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Project on Bank of India

OBJECTIVE OF THE STUDY

A considerable importance has been placed on the role of


commercial banks by successive Governments in the development
of the economy of our country. It is almost certain that a bank will
be associated with every project of industry/trade or business
irrespective of its size. The banks are now certainly catering to the
credit needs of a large variety of projects, big or small, in all the
sectors of economy including agriculture, trade, industry and
services etc. Granting of short term finance for working capital
requirements has always remained an area exclusively reserved for
commercial banks. Banks have now assumed the role of a
development institution in promoting small projects in all the
sectors of economy besides increasing their presence even in big
industrial projects.

The lending policies of banks have also undergone a sea change


with the passage of time and there had been a few historical events
which had an important bearing on the general approach of a
banker towards lending.

The objective of this study is to envisage ideal framework of


corporate finance management for Indian Banks. It will be of
interest to have a brief discussion of various approaches of banks
towards lending and their relative importance in present scenario.

The scope of project includes study of -

1. The different types of credit facilities provided by the bank.


2. The credit assessment techniques for different types of credit
facilities.
3. The credit appraisal and monitoring standards to meet
genuine credit needs of clients.
4. The credit evaluation system.
5. Bank’s credit portfolio and analysis of its credit lending
pattern.

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Project on Bank of India

PROPOSED METHODOLGY:

The information on the project under study will be obtained from the Bank employees
and officials. Also I have to study various files and the official correspondence of the
Bank The next stage is to understand the actual corporate finance process adopted by
‘S’ Bank. It includes understanding of the credit proposals of certain selected
borrowers as prepared by the Bank. Also bank’s credit portfolio will be analyzed. The
methodology also includes making actual proposal of one of its proposed clients,
which will help to get practical experience of the corporate finance methodology.

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Project on Bank of India

BANKING SCENARIO

The financial system is the lifeline of the economy. The changes in


the economy get mirrored in the performance of the financial
system, more so of the banking industry.

The Indian banking can be broadly categorized into nationalized,


private banks and specialized banking institutions. The Reserve
Bank of India acts as a centralized body monitoring any
discrepancies and shortcoming in the system. It is the foremost
monitoring body in the Indian financial sector. The nationalized
banks (i.e. government-owned banks) continue to dominate the
Indian banking arena. Industry estimates indicate that out of 274
commercial banks operating in India, 223 banks are in the public
sector and 51 are in the private sector. The private sector bank grid
also includes 24 foreign banks that have started their operations
here. Under the ambit of the nationalized banks come the
specialized banking institutions. These co-operatives, rural banks
focus on areas of agriculture, rural development etc. Indian
nationalized banks continue to be the major lenders in the economy
due to their sheer size and penetrative networks which assures
them high deposit mobilization.

The banks before nationalisation were generally catering to the


needs of large industrial houses and big trade and laid a great
emphasis on the safety of their funds and insisted upon availability
of good tangible security to cover the advance. Offer of an
acceptable form of good tangible security would always have a very
positive influence on the decision of the banker to grant advance.
This approach resulted in cornering out of scarce financial resources
available with banks by a small group of individuals and other users
who had necessary security to offer to the banks. This process also
resulted in ignoring the genuine needs of other prospective
borrowers who could not provide required security though they had
good project in hand. This was truly an example of class banking
and was cited as an important reason for nationalisation of 14 major
commercial banks in 1969 by Government of India. It was envisaged
to redistribute the financial resources available in the economy in a
more equitable manner and to ensure that credit needs of all the
sectors of economy and all sort of borrowers are adequately met. It
was the first major steps towards the march to mass banking.

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Project on Bank of India

Economic Liberalization & Financial Sector reforms introduced in


1991 followed by Second Phase of Financial Sector reforms in 1997
ushered in an era of fast track growth in size, technology and
deliverables of Banks in India.

The financial sector reforms gradually moved the Banking Industry


from a regulated environment to a deregulated market economy. In
this process, banking operations transformed from its traditional
intermediary role to a business of risk return trade off.

RAISING OF FINANCE

Finance for a project in India can be raised by way of:

(a) Share Capital

(b) Long-term Borrowings

(c) Short-term Borrowings

Both share capital and long-term borrowings are used to finance


fixed assets plus the margin money required to obtain bank
borrowings for working capital. Working capital is financed mainly
from bank borrowings and from unsecured loans and deposits.

Term finance is mainly provided by various banks, All India


Development Banks, specialized financial institutions and
investment institutions. In addition, term finance is also provided by
the state financial corporations, the state industrial development
corporations and commercial banks.

The role of the financial & banking institutions is not merely


confined to lending of funds. They render non fund based facilities
as well like opening of letter of credit, issue of bank guarantees etc.
besides there are private investment companies involved in direct
and indirect financing of the projects and also extending lease
financing.

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Project on Bank of India

Depending on the size of borrowings, the borrower can avail of term


loan as well as working capital limits from either a single or a
number of financial institutions and commercial banks. Hence, mode
of finance can be of three types. They are –

1. Sole Banking: Only one bank looks after all the financial
requirements of the borrower.

2. Multiple Banking: Different banks provide finance and


different banking facilities to a single borrower without having
a common arrangement and understanding between the
lenders. The practice of multiple banking has increased
tremendously during the last years. This is due to the
increasing competition and the bankers desire to grow in a
short span of time.

3. Consortium Financing: Under consortium financing, several


banks (or financial institutions) finance a single borrower with
common appraisal, common documentation, joint supervision
and follow-up exercises.

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Project on Bank of India

BANK OF INDIA

Bank of India was founded on 7th September, 1906 by a group of eminent


businessmen from Mumbai. The bank was under private ownership and control till
July 1969 when it was nationalised along with 13 other banks.

Beginning with one office in Mumbai. With a paid-up capital of Rs.50 lakh
and 50 employees, the Bank has made a rapid growth over the years and blossomed
into a mighty institution with a strong national presence and sizable international
operations. In business volume, the Bank occupies a premier position among the
nationalised banks.

The Bank has 3021 branches as on 31.03.2009 in india spread over different
states/union territories including 136 specified branches. These branches are
controlled through 48 Zonal offices. There are 28 branches/offices abroad which
include three representative offices. The Bank came out with its maiden public issue
in 1997 and followed on Qualified Institutions placement in February 2008. Total no.
Of shareholders as on 31/03/09 is 235589 and total no. Of shares as on 31.03.2009
was 525175300 while firmly adhering to a policy of prudence and caution,the Bank
has been in the forefront of introducing various innovative services and systems.
Business has been conducted with the successful blend of traditional values and ethics
and the most modern infrastructure. The Bank has been the first among the nationalise
banks to establish a fully computerised branch and ATM facility at the Mahalaxmi
Branch at Mumbai way back in 1989. The Bank is also founder member of SWIFT in
India. It pioneered the introduction of the health code system in 1982,for
evaluating/rating its credit portfolio.

The bank association with the capital market goes back to 1921 when it
entered into an agreement with the Bombay Stock Exchange (BSE) to manage the
BSE clearing House. It is an association that has blossomed into a joint venture with
BSE , called the BOI Shareholding Ltd. To extend depository services to the stock
Broking community.

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Project on Bank of India

Bank of India was the first Indian Bank to open a branch outside the country,
at London, in 1946, and also first to open a branch in Europe, Paris in 1974. The Bank
has sizable presence abroad, with a network of 28 branches (including five
representative office) at key banking and financial centres viz. London, Newyork,
Paris, Tokyo, Hongkong and Singapore, the international business accounts for
around 17.82% of Banks total business.

PERFORMANCE HIGHLIGHTS

Highlights of the bank’s performance in the year 2009-10 as compared to the previous
year and the performance for the quarter ended march 2010 as against march 2009 are
given below.

Mar.10 Mar.09

Net Profit 1741.07 3007.35

Operating profit 4704.77 5456.80

Gross NPA (%) 2.85 1.71

Net NPA (%) 1.31 0.44

Total Business 401079 334440

Total Deposits 229762 189708

CASA Ratio (%) 32.00 31.00

Avg. Cost of Deposits(%) 5.16 5.76

Avg. Yield on Advances 8.42 9.78

Net Interest Margin (%) 2.51 2.97

Business Per Employee (in crs.) 10.11 8.33

Earnings Per Share (Rs.) 33.15 57.26

DEPOSITS

Deposits as on March ’10 have grown by 21.11% as compared to March ’09.During


the period deposits went up from 189709 crores to Rs.229762 Crores.

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Project on Bank of India

ADVANCES

We have Adopted a pro-active approach in ensuring a strong growth in quality assets.


Global credit went up from Rs. 144732 crores to Rs. 171317 crores as on Mar ’10.All
the sectors registered a healthy growth. The bank’s advances went up 18.37% on
YOY Basis.

NPA MANAGEMENT

Bank has been able to resolve large number of NPA Accounts. As a result there have
been substantial recoveries in NPA accounts/written off accounts successively for last
several years. Due to heavy slippages, NPA level has been increased during the year
to RS.4882.65 Cr.Cash Recoveries are Rs.621.64 Crores during the year march’10
compared to Rs.675.82 Crores during the year march’09.upgradation have been
Rs.203.56 Crores vis-à-vis Rs.324.53 of previous year ended march’09.Toatl
reduction has been Rs.1568.90 (including write off) compared to Rs.1559.77 Crores
of march’09.

KEY PERFORMANCE/FINANCIAL INDICATORS-at glance

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Project on Bank of India

FINANCIAL INCLUSION PLAN-2010-13


Bank has come out with an ambitious Financial Inclusion Plan to be rolled out in next
three years.one crore no-frill accounts are proposed to be opened in 28929 villages
across the country in a phased manner whereby 100% Financial inclusion will be
ensured in 6936 villages with population more than 2000, by March 2012.

Implementation of Financial Inclusion plan is based on a different business model


where 15000 Business Correspondents will be engaged to play an active role in the
process. State of art technology will be using smart card based solution to provide
banking and other financial services at the customers doorsteps. Up scaling of
technology solution is envisaged since beginning to take care of evolving changes like
online biometric authentication through UIDAI-Aadhar-Central biometric registry,
mobile based banking etc.

Bank has already opened 32.63 lac no-frill accounts till 31.03.2010, out of which 4.12
lac accounts are enrolled for issuance of smart cards. 941 Business correspondents are
engaged by the bank who are providing services in 2551 villages.

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Project on Bank of India

CREDIT FACILITIES PROVIDED BY BY BOI

Credit Facilities
provided by BOI

Fund based Non Fund based

Term Loan Letter of credit

Working Capital Bank Guarantee

Deferred Payment
Guarantee

1. Term Finance
Term Loan/Finance covers funds required for acquiring means of
production such as land, building and plant and machinery etc.
These could be for setting up new projects or expanding the present
activities. Term finance is generally given for a longer period and is
repayable in installments over the period with or without
Moratorium. The period and the installments are determined based
on the repayment capacity of the project / borrower.

2. Working Capital Finance

Working Capital Finance (WCF) is extended for carrying out normal


trading/ manufacturing activities. The working capital finance is
provided for a relatively shorter period generally for a period of 1
year and renewed on yearly basis considering the performance of
the borrower.

The WCF is considered only after project nearing completion and


after full tie up of term loan requirement.

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Project on Bank of India

Working Capital finance is in the form of pre-sale and post-sale


limits. In Pre-Sale Finance the advance is granted for acquiring
Inventory for production / processing or trading purpose while the
Post-Sale Finance is extended against the receivables. ‘S’ Bank
encourages Post-sale finance in the form of purchase/discounting of
bills etc.

Pre Sales Finance:

1. Cash Credit Hypothecation / Pledge against Stocks


2. Packing Credit Hypothecation / Pledge against Stocks
3. Clean Packing Credit Limit
4. Trust Receipts
5. Working Capital Loan (Demand / Term)

Post Sales Finance:

1. Bills discounting / purchase – Inland / Foreign


2. Cash Credit Hypothecation against Book Debts
3. Advances against Export Incentives
4. Purchase of Cheques/Demand Draft

B] Non Fund Based Credit Assistance

The Business units also require Credit Assistance for procurement of


Goods, where the funds are not involved. Such facilities are
available against the assured commitments / guarantee from the
Lending Institutions.

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Project on Bank of India

APPRAISAL OF A TERM LOAN

BANK OF INDIA-KOPRI COLONY BRANH


FACILITY-WISE CLASSIFICATION- NO. OF A/C’S

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Project on Bank of India

STAR HOME LOAN

HOME- IS where, there is one to love us”-Charles Swain

Everyone of us need a place of our own, which we call as HOME. The Home
signifies comfort, security and peace so we strive for owning a house but buying an
immovable property in India is a lifetime challenge because of a combination of
factors. A meticulous planning at the investment stage can save us from sleepless
nights later. Indian Bank realizes the importance of guiding the first time purchasers
of property before making the buying decision.

Banks scheme for housing finance to individuals titled as “ASHIYANA”, in


operation since February 1995 has been renamed as “STAR HOME LOAN”.

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Project on Bank of India

Much like the Green Revolution of the 70s that transformed the country’s
agriculture sector, the real estate industry is hoping for a Housing Revolution to be
kicked off in 2008. More than half a dozen realty companies from the gulf are eying
India and according to industry sources more than US$ 50 billion is expected to flow
into the country’s property market in the next couple of years. It is expected that
affordable housing will be dream-cum-true for middle class buyers most of whom are
residing in rented houses at present. As per a survey report 65.31 lacs families in rural
area and 203.15 lacs families in urban area are residing in rented houses.
Home Loan finance is one of the most secured finances and our Home Loan Scheme
is specially designed for middle and upper middle class people. Salient features of the
scheme are given below .

ELIGIBILITY
Bank can finance to
1. Salaried persons
2. Professionals like Doctors, Lawyers, Engineers, Chartered Accountants, etc.
3. Self-employed Persons having regular income/ regular source of income.
4. Non Residents including P.I.O. (Person of Indian Origin) .
5. Staff Members.
6. Farmers/ agriculturists

WE SHOULD NOT FINANCE TO:


Retired persons and persons over the age of 65. But they can be made co-
borrowers to meet Income/ EMI criteria.

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Project on Bank of India

WHO CAN BE A CO-BORROWER?

We can finance to the following persons/ concerns also to meet their


housing needs.

1. An association or group of individuals,


2. A group of individuals, who are employees of a company if their employer
guarantees the loan amount.
3. Individuals, proprietorship and partnership firms for purchase of residential-
cum-shop/ gala/ office premises
4. Our Corporate borrowers or other corporate entities for extending finance to
them for purchase or construction of dwelling units for their employees.
5. HUFs ( on merits)

PURPOSE

 To purchase /construct house/ flat on ownership basis, including purchase of


already constructed Flat / House which has atleast 30 years of future life.
 To renovate/ extend (additional area) / repair existing house/ flat.
 To purchase a plot of land for construction of house (an undertaking should be
obtained from the borrower that he would construct the house on the said plot
within a period of 3 years from availment of the advance).
 To acquire household articles along with the house/ flat – for furnishing the
house/ flat .

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 Take over of home loans from other banks/Institutions/NBFC . However it can


be considered by an authority not less than Zonal Manager, subject to:
 Applicant is an existing customer of our Bank with accounts other than
proposed home loan OR in case of new accounts, request is for simultaneous
take over of group accounts/ business;
 Property is complete in all respects and mortgage is available immediately
after disbursement.

QUANTUM OF FINANCE

Purpose/Area Maximum (Revised) Limit


1. For construction/purchase of a house/flat
a. In places with population below 1 lac Rs 30 lac

b. In places with population of 1 lac and above Rs 50 lac

c. In exceptional cases * Rs 300 lac

 Proposals with exceptional merits and where bank may get assured
concomitant benefits. Such cases may be considered / approved by the
following authorities:
NOTE: Zonal Manager and above – up to the extent of their delegated Authority.
2. For Additions/ Repair/Renovation/Extension Rs. 20 lacs

3. For purchase of plot Rs. 30 lacs

4. For purchase/ acquire household articles ** Rs. 1.00 lacs


( 15% of Home loan amount Max. 1 lac)

 This loan is to be given in cases where Housing finance is sanctioned . This


amount of Rs. 1 lac is over and above the housing loan amount and is for
furnishing the acquired house/ flat and shall carry the same rate of interest as
applicable for housing loan. This amount is to be disbursed from the housing
loan account (no separate account is to be opened) only after carrying out an
inspection of the house/ flat verifying the end use of funds disbursed till date
of inspection and completion of house/ flat.

Minimum size of Housing Loan

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At Metro and Urban Centre: Rs. 1.00 lac


At Rural and Semi Urban Centres: No minimum size of Housing Loan

However actual amount of advance will depend upon the income criteria
as under :

SALARIED EMPLOYEES
48 times of gross monthly salary OR 4 times of gross annual income based on
Income Tax Returns

SELF EMPLOYED/PROFESSIONALS (OTHER THAN DOCTORS,


CHARTERED ACCOUNTANTS - INDIVIDUALS ENGAGED IN
TRADE/COMMERCE/ BUSINESS
4 times of their gross annual income based on income tax returns

CHARTERED ACCOUNTANTS
5 times of gross annual income based on I. Tax returns

DOCTORS
6 times of gross annual income based on I. Tax returns

HUF/PROP. FIRM/PARTNERSHIP FIRM/CORPORATE BORROWERS


4 times of cash accruals (PAT + Depreciation) as per their Balance sheet

FARMERS/AGRICULTURISTS

Cases where Income tax returns are not filed or cases where income tax
returns are not required to be filed: Assessment of income based on net income from
farm/other agricultural/allied activities and depending upon repayment capacity of
proponent. For the purpose of income assessment, Branches may verify the
bills/receipts from APMC, Commission agents, procurement agency such as Sugar
Mills/Cotton Mill Federation/Dairy Society etc. and net farm income to be assessed
on the basis of land holding and cropping pattern followed. Branch should mention
clearly basis/sources of income and stream as well as repayment

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Project on Bank of India

Income tax returns to be obtained in case farmer/agriculturist is filing same.

FOR INDIVIDUALS

While fixing the limit, it should be ensured that the net take home pay/income
(net of EMI of proposed loan) is not less than 45% of the gross monthly
salary/income of the applicant

FOR HUF/PROP. FIRM/PARTNERSHIP FIRM/COMPANY

DSCR should be minimum 1.5

DOCUMENTS TO BE OBTAINED IN SUPPORT OF INCOME

 For salaried persons : a) Latest Annual Salary Certificate ( Form 16 )


b) Monthly salary slips from employer
c) Copies of income tax returns for last 3 years
(With latest income tax assessment order and
advance tax challans of current year-where
applicable)

 In case of Businessmen : Copies of financial statements


( preferably audited ) and Income Tax returns
for last 3 years together with copy of Latest
Income Tax Assessment Order and advance tax
challans of current year.

 Bank Statement for last 6 months.

INCLUSION OF RENTAL INCOME FOR CALCULATION OF EMI:

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Project on Bank of India

 Maximum upto 70% of the notional rental income from the existing/new
house, whichever is lower may be taken into consideration for the
purpose of determining the maximum permissible quantum of loan.
Appropriate consideration should be given to the time-lag after which this
income would be generated.

 Progressive /Step-up EMI taking into consideration future income of


proponent: Taking into account expected future income flow of proponent(s),
Zonal Manager & above can permit progressive/step-up EMI (i.e. EMI
increasing @ 10% after every 5 years within overall stipulated repayment
period). Please ensure to consider the repayment capacity/income pattern of
the proponent/borrower while permitting repayment schedule as above.

PRIORITY SECTOR GUIDELINES FOR HOME LOANS

Loans upto Rs.20 lacs to individuals for purchase /construction of dwelling


unit per family , (excluding staff loans) and loans given for repairs to the damaged
dwelling units of families upto Rs. 1 lac in rural and semi-urban areas and upto Rs. 2
lacs in urban and metropolitan areas.

SECURITY

 Equitable mortgage (first charge) of the land/ flat/ house proposed to be


financed is to be obtained. OR Legal Mortgage : in case of unavailability of
title deeds i.e. mostly in case of ancestral properties, legal mortgage may be
created after obtaining approval of a delegate of the rank of Zonal Manager
and above who will give such approval after full satisfaction about the clear,
marketable and unimpeachable title to the property .

 For loans granted to employees of Central State Government and Public


Sector Undertakings who have taken housing loans from their employers,
branches may accept second mortgage of the property as security provided the

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first mortgagee gives no objection letter for creation of second mortgage in


favour of the Bank.

 Alternate Security in lieu of Equitable Mortgage : It is acceptable if alternate


security in the form of NSC or term deposits of our bank are made available
by the borrower. The face value/ principal amounts of the NSCs/TDRs should
be equivalent to at least 110% of amount of loan.

 Suitable guarantor/s worth equal to loan amount is to be obtained. Guarantee


of persons whose income is equal to that of the borrower also may be obtained
after ensuring that their dispensable income would be sufficient to repay the
loan in cases of need. In lieu of guarantee collateral security acceptable to the
Bank may be taken.

INSPECTION

Pre-sanction inspection : The inspecting officer should exercise due diligence


by making detailed enquiries with the neighbouring land/ property owners and
builders etc. and satisfy himself about the correct identification and approximate
valuation of the property/ creditworthiness of the borrower and standing of the builder
in case the property is being purchased from some builder.

After a decision has been taken to consider the proposal, a second visit is to be
made by another officer of the branch after abstention of valuation report and
satisfactory title verification report from the empanelled valuer and advocate of the
bank. The officer who pays the second visit is required to tally the particulars of the
property being inspected with those provided by the advocate and the valuer in their
reports. The details of findings during the visits by both the officers are to be
incorporated in the proposal.

The system of visiting the property twice by two officials of the branch is to
be applied to all advances proposals of Rs. 5 lacs and above where immovable

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property is being mortgaged to secure the advance. For limits below Rs.5 lacs
inspection may be carried out by a single officer.

Pre-sanction due diligence exercise can be entrusted to independent outside


agency also. This arrangement has been implemented in selected centres. For details
please read Br. Circular No. 101/145 Dt. 30.10.2007.

Post sanction inspection should be conducted on disbursement of 25%, 50%


and 100% of the limit sanctioned and thereafter annually. Pre-sanction inspection
report should be attached to the proposal, post sanction inspection should be
conducted on disbursement of 25%, 50% and 100% of the limit sanctioned and there
after annually.

QUANTUM OF PRESENT REVISED REVISED


LOAN MARGIN MARGIN 1ST MARGIN 2ND
HOUSE HOUSE
< Rs 10 lakh 15% 20% 25%
>Rs 10 lakh<20% 20% 20% 25%
>20 lakh<50lakh 20% 25% 30%
>50lakh 20% 30% 40%

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Project on Bank of India

MARGIN:

Upto Rs. 10 lacs. : 15% *


Over Rs. 10 lacs : 20% *

 Of the cost of construction / acquisition / renovation / extension / repair /


Household articles Cost incurred by the proponent / borrower in the form of
Land already acquired / purchased by him from his own sources can be
treated as Margin, if requested by the proponent / borrower.

We can accept margin in the form of liquid Securities like Bank’s TDR,
NSC ,KVP, Govt. security etc. (Principal/ liquid Securities like Bank’s TDR,
NSC ,KVP, Govt. security etc. (Principal/ face value) and Surrender Value of
Insurance Policy in the name of Borrower/ Guarantor. Such security (ies) should be
properly charged/pledged to the Bank.

RATE OF INTEREST:

Loans sanctioned on/or after 10.10.05 are linked to BOIFRR. The revised rate
of interest under this category for new loans sanctioned w.e.f. 21.02.08. (No change
for existing loans as on 20.02.08) is as under:

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Rate of interest for new Rate of interest for new Rate of interest for
loans w.e.f. 21.02.08 loans w.e.f. 21.02.08 new loans w.e.f. 21.02.08
For limits upto Rs.20 lacs For limits over Rs.20 For limits over Rs. 50 lacs
lacs and upto Rs.50 lacs
Upto >5yr >10 >15 Upto >5yr >10y >15y Upto >5yrs- >10yrs >15yrs
5 - yr- yr- 5yrs -10yr r- r- 5yrs 10yrs -15yrs -20yrs
yrs. 10yr 15yr 20yr 15yr 20yr
BOIFRR 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00
Premium 1.25 1.50 1.75 1.75 1.50 1.75 2.00 2.25 2.00 2.25 2.50 2.75
Floating 9.25 9.50 9.75 9.75 9.50 9.75 10 10.2 10 10.25 10.5 10.75
Rate 5

Home loans are to be considered only on floating interest basis. Sanction of loans
on fixed interest basis has been discontinued;

If registered original title deeds are not available for creating equitable
mortgage, for any reason, at the time of disbursement, it may be submitted maximum
within 6 months. Any delay beyond 6 months will attract a penal interest of 0.5% p.a.
from the date of first disbursement . However in genuine cases, the ZM may approve
refund of penal interest charged during a particular quarter after receipt of title deeds.

OTHER INCENTIVE

With a view to provide life insurance cover to housing loan borrowers


(accounts of individual(s) only) against risk of death during tenure of the loan, we
have come out with a group insurance scheme in tie-up with ICICI Prudential Life
Insurance Co. Ltd. (IPLIC).

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REPAYMENT:

Maximum 20 years (including the moratorium or repayment holiday, at the option of


the beneficiary, till completion of construction or 18 months from the disbursement of
the first instalment of the loan, whichever is earlier).

• The repayment period should not extend beyond the period of retirement of the
borrower or on his reaching 65 years of age, whichever is earlier.

• For housing finance granted to borrowers, in rural areas, repayment of


instalments/ interest may be stipulated in quarterly, half-yearly or annual basis
to coincide with the income generation pattern. The borrowers/ co-borrowers
should have adequate repayment capacity when such relaxations are agreed
upon.

We may consider selectively requests to capitalize the interest charged during the
moratorium period and repay the same along with the principal. Preferably the interest
should be recovered as and when charged. Where interest applied during the
moratorium period is to be capitalized and recovered alongwith the principal, the
decision should be taken at the time of sanction of the proposal and we should ensure
that EMI is calculated taking into account the interest for the moratorium period. The
interest to be capitalized during the moratorium period shall be within the loan
amount eligible.
The EMI of the Home Loan is linked to rate of interest as well as to the tenure of the
loan. The borrower opting for floating rate of interest for a specific period of
repayment will have to bear the risk of additional higher EMIs whenever there is an
increase in rate of interest.
It is very much essential that we transparently communicate with each of the
borrowers upon increase in rate of interest as per the standard draft communication
(enclosed with rate of interest circulars). Apart from this, during the visit of the home
loan borrower to the branch and/or at the first contact with the borrower for obtaining
annual letters of acknowledgement (L-444C / L-444D), it is essential that we convey
very clearly the increase in rate of interest in home loan account.

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At the time of increase in interest rate of home loans, the request of the borrower, if
any, for retaining the same level of EMI with a longer repayment period needs to be
considered favourably, provided the age of the borrower permits longer tenure of the
loan within the norms of the scheme. We have to consider such request of the
borrowers and make suggestive efforts to find a solution to the problem of the
borrower to meet their future EMI commitment comfortably. These efforts as part of
credit monitoring are essential to ensure a healthy and default free home loan
portfolio.

In exceptional circumstances, where the borrowers have opted for maximum 20 years
repayment period and grant of extension beyond 20 years is not provided in the
scheme, we may undertake a review of the repayment programme and provide for a
step-up in EMI from a future date so as to ensure that the borrower has sufficient
notice and time to meet the enhanced EMI commitments.

B. Housing Loan for purchase of constructed property/built up property

In cases where the applicant approaches the bank/FIs for a credit facility to purchase
the built up house/flat, it should be mandatory for him to declare by way of an
affidavit-cum-undertaking that the built up property has been constructed as per the
sanctioned plan and/or building bye-laws and as far as possible has a completion
certificate also.
An Architect appointed by the bank must also certify before disbursement of the loan
that the built up property is strictly as per sanctioned plan and/or building bye-laws.

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C. No loan should be given in respect of those properties which fall in the


category of unauthorized colonies unless and until they have been
regularized and development and other charges paid.

D. No loan should also be given in respect of properties meant for residential


use but which the applicant intends to use for commercial purposes and
declares so while applying for loan.
H.O., Legal Department has devised a Draft Affidavit –cum-Undertaking (to be
stamped with stamp duty as applicable to that of an affidavit) to be obtained from
home loan borrowers. We have to obtain the Draft Affidavit-cum-Undertaking
(Standard stationery Code L-517),along with other documents in vogue.

Security documents to be obtained:


A)Basic Documents to be obtained in all cases:

a)Taking into consideration modifications made in the Home Loan Scheme, HO have
revised the existing Term Loan Agreement for Home Loans (L-513) in consultation
with Retail Banking Division Head Office The revised Agreement for Home Loans
will replace the existing L-513 and obtention of L-516 in Home loan accounts is also
dispensed with as the relevant contents of the said agreement have been incorporated
in the revised Home Loan agreement. There will not be any change in the other loan
and security documents for Home Loans and those are to be obtained as per the
practice in vogue. (Refer Br.Cir. 99/131 dated 21/11/2005)
b) Letter of guarantee duly signed by the guarantor/s
c) Life Insurance Policy for the amount of loan on the life of the borrower duly
assigned in favour of the Bank, if stipulated.
d) Search and title Investigation Report from an approved advocate certifying
that the title to the loaned house/ flat is clear, marketable and free from any
encumbrance. The report should also list out any special document to be taken for
creation of the mortgage. The Report should be addressed to the Bank
e) Extract record of rights and plan specification of the property as approved by
the local authority (copy of approved plan). (These are not necessary when the
building has been completed and occupation certificate has been issued by local
authority).

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f) Insurance policy for the cost of house/ flat above plinth level covering fire
risks and other hazards duly endorsed in bank’s favour.( If the society has insured the
entire building a copy of the policy may be obtained and kept).
g) A letter of authority issued by the borrower authorizing the bank to pay
premium on both Life Insurance Policy and Fire Insurance Policy by debiting
borrower’s loan/ savings bank account.
h) In the case of salaried persons, a letter addressed to the employer, authorizing
them to deduct from his /her salary the instalments and interest payable to the bank
and remit the same to the Bank.
i) In the case of self-employed persons, an undertaking to deposit with the Bank
24 post dated cheques every two years, well in advance, for equated monthly
instalments payable by him and to keep sufficient balance in his/ her account to
honour the cheque whenever the same is presented for payment.
j) A letter from the builder/ promoter/vendor that all advances and dues
of similar nature on the property have been paid, necessary permission from
the concerned authorities for developing the property have been obtained.

k) Penal interest is to be levied on the overdue amount / defaulted


instalment @ 2% p.a. Accordingly para 2.4 of Term Loan Agreement
L-513 (revised ) is to be revised as under:
“ The borrower also agrees to pay penal/ additional interest @______% p.a. over
and above the agreed rate of interest on the overdue amount/ defaulted
instalments, in the event of default by the Borrower in punctual repayment of
EMIs/ instalments till the defaulted EMI(s)/ instalment(s) is/ are paid in full and
the repayment is regularised___________”
Documents necessary to perfect collateral security, if any.

Equitable mortgage of the property by deposit of title deeds and recording of Oral
assent. .
Where a borrower intends to buy a flat in a building which is owned by a co-operative
housing society (as is the case in Mumbai)) from the existing owner equitable
mortgage is to be created by deposit of the following documents:

a) Registered Agreement for Sale executed by the vendor.

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b) Share Certificates of the co-operative housing society issued in borrower’s favour


as a member. If share certificate has not been issued by the society, an undertaking
from the society that the share certificate of the society will be forwarded to the Bank
directly as per Annexure XXI.
c) Blank transfer forms for transfer of shares signed by the borrower.
d) Certified copy of the Conveyance Deed duly executed by the builder promoter in
favour of the society regarding Title Right and interest in the land/flat. If the
Conveyance Deed is yet to be executed, an undertaking should be obtained from the
society to forward a true copy of the Conveyance Deed to the Bank directly, as and
when the same is executed by the promoter builder. A proper No Objection letter also
should be obtained from the promoter builder assenting to the creation of mortgage by
the purchaser of the flat. Thereafter execution of Conveyance Deed should be
followed up and a certified copy of the Conveyance Deed obtained as soon as it is
executed.
e) Letter of no objection from the society
f) When all the documents have been deposited and mortgage created by recording
oral assent, proper intimation thereof with a warning not to issue duplicate certificate
without permission of the bank should be sent to the society by Registered Post with
Acknowledgement Due. The society should also be requested to register the mortgage
in their books. Copy of the letter together with the postal receipt and
acknowledgement should be kept with the documents.

Mode of creation of Equitable Mortgage where flat is purchased from a Builder/


Promoter - Equitable mortgage where the flat is being purchased from a
builder/promoter and the building is under construction may be created by deposit of
the following documents:

a) Registered Agreement for sale executed by the builder/ promoter in favour of the
borrower.
b) A stamped undertaking from the promoter / builder
c) But in cases, where the original Sale Agreement is lodged for registration with the
Registrar/ Sub –Registrar of Assurance (RA/SRA), it often takes considerable time to
get back the same duly registered. In such cases i.e. where receipt of the registered

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documents is likely to be delayed by more than a month or so, equitable mortgage


may be created by deposit of:

A certified copy of Agreement (certified to be true copy by the RA/SRA)


Original receipt issued by the RA/SRA for the original document lodged with the
authority for the purpose of registration.

A letter addressed to the RA/SRA by the borrower, authorizing him to send the
registered document directly to the bank should be obtained in duplicate and the
original thereof to be sent to the RA/SRA along with a covering letter under property
acknowledgement of the RA/SRA. The original Agreement for sale should be
collected from the RA/SRA’s office when ready and kept with the other security
documents. Equitable Mortgage need not be created afresh.

In this regard, the branches can avail of the services of Bank’s empanelled lawyers for
collecting certified copy of the Agreement and thereafter the duly registered original
Agreement in due course from the RA/SRA. The cost of the services/charges of the
lawyers will be borne by the borrower. A letter authorizing the Bank to debit his
account with such charges obtained along with other security documents. Such
approval for creation of equitable mortgage by deposit of copy of title deeds certified
by RA/SRA and other prescribed documents can be given by a delegate of the rank of
Zonal Manager and above.

Legal Mortgage:
• In case of unavailability of title deeds i.e. mostly in case of ancestral
properties, legal mortgage may be created after obtaining approval of a delegate
of the rank of Zonal Manager and above who will give such approval after fully
satisfying himself about the clean marketable and unimpeachable title to the
properly.

Undertaking From Builder:


• Quite often the promoters / builders are reluctant to execute stamped
undertaking .It has, therefore, been decided that branches may obtain an

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undertaking from the promoters/builders on the letterhead as per extant


instructions but the same need not be stamped. In all cases, the extant
instructions, about obtention of approved Advocate’s Report on titles to the
property remain unchanged

SEARCH-REPORT (Title Opinion-cum-Nonencumbrance Report )

It should be obtained from an advocate on bank’s approved panel of advocates. The


original title deeds which the mortgagor proposes to deposit with the bank shall be
handed over to the advocate through bank only with a covering letter listing out
bank’s requirements as under:
i) Advocate must state in his title opinion-cum-non encumbrance report that he
has received and examined the original title deeds and verified the
genuineness of the same from the concerned office of the Sub-
Registrar/Registration authority concerned. In no case the advocate should
submit his report based on the Xerox copy or certified copy of the original title
deeds.
ii) Additionally he should also compare the contents of the latest deed/s by which
the title has been passed on in favour of the mortgagor ( borrower/guarantor)
with the document/s maintained in the office of the Sub-Registrar so as to
ensure authencity of the same. If the property offered as security is being
purchased out of bank finance and sale deed is yet to be executed, the
advocate should inter alia compare the contents of the latest deed/s by which
the Seller has acquired the title with the document/s maintained in the office of
the Sub-Registrar so as to ensure the title of the seller and that the buyer
(Mortgagor) would get a perfect title upon execution of the sale deed. A
confirmation to this effect should be made in the report of the advocate. If he
feels it necessary to cross check any prior title deeds, so as to give a proper
report, he should do so.
iii) Advocate should directly obtain the non encumbrance certificate from the
office of the Sub-Registrar (whereever there is provision for issuance of such
certificate ).
iv) The report should certify that the documents are adequately stamped as per
requirements of law of the state.

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v) The search should be for 30 years for ascertaining the encumbrance on the
property.
vi) In every title opinion the advocate must give complete list of all
documents/deeds /papers examined by him and full particulars of the
documents which are registered including the dates of execution and
registration of documents and the particulars of entries made in the
bookes/record of the Sub-Registrar/Registration authority with regard to such
documents.Original receipt of fees paid for SEARCH/ENCUMBRANCE
certificate to be obtained and kept on records.
vii) In every title opinion the advocate must trace the chain of title to the land in
question at least thirty years preceding the date of creation of mortgage. The
chain of title given in the title deed must also be verified by the advocate from
the office of the concerned Sub-Registrar /Revenue Authority/Municipal
Authority. A certificate to this effect must be given by him in his title report.
viii) In the report the advocate must state the devolution of title and refer to the
position regarding mutation of the name of the mortgagor in the record of
rights maintained by revenue authorities/Municipal Authorities showing the
title of the mortgagor over the property and certified copies of the mutation
entries must be submitted by the advocate along with his title report to the
bank.
ix) Wherever the position of possession over the land are recorded separately in
the records of the Revenue/ Municipal authorities the advocate must inspect
those records and make a reference to these in the title report and submit
certified copies of extracts from such records along with the reports.
x) In case the property to be mortgaged is occupied by tenants, the advocate must
include comments in his report on the status of occupants vis-à-vis bank’s
right to enforce the security.
xi) It should be addressed to the branch of the bank where the loan is to be
granted and the advocate and the advocate should directly deliver the
report/original documents to the Branch Manager in a sealed cover OR
Branch Officials should collect the same from the advocate in a sealed cover.
In no case the report/document should be handed over to the borrower or his
agent.

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xii) It should certify that the mortgagor has a clear, unencumbered and marketable
title to the property in question.
xiii) It should list the documents which are required to be deposited by the
mortgagor with the bank for creation of equitable mortgage charge.
xiv) It should also specify whether any permission is required to be obtained under
any Act or from any authority whatsoever for creation of mortgage charge in
favour of the bank. In case any such permission is required, details of the same
should be given.

To ensure that proper procedure has been followed for title verification of the
property to be mortgaged and the report contains all the required details as per
procedure of the bank in force, it must be checked and certified that the same meets
completely the requirements of the bank and contains the required details as per the
procedure of the bank in force, by branch officials, namely :
a) By the chief incumbent of the branch in case of branches headed by
officials below the rank of Chief Manager.
b) By the credit in-charge of the branch in case of branches headed by officials
of the rank of Chief Manager and above.

The search and Title Inspection Report need not be insisted upon in the following
cases:

At in an existing co-operative society is being purchased and all the original


documents are available and society confirms borrower’s membership the title, right
and interest in the flat and also his possession of the flat and certificate that there are
no encumbrances on the flat.

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SCORING MODEL FOR HOUSING LOAN


SR CRITERIA MARKS TO MARKS
NO. BE ALLOTED
ALLOTED
1. AGE CRITERIA maximum marks -5
>20-25 yrs 2
>25-30 yrs 4
>30-40 yrs 5
>40-50 yrs 3 3
>50-55 yrs 2
>age above 55 yrs 0

2. LENGTH OF SERVICE maximum marks-5


Above 10 yrs in current employment 5 5
> 7 < 10 yrs in current employment 4
>3<5 yrs in current employment 3
1-3 yrs in current emp/business/profession 2
Below 1 yr. 0
OR
PERIOD IN THE BUSINESS/PROFESSION
maximum marks-5
Above 5 yrs. 5
>4<5 yrs. 4
>3<4 yrs 3
>2<3 yrs 2
>1<2 yrs 1
Below 1 yr 0

3. Employment details(working within)


Maximum marks-10
PSU’s/Banks/Insurance co.’s 10
Multinational co.’s 9
Government (central/state) depts. 8
Other corporate 7
Small sector (pvt ltd.,partnership/proprietorship) 4
Unorganised sector 2
OR
Professional & self Employed
Maximum marks-10
Persons
Doctors 10
Lawyer/CA/ICWA/Architect 8
Big Business operator(Industry/trade T/O > 8
Rs.50 Lakhs)
Small business/shop owner(Industry/trade T/O 6 6

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upto Rs.50 Lakhs)


Other self employed 3

4. Residence/ownership of Residence
maximum marks-5
House is self employed in same place 5 5
House is self employed at other place 3
House is owned by spouse 3
Rented house in own name >5 yrs 3
Rented house <5 yrs 0

5. Family composition/Dependents
Maximum marks -3
Dependents <2 3
Dependents >2-<4 2 2
Dependents >4 0

6. Ownership of car/telephone/credit card


Maximum marks -5
Car owner + Telephone owner 4 4
Only car owner 3
Only telephone Owner 2
Only holding credit card 1

7. Net additional income from spouse/members.if


any maximum marks-5
Income beyond Rs.10000 p.m 5
Income >5001 & upto Rs.10000 pm 3
Income >3000 & upto Rs.5000 pm 2
Earning btwn Rs,2000-3000 pm 1

8. Deposit position/potential maximum marks-5


Average Deposit last 1 yrs> Rs.25000 5
Average deposit last 1 yrs Rs.15-25000 4
Average deposit last 1 yrs Rs.10-15000 3
Average deposit last 1 yrs Rs. 5-10000 2
Average deposit last 1 yrs <Rs. 5000 0

9. Existing Borrowing Adjustments


Maximum marks-3
Banks Borrower-standard asset 3
Other Bank/institutional borrower-No Default 1

10. Whether salary deduction available


Maximum marks-5
Employer agreeable to salary deduction 5

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Employer not agreeable to salary deduction but 3 3


post dated cheques obtained
TOTAL MAXIMUM MARKS 50 33

LESS THAN 20 MARKS – NOT TO BE CONSIDERED


DATE: Signature...................
Name of officer.............
Designation...................

PRACTICAL PROBLEMS WITH BANK-case


Housing Loan - Interest Rate:
The complainant who represented his son alleged that his son had applied for a
housing loan at Fixed Rate of 7.5% but the bank sanctioned the loan at floating rate of
8% p.a. Subsequently the bank without any intimation to the party increased the
rate of interest from 8% to 11% at various stages. Since the party had applied for the
loan from the bank on a fixed rate basis, he took up the matter with the bank. The
bank was not responsive and did not furnish the required clarification to him. Not
satisfied by the bank’s attitude, the party
approached the Banking Ombudsman for redressal. The Banking Ombudsman
observed from the copy of the housing loan agreement that the loan was sanctioned at
a fixed rate of interest of 8% which would continue for minimum period of 5 years.
However, contrary to the terms of the loan agreement with the borrower, the bank had
charged the interest at floating rate varying from 8% to 11.5%. This action of the bank
violated the terms of the agreement and had led to collection of excess interest from
the complainant. The bank was directed to refund the excess interest collected and
charge interest only as per the agreed terms. This was complied with by the bank by
refunding Rs. 54,886.

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STAR AUTOFIN SCHEME

Bank is giving thrust to Retail Segment of advances as this


segment offers a good potential to improve the Credit Offtake. The terms of captioned
scheme have been modified from time to time and the terms in vogue are as
enumerated below:

ELIGIBILITY: All Salaried employees, Professionals, Self-


employed,Businessmen, Individuals with high net worth, people
engaged in Trade/ Commerece/ Business, Pensioners, Farmers,
Staff members, Prop. Firms, Partnership firms, Pvt./ Public Ltd.
Companies, Directors of Companies, Other types of Corporate
entities, Senior Citizens.

Non-resident Indians in India. Advance to be granted jointly with


Resident Indians (close relative).

HUFs are not permitted.

Advance can be granted jointly to two individuals


combining their entitlement provided they are close
relatives and vehicle is registered in the name of
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AGE : Age of the individual borrower not to exceed 65 years at the time of
availing the advance.

PURPOSE:
For purchase of new two wheelers/ four wheelers;

Second hand vehicle can also be financed if the age of the vehicle
is up to 3 Years.
Finance can be granted against the second hand vehicle when
Comprehensive Insurance Cover is available.

For purchase of light personal vehicles not requiring heavy duty


driving license viz. Jeeps, Vans etc.

For purchase of personal vehicles powered by non-conventional


energy, such as electronic/battery operated small vehicles for urban
transport provided they are registered with RTO. ( Vehicles not
registered with RTO can be financed subject to specified curtailed
limits of advance preferably with collateral security).

LIMIT/ QUANTUM:
Maximum limits for finance :-
Individuals (Resident in India):
For Indian make vehicles: Rs.25 lakhs.
For imported vehicles : Rs.75 lakhs.
For companies and corporate entities : Rs.100 lakhs
(Can be a fleet of vehicles)
Non-resident Indians Rs. 25 lakhs
For vehicles run on non-conventional energy and not
required to be registered with RTO :
Two wheelers - Rs.50,000/- (Max.)

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4 wheelers - Rs. 4.00 lacs.(Max.)

More than one vehicle can be considered within


the above limits, provided the first account is in
order, Hypothecation charge is registered and
The limit is subject to: (a) 24 times of gross monthly emoluments in case of salaried
employees/pensioner / or 2 times of gross average annual income as per last three
years IT returns.
(b) two times of average annual cash accrual (i.e. PAT + depreciation) as per
firms/companies last three audited balance sheet, P & L Account.
(c) In respect of farmers depending on his repayment capacity as is applicable in
Agriculture Loans .
(d) Net take home pay should be atleast 40% of income (net of proposed
EMI).

Branch Managers are permitted to assess annual income of the proponent/borrower


maximum upto Rs. 1 lac in absence of documents.

GUARANTEE :

1 (a)Third party guarantee not required in respect of loans to resident


individuals up to Rs. 25 lakhs provided vehicle is registered with
RTO and Bank’s Charge is registered thereon;
(b) Third party guarantee can be waived by Sanctioning Authority in
respect of loan to Corporates subject to Charge registered with ROC.
[Vehicle registered in Company’s Name]; OR
(c) In case vehicle is not registered in Company’s / firm’s Name,
Guarantee of the Director in whose name the vehicle to be registered
is to be obtained.
2. Third party guarantee of Resident Indians to be obtained in respect
of loans to Non-resident Indians, irrespective of limit.
3. Third party guarantee is required for loans to vehicles (irrespective of
limit) not registered with RTO and for loans to individuals for limits
exceeding Rs.25.00 lacs.

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4. Third party guarantee wherever applicable can be waived by sanctioning


authority with obtention of tangible collateral security of acceptable
value.

INTEREST:

i) 2/4 wheelers Rate of interest for loans upto Rs. 10 lacs


a) New Vehicle 11.00%
Repayment upto 3 years
b) New Vehicle 11.25%
Repayment over 3 years
c) Second hand Vehicle 11.75%
ii) 2/4 wheelers Rate of interest for loans over Rs. 10 lacs
a) New Vehicle 12.00%
Repayment upto 3 years
b) New Vehicle 12.25%
Repayment over 3 years
c) Second hand Vehicle 12.75%

INTEREST CONCESSION OF 0.25% p.a. IN RESPECT OF LOAN TO


WOMAN
BENEFICIARY CONTINUES.

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PENAL INTEREST : As per guidelines issued from time to time.

MARGIN:

Individuals : (Including NRIs)


Upto Rs.2 lakhs - 5%
Rs.2 lacs to Rs.10 lacs - 10% For new
Above Rs. 10 lakhs upto Rs. 25 lakhs – 15% Vehicles
Above Rs. 25 lakhs min. 25% only

For Corporate entities / firms etc. min margin : 25%

For second hand vehicles: min 30%( on depreciated value or value assessed by
valuer or sale consideration whichever is lower.)

PROCESSING CHARGES:

a) Loan upto Rs.25000/-: one time Rs. 1000/-


b) Loans above Rs.25000 upto Rs. 25 lakhs one time 1.10% of the loan amount :
Min Rs.550, /Maximum Rs. 2200/-
c) For loans above Rs. 25 lakhs : one time 0.25% of the loan amount - maximum
Rs. 15000/-.
Service Tax as applicable.

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Processing charges waived for senior citizens, staff members & retired
employees of the Bank and pensioners drawing pension from the Bank. No
processing charges at the time of review (same terms).

Agreement copy charges :


Furnishing copy of Agreement, along with copy of enclosure quoted in the loans
agreement against payment of charge –
Administrative charge :
Rs.25/- for loans upto Rs.2.00 lacs
Rs.110/- for advances upto Rs.1.00 crore
Rs.200/- for advances above Rs.1.00 crore
Plus copying charges of Re 1/- per copy per page.

REPAYMENT:

A) For Individuals : For new vehicles –


4 wheelers- imported vehicles Max. 7 years.
4 wheelers - Indian vehicles – Max. 6 years.
2 wheelers – maximum 5 years.
B) For Corporates /Firms etc : maximum 5 years
C) For second hand vehicles – maximum 3 years

SECURITY:

1) Principal security – Hypothecation of assets purchased out of Bank finance &


charge to be registered with RTO and registered as Personal vehicles.
2) Comprehensive insurance of the vehicle with Bank clause.
3) Collateral security is desirable and can be insisted by sanctioning authority for
loans to individuals exceeding Rs. 25 lacs.
(i) In respect of vehicles financed to Corporates and registered in
Company’s name itself, registration of charge on vehicle (asset of
the Company) needs to be done with Registrar of Companies also

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(apart from registration of Bank’s charge on vehicle with


RTO).
(ii) In respect of vehicles run on non-conventional energy not
requiring
registration with RTO, collateral security to be obtained for loans
above
limits of Rs. 1.00 lac.

DOCUMENTATION: -

1) Application-cum-proposal.
2) Composite Hypothecation agreement for charge on asset financed by the Bank
– L- 512
3) DP Note and instalment letter.
4) L 515 – Declaration; L 516 - Agreement
5) Statement of asset and liabilities of borrowers/guarantors
6) Letter of guarantee wherever applicable (OD-194)
7) Bank’s charge to be registered with RTO and copy of RC Book with
Bank’s lien noted thereon to be kept with documents.
8) Transfer forms in blank in duplicate.
9) Comprehensive Insurance Policy.
10) Letter from the borrower addressed to the Insurance Company authorising
them to pay vehicle damage claims to the bank.
11) An unstamped document regarding Engine No. And Chassis No.
12) In case of second hand vehicle valuation certificate of an approved valuer.
13) Undertaking to inform change in constitution / address etc.
14) Registration of charge with ROC in respect of finance to Companies.
15) Creation of charge on collateral security if proposed/stipulated.
16) Other due diligence documents -
a) Income tax returns/salary particulars/Balance sheets, etc.
b) For tie-up arrangements with employer, letter of authority to employer
for recovering instalment from salary.
c) In other cases post-dated cheques towards EMIs.

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Discretionary power / Delegation


Scale I II III IV V VI VII ED &
above
Rs. in lacs 1.00 5.00 8.00 25.00 50.00 75.00 100.00 Full
powers

REVIEW :

Account sanctioned under the schemes is to be reviewed in a statement format on an


annual basis as under :
1) Review of accounts covered in CCIS-3, as per the guidelines prevailing in this
regard from time to time.
2) Review of accounts other than CCIS-3, and which are standard assets, as on
31st December each year are to be reviewed in a statement format at the branch
level.
3) In respect of sanctions beyond branch level review proposals are to be
submitted to the respective delegated authority.
NO PROCESSING CHARGES TO BE RECOVERED AT THE STAGE OF
REVIEW – SAME TERMS. However, processing charges can be levied at the
time of review involving change in terms necessitating fresh documentation.

DISPOSAL OF APPLICATION :

Application for loans under the above scheme is to be disposed off within a period of
2 weeks. A sanction letter conveying all terms of sanction is to be issued to the
customer in duplicate, a copy of which duly receipted by the customer in token of
having accepted the terms and conditions is to be kept on record.

PERIODICAL CLEARANCE :

The scheme is available to all branches . However after sanction of every 20 accounts
it is to be reported to Zonal Office giving details of accounts sanctioned under the
scheme( along with details of irregular accounts). Financing may be continued upto

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25 accounts but not beyond that . Further financing may be made on receipt of
clearance from Zonal Office.

_______________________________________

STAR EDUCATIONAL LOAN SCHEME


• ELIGIBLE COURSES:
a) Studies in India(Indicative list):
• Graduation courses: BA, B.Com, B.Sc, etc.
• Post Graduation courses: Masters & PhD.
• Professional courses: Engineering, Medical, Agriculture,
Veterinary, Law, Dental, Management, Computer etc.
• Computer certificate courses of reputed institutes accredited to
department of Electronics or institutes affiliated to university.
• Courses like ICWA, CA, CFA, etc (only examination fees to the
respective Institutes, in absence of regular course curriculum).
• Courses conducted by IIM, IIT, IISc, XLRI, NIFD, NID, and other
Institutes set up by Central/State Govt.
• Courses offered in India by reputed foreign universities with prior
approval of Head Office.
• Evening courses of approved institutes.
• Other courses leading to Diploma/degree, etc conducted by
colleges/universities approved by
UGC/Govt./AICTE/AIBMS/ICMR, IMC, etc.

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• Courses offered by National Institutes & other reputed private


institutions with prior approval of Head Office.
• Additional list of Specific Institutes Approved as per Annexure.
• Regular Degree/Diploma courses like Aeronautical, Pilot Training,
Shipping, etc. Approved by Director General of Shipping/Civil
Aviation, if the course is pursued in India.
In case the course is pursued abroad the Institute is to be
recognized by the competent local Aviation/Shipping Authority.

b) Studied abroad:
• Graduation: For job oriented professional/technical courses offered
by Reputed/State Funded universities.
• Post Graduation: MCA, MBA, MS, etc. From State Funded
universities.
• Courses conducted by CIMA – London, CPA in USA, etc.

[Courses which are not cover this scheme are outside the ambit of
the scheme as per se. Independent terms need to be considered for
extending finance to such courses outside the scheme, having
regard to the additional risk factor/s. ]

Courses pursued under “Distance Education programme” are


outside the purview of the scheme & presently are not financed.

2. STUDENTS ELIGIBILITY:
• Should be an Indian National & the student parents should be
ordinarily resident of Branch area of Operation.
• Secured admission to professional /technical courses in India or
Abroad through Entrance Test/Merit based selection process.
• The student should not have outstanding education loan from any other
institute.
• No Dues Certificate need not be insisted upon as a pre-condition for
considering educational loan. However, we may obtain a

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declaration/an affidavit confirming that no loans are availed from other


banks/financial institutes.
• There are many private institutions who offer placement after
completion of course but the institutes are not approved by
UGC/Govt./AICTE/AIBMS/ICMR etc. Applications of students
desirous of undergoing such courses may be sent to the higher
authority for consideration.

There is a Public Notice on the website of AICTE, at


www.aicte.ernet.in, where in the students are advised not to take
admission in technical education courses run by any institute which has
not been approved by AICTE. The students have been cautioned that
joining such unapproved programmes can have serious consequences
in employment as well as higher studies. The website also provide list
of unapproved technical institutions including 169 institutes running
presently without AICTE approval & another list of 104 institutes
under the category with foreign collaborations without AICTE
approvals. AICTE is a statutory body of Govt. Of India, and this public
notice assumes significance which can be precursor for more stringent
measures affecting the institutes which have not been recognised or
approved by AICTE. Any student approaching our bank seeking
education for a course in an Institute not approved by AICTE is to be
advised of this public notice. In case he/she is considered to be
financed for the course, a letter addressed to the bank stating that
he/she is aware of the risk of undertaking this course & is fully
responsible for the risk thereof, is to be obtained & kept on record.

The provisions of AICTE Act(52) of 1987 & the regulations laid down therein
makes the approval mandatory for any institution offering technical education
programmes in Engineering & Technology, Management, Computer Application,
Architecture & Town planning, Pharmacy, Hotel management & Catering technology,
applied Arts & Crafts, in India with or without foreign university collaboration.
Therefore, it is advisable to ensure that the loans being given is for course which

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adhere to the provisions of AICTE Act, and student is made aware of the risk of non
compliance.

For financing studies abroad the website www.webometrics.info/about.html is


to be referred which provides list of reputed universities of the world. For financing
under Education Loan Schemes we can consider all listed universities up0to world
ranking 3000 in the above website.

EXPENSES CONSIDERED FOR LAON


 Fee payable to college/school/hostel.
 Examination/library/laboratory fee.
 Purchase of books/equipments/instruments/uniform.
 Caution deposit/building fund/refundable deposit supported by Institution
bills/receipts subject to the condition that the amount does not exceed 10% of
the total tution fee for the entire course.
 Travel expenses/passage money for abroad.
 Purchase of computerd/laptops-essential for completion of the course.
 Any other expense required to complete the course-like study tours,project
work,thesis.
 Whenever hostel accommodation of the institution college is not
available,branches may consider need based loans for expenses on lodging
boarding arrangement made by the student.
 Fee payable to college institute shall be as per the brochure/demand letter from
the institutions. upward revision of the college fees/tution fees,etc needs to be
considered from time to time,with review of the account,subject to compliance
of other terms under items 4,5 and 6 below
4.QUANTUM OF FINANCE

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Need based finance subject to repaying capacity of the parents/students with margin
and the following ceilings.
 Studies in India - Maximum Rs. 10 lakhs
 Studies Abroad – Maximum Rs. 20 lakhs
5. MARGIN
Upto Rs. 4 lakhs- nil

Above Rs.4 lakh-Studies in India – 5%


Studies Abroad- 15%
 Scholarship/assistantship to be included in margin
 Margin may be brought in on year-to-year basis as and when disbursements
are made.

SME POLICY

I. MSME Definition:

(i) SME would henceforth be meant to include Micro Small and Medium
Enterprises (MSMEs). As per the MSMED Act 2006 (Micro, Small, and Medium Enterprises
Development Act 2006), the activities of these enterprises are classified into Manufacturing
and Service Categories.
(ii) The definitions of Micro, Small and Medium Enterprises would thus be in
place of the existing definitions of Small & Medium Industries and SSSBEs/Tiny
Enterprises. The following important points may please be borne in mind:
 Micro Enterprises would include Tiny Industries also.

 Micro, Small Enterprises (Manufacturing) would mean (and replace) Small Scale
Industries (SSIs).
 Medium Enterprises (Manufacturing) would mean (and replace) Medium Industries
(MIs).
 Micro, Small Enterprises (Services) and Medium Enterprises (Services) would mean
Other Small & Medium Enterprises such as Professional & Self-Employed, Small Business
Enterprises, and Small Road/Water Transport Operators and Other Service enterprises,
engaged in providing/rendering of services.

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BANK OF INDIA
KOPRI COLONY BRANCH
CCIS SUMMARY REPORT FOR THE PERIOD ENDED 31/05/10
(RETAIL & SME)

Investment Criteria:
(a) The following chart indicates the threshold investment levels for both Manufacturing
sector (investment in PLANT & MACHINERY)* and Services sector (investment in
EQUIPMENT)* for the three categories of Manufacturing and Services Enterprises :

Engaged in Engaged In
Manufacturing/ Preservation
Providing/
Enterprise of Rendering of Remarks
Goods Services
(incl. Processing

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Units)
Micro Not to Exceed Not to Exceed 1.Separate threshold
Enterprises Rs. 25 Lakhs. Rs. 10 Lakhs. investment limits
Small More than More than
proposed by the Act
Enterprises Rs.25 lakhs but Rs.10 lakhs but
Manufacturing and
does not exceed does not exceed
Services Sectors.
Rs. 5 Crores. Rs. 2 Crores.
2. Micro Enterprises
Medium More than More than
introduced under both the sectors.
Enterprises Rs.5 Crore but Rs. 2 Crore but
does not exceed does not exceed
Rs. 10 Crores. Rs. 5 Crores.
* While calculating the investment in plant and machinery/equipment referred to above, the
original price thereof shall be taken into account, irrespective of whether the plant and
machinery/equipment are new or second hand.
(b) In case of imported machinery/equipment, the following duty/charges/costs
shall be included in calculating their value:
 Import Duty (not to include miscellaneous expenses such as transportation from the
port to the site of the factory, demurrage paid at the port);
 Shipping Charges;
 Customs Clearance charges; and Sales Tax or Value-added Tax.
Cost of the following plant & machinery/equipments etc would be excluded:;
 equipments such as tools, jigs, dies, moulds, and spare parts for maintenance and the
cost of consumable stores;
 installation of plant & machinery;
 research and development and pollution control equipments;
 power generation set and extra transformer installed by the enterprises as per the
Regulations of the State Electricity Board;
 Bank charges and Service Charges paid to the National Small Industries Corporation
or the State Small Industries Corporation;
 Procurement or Installation of cables, wiring bus bars, electrical control panels (not
mounted on individual machines)
 Oil circuit breakers or miniature circuit breakers which are necessarily to be used for
providing electrical power to the plant and machinery or for safety measures;
 Gas producer plants;

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 Transportation charges (other than sales tax or value-added tax and excise duty) for
indigeneous machinery from the place of their manufacture to the site of the enterprise);
 Charges paid for technical know-how for erection of plant machinery;
 Such storage tanks which store raw materials and finished products only and are not
linked with the manufacturing process;
 Fire-fighting equipment; and
 Such other items as may be specified, by notification from time to time.
(c) In case of Service Enterprises, the original cost to exclude furniture, fittings
and other items not directly related to the services rendered. Land and Building would also
not be included while computing the machinery/equipments cost.

(vii) Services Sector:


Service Enterprises are those engaged in providing or rendering of services
(subject to above investment criteria) and will include:
• Small Road and Water Transport Operators.
• Professional & Self-Employed.
• Small Businesses.
• All Other Service Enterprises.
An illustrative list of Services Enterprises is furnished in Annexure IV. It may be noted that
the activities should be of services nature and not any and every activity. It may be
industry-related such as industrial consultancy, industrial photography, auto
repairs/services/garages, Undertakings engaged in maintenance/repairs/testing/servicing of
vehicles/machinery etc or non-industry-related such as tailoring, X-Ray clinic, ISD/STD
Booths etc.
II. Classification of MSMEs Under Priority Sector:

The RBI has since taken into account the definition of MSMEs as per the
MSMED Act 2006 for purposes of their classification under Priority Sector. Accordingly all
the following advances would be eligible for classification as Priority Sector. It may
importantly be noted that all advances to Micro & Small Enterprises in both the manufacturing
and services sectors except private Retail Traders with credit limits up to Rs.20 lakhs and
advance to Traders under Public Distribution System or Fair Price Shops/Consumer Co.op

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Socities, have been synchronised with the MSMED definition to fall under Priority Sector
classification.

(a) Small Enterprises (Direct and Indirect Finance):

(i) Direct finance to small enterprises shall include all loans given to micro and small
(manufacturing) enterprises engaged in manufacture/ production, processing or preservation
of goods, and micro and small (service) enterprises engaged in providing or rendering of
services, and whose investment in plant and machinery and equipment (original cost excluding
land and building and such items as mentioned therein) respectively, does not exceed the
amounts specified above under (vi) Investment Criteria. The micro and small (service)
enterprises shall include small road & water transport operators, small business, professional
& self-employed persons, and all other service enterprises, subject to the above investment
criteria. (Please importantly note that Retail Trade is dealt separately below).

(ii) Indirect finance to small enterprises shall include finance to any person providing inputs
to or marketing the output of artisans, village and cottage industries, handlooms and to
cooperatives of producers in this sector.

(iii) Reserve Bank of India has classified Retail Trader advances separate from MSME
Enterprises. As such, advances to Retail Traders would not be classified under MSMEs,
although such advances would be handled and reported by SME-SBU.

• Under Retail Traders, Private Retail Traders with credit limits up to Rs.20
lakhs would alone be eligible to be classified as Priority Sector. Thus, all advances to
Private Retail Traders exceeding Rs.20 Lakhs would not be covered under Priority Sector.
• Retail Trade shall include retail traders dealing in essential commodities (fair
price shops), and consumer co-operative stores (irrespective of credit limits).

(b) Medium Enterprises:

Bank’s lending to Medium Enterprises in both the manufacturing and services


sectors would not be included for the purpose of reckoning under the Priority Sector.

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III. Impact of the Latest RBI Guidelines:

Due to the revised MSMED Act definition of MSMEs, some accounts may
have to be shifted from Medium to Small enterprises. Advances to Retail Traders /Wholesale
Traders/Other Traders would no longer be part of MSME advances. Under Transport
Operators, the number of vehicles (prescribed earlier as not exceeding 10 vehicles) is no
longer the criterion but the overall original investment in such vehicles would determine their
status as MSME.

IV. Target for Micro & Small Enterprises Credit:

The RBI has prescribed the following overall target for the Bank as a whole for
Micro & Small Enterprises credit :
Small Advances to small enterprises sector will be reckoned in
Enterprise computing performance under the overall priority sector target
Advances of 40 per cent of ANBC (Adjusted Net Bank Credit) or
credit equivalent amount of Off-Balance Sheet Exposure,
whichever is higher.

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icro enterprises
(i) 40 per cent of total advances to small enterprises sector should
Advances go to micro (manufacturing) enterprises having investment in pl
within and machinery up to Rs 5 lakh and micro (service) enterprises hav
Small investment in equipment up to
Enterprises Rs.2 Lakhs.
Sector
ii) 20 per cent of total advances to 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
small enterprises advances should go to the micro enterprises).

iii) By corollary, the rest 40% should go to Small Enterprises(Manufacturing) w


investment in plant and Machinery more than Rs.25 lakhs and up to Rs.5 Crores as
well as to Small Enterprises (Services) with investment in
equipment more than Rs.10 lakhs and up to Rs.2 Crores
Export Export credit is not a part of priority sector for domestic
Credit commercial banks.

V. Filing of Memorandum by Micro, Small & Medium Enterprises:

There is a change in the entire registration process with the MSMED Act.2006
coming into force w.e.f. 02/10/2006. Vide Chapter III Section 8 (Page 7), the Act stipulates
certain important requirements from the Entrepreneurs which are quoted verbatim in the
Annexure hereto. Accordingly, the following would be the requirements under the MSMED
Act 2006:

a. New Enterprises established/to be established after the MSMED Act 2006:


A Memorandum has to be filed with the District Industries Centre under whose
jurisdiction the enterprise is located/proposed to be located. Depending on the activity of the
Enterprise, the filing of the said memorandum is either mandatory or discretionary as
shown below:
Sl.No. Enterprises Memorandum

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A. Micro & Small Enterprises in Not mandatory but only discretionary with the
both Manufacturing and discretion left to the Entrepreneur concerned.
Services Sectors.
B. Medium Enterprises in the Not mandatory but only discretionary with the
Services Sectors discretion left to the Entrepreneur.
C. Medium Enterprises in Mandatory.
Manufacturing Sector

 However, with the advantages/benefits available in many ways to such


enterprises (A & B above), from several Authorities/Organisations, it is always
desirable (though not mandatory) to file Memorandum of Registration.
 Wherever SSI Registration Certificate Number is asked for by any other
body/authority, the units may furnish the date of filing the Memorandum and the
date of acknowledgement thereof, as received from the authorities.

b. Existing SSI & Medium Industries:

 In much the same way as above, it is not mandatory for an existing SME
(Mfg.) unit to file the Memorandum as above; however, at their discretion the
SME (Mfg.) may file the Memorandum, in view of the benefits available due to
Registration.
 An existing Medium industry (in the manufacturing sector), however,
should mandatorily file the Memorandum as required.

Credit Officers/Managers should importantly bring the above provisions to our


SME Borrowers’ knowledge/information for their necessary action.

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VI. Interest Rate Concessions:

(a) Only those enterprises which can be classified as MSMEs in


accordance with the above definitions would qualify for interest rate concessions. Any
other activity/enterprise, not falling under above MSME definition cannot,
therefore, be extended any concessions available to MSMEs. Wherever concessions
need to be given for such non-SME advances, the same would be in the normal course
(as applicable to and stipulated under C & IC advances). Wherever such concessions
were already given in the past, the same would have to be withdrawn immediately
under advice to the borrower concerned and appropriate interest rate fixed. If it is
desired to extend any concessions to such borrowers for business exigencies, the same
would be considered under Commercial & Institutional Credit and NOT MSME.

(b) A detailed list of the activities eligible for classification as SME (Manufacturing &
Services) is as per Annexures V(i) & (ii).

(c) In respect of schematic lendings, or advances under any specialized scheme like
Priyadarshini Yojana, Star SSI Suprime, Star Laghu Udyog Suvidha or medi-mobile
scheme or finance under Star Channel Credit or finance to cluster of accounts under
Cluster Finance, the rate prescribed for the scheme as a whole would prevail over, and
the rate concessions would not be applicable. Thus, wherever the interest rates are:
Fixed the existing rates would continue till reset.
Floating, i.e. the existing rates would be increased/decreased in tune with the
linked to BPLR PLR increase/decrease.
VII. Judicious Concessions: Although the concessions allowed as above are
applicable generally to NEW accounts, Zonal Managers as well as General Managers
overseeing Zones are authorised to offer the concessions selectively under the
following conditions as well:
• Only when there is an imminent threat of take-over of our existing accounts.
Delegatees have to satisfy themselves that such threat of take-over is genuine
and there is every chance of losing the account if the concession is not
granted.
• Our bid for taking over of satisfactory accounts from other Banks through
offer of concessional rates.

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The authority should be exercised with great restraint and with adequate justifications
so that the Bank’s bottomline does not get affected much.

Extant concessions to Borrowers who are no longer covered under


MSMEs (such as Retail Traders etc) would be withdrawn forthwith and in any case,
such concessions to non-MSME Traders would, as already stated, be as applicable to
advances under Commercial & Institutional Credit (C & IC) sector.

Branches may obtain rating done by External Agencies such as


CRISIL, Dun & Bradstreet, SMERA etc before interest concessions are extended.

VIII. SME Cells@ Zonal Offices: Specialised SME Credit Cells have been set up at
following Zonal Offices with the following functions:

 Proposals falling within the Branch Manager’s Delegated Authority:


Branches should own responsibility for the borrower’s credentials and activity
and ensure existing procedures/processes to continue.
 Proposals beyond the Branch Manager’s Delegated authority: All
proposals would be forwarded by Branches with all related papers and their
recommendations for evaluation at SME Cell. In other words, it is centralised
processing at the SME Cell.
 Branches would be free from processing of such proposals (beyond their
delegated authority) and sanction formalities and be responsible only for
obtention of security documents from the borrower and for perfection of other
securities as well as monitoring of the unit’s operations.
 Proposals processed by the Cell would be directly submitted to the
Sanctioning Authority at the Zonal Office, i.e. without any intervening
authority.
 Turnaround time would thus be reduced, ensuring that stipulated time
schedules are strictly followed by both- Branches and the Zonal SME Cell;
 The critical parameter for measuring the Cell’s performance would be the
reduced Turnaround time and SME business growth.

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IX. Take Over of Accounts: Branches/Zones may consider take-over of advance


accounts from other Banks/FIs if the following minimum financial parameters and
conditions are complied with:
 Accounts should be eligible for a credit rating of minimum AA as per
our credit rating model treating the account as a new one.
 The accounts to be taken over should be standard accounts with the
existing Bank.
 The firm/company continuously registering increasing trend in sales
volume and making cash profit for at least last three years.
 Maximum debt equity ratio of 3:1 in the case of Medium Enterprises, and
Small Enterprises enjoying working capital limits over Rs.5.00 Crores and
4:1 in the case of Tiny Enterprises, and Small Enterprises enjoying
working capital limits up to Rs.5.00 Crores.

 Current Ratio around 1.20:1 for accounts with limits up to Rs 5 crores,


where Turn Over Method alone would be applied for assessment of the
Working Capital (as against 1.33 prescribed normally).
 Minimum Interest Service Coverage Ratio (ISCR) of 1.50:1 as against
1.75:1 prescribed normally.
 If Term Loan is also proposed to be taken over, the minimum Debt:
Service Coverage Ratio (DSCR) should be 1.25.
 The Asset Coverage Ratio should not be less than 1.50.

X. Credit Appraisal

Although same appraisal norms cannot be uniformly applied to Micro, Small


and Medium Enterprises, broadly the appraisal would involve:

 Proper identification of the Proponent(s) and his/her/their antecedents in


accordance with KYC Norms/Guidelines, the proponents’ experience,
educational and social background, technical/ professional competence,
integrity, initiatives, etc,.

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 Checking out for Wilful Defaulters’ List of RBI, Specific Approval List
(SAL) of ECGC etc,.

 The acceptability of the product manufactured, its popularity/market


demand, market competitors.

 Evaluation of State and Central Govt. Policies (enabling environment)


with specific reference to the Enterprise in question, Environmental
stipulations, Availability of necessary infrastructure-roads, power, labour,
raw material and markets.

 Techno-economic Appraisal of units where it is felt absolutely necessary


by the Zonal Managers.

 Project Cost, the Proponent’s own financial contribution, projections for


three years, and other important parameters which would include the BEP,
liquidity, solvency, and profitability ratios, etc,.

XI. Working Capital Assessment

For working capital limits up to Rs.5 Crores , Turnover Method


would be applicable as mandated under Nayak Committee Recommendations for
financing working capital needs of the SMEs @ 20% of the projected turnover
based on the assumption of a three month operating cycle. It is abundantly clarified
that this 20% is the minimum WC limit to be sanctioned even if the proponent’s
operating cycle is shorter than 3 months. Branches should, however, ensure to restrict
the drawings in such cases to actual drawing power. MPBF method may be resorted
in specific cases with longer operating cycle. Branches should obtain and scrutinise
latest audited financials of the constituent in all cases of WC limits above Rs.10 lakhs.
In case of provisional balance sheets it should be ensured that in the audited
financials, the variation is not beyond +/- 5%. CMA Data are not also required to be
obtained in case of SME Proposals up to Rs.5 Crores under Turnover Method.

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The next year’s sales projections made by the borrower, however,


would have to be corroborated by the trend in sales over 2 years, last year actual sales
through verification of the following indicative parameters (besides the financial data
submitted by the borrower):

 Sales Ledger/Sales Turnover.


 Credit Summation in the account.
 Sales Memos or Invoices/Delivery Challans.
 Sales Tax Paid/Turnover Tax/Excise Register, as applicable,
 Electricity Bills –wherever applicable.
 Orders on hand/expected orders.
 Installed capacity vis-à-vis the projections.
 Overall market trend etc,.

Such projections should be within reasonable limits say 25% over


last year’s sales. However, in exceptional cases deviations from this may be allowed
if supported by LCs/Firm orders on hand etc,.

XII.Current Ratio:
While a benchmark current ratio of 1.33:1 is always desirable, it
is felt that some relaxations are provided to SMEs in their Current Ratio. They may
be permitted to maintain a minimum current ratio of 1.20:1 as against 1.25-1.33:1
stipulated for others, although ideally under Turnover Method this ratio should be
1.25:1. Such deviations are not to be allowed except by one level above the
sanctioning authority, particularly if the rating gets below AA. Borrower has to
improve the position by building up the current assets through infusion of more
capital/funds. Classification of Current Assets and Current Liabilities under MPBF
method would be based on extant RBI/Bank guidelines.
XIII. Debt:Equity Ratio:
The following may be accepted as the benchmark in this regard:
 W/C Limits up to Rs.5 Crores to Micro & Small Enterprises: 4:1.
 W/C Limits over Rs.5 Crores to Micro & Small Enterprises: 3:1.
 W/C Limits to Medium Enterprises: 3:1.

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XIV. Credit Rating Model

Govt./RBI had advised that Banks may initiate necessary steps to


rationalise the cost of loans to SME sector by adopting a transparent rating system
with cost of credit being linked to the credit rating of enterprise. The Bank’s Board
had already approved on 04/02/2005 adoption of the following credit risk models,
developed by ICRA. The entry level requirements prescribed in this new model would
be applicable:

a) Large Corporate Model (Domestic/ECBs/Syndicated Loans)


(Fund/Non-Fund-Based limits of Rs.500 Lakhs and above or Turnover Rs.5000
Lakhs);
b) Mid-segment Model (Fund/ Non-Fund-Based limits of Rs.100
Lakhs and above but not exceeding Rs.500 Lakhs and Turnover below Rs.5000
Lakhs);
c) SBS/SSI Model (Fund/ Non-Fund-Based limits of Rs.10 Lakhs
and above but not exceeding Rs.100 Lakhs) scoring model);

The Bank had already adopted rating models a & c above. The model
for amounts between Rs.1 Crore and Rs.5 Crores is under progress.

The ratings given by reputed Credit Rating agencies such as SMERA,


CRISIL etc, which have been approved by the National Small Industries Corporation,
are also considered for granting concessions in the interest rates, in tune with such
credit ratings, based on parameters such as turnover, market position, operating
efficiency, existing financial position, and management evaluation.

XV. Collateral Security and Margin Norms:


As per extant RBI guidelines, Micro & Small Enterprises with limits
up to Rs.5 Lakhs (i.e. erstwhile Tiny and SSI) may be sanctioned credit facilities
without any collateral security. For customers with good track record, this waiver of
collateral security may be for limits up to Rs.50 Lakhs, provided Credit Guarantee
Fund Trust for Small Industries (CGFTSI) -since renamed as Credit Guarantee

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Fund Trust for Micro and Small Enterprises (CGTMSE)- cover is available.
However, the issue of collateral security would be addressed on a case-specific basis.

Credit facilities extended to Micro & Small Enterprises either by way


of Term Loan or Working Capital or both, without any collateral security or third
party guarantee, will be covered, if eligible, under CGTMSE scheme. The coverage
of the Scheme has since been extended to all new and existing Micro and Small
Enterprises (both in the manufacturing and Services Sectors).

The credit guarantee cover has been raised from 75% to 80% for the
following category of MSME advances:
• Loans to Micro Enterprises up to Rs.5 lakhs, and
• Loans to Micro and Small Enterprises operated and/or owned by women.
For all others, the cover would be available up to 75% of the amount in default
subject to maximum of Rs.37.50 Lakhs.

Till now, CGMTSE (erstwhile CGFTSI) charged one-time Joining fee of


1.50% and Annual Service fee of 0.75% of the sanctioned limits with credit facilities
up to Rs.25 Lakhs. This fee structure has since been revised by CGMTSE (erstwhile
CGFTSI) and a differential pricing based on slab of coverage has been introduced for
credit limits up to Rs.50 lakhs. Thus the following fee structure is prescribed by
CGTMSE (erstwhile CGFTSI) to all eligible MSME advances covered under the
scheme. However, our Bank would continue with the coverage to the extent of
75% of the credit facility sanctioned in all cases (and 80% in specified categories
such as to women and borrowers in North eastern states)

Extent of Guarantee One time Guarantee Fee Annual Service Fee


Coverage (%) of Credit (%) of Credit Facility (%) of Credit Facility
Facility Sanctioned Sanctioned Sanctioned
75/80* 1.50* 0.75*
* Our Bank would continue with this slab only and other slabs given below are
only for the sake of information to branches.
60 1.20 0.60
50 1.00 0.50
40 0.80 0.40

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30 0.60 0.30

In terms of Board Approvals dated 29/07/2004, the Bank had already


decided to absorb 50% of the one-time guarantee fee to its Profit & Loss Account
with a view to mitigate the burden on the borrowers and encourage them to take the
guarantee cover under CGFTSI scheme.

Margin requirements, which normally are 25%, would vary depending


on the nature of the special Schemes.

XVI. Time Norms for Disposal of Applications:


With the switchover to the simple Turnover Method for all advances in
the SME segment up to Rs.5 Crores, the time for processing of the applications and
sanction has to be curtailed as under (from the date of submission of complete
papers by the borrower):
Limits Time Limit Not Exceeding
Up to and including Rs.25,000/= 4 Business Days.
Over Rs.25,000/= and up to Rs.10 Lakhs 8 Business Days.
Over Rs.10 Lakhs up to Rs.5 Crores 12 Business Days.
Over Rs.5 Crores 20 Business Days.
In case of rejections, approval shall have to be obtained from the next higher
authority, not below the level of Zonal Manager.

A register should be maintained at the branches to record the dates


of receipt of applications/ sanction/ disbursements/ rejections with reasons therefor.

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Illustrative Activities Eligible/Recognised for Classification as Micro, Small &


Medium Enterprises

(as provided by RBI)

1) Units engaged in Mining & Quarrying.


2) Servicing & Repairing of Machinery.
3) Advertising Agencies.
4) Marketing Consultancy.
5) Industrial Consultancy.
6) Equipment Rental & Leasing.
7) Typing Centres.
8) Photocopying (Xeroxing) Centres.
9) Industrial Photography.
10) Industrial R & D labs.
11) Industrial Testing Labs.
12) Desk Top Publishing.
13) Internet Browsing/Setting up of Cyber Cafes.
14) Auto Repairs, Services, Garages.
15) Documentary Films on themes like Family Planning, Social Forestry, Energy
Conservation, and Commercial Advertising.
16) Laboratories engaged in testing of raw materials, finished products.
17) “Servicing Industry” undertakings engaged in maintenance, repair, testing, or
servicing of all types of vehicles & machinery of any description including
electronic/electrical equipments/instruments i.e. measuring/control instruments,
televisions, tape recorders, VCRs, radios, transformers, motors, watches.
18) Laundry & Dry Cleaning.
19) X-Ray clinic.
20) Tailoring.
21) Servicing of Agri. Farm equipment e.g. Tractor, Pump, Rig, Boring Machines etc.
22) Weigh Bridge.
23) Photographic Lab.
24) Blue Printing and enlargement of drawing/designs facilities.
25) ISD/STD Booths.

65
Project on Bank of India

26) Teleprinter/FAX services.


27) Sub-contracting Exchanges (SCXs) established by Industry Associations.
28) EDP Institutes established by Voluntary Associations/Non-Govt. Organisations.
29) Coloured and Black & White Studios equipped with processing laboratory.
30) Ropeways in Hilly Areas.
31) Installation and Operation of Cable TV Network.
32) Operating EPABX under franchises.
33) Beauty Parlours and Creches.
34) Agencies involved in assisting decentralised sector in the supply of inputs and
marketing of outputs of artisans ,village and cottage industries.
35) Govt. sponsored Corporation/organizations providing funds to the weaker sections
in the priority sector.
36) Advances to handloom co-operatives.
37) Term finance/loans in the form of lines of credit made available to State Industrial
Development Corporation/State Financial Corporations for financing SSIs.
38) Credit provided by banks to KVIC under the scheme for provision of credit to
KVIC by consortium of Banks for lending to viable Khadi & Village Industrial
Units.
39) Funds provided by Commercial Banks to SIDBI/SFCs by way of rediscounting of
bills of SSIs which are originally discounted by a Commercial Bank and
rediscounted by SIDBI/SFCs.
40)Bank finance to HUDCO as a line of credit for on-lending to artisans, handloom
weavers, etc. under tiny sector may be treated as indirect lending to SSI(Tiny)

66

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