Fund
Based and Non Fund Based facilities may not exceed 35% of gross bank credit.
Exposure cap specified above shall be worked out as a percentage of gross credit
outstanding as on the last reporting Friday of the Quarter ending March, June,
September and December.

iii. The Bank shall participate normally, only in projects which are appraised by major
financial institutions / Banks and in consortium with All India Financial Institutions
and / or banks. However, the Bank can participate in small projects where project
reports have been prepared and appraised by Consultancy firms approved by FIs /
Banks for techno-viability report after making independent appraisal.

However, Educational Institutions, Hospitals with a project outlay up to Rs.50.00
crore may be considered as small projects not requiring detailed appraisal by All
India Financial Institutions as in the case of large projects.

iv. The amount sanctioned to be within the overall ceiling of the prudential exposure
norms prescribed by RBI for infrastructure financing.

v. In respect of projects undertaken by public sector units the following conditions will
apply :

a. Term loans will be sanctioned only for corporate entities.
b. Such term loans should not be in lieu of or to substitute budgetary resources
envisaged for the project. The term loan could supplement the budgetary
resources if such supplementing was contemplated in the project design.
c. While such public sector units may include Special Purpose Vehicles (SPVs)
registered under the Companies Act set up for financing infrastructure projects, it
should be ensured that these loans/investments are not used for financing the
budget of the State Governments.
d. Due diligence on the viability and bankability of such projects has to be
undertaken to ensure that revenue stream from the project is sufficient to take
care of the debt servicing obligations and that the repayment/servicing of debt is
not out of budgetary resources.
e. In the case of financing SPVs it should ensure that the funding proposals are for
specific monitorable projects.
f. The individual component of financing and return are well defined and assessed.
g. State Government guarantees may not be taken as a substitute for satisfactory
credit appraisal and such appraisal requirements should not be diluted on the
basis of any reported arrangement with the Reserve Bank of India or any bank
for regular standing instructions/periodic payment instructions for servicing the
loans/bonds.

vi. The proposal of other SPVs in the private sector, registered under Companies Act
for directly undertaking infrastructure projects which are financially viable and
not for acting as mere financial intermediaries may also be entertained.
________________________________________________________________ Loan Policy
104

vii) In respect of Public Sector Undertakings (including SPVs registered under the
Companies Act set up for financing infrastructure projects), term loans shall be
sanctioned only for Corporate entities (i.e. Public Sector Undertakings registered
under Companies Act or a Corporation established under the relevant statute).
Such term loan shall not be in lieu or to substitute budgetary resources envisaged
for the project. The term loan could supplement the budgetary resources, if such
supplementing was contemplated in the project design. It shall be ensured that
these loans are not used for financing the budget of the State Governments. Due
diligence on the viability and bankability of the project shall be carried out to
ensure that revenue stream from the project is sufficient to take care of the debt
servicing obligations and the repayment / servicing of debt is not out of budgetary
resources. Further, in case of financing of SPVs, the funding proposals shall be for
specific monitorable projects only.

4 Types of Financing by Banks

4.1 In order to meet financial requirements of infrastructure projects, credit facility by
way of working capital finance, term loan, project loan and any other form of
funded or non funded facility may be extended.

4.2 Take out Financing

Bank may enter into Take out financing arrangement with IDFC/IIFCL/ Other
financial institutions or avail of liquidity support from IDFC/IIFCL/ Other FIs.

4.3 Inter-institutional Guarantees

Keeping in view the special features of lending to infrastructure projects viz. high
degree of appraisal skills on the part of lenders and availability of resources of a
maturity matching with project period, Bank may issue guarantees favouring other
lending institutions in respect of infrastructure projects, provided Bank has taken a
funded share in the project at least to the extent of 5% of the project cost and
undertakes normal credit appraisal, monitoring and follow up of the project.

4.4 Financing Promoters Equity

Normally, the Promoters contribution towards the equity capital of a company
should come from their own resources and the bank should not normally grant
advances to take up shares of other companies. In view of the importance attached
to infrastructure sector, under certain circumstances an exception may be made to
this policy, for financing the acquisition of promoters shares in an existing
company which is engaged in implementing or operating an infrastructure project in
India. The conditions, subject to which an exception may be made, are as follows:
________________________________________________________________ Loan Policy
105

i. The bank finance would be only for acquisition of shares of existing companies
providing infrastructure facilities as defined earlier. Further, acquisition of such
shares should be in respect of companies where the existing foreign promoters (and
/ or domestic joint promoters) voluntarily propose to disinvest their majority shares
in compliance with SEBI guidelines, where applicable.
ii. The companies to which loans are extended should, inter alia, have a satisfactory
net worth.
iii. The company financed and the promoters/directors of such companies should not
be defaulter to banks / FIs.
iv. In order to ensure that the borrower has a substantial stake in the infrastructure
company, bank finance should be restricted to 50% of the finance required for
acquiring the promoters stake in the company being acquired.
v. Finance extended should be against the security of the assets of the borrowing
company or the assets of the company acquired and not against the shares of that
company or the company being acquired. The shares of borrower
company/company being acquired may be accepted as additional security and not
as primary security. The security charged to the banks should be marketable.
vi. Banks should ensure maintenance of stipulated margin at all times.
vii. The tenor of the bank loans may not normally be longer than seven years, except
with the express sanction of Board/MC/CACB, where necessary, for financial
viability of the project.
viii.This financing would be subject to compliance with the statutory requirements
under Section 19(2) of the Banking Regulation Act, 1949.
ix. The banks financing acquisition of equity shares by promoters should be within
the regulatory ceiling of 5% on capital market exposure in relation to its total
outstanding advances (including commercial paper) as on March 31 of the
previous year.
x. All proposals for bank finance will be with the approval of the Board.
xi. The date of completion of the project should be clearly spelt out at the time of
financial closure of the project and if the date of commencement of commercial
production extends beyond a period of two years after the date of completion of
the project as originally envisaged, the account should be treated as sub-standard.
This instruction is effective from March 31, 2008.

5. Appraisal

(i) In respect of financing of infrastructure projects undertaken by Government
owned entities, banks/Financial Institutions should undertake due diligence on the
viability of the projects. Banks should ensure that the individual components of
financing and returns on the project are well defined and assessed. State
Government guarantees may not be taken as a substitute for satisfactory credit
appraisal and such appraisal requirements should not be diluted on the basis of
any reported arrangement with the Reserve Bank of India or any bank for regular
standing instructions/periodic payment instructions for servicing the loans/bonds.
________________________________________________________________ Loan Policy
106

(ii) Infrastructure projects are often financed through Special Purpose Vehicles.
Financing of these projects would, therefore, call for special appraisal skills on the
part of lending agencies. Identification of various project risks, evaluation of risk
mitigation through appraisal of project contracts and evaluation of creditworthiness of
the contracting entities and their abilities to fulfill contractual obligations will be an
integral part of the appraisal exercise. In this connection, banks/FIs may consider
constituting appropriate screening committees/special cells for appraisal of credit
proposals and monitoring the progress/performance of the projects. Often, the size of
the funding requirement would necessitate joint financing by banks/FIs or financing
by more than one bank under consortium or syndication arrangements. In such cases,
bank should, for the purpose of assessment, refer to the appraisal report prepared by
the lead bank/FI or have the project appraised jointly.

6. Prudential Requirements

6.1 Prudential credit exposure limits

Credit exposure to borrowers belonging to a group may exceed the exposure norm; of
40% of the banks capital funds by an additional 10% (i.e. up to 50%), provided the
additional credit exposure is on account of extension of credit to infrastructure
projects. Credit exposure to single borrower may exceed the exposure norm of 15%
of the banks capital funds by an additional 5% (i.e. upto 20%) provided the
additional credit exposure is on account of infrastructure as defined in paragraph 1
above.

6.2 Asset Liability Management

The infrastructure projects are generally of long term nature. The financing of
infrastructure projects may lead to asset-liability mismatches, particularly when such
financing is not in conformity with the maturity profile of a banks liabilities. The
Credit Department will consult ALM Department about asset-liability position to
ensure that they do not run into liquidity mismatches on account of lending to such
projects.

________________

________________________________________________________________ Loan Policy
107
Annexure - 8

Banks Financing of Equities & Investment in Shares

Bank is allowed to extend finance against Shares, Debentures, Bonds etc. in dematerialized
form as per guidelines of RBI issued from time to time. (The earlier guidelines providing
finance against shares in physical form is withdrawn. However, existing limits up to Rs. 10
lakh sanctioned to individuals against security of shares in physical form may be renewed
and endeavour should be made to shift the security to dematerialized form.) The following
are major guidelines as regard to bank finance to Equities & Investments in Shares:-

1. Advance against Shares & Debentures

A) Amount

i) In case of Individual- Maximum Ceiling to Individuals is Rs 20.00 lacs against Shares in
Dematerialized Form. Such loans are meant for genuine individual investors and
branches should not support collusive action by a large group of individuals belonging
to same corporate or their inter connected entities to take multiple loans in order to
support particular scripts or stock broking activities of the concerned firm.

ii) In case of Initial Public Offer (IPOs)/ Follow-on Public Offer (FPOs) maximum
amount of finance to an Individual for IPO is Rs 10.00 lakh. Corporates will not be
extended finance for investment in other companies IPO and NBFCs should not be
provided finance for further lending to Individuals for IPOs. Finance extended by bank
for IPOs will be reckoned as an Exposure to Capital Market.

iii) Banks may extend finance to employees for purchasing shares of their own companies
under ESOP/ reserved by way of employees' quota under IPO to the extent of 90% of
the purchase price of the shares or Rs.20 lakhs, whichever is lower.

iv) Banks cannot extend advances to their Employees / Employee Trusts set up by them for
the purpose of purchasing their (banks) own shares under ESOP/ IPO or from
secondary market. This prohibition will apply irrespective of whether the advances are
unsecured or secured.

v) The maximum limit per individual from banking system against security of shares,
convertible bonds, convertible debentures, units of equity oriented mutual funds and
PSU bonds should not exceed Rs.20.00 lakh and in case of IPO Rs.10.00 lakh. A
declaration should be obtained from the borrower indicating the details of the loans /
advances availed against shares and other securities specified above from any other
bank/s in order to ensure compliance with the ceilings prescribed for the purpose.

B) Margin

50 % on all fresh advances sanctioned. In case of advances sanctioned earlier, the
margin prevailing at that time may continue until they come for renewal.

________________________________________________________________ Loan Policy
108

2. Issuance of Bank Guarantees on behalf of Stock Brokers & Market Makers

RBI permits Banks for issuance of following two types of Bank Guarantees:
(i) Guarantees on behalf of share and stock brokers/commodity brokers in favor of
stock exchanges in lieu of security deposit.
(ii) Guarantees on behalf of share and stock brokers/commodity brokers in favor of
stock exchanges for margin requirement.
Margin on bank guarantee on behalf of Stockbrokers is 50%, out of which a minimum
of 25% should be Cash Margin.

3. Financing of Arbitrage Operations

No credit facility is to be extended to stock brokers directly OR indirectly for arbitrage
operations.

4. Advances to Stock Brokers

a) Credit facilities to stockbrokers are to be given based on commercial judgment
within the banks policy. To avoid any nexus among Inter Connected Stock Broking
entities and the bank, ceiling within overall 40% of banks net worth as on March 31 of
previous year to be adhered.
RBI permits following types of facilities to Stock Brokers:
(i) Overdraft facilities / line of credit against shares and debentures held by them
as stock-in-trade
(ii) Working Capital Limit to meet cash flow Gap for transactions undertaken on
behalf of Institutions.
(iii) Banks finance to stockbrokers for margin trading.

Within the overall credit of 40% of net worth a sub-ceiling is fixed in respect of
following categories of Stock Brokers and Market Makers:

Category Sub-Ceiling
All the Stockbrokers and market makers (both
fund based and Non-Fund based i.e.,
Guarantees)
5% of our net worth as per last
published balance sheet.
Any single stock broking entity including its
associates / Inter connected Companies
0.5 % of our net worth as per last
published balance sheet

Further, bank will not extend credit facility directly or indirectly to stock brokers for
arbitrary operations in stock exchanges.

b) Delegatees up to the level of General Manager can sanction maximum amount up to
Rs.1.00 Crore within lending power to Individual Broker either in the form of
advance/drawing against pay-out OR guarantee on broker favoring Stock Exchanges.

c) Advances beyond Rs 1.00 Crore for Individual Stock Broker can be considered only by
Executive Director / CMD at Central Office.

________________________________________________________________ Loan Policy
109
d) Credit requirement of Broker will be assessed / analyzed based on their Balance Sheet,
Net Worth as done in other credit proposals. However exposure is to be not more than
TNW of the brokers.

e) Maximum amount of advance against Pay-Out will be at 50% of the amount of Pay out
OR the limit sanctioned which ever is lower. The amount of the pay out should be
authenticated by an official authorized for the purpose of the Stock Exchange and
signature of the official should be verified.

f) As per terms of MOU, all the brokers to whom the limit of advance against pay-out is
being sanctioned should deal with our bank only.

g) Advance against pay-out will be normally allowed for maximum for four / five days
but it is to be adjusted positively on the settlement date of pay out. In no cases
advances should remain outstanding in the account after settlement date.

h) Zonal / Regional / Branch offices should monitor amount of advance against pay-out.

i) Personal Guarantee of all the Promoters/Directors is to be obtained to secure our
advance against Pay-out.

j) Till the system of advance against pay-out is stabilized, Zonal Office may submit a
monthly statement of advance allowed against pay-out for information to General
Manager (Credit).

k) Exposure against Security of the Shares to any individual company will not be more
than 30% of the capital of the Company, OR 30% of the capital & reserves of the
Bank which ever is lower.

5. Risk Management System

In addition to above, following measures are to be taken into account:

a) To ensure that exposure to stockbrokers is well diversified in terms of the number of
broker clients, individual interconnected broking entities, it is to be ensured that there is
no inter-connectedness of brokers who are availing Banks finance. Also it is to be
verified that there is no collusion of various brokers in different names/entities who are
directly/indirectly utilizing banks fund for the same purpose and thereby promoting
their own vested interests.

b) Track record & Credit Worthiness of the Broker, Financial Position of broker, operation
on his account and on behalf of the clients, average turnover period of the Stocks &
Shares, the extent to which brokers fund are required to be involved in his business
operation etc.

c) If there is report of default about any broker or adverse features noticed in the past, the
proposals for such brokers are not to be considered.

d) While processing proposals for loans to stockbrokers, details of facilities enjoyed by
brokers and all his connected companies from other banks are to be taken into
consideration.
________________________________________________________________ Loan Policy
110

e) Details of the credit facilities availed by Brokers or their associates/inter-connected
companies from other banks for the same purpose. This is necessary in order to ensure
that high leverage is not built up by the borrower or his associate or interconnected
companies with the Bank Finance. A detailed market/search report to be obtained about
the dealing of the brokers concerned from various sources such as FIs/Banks. Specific
declaration from the broker to be obtained to the effect detailing out their dealings with
various entities in the past / present.

f) It has to be also verified that Brokers do not solely depend upon Banks Finance for
their dealings rather they have their substantial stake in the business / venture.

6. Ceilings on overall exposure to Capital Market

As per the guidelines of Reserve Bank of India and as per the policy approved by the
Board, Banks exposure to capital market by way of investments in shares, convertible
debentures and units of mutual funds (other than Debt funds) through primary or
secondary markets should not exceed 5% of the banks total outstanding of domestic
credit (excluding inter Bank lending and advances outside India) as on March 31, or the
previous year.

7. Ceiling on Direct Investments in shares etc.

The aggregate exposure of a bank to the capital markets in all forms (both fund
based and non-fund based) should not exceed 40 per cent of its net worth, (as defined
in paragraph 8.6) as on March 31 of the previous year. Within this overall ceiling, the
banks direct investment in shares, convertible bonds / debentures, units of equity-
oriented mutual funds and all exposures to Venture Capital Funds (VCFs) [both
registered and unregistered] should not exceed 20 per cent of its net worth.

8. Branches would be required to review the shares portfolio and to take suitable steps to
safeguard the banks interest on the happening of following:

- Sensex/Nifty falling by 5% & above in a single day.
- Any adverse report in the press
- SEBI placing any company under Z category
- Share prices falling by 20% in the portfolio held by the borrower.

(a). Sensex/Nifty swings by 2% to 5%, in a single day, are very common now-a-days. A
more pragmatic fall of 5% & above may be a cause of concern. The margin of 50% and
appropriate haircut (VaR- i.e. Value at Risk, margin disclosed by Stock Exchanges for
each script) should take care of volatility in stock market to a reasonable extent.

(b). SEBI placing any company under Z category.
The Z category scripts are from BSE. These companies have poor corporate
governance & not complied with Listing Agreements and/or large Investor grievances.
________________________________________________________________ Loan Policy
111

9. Shares should be revalued on the last working day of the week & drawing power should
be calculated, on the basis of average market price of the share for last six months or
current market price whichever is lower. If account is overdrawn, borrower should be
asked to deposit necessary amount in the account or to lodge further securities.

10. While considering the proposals for advance against shares and debentures it should be
ensured that the advance should not be granted against partly paid shares. No loans to be
granted to partnership/proprietorship concerns against the primary security of shares and
debentures. It should be ensured that the bank funds are not utilized for Badla
transactions

___________
________________________________________________________________ Loan Policy
112
Annexure 9

Guidelines for Financing Construction Industry.

1. On the basis of guidelines issued by Reserve Bank of India and Indian Banks
Association, we have finalized guidelines for financing Construction Industry
consisting of Builders & Developers and Construction Contractors. The Broad
guidelines for the same are given below:

2. Builders and Developers

2.1. The main activity of the Builders and Developers is construction of Housing
Complexes. The Builders and Developers requirements of funds can be grouped as
under:

i. Purchase of Land
ii. Development of land
iii. Construction of the building
iv. Holding the stocks after construction

2.2. Eligibility

2.2.1. The basic eligibility criteria to finance any project will be that the project is
commercially viable and has the capacity to generate sufficient funds to repay the
principle amount with interest.

2.2.2. The Standing / Performance of the borrower in the past to be taken into account
while considering the proposal. However, this will not be strictly applicable to
SPVs promoted for development of any project. In such cases, the standing and
performance of the Promoter Companies should be given due weightage.

2.2.3. Promoters should have minimum experience of 5 years in this line of business and
have executed successfully at least 3 projects. The minimum paid up capital should
be Rs.50 lakh and the minimum average turnover should be Rs.100 lakh. However,
this will not be strictly applicable to SPVs promoted for development of any
project. In such cases, promoters of SPV should have adequate experience.

2.2.4. It should be specifically ascertained if any project of the borrower is incomplete for
want of funds, so as to avoid possibility of diversion of funds from the project being
financed.

2.2.5. Discreet inquiries about the reputation of the borrower / builder in the market should
be made.

2.2.6. The Builder / Developer should have completed all necessary legal procedures /
obtaining permission from the competent authority and got the plan approved.
Certificate from the architect and legal advisor to this effect should be obtained.

________________________________________________________________ Loan Policy
113
2.3. Level of Working Capital Finance

2.3.1. The Bank will consider finance for the total project upto a maximum of 75% of the
cost of the project i.e. Purchase / Development of land and construction of building
/ property.

2.3.2. Margin amount for the project should be arranged by the borrower either up front or
in stages in proportion to disbursement of Term Loan.

2.3.3. As per RBI guidelines vide DBOD.No.DIR (HSG).B.C.02/08.12.01/2007-08 dated
02.07.2007, bank may extend finance to public agencies and not private builders for
acquisition and development of land, provided it is a part of the complete project,
including development of infrastructure such as water systems, drainage, roads,
provision of electricity etc. Such credit may be extended by way of term loans.
The project should be completed as early as possible and, in any case, within three
years from the date of advance.

2.3.4. Value of land in the Balance Sheet should be taken at acquisition cost.

2.3.5. Investments made in the Land, if any, as reflected in the Balance Sheet to be treated
as margin contribution of the Builders.

2.4. Type of Limit -- Working Capital

2.4.1. The funded credit facilities be allowed in the form of term loans.

2.4.2. The disbursement to be made on stage to stage.

2.4.3 The Booking amounts and sale proceeds of the constructed areas which were not
envisaged as means of finance and also the amounts received in excess of such
envisaged amounts, to be adjusted either to repay the out standings in the term loan
account or the term loan amount be reduced to that extent.

2.4.4 The maximum period of repayment to be linked to the stated project construction
period. However, six to twelve additional months may be allowed to sell the
constructed property and deposit the sale proceeds. Hence the repayment period
may be extended by 6 to 12 months on case to case basis.

2.4.5 Margin: Minimum 25% of the total over all cost of project.

2.5. Security: Mortgage and Hypothecation Charge on all project assets both present
and future.

2.6. Interest: As per Credit Risk Rating. However, ED / CMD/CACB shall have
discretion to charge lower rate of interest on case to case basis.

2.7. Processing Charges: Upfront Fee as per existing instructions. However, ED /
CMD/CACB shall have discretion to charge lower upfront fee on case to case basis.

________________________________________________________________ Loan Policy
114
2.8. Sanctioning Authority: Regional Managers/ Zonal Managers and above within their
delegated powers.

2.9. Other Terms and Conditions.

2.9.1 Bank may consider Loans to Developers, who enter into contract with the land
owners to develop the property and sale subject to following conditions:
1. Developer is in the line of activity at least for last three years.
2. He has successfully completed at least three projects.
3. Discreet inquiries about the reputation of the borrower/builder in the market
should be made.
4. Development agreement with the owner of land to be scrutinized and legal
opinion to be obtained to ensure validity, mortgagibility, enforceability, creation of
Charge /assignment of developmental rights in favour of the bank etc.
6. The Builder / Developer should have completed all necessary legal procedures/obtaining
Permission from the competent authority and got the plan approved. Certificate from the
architect and legal advisor to this effect should be obtained.
6. Asset Coverage Ratio should not be below 1.50:1 at any point of time during the
currency of the loan.
7. Debt Equity Ratio should preferably be 2:1.However higher Debt Equity Ratio up to 3:1
can be accepted by CMD/CACB/ MC of the Board.
8. No financing of acquisition of land.
9. The Booking amounts and sale proceeds of the constructed areas should not be
envisaged as means of finance and the amounts so received be utilized to repay the
outstanding in the loan account.
10. Maximum period of repayment to be linked to the stated project construction period.
However, six to twelve additional months may be allowed to sell the constructed property
and deposit the sale proceeds. Hence, the repayment period may be extended by 6 to 12
months after construction on case to case basis.
11. Minimum Margin should be 25% of the total overall cost of project.
12. Security: Hypothecation of all project assets and assignment of developmental rights.
Mortgage of property proposed to be developed or personal guarantee of the owner of the
land at least to the extent of his/her share in the property to be explored. Alternatively,
collateral having adequate value to be insisted upon.
13. Interest Rate: As per pricing policy of the Bank.
14. Upfront fee: 1% of the project cost.
15. Sanctioning Authority: Executive Director and above within their respective delegated
powers. ED/CMD shall also have the discretion to consider any deviation from the above
on case to case basis subject to report to Board/MC/CACB.
2.9.2 Deleted.

2.9.3. Possibility of arriving at some mutual arrangement to ensure that the sale proceeds
of flats / houses are directly received by the bank may be explored.

3. Construction Contractors
3.1. The requirements of any construction contractor can be divided into the following
two stages:

3.1.1 Pre Construction Stage.

3.1.2. Construction Stage and Post Construction Stage.
________________________________________________________________ Loan Policy
115

3.2. At pre-construction stage the facilities required by the construction contractor may
be in the form of:

3.2.1 Fund Based Requirements
a) Term Loans for purchase of machinery and equipments.
b) Working Capital.

3.2.2. Non-Fund Based Requirements
a) Bid Bond Guarantee
b) Bank Guarantee for raising Mobilisation Advance.
c) DPG for purchase of Machinery and Equipment.
d) Performance Bank Guarantees.

3.3. Similarly after the contract is awarded the facilities required may be as under:

3.3.1. Fund Based Requirements
a) Working Capital for meeting raw material purchase.
b) Bills limit for purchase / discounting of the accepted bills payment for the
completed construction stage.

3.3.2. Non-Fund Based Requirements
Bank Guarantee limits for release of retention money.

(A) Construction Contractors for limits upto Rs.5.00 crore
In order to facilitate financing Small Construction Contractors enlisted with PWD /
Government Departments / Local Authorities, following guidelines are laid down:

1. Eligibility
a. Contractors should be enlisted with different Government Departments / State
Sponsored Agencies / Local Authorities having Category of B+ rating and above.
b. The firm should have at least 2 years experience of the type of job proposed to be
undertaken.
c. There should not be any adverse report against the Contractor and should have
successfully completed previous jobs allotted to them.

2. Maximum loan amount: Rs.5.00 crore

3. Nature of Facility / Margin / Security:

a. Term Loan for purchase of machinery and equipments.
Repaying capacity in terms of Debt Service Coverage Ratio should be 1.5:1 for
entire repayment period.
Repayment of term loan should be within a maximum period of 5 years.
Projected Cash flow for the entire repayment period should be obtained.

Margin: 25% in case of new machinery
40% in case of old machinery
Security: Hypothecation of machinery
________________________________________________________________ Loan Policy
116

b. Overdraft against confirmed Work Order for purchase of raw material, labour
payments etc.

Margin: 25%

The Cash Budget method be used to arrive at the funded requirements of the
Contractors.
The Cash Budget/Cash Flow chart for individual contract to be drawn wherever
possible.
The maximum level of drawing be limited to peak Net Cash Deficit arrived on
the basis of consolidated Cash Flow Chart.

Security:
(i) Hypothecation of all types of construction raw materials purchased.
(ii) Hypothecation of Book Debts. However, DP should be allowed against
Receivables not older than 90 days.

c. Bills Discounting: i. Where there is no Power of Attorney registered with the
Implementing Agency, D.A Bills within the tenor of 90 days
may be considered for discounting with 25% margin.

ii. Where there is a Power of Attorney effectively registered with the implementing
Agency in favour of the Bank for receiving payment, D.A Bills drawn upto a tenor of
180 days may be considered for discounting with 10% margin.

d. Guarantee facility:
Performance and Financial Guarantees may be considered with a minimum Cash
Margin of 25% on our usual terms and conditions.

4. Collateral security:
E.M. of non-encumbered property to minimum to the extent of 100% of loan amount
(FB + NFB). Other formalities for creation of EM to be completed before release of
loan.

5. Rate of Interest: As per Risk Rating/ Central Office Circulars

6. Sanctioning authority:
BM (Scale III) /RMs / CMs and above within their respective lending powers, subject to
maximum of Rs.5.00 crore per borrower.

7. Method of calculation of W.C. finance:
Cash Budget method wherever possible.

8. Processing charges:
1.00% of loan amount with maximum Rs.2,00,000/-.
________________________________________________________________ Loan Policy
117

9. Documentation:
Applicable documentation for term loans and working capital limits should be obtained.
Charge should be got registered wherever applicable.

10. Other terms and conditions:

1. As far as possible, it should be ensured that the contract-wise facility should be self
liquidating in nature. However, for justifiable reasons and in case of Contractors of
repute, past records, this stipulation may be relaxed on case to case basis.
2. Where there is both Overdraft and Bills finance, incidence of double finance should
be avoided.
3. It is advisable to get the Power of Attorney Registered with the Implementing Agency
for routing payment through our Bank.
4. KYC norms to be strictly observed.
5. As there is added risk in financing of Construction Contractors especially lack of
control over raw material due to very nature of the job undertaken, close follow up by
way of periodical inspection and constant monitoring of operations in the account to
be ensured.
6. The facility should be considered only in respect of reputed Contractors where the
implementing Agency is Government / Semi Government / P.W.D / Local Authority.

7. Caution should be exercised to ensure that DP is arrived only against paid stocks and
Book Debts of not older than 90 days. Normally, Contractors do not hold stocks as
they will utilize the material in construction. Therefore, material used can be treated
as stocks in process till bills are raised and consider such stocks for working out
Drawing Power. However, proper care to be exercised so as to avoid double
financing.

(B) Construction Contractors for limits over Rs.5.00 crore

1. Eligibility:
1.1 Project should be commercially viable and the capacity to generate sufficient funds to
repay the Principal amount and interest thereon. The means to finance the project
should be fully tied up or there should be definite plans to raise the required finance.

1.2 The Standing / Performance of the borrower in the past to be taken into account while
considering the proposal.

1.3 The firm / company should be in operation for at least three years and should have
successfully completed 5 projects of the size. The minimum paid up capital should
be Rs.50 lakhs and the minimum average turnover should be Rs.100 lakhs.

2. Term Loans:

2.1 Need based term loan requirements for the purchase of machinery and equipment may
be considered. The repaying capacity in terms of Debt Service Coverage Ratio
(DSCR) should be of 2:1 for the entire repayment period. The repayment of term
________________________________________________________________ Loan Policy
118
loan to be allowed over longer period say upto 5 to 7 years but not exceeding the
effective life of the machinery.

3. Margin: 25% in the case of new machinery and 40% in the case of old machinery.

4. Security:
Hypothecation of the machinery purchased with bank finance. Further the limits
should be collaterally secured by securities whose value should not be less than 100%
of the facility.

5. Working Capital Finance:

5.1 The Cash Budget method be used to arrive at the Funded requirements of the
Contractors. The Cash Budget / Cash Flow Chart for each individual Contract to be
drawn and to be consolidated. The maximum level of drawing be limited to the Peak
Net Cash Deficit arrived at on the basis of the Consolidated Cash Flow Chart.

5.2 The drawing limit of the Contractor to be limited equivalent to Two Months
requirements of funds of the Total Cost of Contract by way of Cash Credit /
Overdraft.

5.3 The disbursements shall be made on stage to stage basis.

5.4 The Margin for working capital should be available in the Balance Sheet from own
Sources which should be minimum of 25%.

6. Bills Finance:
6.1. The financing of the bills may be varied according to the security / recourse available
to the bank i.e. with Power of Attorney or without Power of Attorney.

6.2. When the Power of Attorney is registered with the Contract Owner, then the bills up
to 180 days duly certified and accepted for payment may be considered for
discounting with 10% margin.

6.3. When the Power of Attorney is not registered, then bills up to 90 days with 25%
margin may be considered for discounting.

7. Sanctioning Authority: The Fund based and non-Fund based limits mentioned at
paragraphs 3.2. and 3.3. herein above are to be allowed by Regional Managers(in the
rank of DGM) / Zonal Managers and above within their delegated power.

8. Guarantee Commission:
a) Performance Guarantee : As per CO Circulars.
b) Financial Guarantee : As per CO Circulars.

9. Margin for Guarantees: Minimum Margin of 25% should be maintained.
________________________________________________________________ Loan Policy
119

10. General Terms and Conditions:
a. Debt Equity Ratio:
The debt equity ratio shall not exceed 3:1. The Net Worth for this purpose should be
taken as Tangible Net Worth net of investments and fixed assets unrelated to the core
business.

b. Exposure Norms:
As per RBI suggestion, the fund based limits and the non-fund based limits
sanctioned to a borrower (excluding Performance Guarantees) put together should not
exceed NINE times of the Net Owned Funds of the Borrower Company.

11. Collateral Security: The collateral Security to the extent of 100%.

12. Rate of Interest : As per Risk Rating.

13. Borrower should scrupulously follow the Accounting Standard AS-7 of the Institute of
Chartered Accountants of India and should prepare Balance Sheet adopting percentage
completion method and should also submit return as instructed by Reserve Bank of
India vide their circular No.2/08.10.01/95-96 dated 25
th
July 1995.

14. Processing Charges: As per the existing rules.
We trust that these guidelines would help our Branches in promoting quality business
under this Sector

________________________________________________________________ Loan Policy
120
Annexure-10
Guidelines for Sanctioning of Bridge Loans.

1. As per the guidelines of Reserve Bank of India Banks are permitted to consider
sanctioning of Bridge Loans / Interim Finance against commitments made by a
Financial Institution and / or another Bank in cases where the Lending Institutions face
temporary liquidity constraints, subject to compliance with the following conditions.:

a) The Bank extending Bridge / Interim finance must obtain prior approval of the
other Bank and / or the Financial Institutions which have sanctioned the Term
Loan.

b) The sanctioning Bank must also obtain a commitment from the other Bank and /
or Financial Institution that the latter would directly remit the amount of Term
Loan to it at the time of disbursement of the Loan.

c) Bank should ensure that Bridge Loan / Interim Finance sanctioned and disbursed
is utilized strictly for the purpose for which the Term Loan as been sanctioned by
another Bank and / or Financial Institution.

1.1. Proposals of the type mentioned in paragraph 1 herein above would be sanctioned at
Central Office level only.

2. Reserve Bank of India has also permitted Banks to grant Bridge Loans to Companies
(Other than NBFCs) against Public Issue of Equity Shares whether in India or Abroad
also taking into account the security aspect, quantum of loan, exposure norms, proper
end use and period of loan etc. In the light of the above, the following guidelines for
sanction of Bridge Loans to Companies (Other than NBFCs) are framed:

(A) Against Public Issue of Equity Shares in India or abroad and

(B) Against other forms of Equity viz. Foreign Equity other than Public Issue.

2.1. Eligibility:

a) The request for sanction of Bridge Loans against Public Issue of Equity Shares is
generally to be considered for our existing Prime Borrowers only. Any exception to
this is to be considered only with the approval of Central Office.

b) The proposed Public issue should have been approved by the SEBI.

2.2. Sanctioning Authority:

a) In case of loans against Public Issue of Equity in India or Abroad, the requests
from the borrowers are to be considered at Central Office level by Executive
Director and above as per their delegated lending powers.

________________________________________________________________ Loan Policy
121
b) In cases of loans against other forms of Equity i.e., Foreign Equity other than
Public Issue, Management Committee of the Board is empowered to sanction such
loans and subject to approval from Reserve Bank of India, wherever required.

2.3. Quantum of Finance: The amount of Bridge Finance will be restricted to 70% of the
Proposed Equity Issue subject to a maximum of Rs.25 crore per borrower.

2.4. Exposure: The exposure to the company / Group should be within the prudential
norms in vogue / exposure levels prescribed by our Bank.

2.5. Rate of Interest: Interest is linked to Base Rate and should be charged at 2.00% over
and above the applicable rate of the borrower as per Credit Rating assigned to them.

2.6. Covenants:

a) The proposed Public Issue of Equity Shares should be underwritten fully, by
Category 1 Merchant Bankers, preferably Commercial Banks / Financial
Institutions, to the extent of the aggregate of the amount offered under Reserve
Category (excluding Firm Allotment) and net offer made to Public. The
underwriters must agree to pay directly to us their commitments in case of
devolvement of the issue.
b) Subscription account (No lien account) should be opened with our Bank.
c) Personal Guarantee/s by Promoter Director/s guaranteeing the repayment of
Bridge Loan should be obtained.

2.7. Disbursement: Disbursement of Bridge Loan shall be made only after the opening
date of the issue for acquiring tangible assets, to meet a part of the project cost as per
the prospectus approved by SEBI or as per the project cost approved by the appraising
Financial Institutions / Banks.

2.8. End-Use: Utilisation of Bridge Loan for the purpose for which it is granted is to be
certified by the Auditors of the company or any other firm of Chartered Accountants.

2.9. First Pari-passu Charge on the assets is to be created for the loan amount.

2.10. Repayment: Entire Loan amount should be repaid within 6 months from the date of
the first disbursement. The Sanctioning Authorities may, at their discretion, permit
two roll-overs of another 3 months each in exceptional cases, if circumstances so
warrant.

3. While considering the requests from the borrowers for sanction of Bridge Loans
against proposed Public Issue of Equity Shares, the following stipulations are also to
be complied with:
a) NOC / Prior approval of other Banks / Financial Institutions, who have sanctioned
term loan facilities to the company, should be obtained.
b) A copy of the Prospectus duly approved by SEBI should be obtained to ascertain
the quantum of the proposed issue of Equity Shares against which the loan is
requested for and eligible finance.
c) Copies of the proposed underwriting agreements should be got examined by our
Legal Department and ensure that there are no onerous clauses in it and that the
Underwriters commitments are irrevocable.
_____________
________________________________________________________________ Loan Policy
122
Annexure-11

Financing of Non Banking Financial Companies (NBFCs)

1. Lending by banks to NBFCs is restricted upto certain multiples of the latters net
owned funds (NOF). As per the guidelines of Reserve Bank of India, there are no
restrictions in respect of borrowings by NBFCs which are statutorily registered with
RBI and are engaged in principle business of Equipment Leasing (EL), Hire-purchase
(HP), Loans and Investment activities. The Banks approaches for lending to NBFCs
have been examined in detail and the following internal guidelines are issued:

2. NBFCs. -Which are complying with prudential norms of Reserve Bank of India, Credit
Rating and also registered with RBI. The Loan Policy of the Bank stipulates lending
at maximum of 4 times the Tangible Net Worth of a borrower. Hence, though there is
no maximum overall limit for lending, the lending by the Bank to individual NBFCs
will not exceed 4 times its TNW. In the case of consortium / syndicated lending,
higher limits may be granted by the consortium / syndication as a whole, but the
Banks own exposure may not exceed 4 times the TNW.

3. NBFCs that have not fully complied with RBI Guidelines: The Banks policy shall be
to avoid exposure to such companies. While the existing limits may be allowed to
continue, incremental exposure will be avoided. In the cases of new companies
established by reputed promoters, exposure upto 2 times the NOF may be considered
against an undertaking that the guidelines of RBI will be complied with within a
stipulated time frame.

4. Residuary NBFCs.: The Bank may lend very selectively to such companies registered
with the Reserve Bank of India. To companies promoted by parties well known to the
Bank and having good track record, overall exposure not exceeding the net owned
funds of the company may be considered.
5. Activities not Eligible for Bank Credit
5.1 In terms of RBI guidelines contained in RBI/ 2011-12/71 DBOD. BP. BC. No.20/21.
04.172/2011-12/71 dt. 01.07.2011, the following activities undertaken by NBFCs, are
not eligible for bank credits:
(i) Bills discounted / rediscounted by NBFCs, except for rediscounting of bills
discounted by NBFCs arising from sale of : -
(a) commercial vehicles (including light commercial vehicles), and
(b) two wheeler and three wheeler vehicles, subject to the following conditions:
* the bills should have been drawn by the manufacturer on dealers only;
* the bills should represent genuine sale transactions as may be ascertained
from the chassis / engine number; and
* before rediscounting the bills, banks should satisfy themselves about the
bona fides and track record of NBFCs which have discounted the bills.
________________________________________________________________ Loan Policy
123
(ii) Investments of NBFCs both of current and long-term nature, in any
company / entity by way of shares, debentures, etc. However, Stock Broking
Companies may be provided need-based credit against shares and debentures
held by them as stock-in-trade.

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

(iv) All types of loans and advances by NBFCs to their subsidiaries, group
companies / entities.

(v) Finance to NBFCs for further lending to individuals for subscribing to
Initial Public Offerings (IPOs) and for purchase of shares from secondary
market.

6. Banks are not allowed to sanction bridge loans and loans of a bridging nature in any
form to NBFCs including against capital / debenture issues.

________________________________________________________________ Loan Policy
124
Annexure-12
Guidelines for financing Entertainment Industry including Films.

The Government of India has since conferred the status of Industry on the Entertainment
Sector, of which Feature Films constitutes the most important segment. We have since
finalized the guidelines for financing this activity which are reproduced below:

1. Purpose: Finance for production of Feature Films in Hindi / Regional Languages.

2. Nature of Facility: Short Term Loan or Overdraft.

3. Eligibility: Film Producers (Corporate / Non Corporate Entities) with good track
record in the field. Such entities may also avail finance for production of films in
participation with NFDC.

4. Bank Finance: The maximum advance to any project should not exceed 50% of the
total cost of production or Rs.15 Cr. which ever is less. For financing any project
more than the above limit, proposal should be referred to Central Office.

5. Margin: A minimum of 25% of production cost should be brought by the Promoters
and tie-up arrangements for another at least 25% in the form of Advances from
Distributors.

6. Rate of Interest: Linked to Base Rate (BR) and risk rating.
7. Guarantee: Personal Guarantee of the producer should be obtained.

8. Processing Charges: As per Central Office Circulars.

9. Period of Loan: 12 to 18 months based on Banks assessment of Cash generation of
the project.

10. Disbursement: Loan amount should be disbursed in stages, only after the promoters
contributions as well as Advances from Distributors are utilized atleast 50%.

11. Security:

11.1. Laboratory letter conveying rights on the negatives to Bank.

11.2. Assignment of rights pertaining to Music, Audio/Video, CD/DVD or
Internet/Satellite rights, Export or International rights etc. in favour of the Bank.

11.3. Assignment in favour of the Bank, of all Agreements and Intellectual Property Rights
(IPRS) by the borrowers.

11.4. First Hypothecation charge on all tangible assets under the project.

11.5. Collateral security by way of Mortgage of property / Lien on Deposits and other
approved securities / Assignment of LIC Policies of the Promoters or their friends and
relatives etc. may also be explored upon, depending upon merits of the case.
________________________________________________________________ Loan Policy
125

12. Insurance: Insurance policies covering Film under production and Key personnel
Insurance etc., to be obtained with Bank Clause.

12.1 If any other policy designed to cover production completion risk, risk of financial loss
due to delay in production / obtaining Censors certificate or loss due to
discontinuance of exhibition etc. or a Comprehensive / Umbrella policy is available,
the same should be obtained.

13. Other Term and Conditions:

13.1.The Borrower will give an undertaking to maintain a Trust and Retention Account
(TRA) with the Bank for all inflows and outflows of capital and revenue nature. The
modalities of TRA to be worked out on case to case basis.

13.2. No-Objection Certificate to be obtained from all parties for the TRA arrangements.

13.3. Bank will have first charge on TRA.

13.4. Producers to furnish periodical information regarding progress of the project, Cash
Flow Statements and monitoring reports (certified by specialized agencies /
consultants, wherever considered necessary).

13.5. Banks name should be prominently displayed in the Titles.

13.6. In case of corporate clients, Registration of Charge with ROC to be ensured before
disbursement.

13.7. If necessary, the Bank may appoint Specialised Agencies for evaluation of the
project, monitoring the progress of film shooting / processing and assessing the
reasonableness of expenditure. The fees paid to such agencies to be borne by the
borrowers.

14. Finance through NFDC / to NFDC: The National Film Development Corporation
Ltd.(NFDC) specializes in promoting quality cinema. Any project vetted by NFDC
may also be considered for financing by the Bank. Similarly, at the request of NFDC,
finance may also be extended to them on the above mentioned lines.

______________

________________________________________________________________ Loan Policy
126
Annexure - 13
Guidelines for sanction of General Purpose Corporate Loans/
Short Term Loans.

The Bank has been sanctioning from time to time financial assistance to meet the credit
requirements of corporate and Non-Corporate clients by way of regular facilities like
Term Loan, Cash Credit, Overdraft, Bill Discounting etc. Of late, in order to have
flexibility to take advantage of prevailing market conditions, the borrowers prefer
General Purpose Corporate Loans/ Short Term Loans against regular working capital
facility. Keeping in view the demand from the corporate world and to take care of their
needs and also to deploy banks surplus funds profitably following guidelines have been
framed:

1. Purpose: General Purpose Corporate Loans/ Short Term Loans may be considered for
any of the following purposes:

a) To augment Net Working Capital
b) To meet Temporary mis-match of funds
c) Prepayment of High Cost Loans/Debts
d) General business purpose
e) To kick start the projects pending financial closure.

2. Eligibility: Customers who comply with the following criterion are eligible for
General Purpose Corporate Loans/ STL:

a) High net worth corporates with satisfactory track record
b) Reputed Business Houses having good market reputation for timely payments
c) Listed / Unlisted Corporate Bodies having credit rating of CBI-4 and above or its
equivalent in case of rating by external rating agency
d) Unrated but financially sound Corporate Bodies
e) Facility should be genuinely need based

3. Quantum: Minimum size of the loan shall be of Rs.25 Cr. and Maximum of
Rs.500 Cr. per borrower.

4. Tenor: General Purpose Corporate Loans/ Short Term Loans shall be for a maximum
period of Three years.

5. Interest:

a) Rate of Interest on General Purpose Corporate Loans/ Short Term Loans are
dependent on market conditions such as demand for funds from the corporates,
tenor, liquidity in the market, liquidity position of the bank, RBI stance on
interest rates etc. ROI shall be linked with Base Rate.
b) Therefore, Interest Rate on General Purpose Corporate Loans/ Short Term Loan
will be determined on the basis of prevailing market conditions more
particularly MIBOR & Call money rates & liquidity position of the bank,
standing of the borrower. Interest shall be paid by the borrower on monthly
basis as and when charged by the Bank.
________________________________________________________________ Loan Policy
127
c) CMD and in his absence ED, shall be empowered to approve the rate of Interest on
General Purpose Corporate Loans/ STLs falling within their respective lending
powers. However, in exceptional cases and keeping in view of the urgency, CMD
shall be empowered to approve ROI on General Purpose Corporate Loans/ STLs
falling within the powers of CACB/MC and the same shall be placed to CACB/
MCB for ratification.

6. Repayment: Cash Flow Financing is applicable in respect of Assessment of eligible
finance under General Purpose Corporate Loans/ Short Term Loans etc. On the basis
of Cash Flows, repayments shall be fixed either by way of periodical installments or
bullet payments. Bullet Payments to be allowed only on exceptional cases.
7. Prepayment Charges: In case of prepayment, prepayment charges @ 1% p.a.of the
amount prepaid shall be recovered.
8. Security: Charge on existing fixed assets or current assets along with charge on
assets to be created if any out of the proposed loan shall be explored. However,
keeping in view the financial standing of the borrower, the facility may be allowed by
way of unsecured advance also subject to compliance with the cap fixed by the Board
for unsecured advances & prudential exposure norms.
In terms of Govt. guidelines vide F.No.7/50/2012/BOA, Ministry of Finance,
Department of Financial Services dt. 16.03.2012, henceforth, such short term loans
should be secured. In case of all such existing loans, they shall have to be either
phased out in next 6 months or create Collateral Security. Further, in case such
loans turn NPA, details of such cases to be submitted to Department of Financial
Services, Ministry of Finance.

9. Margin: Normally a margin of 25% should be stipulated on all types of securities
except securities falling under Capital Market Exposure, Selective Credit Control &
landed property, in such cases appropriate/applicable margins should be stipulated.
In case of facilities sanctioned for augmenting NWC, it may be considered at Nil to
10% margin. (NWC generally represents promoters contribution towards margin,
since they are not in a position to infuse additional funds towards building up margin,
loan under the scheme is extended and hence stipulating any margin on such loans
will defeat the very purpose of extending such loans. Therefore, such loans can be
considered at Nil or lower margin).
10. Sanctioning Authority: General Purpose Corporate Loans/ Short Term Loans can be
sanctioned by the delegatees in the rank of General Manager and above within their
respective delegated lending powers taking into account the total exposure to the
borrower. If such loans are extended without any security/un secured, then the
credit sanction should be done by CACB/MCB only. Interest Rate will be as
applicable to Risk Rating. However, the powers to approve a lesser interest of
maximum 100 basis point shall rest with CACB/ MCB.
11. Other Conditions:
a) Current Ratio: The current ratio should normally be 1.33. However, current
ratio up to 1:1 shall be acceptable. However, if the in such case facility is
sanctioned for augmenting NWC, the ratio should improve relatively.
b) Debt: Equity ratio should be 4:1. However, it may be relaxed up to 6:1.
c) TOL: TNW ratio should be 6:1. However, deviation beyond 6:1 may be allowed
by CACB/ MCB.
________________________________________________________________ Loan Policy
128
d) Obtaining Personal Guarantee of Promoter Director/s to be explored more
particularly in case of unsecured loans.
e) Proceeds of General Purpose Corporate Loans/ Short Term Loans should not be
utilized for any speculative purposes or investing in capital market /
Commercial Real Estate.
f) While considering the applications for General Purpose Corporate Loans/ Short
Term Loans Financials & cash flows to be studied carefully to ensure
genuineness of the requirement and repaying capacity on due date.
g) If the borrower is enjoying facilities with other Banks/FIs proper due diligence
should be carried out to ensure that the accounts are in standard category with
other Banks/FIs and their dealings are satisfactory.

MCB shall have full powers to consider any deviation subject to compliance with
RBIs prudential exposure norms.
_____________



________________________________________________________________ Loan Policy
129
Annexure-16
Methodology for assessment of Working Capital Limits

Turnover Method

Working capital requirements of the borrower under the Turnover method is computed on
the basis of Projected Annual Turnover (PAT) / Output Value i.e. Gross Sales inclusive of
excise duty. The total working capital funds requirements of the borrower is estimated at
25 percent of the projected turnover, of which at least four-fifth should be provided by
bank and the balance one-fifth should be by way of promoters contribution. While
assessing the requirements of working capital under turnover method the following may be
kept in view:

a) The projected annual turnover should be realistic and achievable. The reasonableness of
PAT may be satisfied on the basis of annual statements of accounts or any other
documents such as returns filed with Sales Tax / revenue authorities, orders on hand,
industry growth, recent trend in sales etc.

b) The assessment of working capital credit limits should be done both as per projected
turnover basis and traditional method. If the credit requirement based on production /
processing cycle is higher than the one assessed on projected turnover basis, the same
may be sanctioned. On the other hand if the assessed credit requirement is lower than
the one assessed on projected turnover basis, while the credit limit can be sanctioned at
20% of the projected turnover, actual drawals may be allowed on the basis of drawing
power to be determined by the bank excluding unpaid stocks. In the case of
commodities covered under Selective Credit Control Directives of Reserve Bank of
India, the drawing power should be determined as indicated in the RBI directive.

c) The working capital requirements to be assessed at 25% of the projected turnover is to
be shared between the borrower and the bank viz. borrower contributing 5% of the
turnover as NWC and bank providing finance at a minimum of 20% of the turnover.
The above guidelines were framed assuming an average production / processing cycle of
3 months (i.e. Working capital would be turned over four times in a year). It is possible
that certain industries may have a production cycle shorter / longer than 3 months.
While in the case of a shorter cycle, the same principles could be applied as it is the
intention to make available at least 20% of turnover by way of bank finance, in case the
cycle is longer, it is expected that the borrower should bring in proportionately higher
stake in relation to his requirement of bank finance. Going by the above principles, at
least 1/5
th
of the Working Capital requirements should be brought in by way of NWC.

d) Since the bank finance is only intended to support need-based requirement of a borrower
if the available NWC is more than 5% of the turnover, the former should be reckoned
for assessing the extent of bank finance.

e) In arriving at drawing power, unpaid stocks are not to be financed as it would result in
double financing. The drawing power should conform to margin stipulations of Reserve
Bank of India issued from time to time in the case of Selective Credit Control
commodities.
________________________________________________________________ Loan Policy
130
f) In the case of traders, while bank finance could be assessed at 20% of the projected
turnover, the actual drawals should be allowed on the basis of drawing power to be
determined after ensuring that unpaid stocks are excluded. In the case of Selective
Credit Control commodities, the RBI directives should be strictly followed.

g) The norms for inventory and receivables as prescribed under Tandon Committee as also
first or second method of lending would not be applicable.

h) The level of trade credit should be in tune with past practice. Where projected trade
credit is lower than the past level, the same may be accepted provided the justification
offered is convincing.

Traditional Method: (Modified MPBF System)

I) Traders (Stockists)

a) The credit requirements will be assessed on the basis of past indicators and future
projections.

b) The current ratio should be minimum 1.33 with deviation upto 1.20 permitted during
peak trading periods.

c) Subordinated debt / quasi-capital with usual declaration may be treated as part of
capital employed.

d) In Trading account normally there will not be any long terms debts and therefore,
TOL: TNW ratio to be considered. TOL: TNW ratio up to 4:1 shall be accepted.
However, in deserving cases relaxation up to 6:1 may be permitted by Zonal
Managers/Regional Managers in the rank of DGM and above.

II) Modified MPBF System

The Tandon Committee Norms on holding levels of inventory and receivables have been
dispensed with. Holding levels as per the past practice will continue to be basis under the
modified system. While the projections should reasonably conform to the past trends,
deviations can be accepted subject to satisfactory justification.

Diversion of Funds

In case of borrowers with a current ratio above 1.50, the bank may permit investments that
will facilitate improved profitability, tax savings, growth etc. provided such investments
are planned and projected in financial statements furnished to the bank subject to the
condition that the current ratio does not fall below 1.33. Where the current ratio falls
below 1.33, suitable penalties for diversion of funds should be levied.

________________________________________________________________ Loan Policy
131
Cash Budget Method

The borrower is required to submit the cash budget to the bank along with actual as well as
projected financial statements. The budget in the prescribed format is to be prepared for a
period of one year and then split into forecasts for shorter periods say monthly or quarterly.
The budget will provide the following information:

i) The peak level of bank finance required during the course of the year.

ii) The current level of bank finance required as forecasted by the split budge (on monthly/
quarterly) basis.

Appraisal

The budget must be scrutinized vis--vis the financial statements to satisfy that the
forecasts are reasonable. Once the forecasts are found acceptable, the credit limit required
by the borrower is to be determined as the peak level of cash deficit as shown in the
budget. The sanctioning of the limit will be subject to the observance of the following:

a. Maintenance of Current Ratiodesired level is 1.33

b. The Debt: Equity Ratio (TOL: TNW) normally not to exceed 2:1

c. Borrower / Group exposure to be within norms determined by the Bank internally, but
within the Reserve of India parameters;

d. The appraisal will also include assessment of the Company profile and Industry
Profile;

e. There has to be an evaluation of risks at the time of fixing lending limits and if felt
expedient, the level of operations and cash budget projections will be pruned down by
the bank at the time of discussions before finalizing credit limits.

f. The disbursal of credit facilities will be by way of Loan and Cash Credit components
as per stipulation of Loan Delivery System. Flexibility will be allowed in fixing
maturity periods of the loans which can correspond to the quarterly budgets if the
borrowers so choose. Once the maturity period is fixed, prepayment of the loan
component if required shall be subject to RBI guidelines and also payment of a
penalty upto 2% of the repaid loan amount for the unexpired period, as may be
decided by sanctioning authority at his discretion.

g. Credit facilities on preferential terms like export credit should be assessed and
disbursed in terms of existing procedure. However, the total of such facilities and all
other fund based facilities availed should be within the limits under the Cash Budget.

h. For issuance of Letters of Comfort for availing Buyers Credit, amendments under Point
No.14.3.8 are to be complied with.

________________________________________________________________ Loan Policy
132
Annexure -17 (Deleted)

Annexure - 18

A) Issuing Guarantees favouring other Banks/FIs and other Lending
Agencies.
B) Lending against Guarantees of other Banks/FIs and other Lending
Agencies.

A. Issuing of Guarantees favouring other Banks / FIs and Other Lending Agencies:

1. Prudential Limits
1.1. Prudential limits for Guarantees in favour of other Banks/FIs and other Lending
Agencies, on behalf of the borrower are to be linked to Tier-I Capital of the Bank.

1.2. Exposure limit per borrower for issue of guarantee favouring other Banks/FIs/Other
Lending Agencies shall be 10% of Tier I capital of the Bank.

1.3. The aggregate exposure for such guarantees shall not exceed 50% of Tier I capital of
the Bank.

2. Conditions to Consider
2.1. The guarantee shall be issued only on behalf of the existing borrowers who wish to
avail additional credit facilities from other Banks/FIs and Other Lending Agency.

2.2. The Bank shall assume a funded exposure of at least 10 % of exposure guaranteed.

3. Nature & Extent of Security & Margins
The security, margins & any other conditions shall be considered on case to case basis.

4. Delegation of Powers
Power to sanction issue of Guarantees in favour of Banks/FIs/Other Lending Agency
vests with Management Committee of the Board.

5. Reporting and Monitoring
5.1. Credit Monitoring Department, Central Office will keep record of the sanctions and
monitor the exposure limits.

5.2. Report on Guarantees issued to Banks/FIS/Other Lending Agencies shall be placed to
Management Committee of the Board every half year.

6. Review: Guarantee issued to Other Bank/FI/Other Lending Agencies on behalf of the
borrower shall be subjected to Annual Review by the Sanctioning Authority.

7. Other Conditions

7.1. Bank shall carry out normal appraisal as if the entire facility is being allowed by the
bank
7.2. Bank shall not extend guarantees or letters of comfort in favour of overseas lenders including
those assignable to overseas lenders, except for the relaxations permitted under FEMA.

________________________________________________________________ Loan Policy
133
8. Assignment of Risk Weight

The guarantee issued by the bank would be an exposure on the borrowing entity on whose behalf
the guarantee has been issued and would attract appropriate risk weight as per the extant
guidelines.

9. Risk Management
9.1 As recommended by the Ghosh Committee the following steps would be taken before issue of
guarantees:

- Bank Guarantees would be issued in a serially numbered security forms.
- Guarantees would be issued under two signatures in triplicate, one copy each would be held
by the Branch, Controlling Office and the Beneficiary.

B. Lending Against Guarantees of other Banks / FIs / Other Lending Agencies
1. The exposure by way of credit facility against the guarantee of other Banks / FIs/Other Lending
Agencies would be deemed as an exposure on the guaranteeing Bank / FI/Other Lending
Agencies.

2. Prudential Limits

2.1. The exposure on Banks assumed by way of credit facilities extended against the guarantees
issued shall be reckoned within the inter bank exposure limits prescribed by the Board. A limit
within overall limits shall be fixed for extending credit limits against the LGs issued by banks
/FIs/Other Lending Agencies.
2.2. The exposure limit per Bank/FIs/Other Lending Agency assumed by way of credit facility
extended against guarantees shall not exceed 10% of the Tier-I Capital of the Bank.

3. Power to sanction advance against guarantees of other Banks/FIs/Other Lending Agencies shall
be vested with the Management Committee of the Board.

4. Reporting & Monitoring
4.1. Credit Monitoring Department, Central Office shall keep record of sanction and monitor the
exposure limits.
4.2. Report on lending against guarantees of other Banks/FIs/Other Lending Agencies shall be
placed to Management Committee of the Board every half year.

5. Review: The credit limits sanctioned against Guarantees extended by other Banks / FIs and
Other Lending Agencies would be reviewed by the sanctioning authority annually.

6. Risk Weight: The exposure assumed by the bank against the guarantee of another bank / FI/
Other Lending Agencies would be deemed as an exposure on the guaranteeing bank / FI / Other
Lending Agencies and would attract appropriate risk weight as per the existing guidelines.

7. Risk Management
Before sanctioning any limit against such guarantee, bank shall carry our normal appraisal as if
facility is being granted without other banks guarantee and obtain confirmation of the
Controlling Office of the Issuing Bank/FIs/Other Lending Agency.
_______________

________________________________________________________________ Loan Policy
134
Annexure - 19

Financing Joint Ventures and Wholly Owned Subsidiaries abroad.

1. INTRODUCTION

RBI, vide their letter DBOD.IBD.BC.No.41/23.37.001/2006-07 dated 06.11.2006,
has informed that, in order to facilitate expansion of Indian Corporate business
abroad, prudential limit on credit and non-credit facilities extended by Indian Banks
to Joint Ventures (JVs)/ Wholly Owned Subsidiaries (WOS) abroad has been raised
from 10% to 20% of un-impaired capital funds (Tier I and tier II) of the Bank.

Keeping in view the RBI guidelines, following policy guidelines are proposed to meet
the credit requirements of Corporates for setting up Joint Ventures/Wholly Owned
Subsidiaries or acquiring units abroad or making investment in JVs/WOS.

2. Purpose of loan

a) Acquisition of existing overseas company
b) Acquisition of Assets of overseas company
c) Financing equity investment by the Indian company in JV/WOS or in other
overseas companies (New or existing), as strategic investment.
d) Additional equity investment.
e) Any other purposes as permitted in terms of GOI / RBI Policy.

3. Eligibility

a) Registered Indian Companies in existence for the past 5 years.
b) They should have posted profit consecutively for past three years.
c) Net worth should be positive.
d) Account should not be NPA or restructured/rescheduled with any other Bank/FI.
e) Should confirm to the GOI / RBI guidelines for Automatic / Special approval
route.
________________________________________________________________ Loan Policy
135

4. General Conditions

a) Investment by the Indian company should comply with the guidelines issued by
RBI as well as by the foreign country where the investment is proposed to be
made.

b) The foreign concern in which the direct investment is proposed to be made may
be engaged in industrial, commercial, trading or service activity including hotel
or tourism industry. Loans for investment in foreign concerns engaged in
financial services are not to be considered.

c) Parent company and its directors should not be on the Reserve Banks Exporter
Caution List/List of defaulters to the banking system published /circulated by the
Credit Information Bureau of India Ltd., (CIBIL/RBI or under investigation by
the enforcement Directorate or any investigative agency or regulatory authority).

d) Country, where JV/WOS/Step Down Subsidiaries of Indian Subsidiaries is located,
should not have restrictions applicable to those companies in regard to obtaining
foreign currency loans or for repatriation of funds etc and should permit non
resident banks to have legal charge on securities/asset abroad and the right of
disposal in case of need.

e) RBI approval for investment in JV/WOS abroad, wherever required, is obtained.

f) Legal and other formalities in the foreign country should be complied with and
the regulatory authority in Foreign Country should permit activity of JV/WOS.

g) The proposed finance should comply with the statutory requirement under Section
19(2) of the Banking Regulation Act, 1949.

h) Compliance with Section 25 of the Banking Regulation Act, 1949 in respect of
holding of aggregate assets outside India which should not exceed 25% of the
Banks Demand and Time liabilities in India.

i) All existing safeguards / prudential guidelines relating to capital adequacy norms
applicable to domestic credit / non-fund based exposures should be adhered to.

j) All existing safeguards / prudential guidelines relating to prudential exposure
norms Capital Market Exposure norms of RBI should be complied with.

5. Financing for Acquisition of Assets or Equity in Overseas Companies

Bank may extend financial assistance to Indian companies for acquisition of
assets or equity in overseas joint ventures / wholly owned subsidiaries or in
other overseas companies, new or existing, as strategic investment.

Bank may also consider issuance of Standby Letter of Credit / Issuance of
Financial Guarantee in favour of other Banks who have financed Acquisition
________________________________________________________________ Loan Policy
136
of Assets or for investment in Overseas Companies by Indian Company or an
SPV established by an Indian Company.

Banks exposure to a company against Guarantee of other Bank/FI/Other
Lending Agencies, shall not exceed 10% of the Tier I Capital of the Bank.

Such finance, if considered under the scheme of Export Import Bank of India
(EXIM Bank) and the loan is duly approved by EXIM Bank, it shall not form
part of Capital Market Exposure.

6. Facility: (Fund Based as well as Non Fund Based)

a. Term Loans with tenor as permissible under RBI guidelines.
b. Project Loans
c. Letters of Credit / Standby Letter of Credit
d. Letters of Guarantee
e. Buyers Credit / Acceptance Finance / Issue of Comfort Letter
f. Mezzanine Finance
g. Foreign Currency Loans (subject to availability of FC funds)
h. Loans against Equity Capital (Subject to compliance of Capital Market
Exposure).
7. Rate of Interest / Commission

a. Interest rate will be charged at floating rate of 6 months LIBOR + 3% (minimum)
with reset option every six months.
b. For Rupee loans as applicable as rating of the borrower.
c. Interest to be serviced on monthly basis.
d. Applicable arrangement fee, Conversion, Remittance and other charges shall be
recovered separately.
e. Interest should be funded either out of foreign exchange earning or by purchase
from local resources.
f. In case of Non funded facilities like L/C, Letter of Comfort and Letter of
Guarantee, commission and charges will be recovered up front at applicable rates.
8. Security

PRIMARY:
- Assets of the borrowing company or the assets of the company acquired.

COLLATERAL:
- Shares of the borrowing company or the company being acquired may also be
accepted as collateral security.
- Escrow account of the Receivables of the company as additional comfort.

However, it should be ensured that the security charged to the bank is easily
marketable and identifiable.

In case overseas assets are accepted as securities, arrangement to be made to appoint
a Security Trustee having powers to enforce the security in case of need.

________________________________________________________________ Loan Policy
137

9. Exchange Risk and Interest Rate Risk

a. Borrower should adequately hedge the foreign exchange exposure.
b. Minimum margin of 25% shall be stipulated to take care of risk on exposure taken
by the Bank.
c. Risk arising out of Interest Rate fluctuation i.e., changes in LIBOR shall be
mitigated by stipulating reset clause of 6 months.

10. Prepayment charges

Prepayment charges @ 1% of the amount being prepaid shall be levied.

11. Sanctioning Authority

Proposals under above facility shall be considered at Central Office by Executive
Director and above within their respective delegated lending powers.

12. Quantum of Finance

Bank can hold foreign currency assets to the extent 25% of total assets under Sec. 25
of B.R. Act. Keeping in view the total assets held by the bank from time to time a
view will be taken on quantum of finance to be extended under the scheme. However,
keeping in view the total assets of Rs.211,033 Cr. as on 31.12.2011, we can hold
foreign currency assets to the extent of Rs.52,758 Cr.

Therefore, a maximum limit of Rs.250 Cr. per borrower is fixed.

______________

________________________________________________________________ Loan Policy
138
Annexure 20
Guidelines on Foreign Currency Loans

In terms of AD (MA series) circular No.22 dated 31.10.1996, RBI has permitted Banks to
provide foreign currency denominated loans to their customers under which the foreign
exchange risk is borne by the borrowers for meeting either their foreign currency or rupee
requirements, provided the loan are not for consumer durables or personal loans and are
from resource base consisting of funds of FCNR (B) Scheme and Inter bank Foreign
currency Deposits (IBFCD) Scheme.

It should be the endeavour of all delegatees that as far as possible the FCNR (B) loan is
extended to our Exporter borrowers, so that the available funds under FCNR (B) can be
utilized rationally to boost our export portfolio. Conversion of Rupee term loan into FCNR
(B) loan should be discouraged.

1. Purpose
Corporates are allowed to obtain foreign currency denominated loans in India for the
following purposes.

a. For meeting working capital requirements in India
b. By way of pre-shipment advances/post shipment advances to the exporters.
c. Import of raw materials
d. Import of Capital Goods
e. Purchase of indigenous machinery
f. Repayment of existing Rupee Term Loan
g. Repayment of existing ECBs with the permission of RBI/Govt. of India

2. General Conditions
a. Credit Risk Rating of the borrower should be CBI-6 and above.
b. The borrowers should have natural hedge to cover themselves from exchange risk,
which they have to bear.
c. The borrowers who do not have natural hedge are required to take forward cover
to avoid exchange risk.
d. Funds availability under FCNR (B) Scheme for deployment should be ensured.

3. Guidelines for the different purposes of the loans are as under:
a. For meeting working Capital Requirements.

i. The loans can be granted after proper assessment and sanction of Working
Capital/Maximum Permissible Bank Finance (MPBF)
ii. The loan can be disbursed up to the maximum level of MPBF.
iii. Foreign Currency loan can be disbursed in any currency depending upon
availability.
iv. Foreign Currency loan for working capital will be considered for 6 months, Roll over
may be considered on satisfactory performance and pool of funds under FCNR (B).
v. Bank will retain the right to recall the entire loan along with interest accrued
thereon, if during the currency of loan, the outstanding in working capital loan
including foreign currency loan is not covered by the available drawing power
as calculated in terms of the credit sanction.
________________________________________________________________ Loan Policy
139
vi. The Bank will also have the right to convert the foreign currency loan along with
interest accrued thereon into rupee loan and the foreign currency amount will have to
be repaid to the bank by purchase of foreign currency from the market and crystallizing
the borrowers liability in rupees. Interest on such rupee liability will be at the relevant
rates for rupee credit at monthly rests.

b. Import of Raw Material
The importers can take benefit of foreign currency loans for import of raw materials in
lieu of rupee MPBF sanctioned to them. The rupee equivalent of foreign currency loan
amount is to be earmarked in the overall sanctioned MPBF limit. The loan can also be
repaid in foreign currency.

c. Import of Capital Goods
The importers of capital goods can avail the foreign currency loan for a period not
exceeding 3 years including moratorium period. The import of capital goods should be
arranged on 180 days usance basis.

d. Purchase of Indigenous Machinery
The corporates can raise the foreign currency loans for their capital expenditure/project
expansion plans etc. for the purchase of indigenous machinery.

e. Repayment of existing Term Loan
Foreign currency loans can be utilized for the repayment of existing rupee term loan
provided the duration of foreign currency loan does not exceed the portion of the
existing rupee loan which has not yet expired or 3 years which ever is less.

f. Repayment of ECBs.
The repayment of ECBs requires permission from Govt. of India / RBI as per the
applicable guidelines. Corporates can raise foreign currency loans after obtaining
requisite permission from RBI/Govt. of India and completing other formalities.

4. Terms & Conditions
a. Minimum Size of Loan
Minimum Size of Loan should be US $ 2,50,000/- and in multiples of US $ 50,000
thereafter.

b. Commitment Fees
A commitment fee of 1% will be charged at the commencement of second month and
third month respectively, if the loan is not drawn by the end of the first month and
second month respectively. No commitment fee will however be payable if the loan is
availed within one month of sanction. The commitment fees will be calculated in US $
and recovered in Indian Rupees at the TT selling rate.

c. Out of pocket expenses
To be levied as per Circular issued by International Division from time to time.
________________________________________________________________ Loan Policy
140
d. Prepayment
Prepayment may be allowed at the discretion of the Bank on payment of penalty and
subject Banks right to cancel all the credit facilities made available. If the bank
permits prepayment, interest will be charged at the contracted rate up to the date of
prepayment. For the left over period of loan, penalty will be charged at the rate arrived
at by deducting the prevailing overnight investment interest rate from the contracted
rate of interest.

e. Interest Rate
i. Foreign Currency loan for 6 months Interest will be charged at 6 months LIBOR for
US $ with minimum spread of 2.00%.
ii. Foreign Currency loan above 6 month but less than 12 months Interest will be
charged at 6 months LIBOR + applicable spread.
iii. For Foreign Currency loans with tenor of 1 year, ROI will be charged at 1 Year
LIBOR + Spread
iv. In exceptional cases, spread over LIBOR may be negotiated at lower level at the
discretion of Chairman & Managing Director/Executive Director.

f. Sanctioning Authority
Sanctioning of FCNR (B) loans within the MPBF does not involve any sanction beyond
the working capital limits sanctioned to borrower. For Foreign Currency loans practice
prevailing presently is that loans sanctioned by the competent authority including those
falling under the powers of MC may be allowed by a Committee consisting of General
Manager-Credit, General Manager-International Division and General Manager-
Treasury. Taking a view on funds availability, alternative opportunities for deployment
of fund at remunerative rate. The same practice may continue.

g. Rollover of Foreign Currency Loans
i. If the Foreign Currency loan is rolled over the rupee equivalent should be computed
on the roll over date at the applicable notional rate and it should be ensured that
the foreign currency loan is within the sanctioned limit.
ii. Foreign Currency Loan should always be covered by adequate drawing power in the
company.

h. Procedure
i. To avail foreign currency denominated loan by earmarking working capital facilities,
the borrower can approach the concerned branch where they are enjoying credit
facilities.
ii. The branch to arrange for sanction of the term loan from the competent authority of
the bank.
iii. For all other purposes, the foreign currency loans can be granted after proper
assessment of requirement of the borrower and the sanction of the same by Bank.
The borrowers required to provide all the information needed by Bank for sanction
of credit facilities.

_____________
________________________________________________________________ Loan Policy
141
ANNEXURE - 21
Policy guidelines on Off- Balance Sheet Exposure
1. Bank Guarantees and Letters of Credit
1.1. Introduction
An important criterion for judging the soundness of the bank is the size and character, not
only of assets portfolio but also, of its contingent liability commitments such as guarantees
& letters of credit.
Banks total credit portfolio is classified into two broad categories viz. Fund Based and
Non Fund-Based. While Fund Based Advances constitute the On-Balance Sheet items, the
Non-Fund Based Advances comprise of the Off-Balance Sheet exposure. The liability of
the bank in relation to the Fund-Based advances is specific and determined but that of Non
Fund-Based advances is totally futuristic and crystallization of the same or otherwise will
take place at a later date. Hence the appropriate policy to contain the risk component
associated with non-fund based advances within the risk appetite of the bank is required.
Greater competition, marketing innovations, and government deregulation have changed
the focus of attention from credit risk under off-balance sheet items. Therefore, in addition
to assessment of the risk in on-balance-sheet instruments, there is a need to assess the risk
of off-balance-sheet activities. It is essential that a system of controls be put in place to
mitigate off-balance-sheet risk.
Non-fund based facility shall be extended to constituents after taking adequate care in the
form of Credit Investigation and following K Y C norms. The underlying nature of
transaction must be fully understood and evaluated as part of approval process. The bank
shall extend NFB facilities in respect of genuine trade transactions. Detailed assessment
will be made by obtaining application, Balance Sheet, business plan etc.
The guidelines cover the following types of Non Fund-Based Facilities:
Bank Guarantees (BGs)
Letter of Credits (LCs)
The guidelines are meant to cover the macro and micro issues at the broad policy level. It
does not cover in itself all the instructions and guidelines related to off-balance-sheet
lending and have to be read in consonance with other Operational Instructions, Manuals,
Circulars issued / amended by the bank from time to time.
1.2. Objectives
Bank will extend non-fund based credit facilities with a view to augment non-interest
income.
The major objectives of the policy would precisely be as follows:
________________________________________________________________ Loan Policy
142
To provide need-based and timely non-fund based facilities to various borrowers.
To strengthen the credit delivery system of non-fund based facilities addressing
holistic requirements of the constituents.
2. Credit Risk in Off-balance sheet Exposures
2.1. Risk Identification and Assessment of Limits
Credit Risk in non-fund based business need to be assessed in a manner similar to the
assessment of fund based business since it has the potential to become a funded
liability in case the customer is not able to meet its commitments.
2.2. Risk Monitoring, Control and Mitigation
For containing credit risk on account of off balance sheet exposures, a variety of
measures indicated below may be adopted:
1. It must be ensured that the security, which is available for funded facilities, also
covers non fund based limits. It will also be appropriate to extend the charge over
the fixed assets as well, especially in the case of long-tenure facilities.
2. In the case of guarantees covering contracts, it must be evaluated and ensured that
the clients have the requisite technical skills and experience to execute the
contracts. The value of the contracts must be determined on a case-to-case basis,
and separate limits should be set up for each contract. The progress vis--vis
physical and financial indicators should be monitored regularly, and any slippages
should be highlighted in the credit review.
3. The strategy to sanction non-funded facilities with a view to increasing earnings
should be properly balanced considering the risk involved and is to be extended
only after a thorough assessment of credit risk is undertaken. In other words risk
return trade-off needs to be assessed properly.
3. Bank Guarantee
Bank guarantee is a guarantee given by the bank to a third person, to pay him a
certain sum on behalf of its customer, on the customer failing to fulfill any
contractual or legal obligations towards the third person.
3.1. Types of Guarantees
Bank Guarantees can be classified by the nature of the underlying contract entered into
by the customer. There are various types of guarantees the important ones which are
normally required to be issued are as follows: -
1. Financial Guarantee
2. Performance Guarantee
3. Deferred Payment Guarantee
________________________________________________________________ Loan Policy
143
3.2 Guidelines on issuing guarantees
3.2.1. Precautions to be taken:
Bank shall observe following precautions while issuing guarantees on behalf of the
customers.
i. As a rule, bank shall avoid giving unsecured guarantees in large amounts and for
long-terms and shall avoid undue concentration of such unsecured guarantee
commitments to particular groups of customers and/or traders.
ii Unsecured guarantees on account of any individual constituent shall be limited to a
reasonable proportion of the banks total unsecured guarantees. Guarantees on
behalf of an individual shall also bear a reasonable proportion to the constituents
equity/worth.
iii In exceptional cases, banks may give deferred payment guarantees on an unsecured
basis for modest amounts to high net worth customers with sound financials who
have entered into deferred payment arrangements in consonance with Government
Policy/ RBI Guidelines.
iv Guarantees executed on behalf of any individual constituent or a group of
constituents, shall be subject to the prescribed exposure norms.
It is essential to realise that guarantees contain inherent risks and that it would not be
in the banks interest or in the public interest, generally, to encourage parties to over-
extend their commitments and embark upon enterprises solely relying on the easy
availability of guarantee facilities.
3.2.2 Other precautions to be taken while issuing & averting frauds
While issuing guarantees on behalf of customers, the following safeguards shall be
observed:
(i) At the time of issuing financial guarantees, it should be satisfied that the customer
would be in a position to reimburse the bank in case the bank is required to make
payment under the guarantee.
(ii) In the case of performance guarantee, bank shall exercise due caution and have
sufficient experience with the customer to satisfy that the customer has the necessary
experience, capacity and means to perform the obligations under the contract, and is not
likely to commit any default.
(iii) Bank shall, normally, refrain from issuing guarantees on behalf of customers who do
not enjoy regular credit facilities. In exceptional cases when such guarantee facility is
to be considered for constituents who do not enjoy regular credit facilities with us a
proper justification is to be recorded.
________________________________________________________________ Loan Policy
144
(iv) In case of Bid Bond Guarantees, Bank shall ascertain the borrowers ability to execute
the Contract, if awarded, as it will entail requirement of Performance Guarantee.
(v) The purpose of Bank Guarantee should be incidental to the business of the constituent.
(vi) While extending guarantee against export advances, it is to be ensured that there is no
violation of FEMA Regulations and bank is not exposed to various risks. It will be
important to carry out due diligence and verify the track record of exporters to assess
their ability to execute export orders.
(vii) Guarantees to be issued in favour of overseas buyers should be only on account of
bonafide export from India, observing laid down norms.
(viii) Guarantees should not be issued in respect of caution-listed exporters without prior
approval of ECGC / Reserve Bank of India
(ix) Guarantees with Assignment clause are not to be issued at all.
(x) No guarantee should be issued containing, in any form, auto renewal clause as it
would tantamount to issuing guarantee for indefinite period.
(xi) All the Guarantees shall be issued under dual signatures. In case of Guarantees up to
Rs.50,000/- at least one signatory should be a Power of Attorney holder and
Guarantees of Rs.50,000/- and above should be issued under two signatures, by duly
authorized officers holding Power of Attorney.
(xii) In order to facilitate verification of genuineness of guarantees by the beneficiaries, in
case of need, details such as name, designation, Index numbers, issuing branch name
etc, should be incorporated under the signature(s) of official signing the bank
guarantee.
3.3 Guarantees on Behalf of Share and Stock Brokers/ Commodity Brokers
Bank may issue guarantees on behalf of share and stockbrokers in favour of stock
exchanges in lieu of security deposit to the extent it is acceptable in the form of bank
guarantee as laid down by stock exchanges. Bank may also issue guarantees in lieu of
margin requirements as per stock exchange regulations. A minimum margin of 50
percent shall be stipulated while issuing such guarantees. A minimum cash margin of
25 per cent (within the above margin of 50 per cent) shall be maintained in respect of
such guarantees. The above minimum margin of 50 percent and minimum cash margin
requirement of 25 percent (within the margin of 50 percent) will also apply to
guarantees issued on behalf of commodity brokers in favour of the national level
commodity exchanges, viz., National Commodity & Derivatives Exchange (NCDEX),
Multi Commodity Exchange of India Limited (MCX) and National Multi-Commodity
Exchange of India Limited (NMCEIL), in lieu of margin requirements as per the
commodity exchange regulations. Bank shall assess the requirement of each applicant
borrower and observe usual and necessary safeguards including the exposure ceilings.
________________________________________________________________ Loan Policy
145
3.4. Ghosh Committee Recommendations
i. In order to prevent unaccounted issue of guarantee, as well as fake guarantees, bank
guarantees be issued serially numbered.
ii. Bank may while forwarding guarantees caution the beneficiaries that they should, in
their own interest, verify the genuineness of the guarantee with the issuing
Bank/Branch.
3.5. Extension / Renewal / Amendment of Bank Guarantee
If a request is received from the applicant (Banks client) only for extension in the
period of guarantee already issued such requests may be entertained, subject to
satisfactory conduct of the account and provided there is no change in the amount and
other terms and conditions of the guarantee.
The delegated authority, who have sanctioned guarantee limit to the borrower, may
allow renewal/extension or modification of existing guarantee within his delegated
powers subject to compliance of other guidelines on issuance of such guarantee.
However, in case of NPA / SF accounts such request shall be referred to next higher
authority.
3.6. Deferred Payment Guarantee (DPG)
As for Deferred Payment Guarantees in lieu of Term Loans, the limits are to be
considered subject to viability, Debt Equity Ratio, Debt Service Coverage Ratio etc, as
in the case of assessment of term loans and evaluation of cash flows over the period of
guarantee. Further, adequate cash margins shall be insisted for such facilities.
3.7. Payment of invoked guarantees
a) Bank guarantee is an undertaking given by the bank to a third person called the
beneficiary, to pay him a certain sum on behalf of its customer. When the
beneficiary invokes the guarantee and a letter invoking the same is sent in terms
of the bank guarantee, it is obligatory on the bank to make payment to the
beneficiary.
b) Delays on the part of bank in honouring the guarantees when invoked tend to
erode the value of the bank guarantees, the sanctity of the scheme of guarantees.
It also provides an opportunity to the parties to take recourse to courts and
obtain injunction orders. In the case of guarantees in favour of Government
departments, this not only delays the revenue collection efforts but also give an
erroneous impression that bank is working actively in collusion with the parties,
which tarnishes the image of the bank.
c) In the interest of smooth working of the Bank Guarantee Scheme, it is essential
to ensure that there is no discontentment on the part of the beneficiaries more
particularly Government departments regarding its working. It should be
ensured that the guarantees issued are honoured without delay and hesitation
when they are invoked by the beneficiary/Government departments in
________________________________________________________________ Loan Policy
146
accordance with the terms and conditions of the guarantee deed, unless there is
a Court order restraining payment thereon.
d) Whenever guarantees are invoked, payment should be made to the beneficiaries
without delay or demur on the pretext that legal advice or approval from higher
authorities is being obtained.
e) Where guarantees have been issued in favour of Customs and Central Excise
authorities to cover differential duty amounts in connection with interim orders
issued by High Courts, the guarantee amount shall be released immediately
when they are invoked on vacation of the stay orders by Courts. Bank shall not
hold back the amount under any pretext.
f) There are instances where Ministry of Finance has made complaints that some of
the departments such as Department of Revenue, Government of India are
finding it difficult to execute judgments delivered by various Courts in their
favour as banks do not honour their guarantees, unless certified copies of the
Court judgments are made available to them. In this regard, the bank shall
follow the following procedure:
i. Where the bank is a party to the proceedings initiated by Government for
enforcement of the bank guarantee and the case is decided in favour of the
Government by the Court, bank shall not insist on production of certified copy
of the judgment, as the judgment / order is pronounced in open Court in
presence of the parties/ their counsels and the judgment is known to the bank.

ii. In case the bank is not a party to the proceedings, a signed copy of the minutes
of the order certified by the Registrar/ Deputy or Assistant Registrar of the
High Court or the ordinary copy of the judgment / order of the High Court,
duly attested to be true copy by Government Counsel, should be sufficient for
honouring the obligation under guarantee, unless the bank decides to file any
appeal against the order of the High Court.

iii. Bank shall honour the guarantees issued as and when they are invoked in
accordance with the terms and conditions of the guarantee deeds. In case of
any disputes, such honouring can be done under protest, if necessary, and the
matters of dispute pursued separately.
g) As far as possible invoked guarantee shall be honored within 48 hours of
invocation subject to satisfying that the invocation is strictly in conformity with
the terms of guarantee and there is no apparent or valid reason for withholding the
payment.
h) Any decision not to honour the obligation under the guarantee invoked may be
taken after careful consideration, and only in the circumstances where the bank is
satisfied that any such payment to the beneficiary would not be deemed a rightful
payment in accordance with the terms and conditions of the guarantee under the
________________________________________________________________ Loan Policy
147
Indian Contract Act. Under such circumstances, the branch shall furnish full facts
of the case to RO/ZO/Central Office immediately i.e., on the very day with proper
justification.
i) Immediately on receipt of such information the authority concerned shall undertake
careful study of the facts and if it is not satisfied with the decision taken by the
lower authority in withholding the payment, convey its views/decision to the
branch concerned in the matter, so as to avoid any complaint from the beneficiary.
j) In case of any non-payment of guarantee on invocation, in time without proper and
justifiable reason or consent of higher authorities, staff accountability shall be
fixed and the delinquent official shall be liable for stern disciplinary action.
4. Letter of Credit
A letter of credit (LC) is a written and conditional undertaking given by the issuing
bank on behalf of its customer, to the beneficiary that it will pay him the amount
stated in the credit provided documents specified in the letter of credit are drawn and
presented in strict conformity with the terms and conditions of the credit.
4.1 Types of Letter of Credit
Letter of credits are classified into various categories depending upon the nature and
the functions of the credit. Some of these types are as under:-
i. Revocable Letter of credit
ii. Irrevocable letter of credit
iii. Confirmed and unconfirmed letter of credit
iv. Transferable credit
v. Revolving credit
vi. Back to back credit
vii. Stand-by letter of credit.
4.1.a . Bank can consider Automatic Revolving L/C facility with reinstatement clause to
borrowers subject to:
1. The borrower should have a minimum credit rating of CBI-4 (B+)
2. The borrowers should have satisfactory track record.
3. There should not be any outstanding in respect of devolvement of LC in the
account.
4. Requirement should be properly assessed and a maximum outstanding under
such facility at any point of time to be fixed.
5. Reinstatement shall be allowed if it is within overall limit fixed.
6. Facility to be monitored properly.
7. Delegatees in the rank of Dy. General Manager and above are empowered to
consider such facility within their respective delegated lending powers.
Bank normally deals in Inland & Foreign Letters of Credit covering domestic purchase,
Import / Export business of its constituents.
________________________________________________________________ Loan Policy
148
4.2 Guidelines on assessment of LC facility
Letters of Credit limits are sanctioned as part of working capital package, so that
the availability of funds at the time of retirement of bills drawn under LC be
ensured, which is possible only if the working capital requirements and the liquidity
position of the customer have been properly assessed, and arrangements are made
there against.
It needs to be ensured that no double finance is made on the stocks received under
the Letters of Credit (DA).
Letters of credit facility shall be allowed for payment of utility bills like power
bills, fuel expenses also as part of working capital finance.
Letter of credit facility may also be allowed for procurement of capital goods, in
which case the requirement must be considered after ascertaining the source of
finance / proper tie-up for term loan. Margin requirement for such LCs will be the
same as applicable to Term Loan.
No Letter of Credit facility shall be extended to the parties who are not banks
regular constituents.
No bills drawn under Letter of Credit shall be discounted for beneficiaries who are
not regular customers of the bank.
In case of import LCs for import of goods, branches should be very vigilant while
making payment to the overseas suppliers on the basis of shipping documents.
Payments shall be released only after ensuring and satisfying that the documents are
strictly in conformity with the terms of LC.
LC transactions should be properly recorded in the books at branch level.
Bank will not open / negotiate LCs bearing without recourse clause.
4.2.1 Import (foreign) Letter of credit
The Opening of Import L/C involves compliance of:
a. Trade control requirement
b. Exchange control requirement
c. Credit norms prescribed by RBI
d. FEDAI and UCP ICC 600 guidelines
e. Internal procedures
4.2.2 Trade control requirements
Trade control lays down the policy and regulations relating to physical movement of
goods into India, therefore a person who wishes to open an import letter of credit
must have the basic authorization for import of goods.
The applicant must possess an Importer Exporter Code Numbers (IEC) allotted by
DGFT (unless they belong to an exempted category). If import is covered under
license the importer must submit exchange control copy of the same.
The opening of letter of credit automatically falls under the purview of exchange
control and payment authorized or committed under the letter of credit must be
within the scope of exchange control guidelines.
________________________________________________________________ Loan Policy
149
As per extant guidelines, AD may freely open letter of credit and allow remittances
for import of goods permitted under OGL.
4.3 OTHER GUIDELINES
Opening of Revolving Letter of Credit against import of goods into India can be
allowed in exceptional cases with adequate safeguards/conditions particularly with
reference to aggregate drawings under such Letter of Credits and shipment dates
etc.
Opening of Deferred Payment Letter of Credit, where remittances against imports
are to be completed beyond 3 years and above from the date of shipment requires
prior approval from Reserve Bank of India.
Issuing guarantees for import remittances require Reserve Banks specific approval.
Standby credits for a period less than 3 years can be approved by the Authorised
Dealer (AD).
AD can open Letter of Credit and allow remittances on behalf of EOUs, and SEZ in
the Gem & Jewellery sector and nominated agencies, for direct import of gold,
subject to compliance with conditions stipulated by RBI on Import of goods and
services.
AD may open Standby Letter of Credit (SBLC), for import of gold / other purposes
on loan basis, wherever required, as per FEDAI guidelines dated April 1, 2003 or as
per directions of RBI issued from time to time. The tenor of the SBLC should be in
line with the tenor of the gold loan.
4.3.1 FEDAI and UCP ICC 600 Guidelines
Import letter of credit being one of the important areas of Forex operations, fall within
the scope of FEDAI guidelines. In 1984, on the eve of introduction of 1983 Revision
of UCPDC, FEDAI issued detailed guidelines for the opening of Import letters of
Credit by banks in India. Standard formats of credit application and letter of credit to
be opened by banks have been circulated for the information and adoption. With a few
modifications/additions these guidelines are still in vogue and are to be followed by
the authorized branches.
4.3.2 Internal Procedures
Under the instructions of Reserve Bank of India, International Division, Central Office
is issuing guidelines, covering various forex areas of operation for the guidance of
staff working at various levels. Operational instructions issued from time to time in
this regard shall be adhered to.
4.4 Inland Letter of Credit
The procedure for opening the Inland Letter of Credit is similar to that for opening
import letter of credit except that of exchange control and trade control regulations.
________________________________________________________________ Loan Policy
150
Inland letter of credit transactions are also guided by UCPDC ICC 600 guidelines.
Internal Guidelines by way of instructions/circulars are being issued from time to time.
General guidelines to be followed while opening of LC
i. While opening an L/C, it should be ensured that the applicant would be able to
retire the bills under the L/C from its own source without resorting to any adhoc-
funded facility. Cash flows to be obtained and analysed properly to satisfy the
capability of the constituent to honour commitment under LC.
ii. Appropriate cash margins should be stipulated and obtained before opening of
LC.
iii. Care should be taken to ensure that no finance is allowed against the stocks
received under usance LC, which is still outstanding. Such goods should however,
be charged / hypothecated to the bank and shown in the periodical stock
statements being submitted by the borrowers. However, the value of stocks under
LC should be separately shown by way of footnote, and these stocks should be
excluded for the purpose of calculating drawing power.
iv. Limits sanctioned under DP basis cannot be converted to DA basis without the
permission of sanctioning authority. However, conversion of DA limits to DP LC
limits can be considered on case-to-case basis.
4.4.1 Other precautions
Interchangeability between guarantees and LCs
While interchangeability between guarantee facility and LC facility is permissible
subject to approval of sanctioning authority, automatic interchangeability between
all types of guarantee facilities and LC facilities should not be allowed.
Precautions for tie-up of funds required for LC for import / purchase of capital
goods :
LC facility for purchase of capital goods may be considered on case-to-case basis to
cover specific capex programme and not as a regular facility.
LC limit sanctioned for acquiring raw material/inventory should not be allowed for
acquiring capital assets.
Any request/proposal for issuance of Stand-by Letter of Credit shall be referred to
Central Office and decision in this regard shall be taken by appropriate authority at
Central Office within their respective delegated lending powers.
4.4.2 Procedure to be adopted in case of devolvement of LC
a) In case of devolvement the branch should arrange to honour commitment under
LC by debiting regular operating account of the party.
________________________________________________________________ Loan Policy
151
b) In case, if it is not possible to debit the principal operating account for want of
sufficient balance or DP, the amount may be debited to a nominal account.
c) However, for deciding the status of the account as to whether the account is
regular or out of order, aggregate balance outstanding in the principal operating
account and amount debited in nominal ledger on account of devolvement should
be taken into account.
d) Steps should be taken to pursue the borrower to adjust the outstanding under
devolved LC immediately.
e) As far as possible fresh LCs should not be opened till the devolved amount is fully
adjusted. However, in deserving cases fresh LCs can be opened taking into
account, the past experience, financial strength, security available etc.
f) LC limit to the extent of devolvement to be kept in abeyance till the same is
adjusted.
g) The account should be closely monitored and documents should be scrutinized to
ensure its validity and enforceability. Regular inspection of the unit and securities
charged to the bank should be carried out.
h) Additional interest at 2% over the ROI applicable to working capital facility to be
charged on devolved amount in case of inland bill and @ ECNOS in case of
foreign bill.
i) Incase of frequent devolvement review of the account should be undertaken
immediately and appropriate action deem necessary may be initiated.
j) However, in case of genuine difficulties appropriate tagging (cut back)
arrangement may also be worked out to adjust the dues under devolved LC.
5. Common Guidelines for Bank Guarantees and Letters of Credit
5.1 Total off Balance Sheet Exposure Limit
Bank will restrict its total off balance sheet exposure on account of LCs, guarantees etc.
to total of its funded credit exposures as on the last Friday of the previous quarter. In
other words Banks total off balance sheet exposure on account of LCs, guarantees etc.
shall not exceed its total funded credit exposure on the last Friday of the previous
quarter. This exposure will be monitored post-facto periodically.
5.2 Prudential Exposure Limit for Off- Balance Sheet items
In the light of RBIs advice on risk management and avoidance of concentration of
credit risks, bank has fixed limits on the exposure to 1) single/group borrowers 2)
Industry wise 3) Unsecured exposure.

The guidelines as specified in the Loan Policy from time to time are applicable in
respect of following:
1. Cap on Exposures to individual borrowers such as Corporate and Non-Corporate
entities.
2. Exposure ceilings Industry wise.
3. Exposure ceilings Secured / Unsecured.
________________________________________________________________ Loan Policy
152
5.3 Issuance of Guarantee/s and Letter of Credit/s against earmarking of limits with
other Banks and comfort letters issued by such banks
In consortium accounts where the funded and non-funded facilities are apportioned
among the various participating banks as per the sharing pattern, the constituents often
approach for opening of L/Cs and issuance of guarantees much in excess of sanctioned
limits with the Bank. Such requests may be entertained for approved purposes provided
the excess portion is earmarked in the other banks sanctioned limit and against receipt
of appropriate comfort letter/s from such banks, duly signed by their competent
authorities. This will however be subject to prior approval from the appropriate
sanctioning authority.
5.4 Margin
Based on the value, relationship, financial standing of the borrower and securities
available, the cash margin for bank Guarantee and Letter of Credit facilities may be
prescribed.
5.4.1 Letter of Credit (DP / DA)
i) LC on DP basis: Normally to be sanctioned with a cash margin of 10% and above
by respective authorities up to the rank of Zonal Managers within their lending
powers. Any proposal with lesser cash margin to be referred to next higher
authority.
ii) LC on DA basis: Normally to be sanctioned with a cash margin of 25% and above
by respective delegatees up to the rank of Zonal Managers within their lending
powers.
iii) Zonal Managers including DGM CFB Mumbai may consider need based DA-LC
limits with a margin of 10% and above and DP-LC limit with NIL margin on
merits of the case, provided LCs are opened for reputed / established parties of the
bank. Any sanction with lesser margin than 10% in case of DA-LC limits is to be
referred to Central Office and the same may be considered by the sanctioning
authority at the level of GM and above within their delegated powers.

5.4.2 NFB facilities with 100% Cash Margin: Cash Margin includes amount kept in the
Nominal account and / or in the term deposits of the bank under lien. Full powers to
all delegatees for sanctioning non-fund based facilities secured by full cash margin
subject to compliance of KYC norms, as under:
L/Gs with 100% cash margin/ term deposits under lien.
L/Cs Inland L/C - 100% Cash Margin/ Term deposit under lien
Import L/C -100% Cash Margin/Term Deposit under lien.

Bank may consider issue of L/C facility with less than 100% margin at the time
of issue subject to the following;
1. The borrower should have a minimum credit rating of CBI-4 (B+)
2. The borrower should have satisfactory track record.
3. There should not be any outstanding in respect of devolvement of LC in
the account.
________________________________________________________________ Loan Policy
153
4. The margin amount kept under deposit shall be a discounted value which
would become equivalent to 100% of the L/C at the time of maturity of the
L/C
5. Only ED/CMD are empowered to consider such requests.
5.4.3 Letter of Guarantee fully secured by other securities:-
This includes the L/Gs: -
a. Partly secured with cash margin and partly secured with other securities such as
mortgage on immovable properties / assets and / or first charge on fixed and
current assets.
b. Fully secured by mortgage on immoveable properties assets and / or first charge
on fixed and current assets.
c. Normally, Guarantee limit should be sanctioned with minimum Cash Margin of
25% or more by the respective delegatee up to Scale V within their lending
powers. ZMs/ Regional Manager (in Scale VI & above) may sanction Bank
Guarantee facility with minimum Cash Margin of 10%. Any proposal with
lesser Margin should be referred to Central Office. Delegatees may consider
proposals for Bank Guarantee facility within their respective delegated powers
under the Loan Policy.

However, the above provision will not be applicable to i) Banks Financing of Equities
& Investment in Shares (Annexure-8) & Guidelines for Financing Construction
Industry (Annexure 9). Margins stipulated therein for respective category shall be
followed.

5.4.4 Letter Guarantee- Partly Secured or Clean: This includes the L/Gs:
a) Partly secured with cash margin.
b) Partly secured with mortgage on immoveable properties and / or first charge on
fixed and current assets.
c) Letters of Guarantee without any security.

5.4.5 Lending Powers
Lending powers for considering proposal under NFB facilities are as per provisions
contained in annexure 3 of Loan Policy.

5.4.6 Powers for issuance of Bank Guarantee up to 15 years

In case of Guarantees secured by 100% cash margin all delegatees shall be
empowered to issue Bank Guarantees up to a maximum tenor of 15 years subject to
compliance of KYC/ALM & other guidelines on issuance of Guarantee. Following
powers have been delegated for issuance of Guarantees backed by 100% cash margin:

Up to Scale IV: Rs. 5 crore
Scale V: Rs. 20 crore
Scale VI: Rs. 50 crore
Scale VII: Rs.100 crore
ED / CMD: Full Powers

NOTE: Sanctioning powers in case of other than 100% cash margin shall be as per
lending powers delegated as per Annexure 3.
________________________________________________________________ Loan Policy
154

Powers for issuance of Guarantees in case of other than 100% cash margin

Authority With partial Margin
B.M up to Scale-III Two Years
RM / CM-VLB Three Years
AGM (ELB/RO/ZO) Four Years
DGM (ZO) Five Years
G.M. (ZO/CO) Ten Years
ED /CMD Fifteen Years

5.4.7 Please note that no guarantee can be issued for a period beyond 15 years.

5.4.8. Issuance of Guarantee on behalf of Service Importers.
Services import refers to all non-physical imports and includes software or data
through Internet / datacom channels / designs and drawings through e-mails / fax,
consultancy services.
5.4.9. In view of the risk involved in the type of transaction of import of services, issuance
of Guarantee on behalf of service importers should be restricted to first class parties
banking with us for at least last 3 years with proven track record and having credit
risk rating of A and above. Such facility to be sanctioned by the respective
delegated authority and evidence of such imports should be kept on record. Since the
value of services (software etc.) cannot be ascertained with certainty, such guarantee
should be issued with full security cover with minimum cash margin of 25%.

5.4.10. NOTE:
i) In case of issuance of guarantees, counter guarantee to be obtained
invariably and the same is not to be treated as security.
ii) If the guarantee is secured with counter guarantee of another first class
bank or the Government, the Letter of Guarantee is to be treated as fully
secured by other securities.
iii) Guarantees in respect of disputed duty / taxes and disputed litigations like family
disputes, compensation money etc. should be secured by 100% cash margin
without exception, particularly in all cases where the party has preferred an appeal
against the judgment of a court or tribunal. However in exceptional cases reduced
cash margins may be considered by authorities not below the rank of General
Manager including Zonal Managers in the rank of General Manager.
5.5 Security
While in exceptional cases unsecured guarantees can be issued, it is to be
generally endeavoured to get adequate tangible security to cover Bank Guarantee
/ Letter of Credit facilities.
Wherever possible the charge available to Bank on primary / collateral security is
extended to cover Bank Guarantee / Letter of Credit facility also.
________________________________________________________________ Loan Policy
155
5.6 Formats
Guarantees should be issued in the prescribed format and should not contain any
extraneous /onerous clause. Guarantees in any other format can be issued only with due
approval from Legal Department at RO/ZO or alternatively obtaining legal opinion
from a panel advocate in writing.
5.7 Service Charges
The service charges for issuance of Bank Guarantee and Letter of Credit will be as per
the extant guidelines issued from time to time.
5.8 Monitoring
Progress under Non Fund based business shall be placed before the Board periodically.
All devolved bills under LCs and invoked guarantees should be reported at periodic
intervals to respective controlling offices as per extant guidelines.

----------------------
________________________________________________________________ Loan Policy
156
ANNEXURE
Revised Model Form of Bank Guarantee Bond
GUARANTEE BOND
1. In consideration of the President of India (hereinafter called 'the Government') having
agreed to exempt _______________________________ [hereinafter called 'the said
Contractor(s)'] from the demand, under the terms and conditions of an Agreement dated
_________________________ made between
_______________________________________________________________ and
___________________________________for_____________ (hereinafter called 'the said
Agreement'), of security deposit for the due fulfillment by the said Contractor(s) of the
terms and conditions contained in the said Agreement, on production of a bank Guarantee
for Rs.__________ (Rupees______________________________________ Only). We,
__________________________________________________________, (hereinafter
referred (indicate the name of the bank) to as 'the Bank') at the request of
_________________________________________________ [contractor(s)] do hereby
undertake to pay to the Government an amount not exceeding Rs. ______________ against
any loss or damage caused to or suffered or would be caused to or suffered by the
Government by reason of any breach by the said Contractor(s) of any of the terms or
conditions contained in the said Agreement.
2. We _______________________________________________________ (indicate the
name of the bank) do hereby undertake to pay the amounts due and payable under this
guarantee without any demur, merely on a demand from the Government stating that the
amount claimed is due by way of loss or damage caused to or would be caused to or
suffered by the Government by reason of breach by the said contractor(s) of any of the
terms or conditions contained in the said Agreement or by reason of the contractor(s)'
failure to perform the said Agreement. Any such demand made on the bank shall be
conclusive as regards the amount due and payable by the Bank under this guarantee.
However, our liability under this guarantee shall be restricted to an amount not exceeding
Rs. _______________.
3. We undertake to pay to the Government any money so demanded notwithstanding any
dispute or disputes raised by the contractor(s)/supplier(s) in any suit or proceeding pending
before any Court or Tribunal relating thereto our liability under this present being absolute
and unequivocal.
The payment so made by us under this bond shall be a valid discharge of our liability for
payment there under and the contractor(s)/supplier(s) shall have no claim against us for
making such payment.
________________________________________________________________ Loan Policy
157

4.We,________________________________________________________________
(indicate the name of bank) further agree that the guarantee herein contained shall remain
in full force and effect during the period that would be taken for the performance of the
said Agreement and that it shall continue to be enforceable till all the dues of the
Government under or by virtue of the said Agreement have been fully paid and its claims
satisfied or discharged or till ____________________________________________
Office/Department/Ministry of ________________________________ certifies that the
terms and conditions of the said Agreement have been fully and properly carried out by the
said contractor(s) and accordingly discharges this guarantee. Unless a demand or claim
under this guarantee is made on us in writing on or before the
_______________________________ we shall be discharged from all liability under this
guarantee thereafter.
5. We, _______________________________________________ (indicate the name of
bank) further agree with the Government that the Government shall have the fullest liberty
without our consent and without affecting in any manner our obligations hereunder to vary
any of the terms and conditions of the said Agreement or to extend time of performance by
the said contractor(s) from time to time or to postpone for any time or from time to time
any of the powers exercisable by the Government against the said Contractor(s) and to
forbear or enforce any of the terms and conditions relating to the said agreement and we
shall not be relieved from our liability by reason of any such variation, or extension being
granted to the said Contractor(s) or for any forbearance, act or omission on the part of the
Government or any indulgence by the Government to the said Contractor(s) or by any such
matter or thing whatsoever which under the law relating to sureties would, but for this
provision, have effect of so relieving us.
6. This guarantee will not be discharged due to the change in the constitution of the Bank
or the Contractor(s)/Supplier(s).
7. We, ________________________________________ (indicate the name of bank)
lastly undertake not to revoke this guarantee during its currency except with the previous
consent of the Government in writing.
8. Dated the ____________ day of ___________ _____ for
______________________________ (indicate the name of the Bank).

(NOTE: Usual notwithstanding clause should also be incorporated)
________________________________________________________________ Loan Policy
158
ANNEXURE - 22

POLICY ON EXTENDING FINANCE TO GEMS & JEWELLERY INDUSTRY

1. The Indian Gems & Jewelry Sector is dominated by the diamond cutting and polishing
activity. The Industry holds an important position in the Indian economy and is one of
the largest foreign exchange earners, with exports of US$ 20.8 billion in the year 2007-
08. Diamond exports accounted for 68% of total gems & jewellery exports in 2007-08.
India is considered as the world leader in the area of diamond cutting & polishing
activity and has provided the world some of the most rarest & mystic diamonds.
Percentage of diamond exports in total exports has been declining over the years. The
Indian Diamond Industry, however, is not an exception to the emerging global scenario
where new market is emerging and old players are receiving threats from the new
entrants.

Gems and jewellery is exported to various countries, with the main consumer
countries being US, Belgium, Hong Kong, Japan and Israel. The global economic
scenario and the consumer spending in key countries have an impact on the demand
for gems and jewelry. US accounts for around 36% of Indias export.

The main raw materials used are rough diamonds, recycled gold and gold bars
which accounts for more than 65% of the total import cost.

The industry relies heavily on imports, which makes it vulnerable to currency
fluctuations.

The increase in prices of rough diamonds was more than the increase in prices of
cut and polished diamonds, squeezing the margins of players. The industry is rated
unfavourable on in-put related risk factors, due to controlled availability of rough
diamonds and presence of limited suppliers.

The Indian gems & jewellery industry is highly fragmented and largely dominated
by the unorganised sector as it is not capital intensive. Family business houses
account for 96 percent of the overall domestic market. Gujarat accounts for an
estimated 80 per cent of jewellery market.

A large number of the gems and jewellery units in the country have a poor credit
profile due to low profitability and high gearing. Most companies depend heavily
on bank borrowings to fund working capital and expansions, resulting in high
interest burden and lower profitability.

The global financial crisis has negatively impacted the sector leading to moderation
in demand during last one year.

2. Government Policies to support the industry

The Government has identified the gems and jewellery segment as a focus sector for
exports in the Foreign Trade Policy 2004-09. Import duty and excise duty on rough and
coloured stones has been withdrawn. The Government has also done away with the need
for a replenishment or diamond imports license to make it easier to import rough
________________________________________________________________ Loan Policy
159
diamonds. Customs duty on rough corals has been reduced to 5%. Gold imports of 18
carat and above, are being approved under the replenishment scheme. The industry has
been allowed 51 per cent FDI by the Government in single brand retail stores. Cutting
and polishing gems and jewellery is treated as a manufacturing activity for exemption
under Section 10A of the Income Tax ACT. FDI up to 100 per cent is permitted in the
gems and jewellery sector through the automatic route. Imports of polished diamonds
have been made completely duty free.

Banks present exposure to Gems & Jewellery industry is less than 1% of Gross
Advances. Keeping in view the present scenario of the industry, Governments
endeavour to support the export oriented sector and to guide the field level functionaries
to take appropriate decision while considering proposals, broad Policy guidelines on
financing to Gems & Jewelry industry have been formulated.

GUIDELINES ON FINANCING GEMS & JEWELLERY INDUSTRY

1. PURPOSE:A] Import of Rough Diamonds, Precious/Semi precious stones, Gold
and other precious metals.
B] Export of Diamonds, Diamond & precious stones studded
Jewellery.
2. ELIGIBILITY:
Manufacturer and exporter of Diamond or Diamond Studded Jewelries
including jewelry studded with other precious/semi precious stones.

Minimum 3 Years of experience in this field.

3. CAP ON AGGREGATE AMOUNT OF EXPOSURE (FUNDED & NON-FUNDED):
(Rs.in crore)
Particulars Limited Partnership Proprietorship
Company Existing New A/c Existing New
A/c
DTC Sight-holder-having
manufacturing set up
100 50 20 20 10
Non-DTC sight-holder
having manufacturing set
up
40 25 15 15 7
Others 25 20 10 10 5
DTC: Diamond Trading Company, the marketing arm of M/s.De Beers.

Foreign Currency Loan within aggregate sanctioned limit may be provided
subject to availability of foreign currency funds with the bank.

The Chairman & Managing Director / Executive Director may consider taking
higher exposure than the above mentioned ceiling provided the aggregate
exposure does not exceed the prudential exposure limits.

________________________________________________________________ Loan Policy
160

4. RISK RATING REQUIREMENTS
Credit Risk rating in all the accounts having limit of Rs.1.50 crore and above is
must. However, applicable rate of interest will be as per the rates communicated by
International Division, Central Office from time to time.

Risk hurdle rates for taking exposures

I) In case of new accounts the financial and overall rating should be minimum
CBI-6.
II) In case of enhancement in limits in existing account, minimum financial
rating should be CBI-6 and overall rating should be minimum CBI-7.
III) In case of any deviation, next higher authority not below the rank of General
Manager can approve the proposal.

5. NATURE OF FACILITY

FUND BASED FACILITY:
Pre-shipment: In the form of Packing Credit (PC)
PC can be permitted on running account basis. Such facility can be permitted
by an officer not below the rank of AGM.
Post-shipment: EBN/EBP or Advance against Bills sent for collection.
Advance against any export Incentive/ Subsidy receivable.

NON-FUND BASED FACILITY:

Letter of Credit
Letter of Guarantee

6. INTERCHANGEABILITY:

From PSC to PC:
Interchangeability from PSC to PC to a maximum extent of 30% of the aggregate
limits may be allowed on case to case basis.

From PC to PSC: 100% of PC limit.
(PC should be liquidated immediately on submission of relevant bills).

7. MARGIN

I. 25% on stocks meant for export. Delegatees not below the rank of DGM may
consider the proposal with margin below 25% but not below 10%.

II. 10% on Export Bills Discounted (DA) / Bills sent for collection. Delegatees not
below the rank of DGM may consider the proposals with NIL margins for
reputed parties with satisfactory track record.

III. Nil in case of EBP (DP) and EBN.

________________________________________________________________ Loan Policy
161
PRIMRY SECURITY

a) Hypothecation of current assets such as Stock of Rough, Cut & Polished
Diamonds, precious / semi precious stones & Metals and jewellery.

b) Hypothecation of Receivables.

c) In case of PSC: Documentary export bills (Documents: Invoices & documents
as stipulated in the LC / Firm Export orders).

d) Hypothecation of Plant & Machinery wherever applicable.

8. COLLATERAL SECURITY

A] For Existing Accounts:

i) In case of existing accounts the present arrangement will continue.
However, wherever possible the Bank will explore the possibility of taking
additional security as and when it is deemed necessary.

ii) In case of Consortium / Multiple Finance, decision of the consortium / other
banks or FIs in multiple finance may be followed.

B] For New Accounts:

i) In case the Bank is a sole banker, Value of collateral Security as percentage
to loan amount should not be below 20% in case of DTC Sight Holders and
30% in case of Non DTC Sight Holders.

ii) In case of fresh entry into Consortium / Multiple Finance, the Bank will fall
in line with the decision of the consortium / other lead lenders.

9. ECGC / INSURANCE COVER

The pre-shipment / post-shipment credit facilities will be covered under scheme of
ECGC Ltd., i.e.,
i) Export Credit Insurance Cover for Banks
- (Packing Credit Whole Turnover)
ii) Export Credit Insurance Cover for Banks
- (Post-Shipment Whole Turnover)
iii) Buyer wise insurance cover of ECGC
- Delegatee not below the rank of DGM may permit exemption from
buyer wise ECGC cover only in deserving cases.

10. RATE OF INTEREST

Though Credit Risk Rating shall be carried out in every account, applicable Rate of
Interest shall be as per the instructions given by International Division, Central
Office from time to time.
________________________________________________________________ Loan Policy
162

11. COMMISSION & OTHER CHARGES

Exchange Charge/Other Service or Handling charges shall be levied as per FEDAI
Rules & Central Office instructions from time to time.

12. AD-HOC LIMIT

Ad-hoc limit in genuine cases (for a maximum period of 90 days) may be
sanctioned to the extent of 10% of the sanctioned limit or as per the powers
delegated vide Annexure 3 of Loan Policy. The Ad-hoc limit, if sanctioned, will
be reported to next higher authority as per the provisions contained in Loan Policy.
The delegatees not below the rank of Chief Manager can consider ad-hoc proposals.

13. FIXATION OF SUB-LIMITS FOR FINANCING BILLS TO ASSOCIATES

Financing Bills to associates: Max. 30% of total PSC limit.

Direct Bills: Max. 30% of total PSC limit, out of which, limit to the extent of
25% of PSC limit may be drawn on associates.
More than 25% of the total PSC limit should not be drawn in favour of single
Buyer.
Credit report on Buyers from Dun & Bradstreet / ECGC and track record of
associates should be obtained and scrutinized.

14. USANCE PERIOD OF DA BILLS

Normally 120 days to 180 days may be permitted depending on the requirement of
the borrower. Transit period as per rules may also be allowed. In case of need,
extension beyond 180 days may be considered at the request of the party. However,
such cases shall be referred to Central Office and extensions shall be permitted by
CACB/CMD / ED.

15. STOCK AUDIT / SUBMISSION OF STOCK STATEMENT

Considering the nature of the inventory and complexity in valuation of stocks,
Stock Audit may not be insisted upon. However, Bank may insist for Stock
Audit when negative features (Early warning signals) surface in the account.

Stock Statement must be submitted within the stipulated time frame. Non-
submission or delayed submission will attract penal interest @ 1% of the entire
outstanding under relevant facility.
________________________________________________________________ Loan Policy
163

16. VISITS, FOLLOWUP & MONITORING

The Branch official will carry out inspection of the factory / show room at least
once in a quarter or as per sanction stipulations. The discrepancies observed (if
any) should be immediately pointed out and steps should be initiated to rectify
it. The visits should be made at shorter intervals if conduct of the account is not
satisfactory particularly in respect of persistent overdues in the account, interest
not being serviced in time, bills remaining overdue or returned unpaid etc.

The Monitoring Statements, as applicable should be submitted on regular basis
to Credit Monitoring Department, Central Office.

17. GENERAL

Credit reports on borrowers clients shall be obtained from Dun & Bradstreet,
ECGC or any other approved agency
Any deviation / exemption from the norms / benchmark level mentioned in this
document shall be permitted only sparingly, in genuine and exceptional cases on
account of emergent business compulsions. The authority to permit such
deviations shall vest with the Chairman & Managing Director / Executive
Director.
The Policy will be reviewed periodically.
All other general guidelines contained in the Loan Policy shall also be adhered
to.
The Branches / Offices are advised to take careful note of above guidelines and
meticulously adhere to the same.
_____________
________________________________________________________________ Loan Policy
164
ANNEXURE 23

Financing of Micro Finance Companies

1. Micro Finance Companies are playing a vital role in financial inclusion and
extending credit to weaker section of the society.

2. There is perceptible growth of such MFCs in the country.

3. MFCs are fulfilling the social obligation by making the poorest of the poor to earn
their livelihood and improve their standard of living and also making them self
reliant.

4. MFCs are being established by reputed & eminent personalities working in social
sector.

5. It is also observed that recovery performance of MFCs is much better than other
NBFCs & lending agencies.

6. There is good scope and opportunity for the banks to extend credit to MFCs and
to participate in the noble service being rendered by the MFCs.

7. Though Financials of such MFCs may not be up to the desired levels, they are
being run very efficiently by the promoters.

8. Therefore, while considering the proposal of MFCs, Bank shall take a liberalized
approach.

a) Promoters background, their standing and experience in the line will be given
more credence.
b) Credit rating by external rating agency viz, SMERA shall be taken in to
account for considering the proposal.
c) Bank can consider relaxation in ratios subject to compliance with RBIs
prudential norms.
d) In case of MFCs enjoying facilities under multiple banking or syndication,
Bank shall fall in line with the terms offered by major banks/ lending
Institutes.
________________________________________________________________ Loan Policy
165
Micro Finance Institutions (MFI)

In terms of guidelines of RBI/2011-12/107 RPCD.CO.Plan.BC 10/04.09.01/2011-12,
July 1, 2011, the 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 categorization 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 installments at the choice
of the borrower.

Further, the banks have to ensure that MFIs comply with the following caps on margin
and interest rate as also other pricing guidelines, to be eligible to classify these loans as
priority sector loans:

(a) Margin cap at 12% for all MFIs. The interest cost is to be calculated on average
fortnightly balances of outstanding borrowings and interest income is to be calculated on
average fortnightly balances of outstanding loan portfolio of qualifying assets.
(b) Interest cap on individual loans at 26% per annum for all MFIs to be calculated on a
reducing balance basis.
(c) Only three components are to be included in pricing of loans viz., (a) a processing fee
not exceeding 1% of the gross loan amount, (b) the interest charge and (c) the insurance
premium.

(d) The processing fee is not to be included in the margin cap or the interest cap of 26%.
________________________________________________________________ Loan Policy
166
(e) Only the actual cost of insurance i.e. actual cost of group insurance for life, health
and livestock for borrower and spouse can be recovered; administrative charges maybe
recovered as per IRDA guidelines.
(f) There should not be any penalty for delayed payment.

(g) No Security Deposit/ Margin are to be taken.

The banks should obtain from MFI, at the end of each quarter, a Chartered
Accountants Certificate stating, inter-alia, that (i) 85% of total assets of the MFI are in
the nature of qualifying assets, (ii) the aggregate amount of loan, extended for income
generation activity, is not less than 75% of the total loans given by the MFIs, and (iii)
pricing guidelines are followed.

________________________________________________________________ Loan Policy
167
ANNEXURE 24
Guidelines on Ad hoc sanctions And Takeover Norms

A. Ad-hoc facility

The extant Loan Policy provides guidelines on allowing Ad-hoc facility. The gist of
provisions is as under:

1. Discretionary Powers / Ad-hoc sanctions are meant to be exercised for permitting excess
drawings for urgent and purely temporary business requirements and shall not be used for
granting any advance on a regular basis.

2. Request for Ad-hoc facility shall be considered normally to meet emergent additional
requirement of working capital for:
a. Executing Bunched up orders
b. Procurement of Raw Materials
c. Temporary Cash flow mismatch
d. Executing new orders not envisaged while sanctioning regular limits.

3. Eligibility criteria for Ad-hoc facility

a. The account should be classified as standard asset for the preceding two years.

b. In case of Consortium/Multiple/Syndication, the account should be standard asset
with all the banks.

c. All the terms of last sanction should have been fully complied with.

d. The account should not be overdue for review / renewal by more than three
months.

e. Operations in the subject account & other group accounts with the bank should
be satisfactory and there are no overdues.

f. Actual performance of the company is in tune with the projections.

g. No adhoc is permissible where inspection is not carried out in the last three
months.

h. No adhoc is permissible within three months from the date of renewal / review /
fresh sanctions.

i. No adhoc to be considered merely in lieu of any collateral security offered.

4. Quantum of Ad-hoc & Powers Delegated

- For delegatees in the rank of Chief Managers and above - Maximum 15% of regular
sanctioned limits or lending powers delegated to each delegatee, whichever is lower.
However, CACB/ ED/CMD shall not have any restrictions as to percentage of
sanctioned limits.

- For delegatees/Branch Managers in the rank of Scale III and below 10% of regular
sanctioned limits or delegated lending powers, whichever is lower.

________________________________________________________________ Loan Policy
168
- To amplify further, any adhoc including regular limit should not exceed respective
lending powers. In other words, delegatees other than CACB/CMD/ EDs can
exercise Adhoc discretionary powers in the accounts falling within their respective
delegated powers only and not in accounts sanctioned by higher authorities. Further,
the delegatees should also take into account relativity factor as detailed in para 9.7 of
Annexure-24 to Loan Policy.

5. Ad-hocs are restricted to facility wise sanctioned limits under each facility such as CC, OD,
LC, BG etc.

6. CMD and in absence of CMD, EDs are empowered to consider ad-hocs in accounts falling
under the powers of CACB/Management Committee of the Board.

7. Ad-hocs can be permitted for a maximum period of 90 days.

8. All ad-hocs sanctioned by the delegatees shall be reported to the next higher authority by
way of Control Returns or monthly reporting system. If CACB sanctioned Adhoc if any,
then it shall be reported to MCB.

Of late it is observed that adhocs are being allowed without proper justification and
often continued beyond the period of sanction and in some cases, it is being
recommended to absorb in proposed enhancement. In view of the adverse reports on
allowing adhocs, received at Central Office and to streamline the system of
sanctioning adhocs, it is proposed to form committees at ZOs, ROs, VLBs & ELBs
to consider any request for adhoc from the branches under their control.

The committee at Zonal Office shall comprise of Zonal Manager, AGM and Chief
Manager (OPR). At Regional Office, the committee shall comprise of Regional
Manager, Chief Manager, Senior Manager (OPR) or Asstt. Regional Manager. At
VLBs & ELBs it shall comprise of AGM or Chief Manager, Senior Manager (OPR)
and Manager (CR/OPR). Minimum members required to fulfill the quorum will be
three.

On receipt of request from branches for adhoc facility, the committee will examine
the proposal and after satisfying itself about the eligibility & compliance with the
Loan Policy stipulations, convey its decision.

In terms of Mitra Committee recommendation, it would be the responsibility of each
sanctioning authority to build up necessary data on adhoc sanctions. Accordingly,
Regional Offices and Zonal Offices shall build up data on ad hoc limits allowed
within their delegated powers and shall ensure that adhoc allowed is liquidated within
the stipulated time period.
9. Other conditions
9.1 Borrowal accounts should have been reviewed at regular interval and under no
circumstances Adhoc should be allowed in the accounts where Short Review has been
carried out.

9.2 Drawing Power should be available to cover the entire exposure including Adhoc.

9.3 All existing terms and conditions as to margin, security shall be applicable unless specific
terms are stipulated for the Adhoc facility by the sanctioning authority.

________________________________________________________________ Loan Policy
169
9.4 No adhoc facility should be allowed / discretionary power to be exercised in the accounts
where inspection has not been conducted in the last three months.

9.5 Any ad hoc in accounts not satisfying the conditions as mentioned herein above and in
NPA accounts, may be permitted by the Zonal Manager not below the rank of DGM, in
accounts falling under the delegated powers of the delegatee up to one stage below
him/her. Accordingly any adhoc in the accounts falling under the delegated powers of the
Zonal Managers in the rank of AGM / DGM will be considered by the General Manager
(Credit) at Central Office and those falling under the powers of Zonal Managers in the
rank of General Managers will be considered by Executive Director / Chairman and
Managing Director.

9.6 The Adhoc facilities sanctioned shall attract 2% additional interest over and above the
rate applicable for the regular facility.

9.7 While calculating the admissible amount under ad hoc / discretionary powers, Relativity
Factor should be taken into account, i.e. these powers are to be exercised for fund based
and non-fund based limits and facility wise separately excluding term loan, deferred
payment guarantee and other one shot transactions, (in other words, ad hoc may be allowed
up to 10% /15% of the sanctioned limit in each facility (CC, OD, LC. BG etc) but not in
cases of TL, DPG, and other one shot transactions.

9.8 The excess drawings shall be permitted for a maximum period of 90 days for borrowal
accounts classified as Standard Asset. It shall be the responsibility of the sanctioning
/recommending authority to get the ad hoc amount adjusted in time.

Allowing drawals against instruments presented in clearing:

10. Considering the operational difficulties and to help the reputed customers, some discretionary
powers have also been granted to various delegatees for granting advances against uncleared
effects on instruments presented in clearing as detailed below:
Rs in Lakhs
Delegatee

(1)
Against
Cheques in
Clg
(2)
Against DDs / Bankers Cheque in
clearing or advance against collection.
(3)
i) Branch Manager Scale I -- 50% of the value or 5 lakhs which ever
is less.
ii) Branch ManagerScale II 3.00 50% of the value or Rs.20 lakhs which
ever is less.
iii)Branch ManagerScale III 5.00 100% of the value or Rs.30 lakhs which
ever is less.
iv) Chief Manager / Regional Manager 6.00 100% of the value or Rs.50 lakhs which
ever is less.
v)Asstt.Gen.Manager (ELB / RO / ZO)

10.00 100% of the value or Rs.100 lakhs
which ever is less.
vi) Deputy General Manager 20.00 100% of the value or Rs.200 lakhs
which ever is less
vii) General Manager 200.00 400.00
viii) Executive Director 800 1600
ix) Chairman and Managing Director 1200 2200
x) CACB 40000.00 40000.00

________________________________________________________________ Loan Policy
170

11. Exercise of above mentioned powers are subject to fulfilling following conditions:

a. Account should be Standard asset during preceding two years.
b. In case of current accounts average balance in the a/c should be Rs.1 lac.
c. Such drawings may be permitted against express request from the party undertaking to
repay the amount immediately in case of any eventuality leading to bounding of
instrument.
d. Clearing returns are less than 10% (in value and also incidence).
e. No drawals shall be allowed against uncleared effects of instruments presented in HIGH
VALUE clearing, wherever such High Value Clearing is in operation.

12. a) No drawings to be allowed against cheque drawn by associate concerns or drawn by
borrower/customer himself except where specific limits are sanctioned by competent
authority.
b) No drawings to be allowed on cheques drawn on Co-operative Banks.
c) If there are frequent requests for such facility reason thereof should be ascertained and in
case enjoying a credit limit, total review of the account should be taken up.

Note: The total drawings allowed under column (2) and (3) should not exceed the amount given in
column (3). Branches should charge interest as per Central Office circulars for such
drawings. Such exercise of discretion should be immediately reported to the next higher
authority.

Branch Managers can afford Instant Credit for outstation cheques sent in collection as
per requirements of Customer Service Recommendation subject to complying with the
conditions of the Customer Service Recommendations in that regard.

Branch Managers can also purchase cheques as per the QCC Scheme under Cash
Management Services subject to the conditions laid down in the said scheme.

The facility mentioned under point 10 to be allowed very sparingly and not as a regular limit.
However, where the party desires to have such regular facility, it can be considered by
obtaining adequate collateral security in tune with the size of business/requirement. Such
facility shall be allowed within the respective delegated lending powers taking all other
precautions of lending.

13. Reporting of Ad hoc / Exercise of discretionary powers

The ad hoc / discretion allowed as above should be reported to the controlling office by a
letter on the same day. This is apart from reporting the same in Control Return Annexure III
of the standard Control return to controlling offices (giving details of facilities allowed under
Ad Hoc / Discretionary Powers).

All such exercise of discretionary powers / ad hoc should be immediately reported to next
higher authority in fortnightly (Annexure III Control Return- Details of facilities allowed
under Ad hoc / Discretionary Powers).

The Ad hoc discretionary powers exercised by the Zonal Manager should be placed before
the ED together with comments of Credit Department on monthly basis and the sanctions
made by the Executive Director and CMD will be reported to the Management Committee of
the Board. The Reportee / Controlling authority may seek clarifications and take follow up
measures as may be felt necessary within a reasonable period of three weeks.
________________________________________________________________ Loan Policy
171
Build-up of data on ad-hoc limits allowed: Mitra committee report on legal compliance
requires that every bank should build up data on ad-hoc limits allowed. It would be the
responsibility of each sanctioning authority to build up necessary data in this regard.

______________________

B. Take Over of Advances:

I] In the liberalised financial environment, as one of the strategies for increasing good
quality assets in the banks loan portfolio, take over of advances from other banks
& FIs was found to be a desirable proposition. Therefore, a common set of
norms/guidelines for take over of accounts as detailed below are proposed.

1. A market report to be obtained on the borrowers/key persons of account proposed
for take over.
2. The account should be standard asset at least for the past 2 years consecutively in
the books of existing banker & there should not be any symptoms suggesting that
the account is likely to slip to NPA in the near future. By obtaining the statement of
accounts of the proposed borrower, branch should scrutinize the same to ensure that
there is no default in conduct of the account with other bank. Other usual due
diligence steps such as CIBIL search, RBI/ECGC, negative list search, market,
bank enquiry etc. must be undertaken and so recorded.
3. Statement of account for at least two years of all facilities both fund based and non
funded as applicable are to be obtained and thoroughly scrutinized/analyzed from
financial and operational angles to ensure there has been consistent satisfactory
performance in the previous bank.
4. Credit Report on IBA format from existing banker to be obtained.
5. If the proposed take over is related to project funding, such project should not be at
implementation stage.
6. The borrower should have posted Net Profit (after tax) in the preceding two years.
In case where the unit was in existence for a period of less than 2 years, the Unit
must have earned profit during the period of its operation.
7. Minimum Credit Risk Rating of the account should be CBI-5 (Moderate Safety).
8. In case of Term Loans, there should be regular payment of installments as per
original schedule. Repayment schedule should not be extended or rephased.
9. Borrowers/promoters/partners should not be on RBIs or CIBIL defaulters list or
SAL of ECGC.
10. Branches should obtain declaration from the borrowers about the credit facilities already
enjoyed by them from other banks in the format as given in RBI Circular DBOD No.
BPBC.46/ 08. 12. 001/ 2008-09 DT. September 19, 2008.

II] Other conditions to be observed in case of Takeover of accounts

a) Present scenario concerning the Industry, in which the borrower is dealing to be
taken into account.
b) Pre / post sanction Inspections to be carried out.
c) When our bank canvasses the account, detailed background of the borrower with
specific benefit to the bank with reasons for shifting the account from bank
/financial institution should be ascertained and recorded in the proposal. Further, a
comprehensive certificate of compliance/Due diligence of take over norms as per
________________________________________________________________ Loan Policy
172
loan policy should form a part of processing note. While obtaining confidential
report we should advise the other banker that when they give opinion about the
conduct of the borrowal account, factual position must invariably be reported
including irregularities if any, observed so as to enable our Bank to take a due
decision in the matter of take over.
d) The underlying assets should be distinctly identifiable i.e. there should be tangible
security to cover the advances and bank has to conduct physical verification and
valuation of stocks to ensure availability of required Margin/borrowers
contribution. A stock audit should have been done with in the period of 3 months of
the date of take over. Alternatively a stock audit should be a pre commitment
condition. In respect of limited company, charges to be created simultaneously with
ROC.
e) The project should not be in the implementation phase at the time of take over of
the loan. In other words, it should have commenced commercial production and
surpassed the break even level and the moratorium period for repayment of loan
should be over.
f) In case of consortium / multiple banking arrangements, monthly position of
accounts and periodical meetings, held in the past, amongst participating bankers
and term lending Institutions wherein the views of all concerned so exchanged
should be ascertained.
g) The remaining period of repayment, after take over, should be at least 2 years and
the repayment in future, after take over, too should be as per the original schedule
only.

h) Account should not be restructured earlier with the existing Bank / FI

i) (a) The Branch should make proper assessment of credit requirements based on the
past performance, estimates/projections. Audited financials should be carefully
studies to assess the financial strength of the borrower.
(a) Consequent to take over, during the first 6 moths, a monthly statement on
performance/financials of the account is to be submitted for monitoring to the
authority that sanctioned the take over. At the end of 6 months, a snap review of
the accounts to be done by the same authority and on satisfactory performance shall
resort to annual review thereafter by the authority as per the delegated powers. For
centralized monitoring at central office level, ROs should submit half yearly as on
30
th
September and 31
st
March, the list of accounts taken over during the two half
years (current and previous half year), confirmation of compliance of terms &
conditions of sanction, snap review of accounts after six months and present status
(asset quality) of the account.
(b) Audited financial statements should not be more than 3 months old at the date of
take over. Valuation of fixed assets particularly immovable property should be got
done by two independent valuers for all properties exceeding Rs.10 crore. Similarly
fresh LSR by Banks Panel Advocate to be obtained and not to go by the previous
Banks LSR.

j) Payment towards adjustment/liquidation of the dues of the existing FI / Bank
should be made directly to them.
k) Where, however, the accounts of other banks have been adjusted for over 3 months,
the same need not be treated as takeover account and appropriate Sanctioning
________________________________________________________________ Loan Policy
173
Authority may take the credit decision based on extant guidelines of Loan Policy on
new accounts. However, statement of account at least for last one year may be
obtained from previous banker and held on record.
l) Takeover of advances from State Financial Corporations or from Co-operative
Banks may be done very selectively. Limits enjoyed with Co-operative Banks
should not be considered as base and fresh appraisal as per Policy provisions to be
undertaken.
m) In the cases of Working Capital finance through consortium or multiple banking,
increasing our share and joining a consortium or when a member bank exits
consortium and we join the consortium in its place, are not to be reckoned as take
over of such advance from other banks.

III] Delegation of power to approve Take over

1. For accounts falling within the sanctioning powers of delegatees up to Scale III,
Regional Managers (in the rank of Scale IV and above) will be the sanctioning
authority.
2. For accounts falling within the powers of Regional Managers (in Scale IV) and
above up to VI, all accounts should be sanctioned at one level higher than the
sanctioning authority as per delegated powers.
(a) Only prior administrative approval from the next higher authority should
be obtained by Scale IV and V delegatees (including RMs) in the
prescribed format (as per Annexure 31).
(b) RMs/ ZMs in Scale VI are empowered to sanction take over accounts
within their delegated powers without reference to next higher authority.
3. For accounts falling within the powers of above scale VI the respective
delegatees are empowered to sanction take over of accounts within their
delegated powers.
4. While sanctioning take over accounts, the sanctioning authority may consider
enhancement of loan amount and may permit financing maximum upto 150% of
the loan being availed from the previous bank. However, if due to
genuine/justifiable reasons the amount of finance exceeds 150%, the sanctioning
authority will be at next higher level.

IV] Consequent to economic slowdown, there is adverse impact on credit of take.
Therefore, an imperative need is felt to look for avenues to enhance credit
portfolio. There is ample scope for increasing credit of take by taking over
accounts from other Banks and FIs. In order to explore the area and to exploit the
situation, we may give thrust on the following aspects.

1. Interest rates on Fund based facilities being charged by Foreign Banks, Private
Sector banks & Cooperative Banks are comparatively higher than the rates
charged by PSUs. There is good scope for taking over share of such banks in
the consortium by offering competitive rates.

2. ZOs/ROs/Branches to tap reputed corporates in their area and explore the
possibility of taking over the share of Foreign Banks, Private Sector banks &
Cooperative Banks in fund based limits being enjoyed by them at higher rates.

________________________________________________________________ Loan Policy
174
3. Our Bank should also create apprehension amongst the peer banks by offering
very competitive rates to get an entry into good Corporates, who have potential
to offer sizeable ancillary business.

4. In order to encourage the field functionaries to remain proactive towards
takeover of accounts, Regional Managers (in Scale V) and above are
empowered to extend concession in ROI to the extent of 50 basis points
subject to the condition that the account proposed to be taken over complies
with all the take over norms and there are no deviations.

5. The following additional points should be borne in mind while taking over
accounts from other banks:
Take over of borrowal accounts from other banks should be done very
selectively, especially in view of the fact that no prudent bank would like to
give away sound borrowal accounts, remunerative and satisfactorily operated
with it. The tendency is generally to weed out those borrowal accounts where
the existing vendor has observed some signals of sickness/stress and hence,
greater caution is required to be exercised while taking over borrowal
accounts of other banks.
However, there may be some genuine reasons for which the borrower may
contemplate switch over to other banks. It is often observed that in
satisfactorily conducted, remunerative accounts with good security coverage
available, the existing banks refuses to give No Objection Certificate (NOC)
for sharing of security on paripassu basis with us on our sanction of the limit.
At that time there is no other way but take over entire exposure of the
existing bank to get full and exclusive charge on securities.
Similarly the existing bank may not agree to the request of the borrower for
enhancement in the limit or reduction in rate of interest, though justified. The
borrower, in such cases, would prefer to switch over account to other bank.
All such cases should be thoroughly examined, especially by making discreet
market enquiries and then, the decision for take over should be taken with full
justification.
a. Generally, we obtain Bankers Confidential Report in IBA format, which is
satisfactory. However, the Branch Manager should go beyond that and
make discreet market inquiries to confirm the credentials of the promoters
and their reputation in the market.
b. Moreover, in case of Takeover of accounts, there should not be any dilution
of securities available to the existing bankers.
c. In case of corporate borrowers, the charges existing on their assets should be
verified by reference to ROC.
d. The process Note in case of Takeover of accounts must invariably contain a
Certificate of Compliance of all the conditions and due diligence carried out
by the field functionaries as per Loan Policy.

The take over norms in the Loan Policy are applicable to all category of loans viz.,
SME/Midcorp accounts etc except Housing Loans.

________________________________________________________________ Loan Policy
175

V] Takeover of Housing Loan of Individuals

While take over of retail segment advances is not generally encouraged, in
consideration of larger business interest/valuable connections take over of
housing loans can be considered. The requirement of seeking permission from
the next higher authority shall not be applicable for taking over existing
Housing Loan of Individuals from other Banks/FIs. However, sanctioning
authority while taking over such accounts shall ensure that the Housing Loan
Accounts with other Banks/FIs are running regular with no defaults in
payment of Interest/Installment at any time with them.

__________________________

ANNEXURE - 25 & 26(Deleted)
________________________________________________________________ Loan Policy
176

ANNEXURE - 27

Short Term Loans to Companies Eligible for Issuance of Commercial Paper.

1. It is observed that, of late large corporates prefer to raise short-term funds at competitive
rates as against availing usual working capital facilities.

2. In order to meet corporates requirement of Short Term Loans and to deploy Banks
funds profitably at market related rates, a new scheme has been formulated with due
approval of the Board.

3. Salient features:

i. Objective To provide Short Term Working Capital facilities to the
borrowers to tide over temporary mismatch of funds or
to meet increased funds requirement due to bunching of
orders.

The facility is intended to ease the liquidity strain of the
borrowers who intend to raise funds through issuance of
Commercial Paper at market related rates.
ii. Eligible Companies Units in existence with good financials and satisfactory
track record eligible to issue CPs.

Companies enjoying P1
+
or its equivalent rating,
interested in raising funds against issuance of
Commercial Paper on standalone basis without
earmarking working capital limits

OR

Companies enjoying P1 or its equivalent rating with
earmarking of working capital limits equivalent to
Commercial Paper issued.

Companies having less than P1
+
or P1 rating and not
otherwise eligible for raising Commercial Paper through
our Bank.
iii. Facility Short Term Loan in Indian Rupees for 90 to 180 days.
Short Term Loan in Foreign Currency for 3 to 6 months.
iv. Maximum Loan per
borrower
Rs.60 crore. (To be sanctioned by CMD at Central
Office)

________________________________________________________________ Loan Policy
177

v. Interest Rates For Rupee Term Loan
Linked to the average rates of Commercial Paper
prevalent in the market for the last 10 days to be
obtained from Fixed Income Money Market and
Derivatives Association of India (FIMMDA).

For Foreign Currency Term Loan
Linked to 3 months OR 6 months LIBOR as the case
may be, plus Spread based on Banks Cost of Funds.

NOTE:
Interest rate for Rupee Term Loan will be slightly lower
than the Average CP rate to induce the borrower to avail
Short Term Loan in lieu of CP.
For Foreign Currency Term Loan, rate of interest will be
adjusted in the above manner.
vi. Interest Payable Monthly
vii. Margin NIL
viii. Upfront Fee 0.25% of the Loan amount payable upfront.
ix. Repayment Period Bullet payment at the end of 90 or 180 days.
x. Security NIL
xi. Availability Period Maximum 15 days from the date of sanction.
xii. Documents DP Note & Post-dated Cheques.

4. CMD is empowered to consider the proposals up to Rs.60 crore under the scheme. If
the aggregate exposure of the single borrower or group exceeds the lending
powers of the CMD, then such cases should be put up to the
Board/Management Committee for sanction subject to compliance of
RBIs Prudential Exposure norms.

________________________________________________________________ Loan Policy
178

ANNEXURE - 28

PRODUCTION EQUIPMENT CREDIT SCHEME

1. In order to deploy our lendable resources profitably and to open up new channels of
distribution, a scheme titled Production Equipment Credit Scheme has been
formulated.

2. Salient features of the scheme are as under:
SCHEME: PRODUCTION EQUIPMENT CREDIT SCHEME.
1.Objective 1. To provide finance for non-project related capital expenditure of the
Borrower Company.
2. This finance is structured as an umbrella arrangement under which
various equipments imported and indigenous will be financed by the
Bank, thus obviating the need to arrange for finance for every such
procurement.
3. It is not necessary to identify specific equipment at the time of
application. This could be done at the time of disbursement.
4. This facility is specially designed as a fast disbursing window
providing omnibus line of credit for financing a number of relatively
smaller plants, machinery & equipments to be purchased.
2.Eligible
Companies
1 Units in existence with satisfactory track record and sound financials
i.e., units having minimum external credit risk rating of BBB or its
equivalent and minimum internal credit rating of B.(CBI-5)
2 Units importing capital goods / purchasing locally.
3 Units undertaking expansion/modernization /up gradation /
diversification programmes.
4 Research & Development activities, which require purchase of
sophisticated equipments, tools, jigs and fixtures etc.
5 E P C Companies with proven track record.
3. Instruments 1 Term Loan in Indian Rupees.
2 Term Loan in Foreign Currency.
3 Foreign /Inland DA LC for purchase of capital goods as a Sub
Limit of Term Loan
4. Interest Rates For Rupee Term Loan:
Linked to Banks Base Rate based on the Credit Risk Rating of the
Borrowing Company.
For Foreign Currency Term Loan :
Linked to LIBOR Plus Spread based on Banks Cost of Funds.
5. Interest
Payable
Monthly
6. Margin 10% minimum
7. Upfront Fee
(Minimum)
0.25% of the Loan amount payable upfront. It will be endeavoured to
levy higher up from fee.
8.Repayment
Period
3 to 7 years based on projected cash flows inclusive of suitable
moratorium.
9.Availability
Period
1. Maximum 1 year from the date of sanction.
2. The facility will not be available to companies whose principal
business is real estate.
10. Security Hypothecation of equipment, plant & machinery financed by the Bank,
either by way of appropriate exclusive charge or paripasu charge on the
entire movable fixed assets, present and future.
________________________________________________________________ Loan Policy
179
11. Additional
Security
(to be endeavoured)
1. By way of personal guarantees of Directors and /or Corporate
Guarantee of the Group Company /Parent Company.
2. Appropriate charge on any other asset of the Borrower Company on
case-to-case basis.
12. OTHER
COVENANTS
1. Only limited companies will be eligible. Partnerships & Proprietary
concerns will not be eligible.
2. Generally Production Equipment Credit will be extended to existing
clients. However, new clients who are established companies with
good track record and high credit rating may also be considered.
3. The proposed term loan is to be disbursed directly to the suppliers of
the Plant & Machinery and other suppliers of utilities.
4. Margin to be brought by party before disbursement of Term Loan
5. The branch should disburse the loan according to the receipt of
equipments, machinery etc, based on documentary evidence.
6. Advance already paid by the company towards acquisition of
machineries may be treated as part of margin money, provided it is
supported by documentary evidence and CA certificate.
7. In exceptional cases, disbursement against prospective acquisition of
equipment up to 25% of the loan amount and with prior approval
from Central Office may be considered. However, the equipment
would need to be acquired within three months of such
disbursement.
8. The Term Loan Repayment will be based on projected Cash Flow of
the company with suitable moratorium on case to case basis.
9. Bank will have appropriate charge on the proposed assets to be
created out of the term loan.
10. Our charge to be registered with ROC for total amount of the PEC,
within the stipulated period and confirmation to that effect to be kept
on record.
11. The Upfront Fee will be recovered immediately on sanction.
12. Insurance cover for the machinery / equipments for its full value
with Bank clause to be taken and policy to be kept with the Bank.
13. All other expenditure to be borne by the borrower.
14. The Premature closure of term loan will attract prepayment penalty
@1% of the outstanding loan amount. The penalty may be reduced
/waived with the approval of the CMD if there are compensating
benefits to the Bank.
15. The standard covenant of inspection, identification and
hypothecation to the Bank etc, will apply.

BENEFITS.
1. Enables financing relatively small value non-project related equipments,
obviating the need for the borrower to approach the Bank in each case.
2. Fast disbursing window.
3. Secured loan.
4. For the company financing is tied up on the basis of its annual capital expenditure
plan.
Risks & Safeguards.
1. Security would be hypothecation of special equipments acquired out of loan.
2. Production Equipment Credit will be offered to companies with high credit standing
and mainly to existing borrowers enjoying other facilities extended by the Bank.

________________________________________________________________ Loan Policy
180
TERM SHEET FOR PRODUCTION EQUIPMENT CREDIT SCHEME
S.No.
1 Objective To provide finance for non-project related capital
expenditure of the Company/ for purchase of plant,
machinery, equipments etc.
2 Facility
Funded Term Loan in Indian Rupee (OR)
Foreign Currency.
Non-Fund based as Sub
Limit
Letter of Credit
3 Eligibility Existing units with satisfactory track record having
minimum external rating of BBB or its equivalent or
minimum internal rating of B. EPC Companies with
proven track record are also eligible. Companies
engaged in Real Estate business are not eligible.
4 Purpose Acquisition of Production Equipments.
5 Margin 10% Minimum
Payable monthly.
Rupee Loan will be linked to Banks Base Rate based
on Credit Risk Rating.
6

Rate of Interest
Forex Loan will be linked to LIBOR + Spread based
on Banks Cost of Funds.
7 Up front fee 0.25% of loan amount + applicable taxes
8 Repayment Period 3 to 7 years inclusive of moratorium if any
9 Security Hypothecation of equipments acquired of proposed
loan.
10 Collateral 1. Charge on other assets of the company
2. Personal guarantee of Directors (or)
Corporate guarantee of Group Company.
11 Availability Period Maximum 1 year from the date of sanction

12.Other Covenants

1. Only limited companies will be eligible. Partnerships & Proprietary concerns will not
be eligible.

2. Generally Production Equipment Credit will be extended to existing clients. However,
new clients who are established companies with good track record and high credit
rating may also be considered.

3. The proposed term loan is to be disbursed directly to the suppliers of the Plant &
Machinery.

4. Margin to be brought by party before disbursement of Term Loan.

5. The branch should disburse the loan according to the receipt of equipments, machinery
etc, based on documentary evidence.

6. Advance already paid by the company towards acquisition of machineries may be
treated as part of margin money, provided it is supported by documentary evidence and
CA certificate.
________________________________________________________________ Loan Policy
181
7. In exceptional cases, disbursement against prospective acquisition of equipment up to
25% of the loan amount and with prior approval from Central Office may be
considered. However, the equipment would need to be acquired within three months of
such disbursement.

8. The Term Loan Repayment will be based on projected Cash Flow of the company with
suitable moratorium on case to case basis.

9. Appropriate charge on the proposed assets to be created in favour of the Bank.

10. Charge to be registered with ROC for total amount of the PEC, within the stipulated
period and confirmation of the same to be kept on record.

11. Upfront Fee to be recovered immediately on communication of sanction.

12. Insurance cover for the machinery / equipments for its full value with Bank clause to be
obtained and policy to be kept on record.

13. Any other expenditure to be borne by the borrower.

14. Prepayment will attract penalty @1% of the amount prepaid. However, the penalty may
be reduced /waived with the approval of the CMD if there are compensating benefits
accruing to the Bank.

15. The standard covenants of inspection, identification and hypothecation to the Bank etc,
will apply.

@@@@@@@@@

________________________________________________________________ Loan Policy
182
Annexure -29 (Deleted)

Annexure-30
Mezzanine Debt

The bank has been sanctioning from time to time financial assistance to meet the various credit
requirements of corporate clients by way of regular facilities like term loan, short term loan,
cash credit, overdraft and bills discounting etc. on sole banking/ consortium/ multiple banking
arrangement basis. However in certain cases, corporates need bank arrangements without being
able to provide the assets created out of such finance as security on 1
st
charge/ exclusive
charge/paripassu charge basis i.e. (i) Overseas acquisitions (ii) Investment in WOS (iii) General
corporate loan requirement outside consortium/ multiple banking arrangements etc. In such
case Mezzanine debt can be marketed as a product for funding such bonafide activities to
eligible top rated corporate clients which will help acquisition of new client base and augment
credit deployment.

The salient features of the product are as under:

Purpose Mezzanine Debt shall be considered for any of the following purposes:
a) To augment long term Working Capital
b) To expand the existing companys TNW with subordinated debt
capital
c) To acquire any existing overseas company and or acquisition of their
assets.
d) To finance equity investment by the Indian company in JV/ WOS or in
other overseas companies (new or existing), as strategic investment.
e) To kick start the infrastructure and other long projects pending
infusion of own source funds.
f) Any requirement over and above the permissible limit for running the
business activity.
g) Any other purposes as permitted in terms of GOI/RBI Policy.
Eligibility Corporates which comply with the following criteria are eligible:
a) high net worth corporate with satisfactory track record.
b) business houses having good market reputation.
c) listed/ unlisted corporate bodies having credit rating of CBI-4 (B+) and
above or its equivalent in case of rating by external rating agency.
d) un rated but financially sound corporate bodies.
e) Corporate which demonstrates track record in the industry, product,
profitability and viable expansion plan for the business i.e. expansions,
acquisitions, IPOs etc., though financials may not be confirming to
high rates.
Quantum Minimum size of the loan shall be Rs.10.00 crore for existing clients and
Rs.5.00 crore in case of new clients and the maximum extent of 50% of senior
debt sanctioned by the bank in case of existing clients.
Tenor Debt shall be for a maximum period of 7 years.
Interest Rate of Interest shall be minimum 100 bps higher than the rate applicable to
Senior Debts, as per rating of the account and subject to maximum of 400
basis points. Interest shall be serviced on monthly basis as and when charged.
Any request for reduction of interest shall be referred to Central Office. CMD
________________________________________________________________ Loan Policy
183
and in his absence ED shall be empowered to approve the rate of Interest on
the debt falling within their respective lending powers. However, in
exceptional cases and keeping in view the urgency, CACB shall be
empowered to approve ROI on the debt falling within the powers of MC.
Method of
Assessment
&
Repayment
Cash Flow Financing is applicable in respect of Assessment of eligible
finance under Mezzanine Debt. On the basis of Cash Flows, repayments shall
be fixed by way of periodical installments as per tenor of sanction.
Prepayment
charges
In case of prepayment, penalty charges @ 1%.p.a. of the amount prepaid for
the left over term shall be recovered.
Security Primary: Nil
Collateral: 2
nd
subservient charge on existing fixed assets and/or current assets
with ACR of min.1.5.
Margin 25%
Sanctioning
Authority
Proposals under above facility shall be considered at Central Office by
Executive Director and above within their respective delegated lending
powers.
Other
Conditions
a) The sanction of the loan is subject to compliance of exposure norms
stipulated in the loan policy/ RBI prudential Exposure guidelines.
b) While considering the proposal for sanction, the following financials
with allowable concessions as per Loan Policy shall be kept in view:

i) Current Ratio : 1.33
ii) Debt Equity Ratio : 2:1
iii) Debt service coverage ratio (Average) : 1.5
iv) Interest coverage ratio : 2:1
v) Asset coverage ratio : 1.5:1

c) Personal guarantee of the promoter director(s) to be obtained.
d) Proceeds of the Debt should be utilized only for the declared purpose
and not for any other purposes.
e) While considering the applications for this debt, financials & cash
flows to be studied carefully to ensure genuiness of the requirement
and repaying capacity on due date.
f) If the borrower is enjoying facilities with other Banks/ FIs, proper due
diligence should be carried out to ensure that the accounts are in
standard category with other Banks/ FIs and their dealings are
satisfactory.
g) Compliance of applicable regulatory norms of RBI/ FEMA/ SEBI etc.
should be ensured.

MCB shall have full powers to consider any deviations subject to compliance
with RBIs prudential exposure norms.

________________________________________________________________ Loan Policy
184

Annexure-31(A)
FORMAT FOR SEEKING ADMINISTRATIVE APPROVAL FOR TAKE OVER OF
ADVANCES FROM OTHER BANKS / FIs FROM NEXT HIGHER AUTHORITY

Branch Region Zone

Name and Address of the Borrowal
Account proposed to Take Over

Details of the Promoters
Group
Details of any of the Group Account
availing finance from our Bank

Name of the Bank from which Take
Over is proposed

Details of the limits being availed
from the existing Bankers

Details of the limits proposed in our
Bank
Facility Working
Capital
Term
Loan
Non-
Fund
Based
Limit
Total
FB
and
NFB

1
Details of highlights of financial
indicators of the borrowers for the
past two years
TNW Sales Net
Profit
Current
Ratio
DE
Ratio
TOL
/TNW

2 Whether obtained Market Report on
the borrowers/ Key Persons of
account?

3 Whether account is standard in the
books of existing banker & does not
exhibit any symptom of slipping into
NPA in the near future?

4 Whether obtained Statement of
accounts for atleast two years from
existing banker and verified? Any
observation?

5 Credit Report on IBA format from
existing banker?

6 Whether commenced commercial
production and surpassed the break
even level and moratorium period for
repayment of loan is over? (No take
over of accounts which are under
implementation.)

7 Whether the borrower posted Net
Profit (after tax) in the preceding 2
years?

8 Whether Minimum Credit Risk
Rating of the account is CBI-5(B)
Moderate Safety?

9 Whether remaining period of
repayment, after take over is atleast 2
years and is as per original

________________________________________________________________ Loan Policy
185
repayment schedule sanctioned by
the previous banker only?
(Repayment Schedule of take over
Term Loan is not to be proposed for
extension or rephasement)
10 Whether obtained evidence that the
A/c. is not restructured earlier with
the existing Bank/ FI?

11 Whether names of Borrowers/
Promoters/ Partners appear in RBIs
or CIBIL defaulters list or SAL of
ECGC?

12 Whether conducted Pre - sanction
inspection?

13 Whether detailed background of the
borrower with specific benefit to the
bank with reasons for shifting the
account from other bank/ financial
institution is ascertained?

14 Whether underlying assets are
distinctly identified and tangible
security exists to cover advances?

15 Whether payments towards
adjustment/ liquidation of the dues of
the existing FI/ Banks are proposed
directly to them?

16 No Take Over within Cooling Period
of three months.

Signature of the Delegatee seeking Approval

________________________________________________________________ Loan Policy
186
Annexure 31(B)

MINIMUM INFORMATION TO BE DECLARED BY BORROWEING ENTITIES TO BANKS
WHILE APPROACHING FOR TAKE OVER OF ACCOUNTS FROM OTHER BANKS

A. Details of borrowing arrangements from other banks (institution wise)
I. Name and address of bank/institution

II. Purpose for which borrowed

III. Limit sanctioned (full details to be given,
e.g. working capital / demand loan/ term loan
/
short term loan)/ foreign currency loan,
corporate loan / line of credit / Channel
financing
contingent facilities like LC, BG, DPG (I &
F) etc.
Also, state L/C bills discounting/project wise
finance availed)

IV. Date of sanction

V. Present outstanding

VI. Overdues position, if any

VII. Repayment terms (for demand loans,
term loans, corporate loans, project -
wise finance)

VIII. Security offered (complete details of
security both primary and collateral
including specific cash flows assigned
to project wise finance/loan raised &
personal/ corporate guarantee, to be
furnished)

IX. Requests for facilities which are under
process

[The information to be given for domestic and overseas borrowings from commercial banks,
Financial Institutions and NBFCs]
B. Miscellaneous Details
i. CPs raised during the year and
current outstanding

ii. Details of financing outside banking
system e.g. L/C Bills discounting

iii. Main and allied activities with
locations

iv. Territory of sales and market share

v. Details of financial aspects incl.
DSCR Projections wherever
applicable as per requirement of bank
Imp. Financial covenants, if any,
agreed to/accepted with other lenders.

vi. CID A/cs, within/outside financing
Banks, being operated, if any

vii. Demands by statutory authorities/
current status thereof

viii. Pending litigations

ix. A declaration authorizing the bank
to share information with other
financing banks

________________________________________________________________ Loan Policy
187
ANNEXURE-32
END USE CERTIFICATE OF CREDITS DISBURSED

Branch Region Zone

Sl.# Items Details
1 Name of the Borrower/ Project:
Group:
2 Sanctioning Authority:
Reference of Sanction & :
Date of Disbursement :

Credit Facilities: TL/STL/WC/
3 Nature of Credit facilities:
Fig. Rs. in Crore
FB Limits
NFB Limits
Total Limits

Outstanding as on date:
Fig. Rs. in Crore
FB Limits
NFB Limits
Total Limits

4 Checklist for Utilization of Loan: Certification
YES/ NO
Remarks/
Deviation, if
any.
Funds have been utilized for the purpose for which it has been
sanctioned.

Any utilization of short term working capital funds for long term
purposes not in conformity with the terms of sanction.

.i
Any transfer of funds to the subsidiaries/ Group companies or other
corporate by whatever modalities.

.ii Any part of the loan amount is transferred to call, short term, fixed or
any other deposits.

.iii The expenditure has been financed in the manner provided for in the
sanction.

5 RBI Guidelines:
.i Whether complied with the RBI guidelines that C.A. certificate alone
should not be considered adequate to ascertain the end use of funds
and it should be necessary for the Bank to conduct independent
verification of securities created out of Bank loans?

.ii Enclose the copy of such verification of securities.

Note: Please Certify YES/ NO and no column is kept blank/ dash/NA/ any abbreviation etc.

This certificate is to be submitted to sanctioning authority with in 30 days from the date of disbursement of
loan sanctioned.

This Certificate on End use of Funds is issued on at

Signature:
Name & Designation of the official
issuing this certificate:
(Seal)

Counter signature of head of the
Branch confirming the correctness:
(Seal)

To:
Sanction Authority/ Central Office.

Updated Loan Policy To Board 31.03.2012 Sent To Ro & Zo

Загружено:

Сведения о документе

Оригинальное название

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

Updated Loan Policy To Board 31.03.2012 Sent To Ro & Zo

Загружено:

Авторское право:

Доступные форматы

Central Bank of India

________________________________________________________________ Loan Policy

Вам также может понравиться